Ratnabhumi Developers Ltd Management Discussions

OVERVIEW OF INDIAN ECONOMY

The global economy has achieved greater stability in 2023, although having global uncertainties and volatilities. While uncertainty stemming from adverse geopolitical developments remained elevated, global economic growth was surprisingly robust. As per the World Economic Outlook (WEO), April 2024 of the International Monetary Fund (IMF)1, the global economy registered a growth of 3.2 per cent in 2023, though marginally lower than in 2022 but higher compared to the projection of 2.8 per cent as per the April 2023 WEO. The context in which the growth of 3.2 per cent in 2023 has been achieved is markedly different compared to the 2011-19 period. Inflationary pressures have been significantly higher on account of the persistence of core inflation. Global trade moderated due to rising geopolitical tensions, cross-border restrictions and slower growth in advanced economies (AEs). The muted trade growth occurred despite the easing of supply chain pressures. Further, geopolitical developments and monetary policy changes across countries resulted in increased caution among investors, culminating in moderation in foreign direct investment (FDI) flows. The stark difference in the economic performance of countries has been on account of domestic structural issues, uneven exposure to geopolitical conflicts and the impact of monetary policy tightening. The economic shocks resulting from the Russia-Ukraine conflict had an outsized impact on Europe, leading to subdued growth in large countries like Germany and France. The US also faced high inflationary pressures and consequently raised the policy rates substantially. But, the pass-through to outstanding household mortgages was limited on account of the high share of fixed-rate mortgages and corporate debt being termed out at fixed rates, limiting the impact of higher policy rates on economic activity. India registered a steep decline in economic growth during the pandemic but recovered swiftly, aided by strong private consumption and government impetus to infrastructure investment. According to projections by the Reserve Bank of India (RBI), the Gross Domestic Product (GDP) is anticipated to exhibit a robust growth of 7.2% in FY25. This optimistic outlook is supported by several potential factors such as the anticipated surge in household spending and the revival of the private capital investment cycle. India has achieved a significant uptick in goods and services tax (GST) collection, with a remarkable increase of 11.7% to reach a substantial sum of 20.14 lakh crore. This upsurge in GST revenue shows a strong economic environment, with the average monthly GST collection for FY24 standing at 1.68 lakh crore, showing an increase compared to the preceding Financial periods 1.5 lakh crore. However, the robust performance continued throughout the year, as evidenced by the GST revenue and net refunds totalling 18.01 lakh crore for the entire financial year, having a growth rate of 13.4%.

Indias outward foreign direct investment (OFDI), or overseas direct investment, declined by 39% to US$ 28.64 billion in the year-end as of March 2024, through uncertain global economic conditions. Of the total overseas direct investments commitments through the equity route stood at US$ 9.62 billion in fiscal 2024, compared to US$ 19.13 billion in FY23. The equity contributed around 34% of the financial commitment in FY24. India has shown remarkable growth in the real estate market in the year 2023, with exceeding the growth rates of all prior years and shattering all records. This growth has been fuelled by growing disposable incomes, policy changes, improved consumer needs and a desire for larger homes. Further, the Governments support to simplify regulations, better processes and more transparency in the sector have contributed to this unprecedented growth. Indias real estate sector is expected to contribute 13% to the countrys total GDP by 2025, highlighting its growing economic significance. According to IBEF (India Brand Equity Foundation), the property market in India is set to exhibit a compound annual growth rate (CAGR) of 9.2% from 2023 to 2028. This outlook positions Indias real estate for significant growth and reinforces its pivotal role in the nations economic development. Rising international real estate development is expected to provide potential growth opportunity to the Indian market. For example, an MoU signed between J&K and the Government of Dubai (in October 2021) for the development of real estate projects (such as industrial parks, IT towers and super specialty hospitals) is expected to boost growth in the union territory. Private market investor, Blackstone, which has significantly invested in the Indian real estate sector worth Rs. 3.8 lakh crore (US$ 50 billion), is seeking to invest an additional Rs. 1.7 lakh crore (US$ 22 billion) by 2030. The Real estate sector in India is expected to reach US$ 1 trillion in market size by 2030, up from US$ 200 billion in 2021. Indias real estate market is estimated to increase at a CAGR of 19.5% during 2017- 2028. The market is forecast to reach US$ 650 billion, representing 13% of Indias GDP by 2025. Indias real estate sector is expected to expand to US$ 5.8 trillion by 2047, contributing 15.5% to the GDP from an existing share of 7.3%, a joint report by Knight Frank and National Real Estate Development Council said. Increasing share of real estate in the GDP would be supported by increasing industrial activity, improving income level and urbanisation

OUTLOOK

IMF projects the global economy to grow at 3.2 per cent in 2024, with risks being broadly balanced. The average annual global growth was 3.7 per cent during the decade ending FY20. Inflationary pressures have moderated in most economies with declining global commodity prices and easing of supply chain pressures. However, core inflation remains sticky and driven by high service inflation. Many central banks have hinted at the peaking of the interest rate hike cycle. The ECB has already cut the policy rate, while the Fed has hinted at reducing the rate in 2024. If the services inflation across economies moderates faster, that may allow central banks to bring forward the monetary policy easing cycle earlier than currently anticipated. A likely reduction in policy rates by central banks of AEs, especially the Fed, will open the space for central banks of EMEs to follow the lead, bringing down the cost of capital. On the downside, any escalation of geopolitical conflicts in 2024 may lead to supply dislocations, higher commodity prices, reviving inflationary pressures and stalling monetary policy easing with potential repercussions for capital flows. This can also influence RBIs monetary policy stance. The global trade outlook for 2024 remains positive, with merchandise trade expected to pick up after registering a contraction in volumes in 2023. Conversely, increased fragmentation along geopolitical lines and renewed thrust on protectionism may distort merchandise trade growth, impacting Indias external sector. Global financial markets have scaled new heights, with investors betting on global economic expansion. However, any corrections in the elevated financial market valuations may have ramifications for household finances and corporate valuation, negatively impacting growth prospects. Hiring in the information technology sector had slowed down considerably in FY24, and even if hiring does not decline further, it is unlikely to pick up significantly. However, leveraging the initiatives taken by the government and capturing the untapped potential in emerging markets, exports of business, consultancy and IT-enabled services can expand. Despite the core inflation rate being around 3 per cent, the RBI, with one eye on the withdrawal of accommodation and another on the US Fed, has kept interest rates unchanged for quite some time, and the anticipated easing has been delayed. Domestic growth drivers have supported economic growth in FY24 despite uncertain global economic performance. Improved balance sheets will help the private sector cater to strong investment demand. A note of caution is warranted here. Private capital formation after good growth in the last three years may turn slightly more cautious because of fears of cheaper imports from countries that have excess capacity. While merchandise exports are likely to increase with improving growth prospects in AEs, services exports are also likely to witness a further uptick. A normal rainfall forecast by the India Meteorological Department and the satisfactory spread of the southwest monsoon thus far are likely to improve agriculture sector performance and support the revival of rural demand. However, the monsoon season still has some ways to go. Structural reforms such as the GST and the IBC have also matured and are delivering envisaged results. Considering these factors, the Survey conservatively projects a real GDP growth of 6.5 7 per cent, with risks evenly balanced, cognizant of the fact that the market expectations are on the higher side.

1. INDUSTRY STRUCTURE AND DEVELOPMENT

In India, the real estate sector is the second-highest employment generator, after the agriculture sector. Real estate sector in India is expected to reach US$ 1 trillion by 2030. By 2025, it will contribute 13% to the countrys GDP. Rapid urbanisation bodes well for the sector. The number of Indians living in urban areas is expected to reach 542.7 million by 2025 and 675.5 million by 2035. Construction is the third-largest sector in terms of FDI inflow. FDI in the sector (including construction development & activities) stood at US$ 55.50 billion from April 2000-December 2022. Government of Indias ‘Housing for All initiative is expected to bring US$ 1.3 trillion investments in the housing sector by 2025. Indias Global Real Estate Transparency Index ranking improved by three notches from 39 to 36 since the past eight years from 2014 until 2022 on the back of regulatory reforms, better market data and green initiatives, according to property consultant JLL. The importance of the ‘brand in real estate has continued its upward journey. Housing is increasingly becoming a branded ‘consumer product. A strong housing brand in consumers minds stands for superior product quality, avenue for life style upgrade, an aspirational address and above all certainty of timely delivery. The above can only be delivered by branded tier 1 developers, leading to the demand side consolidation. Branded tier-1 developers with strong execution capability are expected to leverage this opportunity to gain even more market share by bringing newer products suitable for the demand dynamics whilst offering quality, and a sustainable environment as well as social ecosystem. Rising international real estate development is expected to provide potential growth opportunity to the Indian market. For example, an MoU signed between J&K and the Government of Dubai (in October 2021) for the development of real estate projects (such as industrial parks, IT towers and super specialty hospitals) is expected to boost growth in the union territory.

Market Size

By 2040, real estate market is expected to grow to Rs. 65,000 crores. Real estate sector in India is expected to reach a market size of US$ 1 trillion by 2030 and contribute 13% to the countrys GDP by 2025. Retail, hospitality, and commercial real estate are also growing significantly, providing the much-needed infrastructure for Indias growing needs. Indias real estate market is estimated to increase at a CAGR of 19.5% during 2017- 2028. The market is forecast to reach US$ 650 billion, representing 13% of Indias GDP by 2025. In 2022, Indias real estate sector experienced price growth of 6%. Increasing share of real estate in the GDP would be supported by increasing industrial activity, improving income level and urbanisation. A total of 431,510 new homes were launched in CY22, registering an increase of 101%.

In the review period, Ahmedabad registered the highest growth in average costs of flats, with average cost rising to Rs. 3,500-3,700 (US$ 42.75-US$ 45.19) per square foot, an increase of 8% YoY. Pune and Chennai recorded the highest annual appreciation of 9% each.

Road Ahead

In 2023, the housing market stayed strong because of the big increase in prices and demand in the previous two years. Last year, 16,113 homes were sold, which is 15% more than the year before. Even though interest rates went up and housing prices reached new heights, people in Ahmedabad were still eager to buy homes Ahmedabads retail sector did well in 2023. Many stores were rented out on main streets, with a total of 0.18 million square feet in the first quarter and 85,000 square feet in the second quarter. The fourth quarter saw a 10% increase in rentals, with 75,000 square feet rented out. Rentals have remained steady throughout the year, with an 18-20% increase compared to last year. Some popular areas like Sindhu Bhavan Road and CG Road saw a 25-30% increase in rentals due to high demand and limited space. In the near future, new shopping areas will develop in various parts of the city, keeping rental prices stable and within a predictable range. The government is welcoming new plans to build an entertainment and shopping hub in the central area and GIFT city. This will likely bring a lot of new retail activity to these areas in the future. The Malls in the city will remain crowded because the best malls have few empty spaces and no new malls are being built. However, the government has few plans to connect Gandhinagar and Ahmedabad.

2. OPPORTUNITIES AND THREATS

There is the opportunity for the domestic industry to become more organised, with the creation of more large firms through organic growth and acquisitions. This would improve overall construction quality. Strong population growth and a growing economy is fuelling demand for infrastructure. The government is looking to attract private companies to invest in infrastructure through PPPs. Growing recognition of "Made in India" brand in global market. Favorable Government policies and market opportunities are making widening the scopes of the industry: The Government of India is expected to invest heavily in the real estate sector, mainly highways, renewable energy and urban transport. Increasing budget allocations, Smart City Mission, Pradhan Mantri Awas Yojana, new metro rail policy, Housing for All and the North East Special Infrastructure Development Scheme are expected to contribute significantly to drive infrastructure growth in India.

3. SEGMENT-WISE / PRODUCT-WISE PERFORMANCE:

The Company has delivered a satisfactory financial and operating performance for 2023-24. The total revenue from operations of Real Estate segment is 50.97 lakhs on standalone basis as compared to 66.09 lakhs in 2022-23 and 28.34 lakhs on a consolidated basis in F.Y. 2023-24. The Profit before interest and taxes stands 1578.78 lakhs for the FY 2023-24 as against 726.90 lakhs in 2022-23 on standalone basis.

4. OUTLOOK FOR FY 2023-24

Emphasis on increasing dealers network to achieve higher penetration; Emphasis on gaining market share from the local unorganised players; Expand portfolio with mid and high range residential and corporate schemes; Engage with various engineers, designers and architects to promote business.

5. RISK AND CONCERN

The Companys ability to foresee and manage business risks is crucial in achieving favourable results. Risk management at Ratnabhumi Developers Limited is an integral part of the business, focusing to mitigate the adverse impact of risks on business objectives. The Company has laid down a well defined risk management procedure covering the risk identification, risk exposure, potential impact and risk mitigation process. The Board periodically reviews the risks and suggests steps to be taken to control and mitigate the same through a properly defined framework.

6. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUECY

The Company has an adequate internal control system adopted for operating procedures, policies and process guidelines. The guidelines are well-documented with clearly defined authority limits corresponding with the level of responsibility for each functional area. Further, the Company has budgetary control system to monitor expenditure against approved budgets on an ongoing basis. The Companys robust internal audit programme which works to conduct a risk-based audit not only tests the adherence to laid down policies and procedures but also suggests improvements in the current processes and systems.

7. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The Financial performance on standalone basis of the company during the FY 2023-24 as compared to FY 2022-2023 is as under:

(Rs. In Lakhs)

Operational Performance

The Company continued to focus on improving operational efficiency leading to better returns for the shareholders. Further, the company has significantly enhanced its operational performance by establishing prudent risk management framework.

8. MATERIAL DEVELOPMENT IN HUMAN RESOURCES/INDUSTRIAL RELATIONSHIP FRONT, INCLUDING NUMBER OF PEPOLE EMPLOYED

Human resource practices and policies at Ratnabhumi Developers Limited ensure that all employees, wherever they work, whatever their role is, are always treated equally, fairly and respectfully. We maintain consistent and transparent diversity policies. Our human resource team believes in personnel management, which involves planning, organising, directing and controlling of the recruitment and resource management, training & development, compensation, integration and maintenance of people for the purpose of contributing to organizational, individual and social goals. People power is one of the pillars of success of company and hence any creative suggestion by the employees are always welcomed by the Management. As on 31^st March, 2024 the Company employs 15 employees. Going ahead, the Company aims to retain and develop the existing employees and align their goals with the common business vision and mission.

9. THE DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

During the financial year, the details of significant change in the key financial ratios as compared to the previous year along with the detailed explanation is summarized below on standalone basis:

10. The Return on Capital Employed during the FY 2023-24 was 7.13% as compared to 5.05% in FY 2022-23. The increment of 41.19% in the return on Net Worth is mainly due to increase in profit during the FY 2023-24.

11. CAUTIONARY STATEMENT

Statement made in the Management Discussion and Analysis describing the various parts may be "forward looking statement" within the meaning of application securities laws and regulations. The actual result may differ from those expectations depending upon the economic conditions, changes in Government regulation and amendments in tax laws and other internal and external factors.