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Sales momentum sustains

Macrotech Developers (LODHA) achieved its best ever July-September sales bookings in Q2FY23 worth Rs31.5bn (Isec estimate of Rs27.5bn) which was driven by a combination of monetization of ready/completed inventory and new launches. The company has given FY23 sales booking guidance of Rs115bn (Isec estimate of Rs110bn) and we believe that the sales guidance is achievable given that the company has already achieved H1FY23 sales bookings of Rs60.0bn (52% of FY23 guidance) in a seasonally weaker period where the April-September period typically accounts for 40-45% of annual sales. The company’s India business net debt reduced by Rs0.6bn QoQ to Rs88.0bn as of Sep’22 while in its London investments, the company has repaid USD225mn bonds ahead of schedule and has no further obligation on its India balance sheet towards its London investments. 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 Q2FY23 India business sales bookings worth Rs31.5bn (up 57% YoY) vs. Isec estimate of Rs27.5bn and is the highest quarterly sales booking clocked by the company till date for the July-September period, which is typically the weakest quarter of the year. We believe that the new launches in Mahalaxmi (South/Central Mumbai) and Vikhroli (eastern suburbs) may be the key drivers for sales bookings apart from monetization of inventory in ongoing/completed projects. With a strong performance in H1FY23 where the company has clocked Rs60.0bn of sales bookings (52% of FY23 sales guidance of Rs115bn), the company is well on track to achieve its guidance for FY23

* Net debt flattish QoQ on lower collections and strong business development: The company’s India business net debt reduced by Rs4.4bn QoQ to Rs88.6bn in Jun’22 from Rs93.0bn in Mar’22. In Q2FY23, the company’s net debt reduced by Rs0.6bn QoQ to Rs88.0bn (flat QoQ). The lower net debt reduction is primarily owing to lower Q2FY23 collections of Rs23.8bn (decline of 9% QoQ) due to slower construction activity during monsoon and deferral of registrations during 15 days of inauspicious period in India (Pitrupaksh/Shraadh). In the company’s London investments, the USD225mn bonds have been fully repaid in Sep’22, 6 months ahead of schedule which means that the company has no further obligations on its India balance sheet w.r.t to the London investments.

* 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 FY23 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 FY23 of which it has signed 3 new JDA projects in Q1FY23 having 5.1msf of saleable area with estimated GDV of Rs62.0bn and in Q2FY23 it has signed 4 new projects with 2.2msf of saleable area with estimated GDV of Rs31.0bn. While rise in mortgage rates remain key risk to demand, the company is providing partial developer subvention for interest rate increase beyond 6.99% up to June 2024 to mitigate this risk (capped at 150bps or ~8.5%).

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