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MACROTECH DEVELOPERS LIMITED (LODHA) is one of the largest real estate developers in India, by residential Sales value for the financial years 2014 to 2020. Its core business is residential real estate developments with a focus on affordable and mid-income housing. In 2019, it forayed into the development of logistics and industrial parks and entered into a joint venture with ESR Mumbai Limited (“ESR”), it also developed commercial real estate, including as part of mixed-use developments in and around our core residential projects.

Investment rationale

Positives: (a) One of India’s largest residential real estate developers, Lodha having a market share of more than 10% in micro markets of MMR Market (b) Diversified portfolio across price points and micro-markets in the MMR with a focus on affordable and mid-income housing. (c) Change in customer preference of buying ready to move inventory will help the company to increase its market share in MMR region as the company has significant inventory of completed units. (d) We have seen a very good housing demand after the sector was hit by the covid pandemic, sales momentum to continue for Lodha developers in near future

Investment concerns: (a) Lodha developers having a net debt of 16700 crores as on 31st December 2020, any downturn in industry may affect the company significantly. (b) Company product portfolio is too concentrated on the residential market of MMR region any change in rule and regulation by authority may affect the company significantly. (c) Company not able to generate significant positive cash flow for the shareholder in the last 3 years and may continue to have negative cash flows in the near future.

Outlook & Valuation:

Company has a strong brand in affordable and mid income housing projects, but is not able to deliver the growth in sales and free cash flow in the last couple of years. The company has reported sales degrowth of 68% in 9MFY21 and reported a negative profit after tax of 265 crores. Given weak revenue growth in the past and leveraged balance sheet we assign a "NEUTRAL" rating to the IPO

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