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Firmly in the driver’s seat

Macrotech Developers (MDL) seems to be entering a healthy growth phase through a combination of sales growth, debt reduction and project acquisitions. In 1QFY23, booking values grew to INR 28.14bn (+194% YoY; down 19% QoQ; on track to meet full year guidance of INR 115bn; covered c.75% of growth over FY22-FY23 in this quarter). Collections remained healthy at INR 26.16bn (+53% YoY; down 8% QoQ). As a result, consolidated net debt reduced sharply on a QoQ basis to INR 88.56bn (INR 93.1bn in 4QFY22) through internal accruals. Going forward, net debt is likely to trend towards INR 60bn by Mar’23 on account of i) higher operating surpluses in residential business and ii) repatriation from UK investments flowing through (INR 15bn+). Further, MDL has added 3 new JDA projects having c.5.1msf of saleable area with GDV of INR 62bn across MMR, Pune and Bengaluru (guides for INR 150bn of GDV acquisition in FY23). In the green digital infrastructure business, MDL has formed a US$ 1bn (30msf) warehousing and light industrial platform along with global funds and has contributed 110 acres of Palava land parcel to it. We remain positive on Macrotech as it continues to execute well across ticket prices and micro-markets and maintain ‘BUY’ rating with a Mar’23 TP of 1,410 (implying 22% upside). MDL also intends to start paying dividends (c.15-20% of PAT) from FY23.

* On track to hit booking values of INR 115bn in FY23: Booking values grew to INR 28.14bn (+194% YoY; down 19% QoQ; on track to meet full year guidance of INR 115bn; with broad based momentum across micro-markets. Top micro-markets contributing to sales were South Central Mumbai (INR 8.5bn; +122% YoY; down 22% QoQ), Thane (INR 4.3bn; + 99% YoY; declined 20% QoQ) and Extended Eastern suburbs (INR 6.8bn; +293% YoY; flat QoQ). Extended Eastern suburb has now hit run-rate of c.INR 25bn annual booking values which augurs well from land monetisation perspective.

* Entered Bangalore; Business development in full swing: MDL added 3 new JDA projects (c.5.1msf of saleable area; GDV of INR 62bn across MMR, Pune and Bengaluru) and guides for INR 150bn of GDV acquisition in FY23. Moreover, it has entered Bangalore market with a JDA project (GDV of INR 12bn; saleable area of 1.3msf) and the launch is expected in 2HFY23. Further, MDL has recruited Mr. Rajendra Joshi as CEO for the Bengaluru market (ex-Brigade Group, Head of Residential). Given the INR 400bn size of the market, a fragmented market structure and an experienced leadership, we feel MDL’s entry in the Bangalore market is a step in the right direction.

* 35% debt reduction in FY23 led by internal accruals: MDL is likely to bring down debt to INR 60bn by FY23 end. For FY23, collections are likely to be in the range of INR 100- 110bn (lagging sales slightly), construction spends of INR 38-40bn and interest outgo to head towards INR 8bn (INR 2.7bn in 1QFY23) on account of deleveraging. Moreover, over FY23-24, INR 15bn+ is expected to be repatriated from UK (likely to start from FY23).

* Maintain ‘BUY’ with a Mar’23 TP of INR 1,410: We remain positive on MDL as it continues to execute well across ticket prices and micro-markets. We maintain ‘BUY’ with a Mar’23 TP of 1,410 (implying 22% upside). Key Risks: slowdown in residential segment.

* Reported financials: Revenue came in at INR 26.8bn (+67% YoY; down 22% QoQ) while reported EBITDA came in at INR 4.7bn (+38% YoY; declined 48% QoQ) with margins at 17.4% (21.1% in 4QFY21). Margins look optically lower due to higher interest capitalisation possibly due to revenue recognition of older projects. Adj. EBITDA (EBITDA + capitalised interest) stood at INR 9.03bn (+68% YoY; 33.7% margin; +20bps YoY). Adj. PAT (excl – forex) came in at INR 3.55bn (3x YoY; down 38% QoQ).

* Launch pipeline extremely strong: In 1QFY23, Macrotech launched INR 56.6bn worth of inventory (2.7msf) including Lodha Malabar, Lodha NCP – Aura, Premier / Palava, Upper Thane, Crown Kolshet, Powai and NIBM. It plans to launch another INR 115bn (8.5msf) over the rest of FY23 led by large projects in South Central region, Extended Eastern suburbs, Eastern and Western Suburbs and Pune.

* UK investments to start repatriating in FY23: In 1QFY23, total inventory worth GBP 81mn (GSQ: GBP 73mn + LSQ: GBP 8mn) was sold and remaining UK project debt of GBP 73mn is fully covered by GSQ inventory. UK investments continue to do well and MDL has already pre-paid US$ 170mn (out of US$ 225mn) a year ahead of its scheduled maturity. Debt reduction plans will get accelerated as the investment in the UK is repatriated back starting FY23 (INR 15bn+).

* Collections: Collections came in at INR 26.16bn (+53% YoY; down 8% QoQ) and thus even after operating expenses of INR 10.64bn, land spends of INR 6.36bn and interest outgo of INR 2.71bn MDL was able to generate operating surplus of INR 4.44bn for debt reduction. As the sales / collections improve further higher operating surpluses would be created resulting in further debt reduction.

* Formalized a US$ 1bn platform with Bain Capital and lvanhoé Cambridge: MDL plans to develop green digital infrastructure assets across multiple cities in India. The platform will invest US$ 1bn to create 30msf of warehousing and industrial parks. MDL has contributed 110 acres of Palava land parcel to it.

* Consolidated net debt has reduced sharply on a QoQ basis to INR 88.56bn (INR 93.1bn in 4QFY22) and net debt to equity has come down to 0.71x. Average exit cost of debt has come down from 10.5% to 10.1% on a QoQ basis (net 40bps reduction QoQ). The downward trajectory in interest costs is expected to continue even in FY23.

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