LODHA — earnings call

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Prepared remarks

As above “Macrotech Developers Limited

CHIEF · EXECUTIVE

EXECUTIVE

MACROTECH · DEVELOPERS LIMITED

DEVELOPERS LIMITED MR. SUSHIL KUMAR MODI – CHIEF FINANCIAL OFFICER - MACROTECH DEVELOPERS LIMITED MR. ANAND KUMAR – HEAD INVESTOR RELATIONS - MACROTECH DEVELOPERS LIMITED Macrotech Developers Limited October 22, 2021

Moderator · Conference Operator

Ladies and gentlemen, good day and welcome to Macrotech Developers Limited Q2

Thank you very much.

On behalf of Antique Stock Broking Limited, that concludes this conference.

Thank you for joining us you may now disconnect your lines.

Thank you.

Questions and answers

Moderator · Conference Operator

Thank you very much.

We will now begin the question-and-answer session.

The first question is from the line of Adhidev Chattopadhyay from ICICI Securities.

Please go ahead.

Adhidev C

Good afternoon, everyone.

Thank you for the opportunity.

My first question is on this GDV addition through new JDAs which you alluded of 7,000 Crores to 10,000 Crores in second half, could you give us any specific geographic breakup how much would be Pune, how much would be Mumbai and within Mumbai as you mentioned you have also appointed a CEO for Navi Mumbai, so just some sense on the micro market wise break up over here, it could help us?

Abhishek Lodha

Thank you.

That is an important question.

We expect from a GDV addition perspective about 20% to 25% to come from Pune and the majority of the balance to come from the Mumbai region.

In Mumbai region, we expect a meaningful growth to be coming from three locations; one is the Eastern Suburbs and as you rightly mentioned we have appointed the new CEO to head up in the Eastern Suburbs and Navi Mumbai which we are together looking at positively.

We have seen some significant growth there in terms of new projects, we will also see some new projects in the Western Suburb and we might also see some traction in the urban area where currently our existing projects of Venezia and others are Macrotech Developers Limited October 22, 2021 largely sold out, so these would be the three areas where we might see some significant addition, in addition to the 20% to 25% that will come from Pune.

Adhidev C

The second question mainly is on our debt reduction as you have highlighted you are on track with this 10,000 Crores target, just wanted to get some clarification on the interest costs.

In spite of us bringing down our gross debt quite meaningfully in the first half, the interest cost seemed to be still bit flattish on a quarter-on-quarter basis, so I think that is a on a 1400 Crores of interest saying for the full year that you are taking up for the year, so any change to those numbers?

Sushil Kumar Modi

I think on interest cost is the broad trajectory and obviously is getting reflected in terms of numbers also but what you see the interest cost on a cash flow standpoint, yes we had the interest costs to meet up in this particular quarter on account of the bonds which was one off and obviously that money is going to come back in Q4 and perhaps potentially the way we are seeing is that from the GSQ cash flow while the entire bond will get fully paid out and would thereby open up the proposition for potentially further diversify our finance pool to have a new bond being international market which will enable us to bring back our equity investment that we have put in UK perhaps on a fast forward vis-à-vis earlier expectations that we will potentially bring it only in financially year 2024 potentially we will be able to see a significant amount coming in, in this financial year itself and that will diversify the pool of capital for India and as well as the finance cost that will further go down as you can appreciate if we have a public market money from the international market.

Adhidev C

Sir just I was alluding just for the India business, what would be the interest cost for the full year now, any guidance, excluding UK or any other?

Sushil Kumar Modi

We will continue to see the handle of around 1500 odd Crores that continues.

Adhidev C

1500 Crores for the year, India business, okay fine.

That is it from my side.

I will come back in the queue with more questions.

Thank you.

Moderator · Conference Operator

Thank you.

The next question is from the line of Kunal Tayal from Bank of America.

Please go ahead.

Kunal Tayal

Thank you.

Couple of questions from my side, firstly Abhishek, given this accelerated opportunity for JDA projects that you now see in H2 and going ahead, do you also anticipate a change in the return profile either better or different from how you were earlier hinting, so that is the first one and second I think your presentation says that there has been a price increase of 2% to 4% across most of the projects, can we sort of expect they are trying to continue, are you expecting prices to go up significantly in the near future?

Thanks.

Macrotech Developers Limited October 22, 2021

Abhishek Lodha

Kunal, thank you for those questions.

In terms of the return profile of the projects obviously each project by self will have some variability but on average, we expect it at a overall level these projects to have an investment between 5% and 6% of the GDV, PBT margins of about 18% and ROE is an excess of 50%, so this would be broadly the nature of the joint development projects some variability within that but on average this would be the kind of number.

Could you just repeat your second question?

Kunal Tayal

The second one was on pricing broadly your view as to how that would shape up going ahead?

Abhishek Lodha

I think we have earlier mentioned that we expect price growth this year to be in the range of about on an annualized basis about 3% to 4%, we have already seen the 2% to 4% increase happening across our portfolio most of our projects had that in H1 and we do expect that that pace of what we saw in H1 will continue through into H2.

On ground actually what is happening is that a large amount of the oversupply has now gotten I would say absorbed over the last four quarters starting from October 2020 up to now and we are now at a stage where residential development takes anywhere from 3 to 5 years to develop and then continues to remain strong and therefore pricing power I think will be quite decent over the next couple of years, in terms of where we would like it to be, we would still like pricing growth to be below wage growth in the country so that affordability remains strong, so it is looking like wage growth in the country average 7% to 8% or thereabouts over the next couple of years and if price growth could be in that 6% ballpark, I think we will have a fantastic outcome both for the growth in volumes because of improving affordability as well as the growth in margins.

Kunal Tayal

Got that.

Thanks a lot.

Moderator · Conference Operator

Thank you.

The next question is from the line of Puneet from HSBC.

Please go ahead.

Puneet

Thank you so much for the opportunity.

Abhishek while you talked about ROE and PBT margins of 18%, do you also have a project IRR or equity IRR in when you do these joint development projects and what would that numbers be?

Abhishek Lodha

ROE that we mentioned obviously take into account as far as these projects are going to have a very modest level of leverage given the fact that land cost is not been incurred by us, so we expect these projects to only have a very modest level of leverage and therefore we do not expect a significant delta between the project IRR and the ROE.

Puneet

Okay and what kind of IRR should one read, 50%, and 60% is there what I heard?

Macrotech Developers Limited October 22, 2021

Abhishek Lodha

Yes, I mean the ROEs that we are mentioning of about 50% are sort of the indicative of the IIRs.

Puneet

My second question is, is it possible to share in your sales number what would have been the gross sales and what is net sales, are there any cancellation for till previous year or is it all three?

Abhishek Lodha

The sales number that we report is our net sales number which is the typical level of cancellation from previous years tends to be about 2% to 3%, I think that is what we see after what we reported.

It is broadly whatever comes in.

If you would like an exact breakup of how much was the gross versus a net pre-sales we reported, we can take that out and share with you all offline.

Puneet

Broadly that 2% to 3% has not changed, you are not seeing it go up or go down?

Abhishek Lodha

No, we have not seen anything which has out of the norm; yes we have not seen anything out of the norm.

Puneet

Great and lastly in terms of the JDA opportunity are you seeing a lot more opportunities coming in or are you seeing some bit of reluctance on the part of land developers to now actually increased land prices as well?

Abhishek Lodha

We are seeing a tremendous flow; I can only tell you that one-third of my personal time is being spent on evaluating new opportunities and one-third on building the capability so that we can deliver on these opportunities, so the flow is only accelerating at least in our perspective and from what we are seeing.

I think the land owner is surely seeing Lodha not only being able to deliver the best the speed of execution and good realization but also they really liked the fact that we are able to bring the project to market in a reasonably quick time frame and therefore start the cycle lot sooner than they would expect others to do, so we are only seeing an accelerating trend so like we said in the first half we delivered about 4,500 Crores of GDV on the JDA and that is completely being something between 7,000 to 10,000 Crores in the second half, so you can say it is almost 2x of what we did in the first half.

Puneet

Right, that is very helpful.

Thank you so much and all the best.

Moderator · Conference Operator

Thank you.

The next question is from the line of Kirthi Jain from Canara HSBC.

Please go ahead.

Kirthi Jain

Thanks a lot for the opportunity.

Sir, my question is with regard to sales trajectory which we are targeting over five years given the large JDAs which you are adding of Rs.40,000 Macrotech Developers Limited October 22, 2021 Crores, so can we expect that our business which we are targeting to reach Rs.9000 Crores in five years we will touch Rs.20,000 Crores do you expect that?

Abhishek Lodha

I think the fact is that the JDAs will give us a significant uplift on the overall sales number over the medium-term.

If we are able to deliver on this increase in JDAs of almost Rs.40,000 Crores and that amount may then addition to our this pipeline of at least Rs.7000 Crores to Rs.8000 Crores a year and therefore what you are saying about five year projection and therefore would not like to speculate whether that means Rs.20,000 Crores I would believe that somewhere in that range of Rs.20,000 Crores would very much be possible over a five years span and we can detail that out and share with you over next couple of weeks.

Kirthi Jain

Apart from that given the successes which we are achieving in terms of the tie ups with logistic players and e-commerce players with regards to non-residential development any other large land parcel we are targeting through asset light way and then developing the data centre or logistic park, whatever you have in terms of non-residential businesses anything we are trying to build other than in the Palava region?

Abhishek Lodha

Yes, as I mentioned in my remarks we are in I would say advance discussions with two large international investors of very, very high repute to have a platform for investment in digital infrastructure which will be beyond Palava.

It will have some part from Palava but will be beyond Palava and the capitalized model will be from our perspective that we will be bringing in some of our existing assets and they will be bringing in capital and then we will work together to deliver this digital infrastructure of logistics, industrial as well as data centres across different geographies in a scale of land parcels between 50 acres and 150 acres across the different parcels.

Kirthi Jain

Sir, my last question is with regards to our foray in south and the northern regions, when we are targeting to enter that region and what are our plans in that market?

Abhishek Lodha

Our immediate focus as we mentioned is on Mumbai and on Pune.

We are receiving a lot of approaches from people in Bengaluru as well as from NCR.

As we stated earlier our strategy is to go deep into each market, make sure that we are serving every segment within that city rather than just doing a handful of projects and gain significant market share and be amongst the top three players in terms of overall sales and be one of the strongest brands in the city.

So, Mumbai and Pune are clearly top of agenda for us, and as people are approaching us evaluate us for example a market like Bengaluru, but we do not have a definitive timeline for it right now.

Kirthi Jain

Thanks a lot.

Macrotech Developers Limited October 22, 2021

Moderator · Conference Operator

Thank you.

The next question is from the line of Saurav from JP Morgan.

Please go ahead.

Saurav

I do not know this question was answered earlier but, Abhishek on your debt guidance of Rs.10000 Crores by the year end I just wanted to know that next two quarters should broadly after generate about Rs.1200 Crores odd every quarter, so is that something which is realistic and secondly specifically in this quarter in this Rs.500 Crores of land/approval spend was there any one off out there?

So that is the first one.

I will come after this.

Abhishek Lodha

Saurav, yes given our big launch pipeline for H2 we did overinvest in the land and approvals in H1.

There was a one-off payment of approximately Rs.100 Crores for the clearance of the land, which we are now launching at a new location of the premier land in Dombivli.

Similarly, we invested in the JDAs that you already picked up on.

So, yes there were a few one offs in H1 and that was in preparation for the launches of H2.

In terms of the cash flow just very broadly what we expect to bring in is about Rs.5500 Crores of cash into the company over the next six months and our expenses will total a little over Rs.3000 Crores and that gives us reasonable visibility of being Rs.10000 Crores for the year end.

As I noted earlier some of our digital infra as well office rental sales will happen in Q4 and therefore we expect the debt reduction to not the equal in Q3 and Q4, Q3 will have a more modest debt reduction and Q4 will have the larger chunk of the debt reduction.

Saurav

Okay, got it and second Abhishek is there any intervention you have done in this township business that the sales have come back to Rs.450 Crores or is that just market that comes in Dombivli?

Abhishek Lodha

Saurav, as we had guided even earlier in last couple of our discussions that the township business is one where we see big potential.

It had reduced its sales levels on account of certain specific issues and what we are now seeing is a return back to the norm.

This is what used to be the case in 2017 and 2018.

So, we are just seeing a return back to the norm.

Obviously, some of the infrastructure around Palava is very helpful because it is helping in terms of connectivity.

We are going to see some more infrastructures come up in those areas.

We have introduced some additional typologies for example in Palava the aspirational housing which is more between Rs.80 lakhs and Rs.2 Crores that has started contributing quite well.

The small offices have contributed a little bit but that is another new asset contributing at Palava.

We are going to have this big launch in Palava in the coming quarter and I think that will make the meaningful difference and possibly in Q4 we will have a new typology launch in Upper Thane which will also contribute in a good manner and Upper Thane the new road which is connecting from the Nasik Highway up to Dombivli station has progressed really, really well.

It is a beautiful 30-metre wide concrete road and the bridge to Dombivli will probably be ready sometime in the first half of calendar 2022.

So, all of this infrastructure combined with the positive sentiment as well as our deliveries on the ground, Upper Thane we got OC, people have started living over there Macrotech Developers Limited October 22, 2021 they are all coming together, but it really is about our focus.

I think generally township is a place where we have said we have to do better and we showed some results in Q2 and we hope to do even better in the second half of the year.

Saurav

Thanks.

Just on this margin, this 37% margin may be Sushil can take it.

Sushil what will be the core development margins or is pure excluding any lands sales or anything you must have done?

Sushi Kumar Modi

That has improved marginally, so now this quarter we have crossed around 31%.

Saurav

31% core development market?

Sushi Kumar Modi

Yes.

Saurav

Thanks Sushil.

Thank you.

Moderator · Conference Operator

Thank you.

The next question is from the line of Mohit Agarwal from IIFL.

Please go ahead.

Mohit Agarwal

Thanks for the opportunity.

Sir, my question is in the last quarter we have seen that you upped your JDA estimate to Rs.40,000 Crores where are you seeing this incremental supply coming in from, is it more of redevelopment projects or stuck projects or just more lenders bringing in more deals could you give some colour on that?

Abhishek Lodha

Sure, most of the JDA projects that we are looking at right now are focused on projects which are either, I would not call that struck projects, but there are the projects where the developer has run into difficulty and the investing phase is progressed but not complete and the new phase has a lot of potential which they cannot develop.

So, in that case is where the lender and/or the developer approach us most of the time that is the nature of the projects.

We also have some developers who have not started the project at all they just have the land piece with the minor or all approvals and they have approached us, and we have added, we have also looked at those kinds of projects.

In terms of we do not take land clearance risk, we do not want to take on a project where the land is not vacant.

So, while we will do redevelopment or not will depend on what is the status of the land?

We do not like getting in to land where vacation has not happened as yet.

Mohit Agarwal

Okay, and are we structured for the projects where you show 18% PBT, are we structured as DM structure, profit sharing or revenue sharing?

Abhishek Lodha

These tend to be either profit share or revenue share.

We hardly ever do DM.

DM is something which we do very, very rarely.

Macrotech Developers Limited October 22, 2021

Mohit Agarwal

Just one clarification on the land bank on slide 24 of your presentation.

What I see is in this quarter you have moved some two hundred acres of land bank in extended Eastern suburbs from land bank into projects, the launches beyond twelve months have shot up from 30 million square feet to 45 million square feet.

So, what is the thought process there are you seeing more demand or are you getting more aggressive on the potential what is the thought process?

Abhishek Lodha

Yes, you rightly picked up the fact that 200 acres of really prime located land which is located on the Kalyan-Shil Road which is the land belonging to earlier to the company called Premier Automobiles was something that we had acquired partly a long time ago and then we got it cleared in the first half and we are progressing to launch that.

We are progressing to launch it because that as a location is different from the current location of the second phase of Palava and this new location we believe makes us much closer to the markets at more attractive because markets are going to be in Kalyan where the current location of Palava makes to be more attractive to the market of Navi Mumbai so we believe this will be additive and therefore we have moved it into now launching that.

Mohit Agarwal

That is 15 million square feet?

Abhishek Lodha

That is correct.

Mohit Agarwal

Okay, thanks a lot.

That is all from my side.

Moderator · Conference Operator

Thank you.

The next question is from the line of Abhinav Sinha from Jefferies India.

Please go ahead.

Abhinav Sinha

Just a couple of questions, so one when we are talking about expanding digital infra business in other cities, what is the business model like are you going to acquire land there.

That is one and secondly on the cash flow part, the construction cost was a bit lower QOQ because of the seasonality or Rs.500 Crores is the more likely run rate?

Thank you.

Abhishek Lodha

Two parts.

The digital infrastructure initiative will be a platform with a couple of other investors where MDL will hold a stake somewhere around 30% to 40% stake in that platform and will only the operating company which will run that platform and in that model we do envisage that the joint venture company or whatever the structure will eventually get finalized with partners will acquire assets for the infrastructure in different locations on an outright basis as well as on a joint venture basis.

But MDL’s own capital contribution to the platform will be modest because we are bringing in a reasonable amount of assets.

That was in terms of the digital piece.

Could you please repeat your second question?

Macrotech Developers Limited October 22, 2021

Abhinav Sinha

Yes, the second one is on construction cost, it was lower quarter-on-quarter in Q2, so is the seasonality or this is the right runrate going forward?

Abhishek Lodha

No, that is definitely seasonality associated with that number.

I think a combination of the seasonality as well as payouts happen with the lag of between 45 days to 60 days, so we are also seeing some impact of the facts that the construction pace in Q1 was slower, so on a cash flow basis some of that meant lower payout at the start of Q2. We do expect the rate of construction to go up and we would expect that to be between Rs.700 Crores to Rs.750 Crores per quarter in H2.

Abhinav Sinha

Thanks and all the best.

Moderator · Conference Operator

Thank you.

The next question is from the line of Parvez Akhtar Qazi from Edelweiss Securities.

Please go ahead.

Parvez A Qazi

Thanks for taking my question.

Few questions from my side; first just wanted get your thoughts on our sales in the South-Central Mumbai for understanding we do see that quarter-on-quarter I think the ready and unsold inventory has increased probably because of some project completion there and we have seen significant reduction in the unsold inventory in the ongoing projects there.

So, just wanted to get your views on the sales trajectory in that market going ahead especially on the three big projects that we have and second also your views about the monetization of some of the annuity assets that we have like the office asset etc.?

Thank you.

Abhishek Lodha

Thank you for your question.

So, if you look at slide 23 of the presentation you see that the South and Central markets had a very robust sale performance in the H1, delivering Rs.1100 Crores of sales out of the overall Rs 2960 crores.

So, the sales trajectory of the South and Central Bombay continues to remain very robust.

We did have one of our larger towers completing in this quarter and therefore we saw the shift of the inventories from ongoing unsold to nearly unsold because the tower was completed.

Parvez A Qazi

About the annuity asset monetization?

Abhishek Lodha

In terms of the annuity assets monetization, we do expect close to Rs.1000 Crores of sales happening in the second quarter.

One of those is likely to be an office building which will happen most likely in the second half, early Q4 or we do expect a large sale of infrastructure asset happening in the current quarter.

So, these two between themselves will be quite significant and then there will be other small assets.

Parvez A Qazi

That is it from my side and all the best.

Thank you.

Macrotech Developers Limited October 22, 2021

Moderator · Conference Operator

Thank you.

The next question is from the line of Pritesh Sheth from Motilal Oswal.

Please go ahead.

Pritesh Sheth

Sir, thanks for the opportunity.

But just following upon this South and Central performance largely I assume most of the sales happened from the completed projects or there was some ongoing also that moved?

Abhishek Lodha

I am sure the fact is that a lot of the demand in South and Central Mumbai is focused towards what is ready or close to ready and therefore a disproportionate amount of the sales do happen from what is classified by us as ready unsold.

Pritesh Sheth

Okay, got it and whatever is ongoing and sold are expected to complete within next two year – three years or how is the timeline?

Abhishek Lodha

There is not anything in the ongoing unsold which will not be completed within the next three years some of it may be sooner than that, but definitely all the ongoing unsold South and Central Mumbai will be completed in the next three years.

Pritesh Sheth

Great and lastly on the collections, just wanted to understand was it linear across the months of the previous quarter or we saw by end of the quarter the collections improving because there was obviously the construction progress that had been made and how should we look at then going in the second half because that will determine how much collection can happen in the second half?

Abhishek Lodha

Actually, it is a very fortunate observation.

As we noted in our remarks as well as in our release done to the stock exchange earlier in October, the months of July and August the collections were quite impacted by the second wave of COVID because of the fact that in each month sales were slower and therefore there is an impact on collections in Q2 and from September onwards collections is being up, we do expect collections to be headed towards the trajectory which is meaningfully higher than what we saw in Q2 as we saw Q1 to Q2 collections almost doubled and we will see a significant pick up in collections in Q3 and more so in Q4.

Pritesh Sheth

Great, okay, and just lastly on the interest outflow that we saw this quarter how much was that for US bond that we paid for and that is expected to come back in Q4?

Abhishek Lodha

That is Rs.115 Crores.

Pritesh Sheth

Thanks.

Macrotech Developers Limited October 22, 2021

Moderator · Conference Operator

Thank you.

The next question is from the line of Sri Karthik from Investec.

Please go ahead.

Sri Karthik

Thank you for the opportunity.

My question is more from a sector versus company performance, would you attribute most of our performance during the quarter on back of market share gains versus the sector is recovering and when do you see the sector level growth fully normalize and back to pre-COVID level that is one?

The second question is in our prospectus during IPO we indicated that about 500 acres of land is still not fully transferred to the listed entity pending approvals, when do you intend that to close?

Thank you.

Abhishek Lodha

In terms of the overall sector on what third party forecaster and industry analyst tell us that the overall volumes of the sector will return back to pre-COVID levels only in FY2023. What we have seen in FY2022 is something which we all aware of is the consolidation in the marketplace.

You are seeing the shift of supply share moving from the weaker hands to the stronger hands and that number right now is only because of historically the weaker hand have stabilized still I would say understated how much of the share has moved to stronger hands.

If you look at the share of new launches the stronger hands are now bringing in 60% - 70% or even higher percentage of the new launches and therefore you can easily understand that two years to three years down the line that will be their share of sales.

So, you will have to track the share of sales as well as the share of launches to get a full perspective of what is happening in terms of consolidation.

So, I would say this year our performance is more about gain of share and the industry or overall housing sales recovering back to the pre-COVID levels is more likely next fiscal not this fiscal.

In terms of the second question around land transfer that is an ongoing process.

We continue to seek pre-approvals and progress it overall from time to time different pieces get cleared up and get transferred to the company.

The company is valid control of the title of that land and these are only formalities which have to be completed.

I do not have a firm date by which entirely the 500 acres will be transferred to the books of the company, but these are the ongoing process.

Sri Karthik

Thanks.

Just as a follow up would there be any cash payments related to these transfers when they happen?

Abhishek Lodha

No, there are no significant cash payments to be done for these lands.

It will be the procedures when I talk about no significant you could always have a couple of lakhs an acre that is transfer fee or something of that sort but only there is small amounts.

Sri Karthik

Thank you.

All the best to you.

Macrotech Developers Limited October 22, 2021

Moderator · Conference Operator

Thank you.

The next question is from the line of Saurav from JP Morgan Chase.

Please go ahead.

Saurav

Thanks.

Abhishek just on cost inflation, we are seeing a lot of your important suppliers are commenting about their cost going up, I was wondering are you seeing construction cost go up at your end or do you expect this to go up and why I am asking is basically in the last cycle in about 12 to 15 we saw a lot of margin compression because of this.

The comment on how do you think of about your margins spend ahead so that is one and secondly on this London project how many units do you have left both in Lincoln and GSQ?

Abhishek Lodha

In terms of your first question around whether we are seeing construction cost go up, well very certainly we have chances like the rest of the industry overall global peers we are seeing cost go up on the material side.

We have not seen any significant increase on the labor cost side.

On a like-to-like basis the last comparison that we did which was in Q1, we saw that construction costs were up 10% compared to a 2019 start to a 2021 start.

Now, 10% of increase in construction cost on average translates into about a 4% increase in terms of the sales price.

So, we have seen that kind of an increase, 3% to 4% increase as a percentage of the sales price.

We do see a number of levers to continue to scale up even improve our procurement power which we are doing we are spending a reasonable amount of energy in further value engineering our product without compromising on the quality of what we deliver, at the same time there is also the ability to pass on some of these increases that we indicated in terms of the price rise that we have been able to pass on.

So, we watched this space very carefully, we see some positive possibilities that construction cost inflation might moderate if the construction sector in China starts slowing down which it seems to be doing.

But all in all, this is an area which we watch carefully we have not yet seen any margin compression happening but something to be very watchful about.

In terms of the number of units which were remaining unsold in the two UK projects Saurav if you allow me, we will come back to you on that I do not have the number readily with me.

Saurav

Okay, that is fine.

Thanks Abhishek and Happy Diwali.

Moderator · Conference Operator

Thank you.

The next question is from the line of Samir Baisiwala from Morgan Stanley.

Please go ahead.

Samir Baisiwala

Thanks, and good afternoon, everyone.

Abhishek, just quickly what are your thoughts on de-leveraging beyond fiscal 2022?

Abhishek Lodha

Samir, we have laid out a deleveraging path and we broadly expect to be at about Rs.6000 Crores of net debt by the end of fiscal 2023 and be in a position where we are net cash positive by the end of fiscal 2024.

That is the broad trajectory that we are working towards.

In general, even after fiscal 2024 we want to be very conservative on a leverage as on a Macrotech Developers Limited October 22, 2021 leverage perspective having been burnt quite a lot due to being over levered earlier and would like to maintain our leverage within one year of operating cash flows leverage not to exceed one year of operating cash.

Samir Baisiwala

Okay, great.

Thanks.

That is it from my side.

Moderator · Conference Operator

Thank you.

The next question is from the line of Shivam from Shivam Limited.

Please go ahead.

Shivam

I want to just ask that like in the real estate sector the consolidation phase is coming out after maximum seven year to eight years, so how do you expect your return on capital to be improving further years, is it due to the rising prices or any other means to it?

Abhishek Lodha

If I understand the question correctly, you are probably asking us what will be drivers of improvements in return on capital on account of consolidation in the industry.

Shivam

Yes, like the real estate has been in the consolidation phase from past seven years to eight years?

Abhishek Lodha

Yes, I guess some of the drivers which will help improve our ROEs as company, are already quite high in the high 20s and we expect that as we delever these will moderate to be in the low 20.

We do expect that the increase in price going forward will be additive, i.e., it will be more than the base of cost inflation and therefore that will help in terms of margin growth and therefore ROE grow.

We do also expect that for us specifically as a company by adding in the capital like JD model in addition to the significant land ownership that we already have that will help us not only scale up but also improve the return on investment or the return on capital employed because of it being a high ROE part of our business model.

So, we do expect price growth to contribute overall to some improvement in industry margins and returns and we do expect at the company level that JDA model to help us improve our ROE.

Shivam

Any plans on furthermore debt reductions from your side in the coming quarters.

Can you give a guidance of debt reduction?

Abhishek Lodha

Sorry, I could not understand that, could you please repeat?

Shivam

Can you give the idea of any debt reductions that you may take in the further coming quarters also any guidance from your end?

Macrotech Developers Limited October 22, 2021

Abhishek Lodha

Yes, we have guided that we will end the fiscal year at approximately Rs.10000 Crores of net debt and fiscal 2023 at approximately Rs.6000 Crores of net debt and aim to be net cash positive by the end of fiscal 2024.

Shivam

Thank you so much.

Moderator · Conference Operator

Thank you very much.

Ladies and gentlemen that was the last question for today.

I will now hand the conference over to the management for closing comments.