LODHA – RTN asia

Real estate developer Lodha Group reported its best ever quarterly pre-sales of Rs. 35.3 billion for the second quarter of FY2024, registering a 12% year-on-year growth despite Q2 being traditionally the weakest quarter. The company's strong performance comes on the back of improving real estate market conditions since the Covid-19 pandemic. Lodha has rebounded strongly since the initial disruptions caused by the pandemic in 2020. The company reported pre-sales of Rs. 90 billion in FY2022 and Rs. 121 billion in FY2023, showcasing resilience even during uncertain times. In the first half of FY2024, Lodha has already achieved pre-sales of Rs. 68.9 billion, reflecting the strongest first half in the company's history. According to Abhishek Lodha, Managing Director and CEO of Lodha Group, demand conditions continue to strengthen across markets driven by strong affordability, low home loan rates and desire for home ownership. He highlighted that Lodha is benefiting from consolidation in the real estate sector with buyers preferring branded developers with established reputation for quality and execution capabilities. The company expects further tailwinds from government incentives for affordable housing and likely decreases in home loan rates. Lodha has significant presence in the affordable housing segment which could see higher demand if interest rates soften going forward. Lodha's collections also grew 16% year-on-year to Rs. 27.5 billion for Q2 FY2024, reflecting healthy cash flows. On the balance sheet front, the company reduced net debt by Rs. 5.4 billion during the quarter to Rs. 67.3 billion. It said the debt reduction is in line with its continued focus on deleveraging its balance sheet from the high debt levels witnessed in FY2020 at the peak of the liquidity crisis in the real estate sector. Lodha is targeting to reach a net debt to equity ratio below 0.5x and net debt lower than 1x operating cash flows during FY2024. The improvement in credit profile has also led to an upgrade in Lodha's credit rating to A+/Stable by CRISIL during the quarter. On the business development side, Lodha added 2 new projects with gross development value of Rs. 23 billion across Mumbai and Pune. Since its IPO in 2018, Lodha has added new projects worth over Rs. 480 billion, well above its initial guidance of Rs. 375 billion. Lodha has projects across the Mumbai Metropolitan Region, Pune and London. Trend of Recovery Lodha's robust Q2 FY2024 performance builds on the gradual recovery witnessed after the Covid-19 disruptions in 2020. Pre-sales bottomed out at Rs. 45 billion in FY2021 but have been on an uptrend since then. Collections and cash flows also witnessed gradual improvement giving Lodha flexibility to strengthen its balance sheet. According to experts, the pandemic led to acceleration in consolidation favouring leading developers like Lodha, particularly after many smaller developers ended up in bankruptcy or severe financial and cashflow problems. Buyers increasingly preferred branded developers with strong track record of quality and execution. Meanwhile, affordable and mid-income housing drove volumes while high-end projects catered to upgrade demand from buyers looking for larger homes post-pandemic. While the first Covid-19 wave in 2020 led to demand slowdown, sales bounced back strongly once lockdowns eased. Pent up demand, low home loan rates, government incentives and desire for home ownership drove sales. Lodha was well positioned to tap into the demand revival across markets through new project launches. “Lodha has emerged stronger post-Covid by capitalizing on demand consolidation," said Abhishek Lodha. "Our new sales bookings in H1 FY2024 exceeded full year pre-sales for FY2020. Our strategy of adding projects in key micro markets has provided growth visibility.” While smaller developers faced liquidity squeeze, Lodha’s collections, cash flows and ability to tap capital markets provided financial flexibility. The company raised around Rs. 150 billion through Qualified Institutional Placements (QIP) and bond issuances in FY2021 and FY2022 to prepay debt and strengthen balance sheet. Lodha also re-aligned business focus on core residential development while lowering exposure to high capex non-core businesses like coworking. The company achieved major milestone through the sale of its London portfolio to Blackstone Group. Outlook For the second half of FY2024, Lodha is looking to build on the strong momentum witnessed in the first half. The company has a robust launch pipeline of projects worth Rs. 220 billion. Major launches are planned across micro-markets in MMR and Pune where Lodha already has significant presence and brand appeal. Lodha aims to achieve 40% growth in pre-sales for full year FY2024. Collections are also expected to be strong as older projects get completed and inventory is delivered across locations. Deleveraging the balance sheet and lowering finance costs remains a priority and the company is targeting becoming net debt free over the next 3-4 years. Lodha has one of the lowest debt costs in the industry at sub-10% which gives it a competitive edge in capital management. Beyond the core residential business, Lodha also sees significant growth potential in the affordable rental housing segment under the brand 'Casa'. Casa offers rental accommodation targeted at millennial and working professionals across metro cities. The company aims to scale up the rental housing business over the next 3-5 years by leveraging its core capabilities in project development and sales/marketing. With India's rapid urbanization, the demand for quality rental housing is expected to outstrip supply. Overall, Lodha seems well positioned to ride the growth revival in Indian real estate given its brand appeal, execution track record and presence across micro-markets and price segments. The company has emerged stronger post-Covid by capitalizing on industry consolidation. Its continued focus on financial prudence, deleveraging and business development should enable value creation for stakeholders going forward.

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