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Off the treadmill

Macrotech Developers (LODHA) achieved its best ever April-June sales bookings in Q1FY23 worth Rs28.1bn (Isec estimate of Rs25.5bn) which we believe has been driven by a combination of monetization of ready/completed inventory and new launches. The company has given FY23E sales booking guidance of Rs115bn (Isec estimate of Rs110bn) and we believe that the sales guidance is achievable given the addition of new projects having total estimated GDV of Rs146bn in FY22, majority of which are slated for FY23E launch. The company’s India business net debt reduced by Rs4.4bn QoQ to Rs88.6bn in Jun’22 from Rs93.0bn in Mar’22 and we believe that the company is now “off the treadmill” as strong operating cash flows, reduced interest costs and asset light land bank additions will likely result in organic net debt reduction over FY23-24E. We retain our BUY rating with an unchanged target price of Rs1,348/share. Key risks are demand slowdown in the MMR market and rising interest rates.

Strong quarter for sales bookings:

LODHA clocked Q1FY23 India business sales bookings worth Rs28.1bn vs. Isec estimate of Rs25.5bn (up 2x YoY) and is the highest quarterly sales booking clocked by the company till date for the April-June period. India business collections for Q1FY23 stood at Rs26.2bn (up 53% YoY). While we await more micro-market specific details on key contributors to sales bookings for the quarter, our chancel checks indicate that continued monetization of ready/near-completion inventory across MMR and new project launches like Powai (GDV of Rs5bn), final tower at Park, Lower Parel (GDV of Rs20bn), new tower launch at NCP, Wadala (GDV of Rs9-10bn) and Kolshet, Thane (Rs4bn) would also have driven sales. While Q2FY23 is a seasonally weak quarter, new Mahalaxmi launch (South-Central Mumbai) may contribute to sales.

Net debt reduced by Rs4.4bn QoQ to Rs88.6bn:

The company’s India business net debt reduced by Rs4.4bn QoQ to Rs88.6bn in Jun’22 from Rs93.0bn in Mar’22. The company has guided for a pre-tax operational surplus of Rs60bn in FY23E, and post interest cost of Rs8bn and ~Rs20bn of business development spend, the company plans to utilize the balance surplus of over Rs30bn to bring down Indian business net debt levels to below Rs60bn excluding any surplus received from the UK in FY23E of ~Rs15bn. We believe that the company is now “off the treadmill” as strong operating cash flows, reduced interest costs (mainly owing to absolute debt reduction) and asset light land bank additions will likely result in organic net debt reduction over FY23-24E.

On track to achieve over Rs100bn of annual sales bookings over FY23-24E:

Post listing in Q1FY22, the company has added new projects having total saleable area of 8.8msf having an estimated GDV of Rs146.0bn in FY22, majority of which are slated for FY23E launch. Considering the strong launch pipeline and sustenance in sales momentum, we estimate sales bookings of Rs110bn in FY23E vs. company guidance of Rs115bn (Rs105bn from core residential business and Rs10bn from non-core business) and Rs119bn in FY24E. The company is targeting adding new projects having GDV of Rs115bn in FY23E of which it has signed 3 new JDA projects in Q1FY23 having 5.1msf of saleable area with estimated GDV of Rs62.0bn and has also announced its foray in the Bengaluru market by signing its first project having a GDV of Rs12bn. While rise in mortgage rates remain key risk to demand, the company may provide incentives to home buyers in the form of partial builder subvention to mitigate this risk.

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