MAHLIFENSEQ4 FY22May 2, 2022

Mahindra Lifespace Developers Limited

9,453words
122turns
11analyst exchanges
4executives
Management on call
Arvind Subramanian
MD & CEO, MAHINDRA LIFESPACES DEVELOPERS LIMITED
Vimal Agarwal
CFO, MAHINDRA LIFESPACES DEVELOPERS LIMITED
Sumit Kasat
HEAD (INVESTOR RELATIONS)
Rabindra Basu
SR MANAGER (INVESTOR
Key numbers — 40 extracted
rs,
Happinest and all of our entities in our IC & IC business which is Mahindra World City Developers, Mahindra World City Jaipur and Mahindra Integrated Park Chennai and Mahindra Integrated Park Priva
40%
rking population. A mark trend towards the organization in the decade to come from the low 30s to 40% plus and overall, a low mortgage to GDP ratio, so headroom there to grow the book of mortgages. A
1000 crore
d highest ever performance: • • • The first is residential presales, coming in at just over 1000 crores. The second is our industrial land leasing at just below 300 crores. The third is land acquisi
300 crore
ales, coming in at just over 1000 crores. The second is our industrial land leasing at just below 300 crores. The third is land acquisition for our residential business, roughly 3 million square feet wor
3 million
ing at just below 300 crores. The third is land acquisition for our residential business, roughly 3 million square feet worth of development potential 3800 crores of gross development value. • The four
3800 crore
sition for our residential business, roughly 3 million square feet worth of development potential 3800 crores of gross development value. • The fourth is residential collection that over 1100 crores. All
1100 crore
ential 3800 crores of gross development value. • The fourth is residential collection that over 1100 crores. All of these have been the strongest ever performance we've done as a Company. That being sai
1028 crore
bucket is presales on the residential business. As I mentioned a short while back, we've clocked 1028 crores of pre-sales value last year. It's a very healthy mix between the mid-market business and the va
90%
business and is very broad based in terms of geographic and ticket size contributions. Close to 90% of this actually has come from sustenance sales. Two of our big launches that we were hoping to g
1700 crore
et of development potential 3800 crores of GDV we've followed that up just last week with another 1700 crores, so totally about 5500 crores acquired over the last 13 months which is again setting us up very
5500 crore
00 crores of GDV we've followed that up just last week with another 1700 crores, so totally about 5500 crores acquired over the last 13 months which is again setting us up very well for the years to come.
600 crore
tions clocking in at 1100 crores plus, that has led to a very strong operating cashflow of almost 600 crores which is again fantastic and gives us the resources to continue to build on our growth trajector
Advertisement
Guidance — 20 items
I see kind of four of them being important
opening
“That to my mind is still work in process and I expect the strength of the lead indicators and the current indicators to start trickling through and flowing through into the financials over the coming years.”
Vimal Agarwal
opening
“As Arvind mentioned during the year MHPL, specifically Luminaire project saw significant increase in sales with improvement in selling price, velocity, volumes and collections from the project.”
Arvind Subramanian
qa
“Any project that is not able to support that kind of increase has to justify why that increase can’t happen as opposed to the other way around and as a result of that plus some other wherever we see demand strength we take price up faster.”
Arvind Subramanian
qa
“The way to think about this is, it varies by project and depending on how much is sold early.”
Arvind Subramanian
qa
“So, the irony of it is some of our best performing projects where a lot of inventory was sold at launch and are now facing cost inflation is where the margin hit will be the most because we have very little residual inventory left to absorb that cost increase.”
Parikshit Kandpal
qa
“If I go back little bit in the history, so we had given guidance of 20 to 25 billion of new GDV additions, earlier we used to smaller projects 500-600 crores.”
Parikshit Kandpal
qa
“My question is the guidance was based that the 2500 guidance was based on premise of adding 20 billion to 25 billion of new GDV addition.”
Parikshit Kandpal
qa
“My question is why are we still maintaining that guidance of reaching 2500 crores of sales?”
Arvind Subramanian
qa
“Yes, as I said these are two lead indicators that set us up well for the journey going forward but those do need to translate into the current book of business in terms of approvals and launches and then completions.”
Arvind Subramanian
qa
“Therefore, I would wait for one or two more quarters to see whether it warrants either an acceleration or an uptake in our guidance for FY25.”
Risks & concerns — 5 flagged
The challenge with looking at these financials in a growth phase of the business is, there is a mismatch between when the costs flow through and when the particularly period costs, when the period costs flow through to the P&L and when the revenue recognition of the project happens.
— Arvind Subramanian
Similarly, Kalyan 1 is doing wonderfully well and we don't see any challenge versus the project or say underwriting case.
— Vimal Agarwal
We are seeing a preference to do business with the larger developers where financial closure or transaction is not a risk, right.
— Arvind Subramanian
That's very important for the economics because as you know the longer the project stretch, the IRR drags and with it, particularly in an inflationary cost environment, you're subject to more cost risk as well.
— Arvind Subramanian
Particularly for the salaried segment, wage growth is going to be much higher than the growth or the impact of the higher interest rates.
— Arvind Subramanian
Advertisement
Q&A — 11 exchanges
Q
So overall as you rightly pointed out, there's been significant input cost inflation anywhere from 50% to 100% increase in some of the key commodities, steel, cement, aluminium, copper, plastics all have gone through the roof. More recently with oil prices also increasing, that has increased the logistics costs of bringing materials and etc. Overall, we have seen somewhere between a 12% to 15% increase in construction cost which is roughly a 300 to 450 basis points margin impact. The way we are seeking to mitigate that is through three broad buckets of work. One is value engineering and design
Adhidev Chattopadhyay
If we were to understand correctly whatever mitigation on either on the supply side and on the pricing, it should have a minimal impact on the margins, which maybe not more than 2%-3% or is it neutral? The way to think about this is, it varies by project and depending on how much is sold early. So, the irony of it is some of our best performing projects where a lot of inventory was sold at launch and are now facing cost inflation is where the margin hit will be the most because we have very little residual inventory left to absorb that cost increase. If you look at it from a portfolio perspect
Q
If I go back little bit in the history, so we had given guidance of 20 to 25 billion of new GDV additions, earlier we used to smaller projects 500-600 crores. Now the size has gone up, we're doing upwards of 2000-1000. My question is the guidance was based that the 2500 guidance was based on premise of adding 20 billion to 25 billion of new GDV addition. Now we have two things happening. One that the sizes have gone up, so we will get faster approvals and we can bring these projects to market faster because earlier we had multiple projects, now we'll have 2- 3 large projects. Second thing is t
Arvind Subramanian
Yes, as I said these are two lead indicators that set us up well for the journey going forward but those do need to translate into the current book of business in terms of approvals and launches and then completions. Therefore, I would wait for one or two more quarters to see whether it warrants either an acceleration or an uptake in our guidance for FY25. Let these come to market. I'm happy with where we are on these two parameters in particular and God willing we should meet and exceed our targets that we set. The second question was in the last call, 3Q call we have said that pretty much we
Q
My question will be pertaining to the Kalyan launch which we have done, so how do you view this? We have done 56 crores quarter sale, so is it good, bad, is the momentum expected to accelerate going forward? That would be my first question.
Arvind Subramanian
So, look candidly it's not great. I would have liked to see more. That being said it is roughly four weeks of performance in the last financial year. There is a runway into all of this year. The feedback we have from customers is they really liked the product. It's a very strong endorsement of the product. I believe it will build up over this year. It is not a project that has shot through the roof at launch but that's fine. We will have a mix of those kinds of projects. Any traction which we see in the Kanakpura launch? Kanakpura launch early response has been fantastic. We are still in the p
Q
Going forward you obviously have larger plans than you were even envisaging in the last 2 years. Will you have any capital requirements in terms of equity or will you be able to gear it little more and perhaps that should be enough?
Arvind Subramanian
I think in the near term we will build up a little bit of debt. We have a very low net debt position and I think it makes sense given the low cost of borrowing that we have to leverage in the right way but we don't expect. We will always be prudent with the debt and not leverage to the hilt. This year I don't think we need a capital raise, depending on the momentum we see towards land acquisition this year and going into next year we will take the right calls whether further equity infusion is warranted.
Q
It seems things are moving in the right direction but a lot still needs to be done. My one question was on the residential side we have always stated that at the project level we want to have a 20% margin. But when we look our slide, it says that we had 10% to 11% on 600 crores of revenue what we have done on the residential side segmental. This slide 30 and from here on the launches and projects on hand can we expect the gross margin to improve upwards to at least 20% or you think gross margin will remain around this level only? In your sales expense at the project level is it included into t
Arvind Subramanian
I'll give you a kind of one response and I will ask Vimal to elaborate on that. So, one, I do expect margins in the mid-teens and project IRRs in the low 20s as I have said in the past. The challenge with looking at these financials in a growth phase of the business is, there is a mismatch between when the costs flow through and when the particularly period costs, when the period costs flow through to the P&L and when the revenue recognition of the project happens. So, you're right if you look at last year's financials, it does look like a 10% margin. But as I said there's a timing mismatch be
Q
My first question is with respect to your marketing expense. How should one think about your marketing expense going ahead? Is it broadly a sum or do you think of it as a percentage of sales and what should that number be?
Vimal Agarwal
One should actually look at the total project lifecycle and therefore like any other product and FMCG or any other industry, you will see a significant investment getting into at the time of launch. So, what should that be as a percentage of sales for that, statistically? It will vary in the range of 2.5%-3.5% over the life cycle of the project, is what I will say. Other than salaries and all, would there be any other overheads that one needs to consider? As in? In terms of overheads there will be, obviously corporate overheads and employee salaries? Anything else that does not get accounted i
Q
Traditionally we have been, we were doing smaller size projects with multiple phases of small, broken on into small phases. Now, the scale of projects has increased to 1-1.5, even to an extent 2 million square feet. So now will the phase launches that we do, would be much higher in size to execute those projects quickly than what we used to do it earlier?
Arvind Subramanian
Hard to give a general rule on that. It's very tactical. It depends on the competitive nature of that particular micro market. In certain situations, we want to make a quick entry with a small phase so that we plant our flag and announce our presence in that micro market. In certain cases, we want to bring a substantial amount of inventory together because we believe that's what is right for that particular situation; it's about demand and supply and constantly monitoring both. There is no general rule that we will follow on that. But overall, when we are entering the project size of 1-1.5 mil
Q
My first question is that on the cost side; what kind of inflation are you thinking about from here on? I know you mentioned it was 12% to 15% for the last year but from here on, do you think it will continue to accelerate or the second derivative will come down? How are you thinking about that?
Arvind Subramanian
We are planning for about 8% to 10% going forward as well because all the advice and views we are getting from the economists, including our group economists, is that inflation is here to stay. It's not a temporary phenomenon. It's not just a Ukraine war issue. There is a structural reason why inflation will continue for several quarters. At least in our underwriting cases, we are planning for an 8% to 10% cost inflation in the years to come as well. As you're launching the products, are you then spacing out the inventory you release at the launch, etc. maybe make it more just so that we don't
Q
My first question is a follow-up on the initial comments that you have shared. You talked about how the industry is shaping up right now, but in general, recently we've seen letters from CREDAI, etc. complaining about the rising cost environment and about how some developers are stopping work etc. If you could share the general scenario of how you see the industry right now in terms of the reduced competition in terms of launches, in terms of number of participants, looking for land parcels etc. that would be great?
Arvind Subramanian
Look, one trend that's very clear Rohith is, the formalization or consolidation of the supply side. We've seen this over the last 5 or 7 years that you tracked the numbers in each of the Tier I cities, the top five to seven players are starting to contribute as much as 30% of the sales value, which used to be in the 10% to 15% range. So, it's grown quite a lot and so therefore, that is a vindication for the direction we've taken about going deeper into a few markets rather than spreading ourselves too thin. A cost inflation is certainly a pressing topic. It's something that is hurting all of u
Q
One pertaining to our resi business. One that probably we are hearing a lot of noise, in terms of interest rate hike. In case if that is to happen, how do you see the scenario dwelling? Do we foresee any risks to our sales numbers as far as the resi is concerned? Second, in terms of our IC & IC business, just wanted to understand how much capital we have deployed till date and how much we will have to deploy more in terms of activating the origins, which has been lined up?
Arvind Subramanian
On the mortgage rate or the interest rate hikes that are expected in the quarters to come, I am not unduly worried about that and the reason for that is, we just talked about the talent market becoming competitive and compensations going up. Particularly for the salaried segment, wage growth is going to be much higher than the growth or the impact of the higher interest rates. Also, the segments we've chosen to play in which is the mid-market and the value housing segments. Very often our buyers have been planning for several years to buy their apartment there. They're not going to be dissuade
Q
Thank you. Thank you very much. Look just by way of a quick summary. As I said, we have a very keen eye and tracking very closely the lead indicators of our business, the current health indicators, as well as making sure that our trailing indicators are also reflecting that performance and all three moves in tandem. On the residential side, we continue to build out for growth. We are seeing a good pipeline from a land acquisition perspective. We've had strong impactful launches and continue to see a preference for our products and our brand and on the Industrial Park side, as we just discussed
Management
Speaking time
Arvind Subramanian
39
Vimal Agarwal
19
Moderator
13
Parikshit Kandpal
9
Punit
9
Manish Agarwal
8
Himanshu Upadhyay
8
V. P. Rajesh
4
Shreyans
4
Pritesh Sheth
3
Advertisement
Opening remarks
Arvind Subramanian
Thank you very much. Good morning, everyone and welcome to our Q4 FY22 Earnings Call. Firstly, I'd like to thank all of you for participating in this conference call. As you know many of our key operating entities in our residential business, like Mahindra Homes and Mahindra Happinest and all of our entities in our IC & IC business which is Mahindra World City Developers, Mahindra World City Jaipur and Mahindra Integrated Park Chennai and Mahindra Integrated Park Private Limited, all these four entities do not get consolidated on a line-by-line basis. I'd like to start by sharing a little bit of how we see the macro picture is evolving, then turn my attention to the performance over the year and how that sets us up for the years to come. Firstly, looking at the macro picture, let me again pick up some indicators both on the B2C side on the consumer side as well as some on the B2B side: • On the B2C side, we are seeing particularly for residential real estate, a very clear increase in a
I see kind of four of them being important
• The first is talent and we've continued to build and invest in building a fantastic team which I am very proud of and I believe is among the best in the peer group, not just at the leadership level but at several levels below that in the organization. • The second is technology; again an area of continued focus and I use technology in a broader sense to mean not just IT, digital and things like that but also technology in construction, in products and many of you would have noticed some of our recent announcements around sustainability and net zero. • The third is from a lead indicator bucket is presales on the residential business. As I mentioned a short while back, we've clocked 1028 crores of pre-sales value last year. It's a very healthy mix between the mid-market business and the value housing business and is very broad based in terms of geographic and ticket size contributions. Close to 90% of this actually has come from sustenance sales. Two of our big launches that we were ho
Vimal Agarwal
Thank you Arvind. Moving on to the performance for Quarter 4 FY22: The consolidated income stood at Rs. 155 crores as against 33 crores in Q3 F22 and 58 crores in Q4 F21. The consolidated EBITDA including other income and share profits from JVs stood at negative 15 crores as against 20 crores in Q3 F22 and negative 30 crores in Q4 F21. The consolidated PAT after non-controlling interest stood at 137 crores as against 25 crores in Q3 F22 and a loss of 27 crores in Q4 F21. Financial performance for full year ‘22 versus ‘21 is as follows: The consolidated total income stood at 408 crores as against 188 crores in FY21. The consolidated EBITDA including other income in share of profit from JV stood at 15.5 crores as against a loss of 59.8 crores in FY21. The consolidated PAT after non-controlling interest stood at 154.5 crores as against a loss of 71.7 crores in FY21. Your Company has debt of 280 crores at consolidated level as per Ind-AS accounting while cash in hand and bank as on 31st Ma
Advertisement
← All transcriptsMAHLIFE stock page →