ritesh properties & industries ltd share price Management discussions


Economic Overview:

Despite the resurgence of the pandemic and expectations around its consequent impact, the Indian Economy has exhibited resiliency during these uncertain times and remains on the recovery path led by the efforts of the Government. As per provisional estimates released by the National Statistical Office, Indias real GDP contraction during 2022-23 is estimated at 7.2 per cent. The Central Bank, in its recent policy, has revised the economic growth estimates. The real GDP growth for 2023-24 is now pegged at 6.0%. The inflation trajectory and rise in international commodity prices pose risks. However, a good monsoon backed by Government support should spur recovery. The Government is scaling up the vaccination rollout programme to support broad-based economic recovery.

Industry Structure and Developments

The global economy remained uncertain with continued disruption in the supply chain, increased commodity prices due to the geopolitical uncertainties and ebbing of the Pandemic wherein unprecedented challenges and uncertainties caused by the pandemic posed major difficulties in every facet of the economy and the industry. The real estate industry too, witnessed changes. This was as a result of systemic structural reforms and policy changes.

The residential segment in particular has exhibited a surge with the fundamental growth drivers falling into place and thereby had an astounding progress in 2022, setting new sales records of 68% year on year across the top tier cities, further demonstrating the industrys prominence as one of Indias fastest growing industries. After 2 years of being affected by COVID, Tier 2 and Tier 3 cities have arisen as fresh major real estate trends in 2022-23, and the real estate market has set unprecedented benchmarks which continued its growth momentum from 2021 amid the global slowdown.

The industry remains cognizant of the evolving market conditions with developers exhibiting adaptability along with agility to respond to the current situation. The Central and some State Governments have been proactive in taking steps to boost the housing industry. Various fiscal incentives announced by certain states, including stamp duty waiver and reduced charges, have aided growth. The establishment of a Special Window for Affordable and Mid-Income Housing (SWAMIH), to provide last mile financing for completion of stalled housing projects, is also aiding in completion of projects which had been held up and instilling further confidence in the consumers. Housing for AH under the Pradhan Mantri Awas Yojana and continued tax incentives for affordable segment provided by the Government will further boost sector dynamics. Consolidation in favour of the large, credible and organised players is clearly evident in the residential segment.

Opportunities and challenges

i. Opportunities

As India awaits policy reforms to pick up speed, your Company firmly believes that the demand for Real Estate in a country like India should remain strong in the medium to long term. Your

Company holds a steadfast belief in the enduring strength of the countrys Real Estate demand. This confidence is underpinned by several core strengths that set your Company apart.

Firstly, our well-established brand enjoys wide acceptance and trust among customers and stakeholders. The Company has earned a positive reputation for our contemporary architectural designs and well-planned projects, strategically located to meet the needs of discerning buyers.

Secondly, your Company maintains a robust financial position with a strong balance sheet. This financial stability enables us to navigate challenging economic conditions with resilience, ensuring consistent performance even in testing times. The trust bestowed upon us by our customers and shareholders further reinforces our position as a preferred choice in the market.

Our customer-centric approach fosters loyalty, while our investors recognize the potential for long-term growth and profitability. With a forward-looking approach, your Company is strategically poised to capitalize on future opportunities by acquiring new land parcels. This proactive strategy aims to augment our development potential and expand our real estate portfolio, positioning us favourably for future growth and market leadership.

In conclusion, your Companys belief in the enduring demand for Real Estate in India, along with our recognized brand, contemporary designs, strategic projects, strong financial standing, and customer and shareholder appeal, places us in an advantageous position to seize opportunities and solidify our presence in the real estate market.

ii. Challenges

While the management of your Company is confident of creating and exploiting the opportunities, it also finds the following challenges as detailed below:

1. Geopolitical Risks: Economic and political uncertainties in any part of the world can have a ripple effect, impacting the geopolitical landscape across countries. Such events may lead to the postponement of large development plans, posing risks for infrastructure-focused companies.

2. Environmental Risks: With increasing economic activity, climate change has become a global threat. Governments and corporations need to reassess energy policies to reduce emissions and contribute positively to the environment, as per the IPCC findings.

3. Unanticipated Delays in Project Approvals: The real estate sector often faces delays in obtaining necessary approvals from regulatory authorities, leading to project timelines getting extended. These delays can result from bureaucratic processes or changing government policies.

4. Availability of Accomplished and Trained Labor Force: Finding skilled and trained labour for real estate projects can be challenging. The sector requires a workforce with diverse skill sets, including construction, design, and project management, and the availability of such accomplished labour can be limited.

5. Increased Cost of Manpower: The cost of hiring skilled labour has been on the rise, impacting project budgets. The scarcity of skilled workers and increasing demand for labour in the construction industry contribute to the rising costs.

6. Rising Cost of Construction Due to Commodity Prices: Fluctuations in commodity prices, such as steel, cement, and other building materials, can significantly impact construction costs. Price increases in these essential materials can strain project budgets and profitability.

7. Growth in Auxiliary Infrastructure Facilities: As real estate projects continue to expand, the demand for supporting infrastructure, such as roads, water supply, and sewage systems, also increases. Providing adequate auxiliary infrastructure can be a challenging and costly task for developers.

Segment wise performance

Operating segments of the Company are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The Chief operating decision maker regularly monitors and reviews the operating result of the whole Company. As defined in Ind AS 108 "Operating Segments", the Companys entire business falls under these Operational segments: -

1. Real Estate;

2. Textile Division;

3. Trading in shares & Derivatives.

Segment wise performance of the Company is provided in to the financial statement of the Company which is a part of Annual Report.

Material developments in Human Resources / Industrial Relations front, including number of people employed.

The Company leverages diversity of knowledge, qualification, skill, professional experience, culture, geography and sectoral understanding to enhance its competitiveness. The Company believes in creating an inclusive environment, where diverse perspectives can enrich strategic perspectives. The Company considers human capital as one of its most valuable resources and believes in facilitating their development through holistic engagement. The workforce is motivated and resilient, coupled with a can-do attitude. Robust and structured human resource processes and policies to focus on talent acquisition, talent management and talent development have been put in place. The Companys hiring process includes recruitments being made laterally from the industry, and also acquiring of new and fresh talent from various technical institutes. The aim of the recruitment process is to carry out need-based hiring for projects while maintaining employee costs.

To enhance inclusiveness at work, our gender sensitivity workshops sensitise the environment in strengthening our conduct towards women colleagues. The Companys holistic wellness programme sensitised employees around work-life balance and importance of a healthy lifestyle, emotional, physical well-being, and prevention of diseases. The Company also rolled out a structured program to vaccinate all its employees and their families along with contractors/ partners staff & their families.

The Company has provided thorough safety training to its personnels and undertaken significant safety measures such as job safety assessments and safe construction practices at project sites. With all employee bodies, the Company has created harmonious industrial relations, proactive and inclusive procedures. The Company strives to provide a welcoming work atmosphere that values individuals and promotes professional development, creativity, and high performance. There is significant emphasis on nurturing a positive organization culture and enhancing employee engagement and bringing in execution excellence. The Company remains committed to being a preferred workplace.

Financial Performance of the Company

During the year under review, your Companys operating income on Consolidated Basis was Rs. 7221.22 (Amount in lakhs). The Company has earned a profit after tax on Consolidated Basis of Rs. 530.86 (Amount in lakhs) during the period under review. The revenue of the Company is generated from three segments namely development of real estate, textile division and investment division.

Financial Performance

Particulars

Financial Year 2021-2022 (In Lakhs) Financial Year 2022-2023 (In Lakhs)
Total income 19935.23 7600.33
Profit before depreciation and tax ("PBDT") 4009.42 221.07
Profit before tax ("PBT") 4009.42 221.07
Profit after tax ("PAT") 4050.01 530.86

1. Total income: The total income of the Company on a consolidated basis is Rs 7600.33 lakhs in the FY 202223 as against a Rs. 19,935.24 lakhs in FY 2021-22.

2. : The Company also generated a PBDT of Rs. 221.07 lakhs for the FY 2022-23 as against a Rs. 4009.41 lakhs PBDT in FY 2021-22.

3. PBT: Consequently, the Company also generated a PBT of Rs. 221.07 lakhs for the FY2022-23 as against a Rs. 4009.41 lakhs PBT in FY 2021-22.

4. PAT: Net Profit showed a performance with the loss of Rs. 530.86 lakhs in FY2022-23 as against a net profit of Rs. 4050.00 lakhs in FY 2021-22.

Key financial ratios analysis:

Pursuant to the Schedule V of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in Key Financial Ratios and any changes in Return on Net Worth of the Company including explanations thereof are given below:

STANDALONE BASIS:

Ratios

Numerator

Denominator

As at 31/3/23 As at 31/3/22 %

Variances

Reason for vairanees (if above 25%)

Ratios Ratios
Current ratio Current Assets Current Liabilities 3.58 7.55 -52.58% Since Current Assets have reduced, Current ratio is reduced.
Debt-Equity Ratio Debt Equity 0.09 0.10 -10% NA
Debt Service Coverage Ratio EBITDA Total Debt Service -0.20 6.59 -103.03% Since the company has repaid its debt, ratio decreased.
Return on Equity Ratio PAT Shareholders Fund -0.0046 0.22 -102.09% Due to loss
Inventory Turnover Ratio COGS Avg Inventory 1.02 13.63 -92.52% Increase in Inventory
Trade Receivable Turnover Ratio Revenue from Operation Avg Debtors 3.76 9.33 -59.70% Decrease in Trade Receivables
Trade Payable Turnover Ratio Avg Creditor 14.77 15.98 -7.57% NA
Net Capital Turnover Ratio Revenue From Operation Working Capital 0.67 2.65 -74.72% Decrease in Sales
Net Profit Ratio PAT Revenue From Operation 0.014 0.17 -91.76% Due to Loss
Return on Capital Employed PAT Capital Employed -0.02 0.21 -109.52% Due to Loss
Return on Investment EBIT Capital Employed -0.014 0.20 -107% Due to loss

CONSOLIDATED BASIS:

Ratios

Numerator

Denominator

As at 31/3/23 As at 31/3/22 % Variances

Reason for vairances (if above 25%)

Ratios Ratios
Current ratio Current Assets Current Liabilities 4.70 6.87 -31.59% Due to Increase in current Liabilities
Debt-Equity Ratio Debt Equity 0.06 0.10 -40% Reduction in Debt
Debt Service Coverage Ratio EBITDA Total Debt Service 0.46 10.49 -95.61% Reduction in Debt
Return on Equity Ratio PAT Equity 0.045 0..37 -94.59% Lower Profits
Inventory Turnover Ratio COGS Avg Inventory 0.76 4.61 -83.51% Increase in Inventory
Trade Receivable Turnover Ratio Revenue from Operations Avg Trade Receviables 1.48 5.95 -75.13% Reduced Debtors and Low sales
Trade Payable Turnover Ratio Revenue from Operation Avg Trade Payables 6.74 22.59 -70.16% Increase in Creditors
Net Capital Turnover Ratio Revenue from Operations Working Capital 0.48 1.26 -61.90% Low Revenue
Net Profit Ratio PAT Revenue from Operation 0.07 0.22 -81.82% Lower Profits
Return on Capital Employed PAT Capital Employed 0.045 0.34 -94.12% Lower Profits
Return on Investment EBIT Investment 0.02 0.33 -93.94% Lower Earnings

Outlook

Financial Year 2022-23 was an exciting year for the real estate sector, wherein we witnessed a robust demand revival in comparison to previous financial year wherein the demand was deferred due to second wave of Covid.

Post-pandemic, developers have moved away from the traditional way of doing business and rightly focused on end-user customer demand with a strong focus on innovation and digital transformation. We believe Financial Year 2023-24 will witness a healthy sales momentum backed by solid structural foundation, sustained demand and relatively affordable mortgage rates. Financially strong and reputed developers with superior execution capabilities stand to benefit disproportionately from the ongoing cyclical upturn.

In 2023-24, our assessment indicates a continuation of downward trends in the global economy, however, this scenario also presents an opportunity for the Indian economy to emerge as a world leader. Amidst these circumstances, the real estate sector is expected to sustain its trajectory of long-term growth, driven by various favourable factors.

One crucial factor contributing to the real estate sectors growth is the continuous rise in GDP per capita, which is indicative of improving economic conditions and rising individual prosperity. As disposable incomes increase, more people are likely to invest in real estate, driven by the aspiration for a better standard of living and improved lifestyle choices. Urbanization is also playing a significant role in boosting the real estate market. As more people move to cities in search of better opportunities and amenities, the demand for residential and commercial properties in urban areas is likely to surge.

Moreover, the international community is increasingly focusing on India as the next big economy. This global attention is likely to attract foreign investment and contribute to the growth of the real estate sector. The rise in earning potential and the growing base of aspirational consumers further propel the demand for real estate in various segments. Notably, the premium housing segment is expected to witness higher demand in the coming years, as individuals with increased financial capabilities seek upscale living options.

Given the conducive economic environment, the real estate sector is poised for substantial growth, driven by factors such as increasing GDP per capita, growing disposable incomes, urbanization, and international attention on Indias economic potential.

Risks and Concerns

In the course of its business, the Company is exposed to stiff competition from other established developers in the market. In addition, it is exposed to certain market related risks, such as rising labour and finance costs, increase in interest rates and foreign currency rates, market price fluctuation, customer and sales volume risks, changes in the government policies, unanticipated delays in project approvals and execution risk which are explained as below:

1. Market Price Fluctuation:

The performance of our company can be influenced by the sales and rental prices of our projects. These prices are influenced by various factors, including prevailing market conditions, project location and nature, brand reputation, and project design. Despite this, our company follows a prudent business model to ensure a steady cash flow, even in adverse pricing scenarios.

2. Sales Volume:

The volume of bookings we receive depends on several factors, such as our ability to design projects that meet customer preferences, obtaining necessary approvals on time, general market conditions, the successful launch of projects, and customer trust in entering sale agreements before receiving project possession. We typically sell our projects in phases based on project type, scale, and market conditions.

3. Execution:

The successful execution of our projects depends on several factors, including the availability of labour, raw material prices, timely receipt of approvals and clearances, access to utilities, weather conditions, and the absence of contingencies like litigation. Our company diligently manages these challenges through cautious planning and engagement of established and reputable contractors. Additionally, as we import materials, timely shipment and clearance of materials are crucial for execution.

4. Land/Development Rights - Costs and Availability:

Land cost constitutes a significant portion of our project expenses. It includes payments for freehold and leasehold rights, fungible FSI, construction costs for the area given to landlords in exchange for development rights, registration, and stamp duty. We acquire land and development rights from both government and private parties, ensuring that the consideration paid aligns with prevailing market conditions and is reasonable. We often enter into MO Us and make advances for land/development rights before finalizing definitive agreements, which may lead to either successful acquisition or a refund of the advanced monies.

5. Financing Costs:

The acquisition of land and development rights requires substantial capital outlay. Insufficient funding resources and high-interest costs may impact our regular business operations. To mitigate this, we strive to build sufficient reserves from operating cash flows, allowing us to seize land acquisition and development opportunities efficiently.

Despite all the risks, the Company is well posed with the competitive advantages, as detailed in the above given paras, to mitigate all such risks.

Internal control systems and their adequacy

Please refer Directors Report for the same.

Cautionary statement

Certain statements in this ‘Management Discussion and Analysis section may be forward-looking and are stated as required by applicable laws and regulations. Many factors may affect the actual results, which would be different from what the Board of the Company envisage in terms of future performance and outlook. Investors are cautioned that this discussion contains forward-looking statements that involve risks and uncertainties including, but not limited to, risks inherent in the Companys growth strategy, dependence on certain businesses, dependence on the availability of qualified and trained manpower and other factors discussed. This discussion and analysis should be read in conjunction with the Companys financial statements and notes on accounts.

By Order of the Board of Directors

For Ritesh Properties and Industries Limited

Sd/-(Sanjeev Arora)

Chairman-Cum-

Managing Director

DIN: 00077748

Date: 09.08.2023

Place: Gurugram