Q1FY24 Review: Macrotech Developers: On a steady growth path

31 Jul 2023 , 12:06 PM

Macrotech (LODHA) reported a healthy performance across presales and business development. However, muted collections and higher project additions drove the QoQ net debt increase. Mgmt expects cashflows to improve meaningfully in H2, and achieve the net debt guidance of 1x OCF/0.5x equity. LODHA is changing its P&L accounting policy, resulting in an upgrade in analysts of IIFL Capital Services FY24-25 P&L estimates while maintaining cashflow estimates. Analysts of IIFL Capital Services also upgrade their NAV, to reflect the progress in the Digital Infra segment and strong business development. Their revised TP of Rs750/share is at 50% premium to NAV; downgrade the stock to ADD. 

Q1 performance – strong pre-sales, cashflows muted: 

LODHA has reported pre-sales of Rs33.6bn, up 17% YoY (and 23% of FY24 guidance). At 1.8msf (Rs15bn GDV), launches were relatively muted. Also, the performance from other segments like Office, Digital Infra (Warehousing) continued to be soft. Collections were down 8% YoY; OCF margins of 37% (pre-tax), combined with higher investments in business development (Rs8.2bn vs average 5bn), drove net debt higher QoQ by ~Rs2bn. Mgmt expects cashflows to improve in H2 with higher collections coming in and lower spends on business development — helping achieve FY24 net debt target of 1x OCF or 0.5x equity — whichever is lower. 

Robust outlook: 

Management continues to guide for ~20% Cagr in presales over FY23-26, driven by higher share of JDA projects (~35% now vs 40% target by end FY24); and expansion into Pune and Bangalore markets. Bangalore market foray will be ramped up gradually with focus on delivering the first project. Further, LODHA is also ramping up its annuity cashflows (warehousing, facility mgmt, office, etc.) where it will endeavour to achieve annuity income of Rs5bn by FY26. 

Change in P&L accounting to not impact cashflows: 

LODHA’s Q1 P&L was weak due to lower completions. Further, the company is changing its P&L revenue recognition (FY24 onwards), from completed project method to percentage completion. Analysts of IIFL Capital Services upgrade their FY24/25 P&L estimates to reflect the same, although this has no meaningful impact on their cashflow/NAV estimates. As per mgmt, this will align operational performance and reported performance by FY26.