RDB Realty & Infrastructure Ltd Management Discussions

INDUSTRY STRUCTURE & DEVELOPMENTS

It has been a near-normal year after several years of pandemic induced challenges but the global economy witnessed a blend of opportunities and challenges. It persisted with challenges and uncertainties arising on account of inflation dynamics, rising geo-political tensions leading to supply-chain disruptions and pace of post pandemic recovery. However, economists believe that several growth opportunities lie ahead, which are well supported by resilient performance by Central Banks in controlling inflation. Despite challenges such as supply chain disruptions and elevated inflation, major economies received support from fiscal stimulus, monetary policies, trade agreements, international aid, green initiatives, and technological investments.

The International Monetary Fund (IMF) projects moderate and stable growth for the year 2024 and 2025 at 3.2%, albeit lower than the historical average of 3.1%. This expectation reflects sluggish economic activity, primarily attributed to a slowdown in advanced economies. The growth rate of these economies, which stood at 1.6% in the year 2023 is anticipated to remain sluggish at 1.7% to 1.8% over the next two years due to policy tightening, financial sector turmoil, high inflation, the ongoing conflict between Israel and Gaza, and the lingering effects of four years of the COVID pandemic.

However, the Indian economy continues to strengthen despite the global headwinds. As per the First Advance Estimates (FAE) released by the National Statistical Office (NSO), Real Gross Domestic Product (GDP) is expected to grow by 7.3%, in 2023-24, underpinned by strong investment activity. The Indian Real Estate sector witnessed a strong growth in the past couple of years and is poised for an assuring growth in the future. The outlook is driven by a confluence of multiple factors including increasing urbanization shifting demographics, aspirational lifestyle and supportive economic growth in the country. Several factors are adding further impetus to the growth of the industry. The growth can be attributed to a growing residential demand, expected growth in sustainable workplaces, rising consumption and needs of a growing population with higher income levels.

Real estate investments in India reached $5.1 billion, with a substantial portion allocated to land acquisitions. This trend expanded to tier 2 and tier 3 cities, highlighting real estates attractiveness as an investment avenue, including options like direct purchases, Real-Estate-Investment-Trusts (REITs), and Mortgage-backed-Securities (MBS). The financial year 2023-2024 was a milestone year for Indias real estate sector, with record-breaking sales and sustained growth. Despite a notable increase in new launches, inventory levels remained stable or decreased in tier-1 cities, highlighting strong demand. The residential segment excelled, driven by stable interest rates, a robust economy, and evolving consumer preferences. The demand for commercial office space recovered from slowdown induced by remote work trends and global economic slowdown, while the retail real estate sector experienced a robust revival, surpassing pre-pandemic consumption levels.

Today, the real estate industry is touching new highs with the support of strong policy interventions such as RERA which have made the sector more transparent and customer centric; a strong economic momentum and an ardent desire of owning and upgrading homes. As per the recent report published by Knight Frank and Confederation of Indian Industry, Indias urbanization rate over the next decade is expected to reach 42.50% from 36.50%, which implies a significant rise in demand of households and expansion of cities, across the country.

Overall, the short-term outlook may appear challenging due to rising interest rates, external supply shocks, and geopolitical tensions, but we believe that the government is taking appropriate measures to ensure a sustainable growth trajectory for the country. The union budget presented in the financial year 2023-24 also strongly supported the long-term growth of Indias real estate sector through its focus on urban infrastructure and the digital economy.

As India awaits policy reforms to pick up speed, your Company firmly believes that the Indian economy may become the third largest in the next few years. Further, Indias inclusion in the Emerging Markets Bond Index is also poised to draw significant foreign capital into the country, which would further act as a booster. The demand for Real Estate in a country like India should remain strong in the medium to long term. Your Companys well accepted brand, contemporary architecture, well designed projects in strategic locations, strong balance sheet and stable financial performance even in testing times make it a preferred choice for customers and shareholders. Your Company is ideally placed to further strengthen its development potential by acquiring new land parcels.

However, your Company also finds some challenges like rising unavailability of trained labour force, increased cost of manpower, rising cost of construction, funding issues and over regulated environment.

The Company has identified that its operating activity is a single primary business segment viz. Real Estate Development and Services carried out in India. Accordingly, whole of India has been considered as one geographical segment.

In the financial year 2023-24, the real estate sector achieved remarkable milestones, marked by record-high sales, collections, project completions, and successful business development endeavors. Post-pandemic, there has been a notable shift in the operational landscape of developers, emphasizing responsiveness to end-user demand and embracing innovation and digital transformation. We anticipate that FY2024-25 will sustain this positive sales momentum, underpinned by a robust structural framework, consistent demand, and housing loan rates that, while somewhat elevated, remain relatively affordable. Amidst ongoing commodity cost inflation, which poses a challenge to operating margins, real estate entities have adeptly managed to absorb price escalations. However, potential interest rate adjustments to curb inflation may raise capital costs, thereby potentially disadvantaging weaker market players while benefiting financially robust developers. The Company remains focused and committed to drive growth by bringing high quality new products across both its business i.e., development as well as the real estate business. Our portfolio consists of both small and large sized projects, offering complete solution to our esteemed consumers. As such, the Company remains bullish on its existing projects and at the same time, it shall be speeding up construction of existing projects and continue to focus on timely delivery. Owing to numerous reforms introduced, the sector has gone through changes in the tax, regulatory as well as the business environment. The financial year 2024-25 will be challenging and opportunistic and the ones likely to succeed are those who shall embrace the changing market dynamics.

The Company has a proper mechanism in place for identifying, assessing, monitoring and mitigating various business-related risks. The Board of Directors of the Company are regularly informed and updated about the risk assessments and minimization procedures. In the course of its business, the Company is exposed to stiff competition from other established developers in the market and is exposed to a wide variety of risks such as:

The Companys strategy of focusing on key products and geographical segments is exposed to economic and market conditions. However, the Company continues to implement robust risk management policies that cater for risks and requisite mitigation plans.

The Company has a robust and well embedded system of internal financial controls. This ensures that all assets are safeguarded and protected against loss from unauthorized use or disposition and all transactions are authorised, recorded and reported correctly. An extensive risk-based programme of internal audit and management reviews, provides assurance on the effectiveness of internal financial controls, which are continuously monitored through management reviews, self-assessment, functional experts as well as by the Statutory/ Internal Auditors during their audits. The shortcomings in the internal control system, if any, is communicated to the respective departments and measures are taken to overcome the same. During the year under review, no reportable material weaknesses or significant deficiencies were observed in the design or operations. The Companys internal control system is commensurate with the nature, size and complexities of its operations. Further, its Internal Control mechanism comprises of a well-defined organization structure, pre-determined authority levels and clearly defined policy guidelines for appropriate delegation of authority. Such Internal control is an integral part of the Companys Corporate Governance. The objective of internal control is to give reasonable assurance about the effectiveness and appropriateness of operations, about the financial information, about the reliability of reporting, and of compliance with legislation and other regulations.

The financial highlight including the operational performance of the Company is stated hereunder, in brief:

(Rs. In Lakhs)

*Pursuant to the sanction of Scheme of Arrangement for

Demerger between the Company and M/s RDB Real Estate Constructions Limited, with appointed date being 01st October, 2022 and which became effective from 26th July, 2024, the aforesaid audited figures have been restated in accordance with the accounting treatment mentioned in the Scheme.

It is imperative that infrastructure development occurs in a sustainable manner in India and around the globe, if the impact of climate change is to be slowed to broadly acceptable levels. The Indian Government must maintain a commitment to ensuring that rapid growth does not happen at an untenably high environmental cost. Infrastructure projects will play a key role in ensuring the success of ‘green growth. The Company complies with all the applicable environmental laws, rules and regulations and makes voluntary efforts to practice effective use and saving of resources and energy, in the recognition that global environmental conservation is an essential facet of corporate and individual pursuits.

For the Company, the health and safety of its employees is of paramount importance and as a good corporate citizen, it is committed to ensuring safety of all its employees at the work place. The Company has zero tolerance towards sexual harassment at the workplace and has adopted a policy on prevention, prohibition and redressal of sexual harassment at workplace and has constituted an internal complaints committee in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules framed thereunder.

Statements in this Management Discussion and Analysis Report describing the Companys objectives, projections, estimates, expectations may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include, economic conditions affecting demand/supply and price conditions in the domestic market in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors. The Company assumes no responsibility nor is under any obligation to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent developments, information or events.