Lodha Group is among the largest real estate developers in India and has been involved in the real estate business since 1980s. Its core business is residential real estate developments with a focus on affordable and mid-income housing. Additionally company also has presence in industrial & logistics park business since 2019. Other than that company also develops commercial real estate, as part of mixed-use developments in and around its core residential projects to bring vibrancy to its residential developments.

PREFACE
Yesterday (19-March-2022), Darkhorsestocks completed 5 years. We had started darkhorsestocks with a single aim that is to bring amazing fundamentally strong company to users attention. No user should be left of opportunity to invest in fundamentally strong companies.
In this past 5 years despite coming across amazing opportunities we have sticked to our core fundamental aspects of suggesting companies. This is the first time most probably in our entire 5 years we are presenting a real estate company. In past we had so many experience where despite amazing sales , properties , aggressive management etc real estate companies have failed drastically.
Burdened with rising debt , increasing interest rates leading to increasing cost of capital and most importantly parallel economy of black money lead to huge problem for investing in real estate companies. Investors were deprived of the money which actually belonged to the company itself due to the large amounts of transactions carried out in cash.
Now we feel that the scenario is changing with increasing digitalisation and post demonetisation majority of the funds flows been directed via banking channels.
Additionally for this company we have been watching it for quite some time now and even before few weeks we had talked about the same. We strongly believe that the company has established an iconic brand in the real estate sector and the management is extremely aggressive in pursuing growth with simultaneously deleveraging the company alongside. This in itself is a big positive for the company.
Despite saying that we want investors to a bit cautious while investing in companies of this (Real Estate) sector as no matter how good company may look we can be wrong.

MACROTECH DEVELOPERS

Introduction

Current price on the date of publishing this report-: 1111 Rs

Established in the year of 1980, Macrotech Developers commenced its operations in Mumbai, developing affordable housing projects in the suburbs of Mumbai, and later diversified into other segments and regions in the MMR and Pune. Later in 2019 company diversified into industrial & logistics park business and in a short span of time, Macrotech Developers has attained remarkable success tying up with number of strategic and financial partners for its industrial park at Palava both by way of joint venture as well as outright acquisition. 

Headquartered in mumbai, Macrotech developers today is an Indian multinational real estate company which has developed residential and commercial properties in Mumbai, Thane, Hyderabad, Pune and London. Some of its notable projects include Lodha Altamount, The World Towers, Lodha Bellissimo, Trump Tower Mumbai and Lodha Park. Moreover, it is presently credited for developing Palava, an integrated smart city near Mumbai.

Macrotech Developers has a customer-centric business model which focuses on designing and developing its “branded products” to address consumer needs across locations and price points. Company’s core competency lies in professionally managing the real estate value chain as we have in-house capabilities to deliver a project from conceptualization to completion. 

Having said that company has a strong focus on de-risking projects and improving its return on investment with fast turnaround time from acquisition to launch to completion.

Macrotech Developers brands include “Lodha”, “CASA by Lodha” and “Crown – Lodha Quality Homes” for its affordable and mid-income housing projects, the “Lodha” and “Lodha Luxury” brands for our premium and luxury housing projects, and the “iThink”, “Lodha Excelus” and “Lodha Supremus” brands for its office spaces. 

Company’s in- house sales team is supported by a distribution network of multiple channels across India as well as key non-resident Indian (“NRI”) markets, such as the Gulf Cooperation Council, United Kingdom, Singapore and the United States.

Macrotech Developers has over 90 completed projects comprising a staggering 80 million square feet of developable area, of which over 60 million square feet is in affordable and mid income housing. Currently, Company is engaged in developing more than 50 ongoing and planned projects across 75+ million square feet of area.

Business

Compnay’s large ongoing portfolio of affordable and mid-income housing projects include

• Palava (Navi Mumbai, Dombivali Region), 
• Upper Thane (Thane outskirts), Amara (Thane), 
• Lodha Sterling (Thane), Lodha Luxuria (Thane), 
• Crown Thane (Thane), Bel Air (Jogeshwari), 
• Lodha Belmondo (Pune), 
• Lodha Splendora (Thane) and 
• Casa Maxima (Mira Road). 

Company has introduced one or more high-quality amenities in its projects, such as a large swimming pool, a private movie theatre, a cricket ground, a football stadium or an indoor swimming pool, at affordable price points. 

Company’s large townships are located at Palava (Navi Mumbai, Dombivali Region) and Upper Thane (Thane outskirts). 

Company’s premium and luxury housing projects include 

• Lodha Park (Worli), 
• Lodha World Towers (Lower Parel), 
• Lodha Venezia (Parel) and 
• New Cuffe Parade (Wadala). 
• In addition, company has few projects under the “Lodha Luxury” brand, which comprises of small-scale, high-value developments such as
  • Lodha Altamount (Altamount Road), 
  • Lodha Seamont (Walkeshwar) and 
  • Lodha Maison (Worli). 

Commercial Real Estate

In 2019, Macrotech Developers forayed into the development of logistics and industrial parks and entered into a joint venture with ESR Mumbai 3 Pte. Limited (“ESR”), a subsidiary of ESR Cayman Limited, an Asia Pacific focused logistics real estate platform. 

As part of its logistics and industrial park portfolio, Macrotech Developers planned to develop a logistics and industrial park of over 800 acres of land near Palava, which is strategically located near the Jawaharlal Nehru Port, the proposed international airport in Navi Mumbai and the industrial hub of Taloja. Out of this area, approximately 290 acres was under development as of December 31, 2020, including an 89-acre logistics and industrial park that is being developed in partnership with ESR. 

Company’s product offerings under this category included 

• Built to suit structures, 
• Standard structures and 
• Land parcels for its logistics and industrial clients. 

In its commercial portfolio, Macrotech Developers office space projects comprise corporate offices, IT campuses and boutique office spaces, which are concentrated in suburban locations. Company’s retail projects focus on high street retail with shopping and entertainment options for the local community. 

During the Q3 Macrotech Developers Signed 6 JDA Projects with cumulative GDV of INR ~10,000 crores, thus meeting FY22 guidance by Q3 itself . Thus Macrotech Developers in in total signed 11 JDA Projects after IPO in FY22 YTD amounting to cumulative GDV of INR ~14,600 crores .

In terms of its success in the digital infrastructure industry, Palava is generating a lot of attention.

• A worldwide sportswear firm is establishing a one million-square-foot APAC India Logistics centre in Palava.
• The company is also in advanced talks with a global e-commerce major, which will result in the establishment of a million-plus square-foot warehouse within the next three months.
• A hospital chain has purchased property from the company in order to build a large hospital.
• A pharmaceutical business has also expressed interest in establishing an R&D cluster.
• The company completed transactions with Morgan Stanley last quarter and is now in the advanced stages of concluding its joint venture with two marquee global investors, which is expected to be completed in the next three months and will allow the company to expand the digital infrastructure platform not only in Palava but also across many locations.

Some of the Iconic Projects by Lodha Group

Lodha Altamount

Lodha Altamount is a modernist luxury residential tower building in Mumbai’s billionaires row. It was created by Hadi Teherani, Hamburg-based Iranian-German architect and designer.

The Lodha Group outbid Mahindra Lifespaces and TATA Housing bought the territory from the US Consulate for 341.8 crore. The old Washington House, which housed the US Consul General, was a three-story structure with a total size of 2,702 square metres. It is classified as a Grade 3 property and is located in Coastal Regulation Zone 2.

Lodha Altamount is a 43-story luxury residential skyscraper on a half-acre plot with 8 platform levels, 2 leisure floors, and 52 units completely served by the hospitality business Saint Amand. It was built with a steel frame and an all-glass façade, with three sides offering panoramic views of the Arabian Sea and Mumbai.

In November 2015, Lodha Altamount made history. A 10,000-square-foot apartment was sold for more than 1.6 billion rupees at a price of 160,000 rupees per square foot, the highest price per square foot ever paid in India.

Trump Tower Mumbai

The Trump brand has always been associated with delivering the greatest degree of excellence and flair on every project across the world. And Mumbai is no exception.

The status of residing in the Trump Tower in Mumbai is unparalleled. It is, after all, the only one in Mumbai! It towers tall at 78-storeys at the commencement of the Mumbai mile in Worli, with its gleaming golden façade.

PALAVA CITY

Palava City, popularly known as the City of Opportunity, is an integrated smart city in Maharashtra state, located near Dombivali. It was created on a 4500-acre plot of land between Thane, Navi Mumbai, and Kalyan by real estate developer Lodha Group. Jones Lang LaSalle India’s exclusive research report named it India’s No. 1 smart city.

LODHA UK BUSINESS

Lodha UK is one of the most active premium residential property developers in London, with £1.9 billion in projects under construction or finished. A well-known and powerful player in the worldwide property industry.

Lodha UK strives to make the most desired locations to live and work by combining excellent design with exquisite service. Collaborations with some of the world’s most renowned architects and interior designers, such as Yabu Pushelberg, Patricia Urquiola, and Lissoni, make each Lodha house a one-of-a-kind asset to be enjoyed by future generations.

Saint Amand, Lodha UK’s hospitality business, is directed by some of the most experienced hoteliers and hospitality executives in the UK and provides unique services suited to the demands of residents in each of its buildings.

LINCOLN SQUARE

Lincoln Square offers the best London flats for sale, ranging from studios to penthouses built by PLP architects with interiors by Bowler James Brindley. Patricia Urquiola, one of Europe’s most sought-after designers, designed the Private Health Club. Gustafson Porter + Bowman designed an inside quiet private courtyard garden for the building.

Financials for LINCOLN SQUARE

During the quarter, Lincoln Square maintained its consistent success, with pre-sales of £14 million (INR 140 crores). The project is still on pace to be completed in the next 1-2 quarters.

GROVER SQUARE

Home to British aristocracy since the 1700s, No.1 Grosvenor Square has been at the centre of fashion and status ever since the first stone was set by Sir Richard Grosvenor

Award-winning architecture firm The façade of No. 1 Grosvenor Square has been preserved, redesigned, and recreated by Eric Parry Associates.

Yabu Pushelberg, an award-winning North American design studio, is responsible for the layout and interior design of No.1 Grosvenor Square’s apartments and Health Club.

Financials for GROVER SQUARE

Following the lifting of restrictions on overseas travel, GSQ Development had £110 million (INR 1100 crores) in pre-sales in the preceding quarter (Q2FY22). The trend continued in the quarter, with GSQ recording its best-ever quarterly sales performance, with pre-sales of £177 million (INR 1770 crores). Thus, GSQ has achieved about £300 million in pre-sales in just two quarters.

With these two quarters of exceptional performance, the $225 million bond is projected to be entirely repaid from sales proceeds over the next four months, far ahead of its original maturity date of March 2023. Based on the present trajectory, the project is likely to be entirely sold out far ahead of the business plan objective of Q4FY24.

Financials

FOR Q3FY22

• MacroTech Developers increased pre-sales by 40% and collections by 44% in the Q3FY22 compared to Q3FY21.
• Pre-sales totaled INR 4,518 crore.
• India Pre-sales in India totaled INR 2,608 crores (a 40% increase year on year), while pre-sales in the United Kingdom totaled GBP 191 million (INR 1,910 crore).
• The total amount collected was INR 2,127 crores (up 44 percent YoY)
• The total revenue from operations was INR 2,059 crores (up 36 percent YoY)
• The adjusted EBITDA was INR 698 crores (up 55 percent YoY)
• Strong The adjusted EBITDA margin was 34%.
• PAT The margin was 13 percent.
• PAT adjusted for currency was INR 279 crores (124 percent YoY)

Sales of Rs. 4,500 + cr. o India pre-sales of INR 2,608Cr., highest in last 12 quarter +40% YoY and +30% QoQ o Additionally, UK projects achieved best ever pre-sales performance at GBP 191 mn (~1,910 cr.)

Cash Generation & Debt Reduction

In terms of operational cash creation, the company was able to reduce debt by Rs.400 crores entirely from operating cash. This, we believe, is critical because as collections rise from Rs.2100 crores in the previous quarter to much higher levels of Rs.2500 crores, Rs.2600 crores, and Rs.2700 crores in the coming quarters, we will be able to see deleveraging accelerate.

Net Debt for India business was reduced to INR ~9,925 crores, already achieving full year guidance.

QIP Offering

Company successfully completed its maiden QIP offering and raised equity of INR 4,000 crores from marquee global and Indian institutional investors. Thus promoter holding now stands reduced to ~82.5%

• This surplus is largely intended to be used for growth through capital light JDA model over next 5-6 quarters.
• Company Benefitted from 50% rebate on early payment of premium / FSI cost by BMC; estimated benefit of ~INR 600 cr.
• Merger has been consummated which will lead to significant operational and financial benefits.

LAND BANK

The company has approx 3500 acres of land, of which 900 acres will be used for residential development over the next few years. The remaining land bank corporation anticipates that it will be used in a variety of ways, including the establishment of logistics hubs, offices, R&D facilities, hospitals, and so on. So, as of today, management has directed that around 700 crores of land be monetized on an annual basis for digital infrastructure, which they expect would be used in the near years.

Going Forward/Managements Comments

There could be an interest rate increase of between 25 to 50 basis points in the course of calendar year 2022. We believe that kind of increase is relatively easy for mortgage cost to absorb and we do not expect that there will be any significant negative impact to demand on account of that kind of an increase in mortgage cost. 

Commodity, building material, and labour prices have risen, and they may rise higher, but the immediate impact on financials will be delayed because construction costs in India are relatively low as a proportion of sales price. Furthermore, the corporation has already passed on the price rise by boosting prices by roughly 5% on average and perhaps up to 6% for the year. Furthermore, the firm has a considerable quantity of ready inventory that might benefit disproportionately from increased prices, which management believes to contribute to margin improvement in the next quarter to some extent.

Management is consistently concentrating on debt reduction and deleveraging. The management team is aiming for a very robust balance sheet, as well as a large reduction in debt and cost of capital over the next 4-5 quarters. London revenues will bolster this management’s efforts even more.

Interest cost in the current quarter will be approximately around Rs.300 Crores and management expects to further moderate that to about Rs.800 Crores for the full year in the next fiscal. The detailed update on managements plans will be given on a later date along with the sales guidance.

New Launches: 9M FY22 and likely launches for the rest of FY22

We have skipped the Sectorial outlook section since we do not find significant relevance as majority of the people might be familiar with the propensity of the growth in this sector over past few years as well as the sustainability of the same in the coming period. As for the facts and figures we would request users to carry out their own research and do not put the query for the same.

CONCLUSION

Macrotech Developers has tried to establish the norm in India for high quality and sustainable development, spanning multiple pricing segments and asset classes, by designing and delivering 8,000+ houses and millions of square feet of office and industrial space each year. Macrotech Developers has been conscious and attempted way early in ensuring that sustainability becomes a way of life for the company and the vast ecosystem of suppliers, workers, and inhabitant, from India’s first office building powered by 90 percent + renewable power to being the first developer to offer 5 star rated ACs as standard fitting or planning for a car-free city centre in Palava or 100 percent recycling of waste water across all of its developments.

Despite difficult external conditions, the Company achieved significant development in the previous year. Furthermore, the corporation has a massive land bank of 3500 acres that the management intends to use in the near future. Macrotech developers is a long-term investment opportunity due to its deleveraging balance sheet, proactive management, and legendary Lodha brand.