Housing supply is the real crux in the residential sector, says Lodha’s CFO

October 09, 2023 | By LODHA

In the September quarter for instance, while industry home sales rose 36 per cent annually, supply has risen at a lower 24 per cent

For the first time in several years, housing supply is not keeping up with the scorching demand that the sector is seeing and while it is not a cause for actual worry, the industry needs to get a grip on meeting the demand, said Macrotech Developers’ Chief Financial officer Sushil Modi.

“When we talk about the demand in the sector the crux, really speaking, is about the supply,” Modi told businessline in an interaction. “The demand is for real now, but the supply is not yet real,” he added.

While most companies have guided for around 20-25 per cent growth in sales in the current fiscal year, a part of that will come through pricing. Modi said that Macrotech has guided for 20 per cent growth in FY24, but seven per cent will be attributed to pricing growth. This leaves a small portion that will be achieved through new launches or existing inventory.

In the September quarter for instance, while industry home sales rose 36 per cent annually, supply has risen at a lower 24 per cent. Unsold inventory is at its lowest ever with only 6.5 quarters to sell, which is less than two years.

Citing statistics Modi said that every year several lakhs of job seekers from all professions were graduating and entering the market. These were all potential home buyers and though they may not immediately buy a house, they are likely to do in the next few years. Mortgage lender HDFC Bank’s data shows that the average age for purchasing a home is now below 30.

“In that case, we are nowhere near in terms of supply,” Modi said. He also observed that the number of top-notch, reliable real estate developers was few and most buyers would prefer to buy from them as many homebuyers had burnt their fingers in the past with houses not being delivered on time or at all.

Modi also said that demand in the housing sector was here to stay for a long time.

Lodha on Track

The company which sells residences under the Lodha brand is well on track to achieve all its stated targets in terms of sales, launches, and additions to its project pipeline in FY24.

Against its ₹14,500 crore of pre-sales guidance for the full year, the company has recorded sales of Rs 6884 crore in the first half, which is just over 47 per cent of the target. The second half is usually better for the housing sector compared to the first half as people tend to buy during the festival season, with several auspicious occasions for it.

Its target project addition this year is ₹17,500 crore of which around ₹14,000 crore is already in the bag.

The launch pipeline for the year is 22 projects of 9.4 million square feet. It has around ₹19,000 crore worth of under-construction projects and ₹9,000 crore worth of ready inventory, which also includes some commercial assets.

The company entered the Bengaluru market last year but is yet to make any headway as it is still in the process of understanding the market there, its dynamics, and customer preferences.

In Pune, it is looking to gain market share and is expecting sales of ₹2,100 crore this year compared to Rs 1200 crore last year. “In the next two years we will be looking at around ₹4,000-5,000 crore sales from the city,” Modi said.

With respect to the $1 billion digital infrastructure platform with Bain Capital and Ivanhoe Cambridge, Modi said that it was progressing slowly and not “at the pace what we would have liked.” Some transactions on land acquisitions as well as leasing in some cities had been done, he added.

Debt reduction

At the end of September, the company reduced its debt by ₹540 crore to ₹6,730 crore. A year ago the net debt had been ₹8,800 crore.

On its debt strategy, Modi said that with its robust launch pipeline and business development it had a good visibility of operating cash flows. “We are on a path whereby we can effectively become a zero-leverage company,” he said.

The company plans to seek the opinion of its stakeholders as to whether to use the cash to reduce the debt to nil or spend more on business development. In FY24 it has a target to generate over ₹6,000 crore of cash flows.

He said that while the company was on track to achieve its targets, there was also room to grow faster. “So in our thought processes and decision making, we factor all that in before arriving at a final decision.”

In terms of market capitalisation Macrotech is the third-largest real estate company and its shares have appreciated nearly 43 per cent in the last one year.

Published in The Hindu Business Line on 9th October 2023.