sunstar realty development ltd Management discussions

Overview of the Economy

India has emerged as the fastest growing major economy in the world and is expected to be one of the top three economic powers of the world over the next 10-15 years, backed by its strong democracy and partnerships. Indian economy is estimated to have grown 7 percent in 2018-19, lower than 7.2 per cent in 2017-18 and is expected to grow around 7.3 percent in 2019-20. Indias gross domestic product (GDP) is expected to reach US$ 6 trillion by FY27. India has already surpassed France to become the sixth-largest economy.

The real estate sector has been making rapid strides in recent times and has emerged as one of the most important contributors to the Indian economy. The sector continues its metamorphosis from being largely fragmented and unorganised to become as structured and organised as its peers in developed economics across the globe. The growing prominence of India in the global scenario has had a positive impact leading to increased expectations and responsibilities on this sector.

The real estate sector is the third largest employer (after agriculture and manufacturing) in India and presently employs over 40 million workforce. With forward and backward linkages to over 250 sectors and ancillary industries, the real estate sector is also the third-highest contributor to the Indian economy. The growth of this sector is well complemented by the growth of the corporate environment and the demand for office space as well as urban and semi-urban accommodations. The Indian real estate market is expected to touch US$ 180 billion by 2020. The housing sector alone contributes 5-6 percent to the countrys GDP.

Industry Structure and Developments

With the real estate sector hoping for a push from the Union Budget 2019-20, the implementation of a single regulator RERA, the announcement of infrastructure status to the affordable housing sector, can serve as significant steps in boosting future growth of the sector. These could be game changing steps for developers who already have a good presence. In the market along with the Central governments identified list of cities and towns under the housing for all by 2022 mission (Pradhan Mantri Awas Yojana), has targeted to build more than 2 crore homes for urban poor by the year 2022. This mission is expected to need 38 million work force by 2030 from 29 million at present, predicted to be the key job creator. According to Department of Industrial Policy and Promotion (DIPP), total FDI inflow in construction development sector (including townships, housing, built-up infrastructure) during April 2000 to December, 2018 has been around US$ 24.91 billion which is about 6 percent of total FDI inflows (in terms of US$). The real estate sector in India is expected to reach a market size of US$ 1 trillion by 2030 from US$ 120 billion in 2017 and contribute 13 per cent of the countrys GDP by 2025. Retail, hospitality and commercial real estate are growing significantly, providing the much-needed infrastructure for Indias growing needs.

Opportunities

The year 2019 will be both challenging and opportunistic and the ones likely to succeed are those who embrace the changing market dynamics. Apart from elections, credit growth and improvements in infrastructure will set the tone for economic growth in the future.

An Affordable and mid-income housing took center stage in 2018 will continue to drive residential housing both in metro and Tier two cities. There been an uptick of almost 15-20 percent with preference for ready to move in units owing to RERA and GST benefits. The massive push for improvement in infrastructure by the Government of India (GOI), including significant capital expenditure for roads, railways, development of smaller airports and expansion of schools and hospitals at the outskirts will benefit this segment further. This will provide better connectivity and have a multiplier effect thereby allowing developers to explore new projects in the peripheral areas of the cities.

In Mumbai, the newly enacted Regulation i.e. Development Control & Promotion Regulations 2034 (DCPR 2034) has passed the various schemes that have benefitted to the Commercial real estate segment and affordable housing segments with various challenges such as density and affordability by offering developers higher FSI based on road width, lower premiums to purchase FSI to reduce project costs. According to CREDAI -CBRE report titled "Assessing the Economic Impact of Indias Real Estate", the potential employment opportunities in the real estate sector are expected at 17.2 million jobs by 2025 up from 9.2 million in 2016.

Threats

• The Indian real estate sector is still highly unorganized with lots of middle men and subdued demand, together with increased construction costs - both material and labour which has been putting pressure on the cost of projects and profit margins.

• Non-availability of land within city limits along with rising land and construction costs, making affordable housing projects unviable in Metros such as Mumbai.

• Low focus on housing for EWS and LIG segment from the developer fraternity owing to lack of effective policy framework.

• The lengthy and complex approval process leads to a high gestation period which eventually results in project cost escalation by 20-30 percent.

• Any adverse move by the banking sector towards the lending policy on the real estate loans may increase the cost of borrowing.

• The delay in approvals of project and amendments in the various Rules and Regulations can adversely impact new launches and increase in the cost of the projects. Retrospective applicability of policy changes may impact profitability.

• Acute shortage of skilled workforce at all levels.

Outlook

The Indian real estate market went through a sea change in the year 2018. The various shades of the domestic market came on surface, where certain geographic pockets witnessed a dip in terms of property valuation and sales volume and certain pockets witnessed property price appreciation and sharp growth. The real estate markets are poised to benefit from the Governments policy push towards reforms, speedy completion of several infrastructure projects, emphasis on affordable housing, enhanced usage of technology and an overarching can do spirit riding across private as well as public sector enterprises today.

Risk and Concerns

The Companys ability to foresee and manage business risks is crucial in achieving favorable results. While management is positive about the Companys long term outlook, we are subject to few risks and uncertainties as given below:

Market price fluctuation: The performance of your company may be affected by the sales at a price which are driven by prevailing market conditions, the nature and location of the projects.

Price risk of the input material: The primary building materials like steel and cement are subject to price volatility due to general economic conditions, competition, production levels, transportation costs and domestic and import duties and any adverse impact of rise in input cost will have impact on the profitability of the Company.

Development & regulatory risk: Development depends on several factors which include receipt of required approvals, weather conditions, labour availability, material shortages etc. and any of these factors may have an adverse impact on execution. Going ahead, the Indian real estate sector is continually in the state of evolution. Be it numerous reforms introduced in the sector lately or the changes in the taxation system, the segment has seen many ups and downs in the past few years. GST rate cut will be a big boost to the sector.

Economic Risk

Any adverse change in any macroeconomic variables like GDP growth, interest rates, inflation, changes in tax, trade, fiscal and monetary policies etc. may adversely impact the Companys business, profitability and financial condition.

Health and safety risks

Real estate Companies constantly face the risk of injury or illness to the Companys or third parties construction workers.

Financial Performance

The Companys overall performance have been average during the Financial Year 2018-19. The financial results have been disclosed in the Financial Statements annexed herewith.

Human Resources

Employees are the key to achieve the Companys objectives and strategies. The Company provides to the employees a fair equitable work environment and support from their peers with a view to develop their capabilities leaving them with the freedom to act and to take responsibilities for the tasks assigned. The Company strongly believes that its team of capable and committed manpower, which is its core strength, is the key factor behind its achievements, success and future growth. The industrial relations remained cordial during the year.

Cautionary Statement

The statements in this report on "Management Discussion and Analysis", describing the Companys objectives, estimations, expectations or projections, outlook etc., may constitute forward looking statements within the meaning of the applicable Rules, Laws and Regulations. Actual results may vary from such expectations, projections etc., whether express or implied. These statements are based on certain assumptions and expectations of future events over which the Company has no direct control.