MAHINDRA LIFESPACES

Mumbai-based real estate developer Mahindra Lifespace Developers Ltd (MLDL) announced a mixed set of results for the second quarter of fiscal year 2023 on October 27th. The company reported consolidated total income of Rs 25.7 crore, down 65% from Rs 73.8 crore in Q2 FY2022 and 76% lower than Rs 110.1 crore in Q1 FY2023. It posted a consolidated net loss after non-controlling interests of Rs 19 crore compared to a loss of Rs 7.7 crore in the same quarter last year and Rs 4.3 crore loss in the previous quarter. The weak results reflect the slowdown in India's real estate sector amid rising interest rates and inflationary pressures. However, MLDL saw strong momentum in its residential business with pre-sales of Rs 455 crore in Q2 FY2023, driven by robust demand for its plotted development projects. Pre-sales refer to the value of bookings, sales agreements, or letters of intent that a developer has secured for its under-construction or newly launched residential projects. It represents the total sales value that buyers have committed for units in ongoing and new projects. However, pre-sales do not get recognized as revenue or income in the profit/loss statement. Revenue recognition happens only when the project construction reaches a certain stage and the developer fulfills its obligations as per RERA rules. This is called the percentage of completion method. So pre-sales do not directly get converted into revenues because of the time lag and strict revenue recognition principles followed in real estate accounting. Revenues are typically lower than pre-sales in a given period for real estate companies. Because of this, the company's overall financial performance remained under pressure owing to the long project completion cycle in real estate. MLDL follows a construction-linked revenue recognition model rather than recognizing revenues on project launch or bookings. As a result, new sales take 2-3 years to get recognized in the P&L account. This has led to falling revenues over the last year even as new bookings growth stayed strong. Consolidated revenues declined from Rs 504 crore in FY2021 to Rs 411 crore in FY2022. In the first half of FY2023, revenues were down 29% YoY at Rs 135 crore. This slowdown in recognized revenues has weighed on the company's bottomline. Mahindra Lifespace Developers is the real estate development arm of the Mahindra Group. Established in 1994, the company develops residential projects, integrated cities and industrial clusters across 7 major cities in India. Its key residential brands include 'Happinest' affordable housing and premium 'Mahindra Lifespaces' projects. The company also operates two integrated cities - Mahindra World City near Chennai and Mahindra World City near Jaipur. After facing slowdowns in the last real estate cycle of 2011-2020, Mahindra Lifespace had started seeing gradual recovery from 2021. Its performance in the last few quarters indicates that the real estate sector is once again facing headwinds. In the first half of FY2023, MLDL's consolidated total income declined by 29% to Rs 135.8 crore compared to Rs 191.2 crore in H1 FY2022. Net profit after non-controlling interests slipped to a loss of Rs 23.2 crore versus a profit of Rs 67.7 crore in the same period last year. The company saw strong pre-sales growth in its core residential business. It achieved pre-sales of Rs 800 crore in H1 FY2023, registering a 60% growth over Rs 500 crore in H1 FY2022. Pre-sales momentum continued in Q2 with Rs 455 crore sales, up 55% YoY. Much of this sales growth was driven by Mahindra's plotted development projects. Its 'Lakefront' luxury plotted development near Chennai has seen strong uptake since launch last year. Lakefront contributed over Rs 300 crore to residential pre-sales in Q2 FY2023. The company also saw healthy sustenance sales from existing projects across the country. Sustenance sales accounted for around Rs 155 crore of pre-sales in Q2. Mahindra Lifespaces launched 0.47 million square feet of new area across the affordable Happinest brand and premium Mahindra Lifespaces brand in Q2. In the first half, it launched 0.84 million square feet of residential projects across its Happinest, Mahindra Lifespaces and Lakefront brands. The company is looking to capitalize on the strong demand momentum by launching new projects. In October 2023, it acquired a 5.38 acre land parcel in Wagholi, Pune to develop a premium housing project with saleable area of over 1.5 million square feet. More new launches across the mid-premium and premium segments are likely over the next few quarters. Meanwhile, Mahindra Lifespaces saw steady leasing traction in its integrated cities and industrial clusters business vertical. It leased 12.8 acres of land across its industrial clusters in H1 FY2023, generating revenues of Rs 46.7 crore. In Q2, it leased 9.9 acres for Rs 32.2 crore across its industrial clusters near Chennai, Jaipur and Ahmedabad. Going forward, Mahindra Lifespaces’ performance will depend on the trajectory of India's residential market amid the rising interest rate environment. After several years of sluggishness, housing demand in India was on a recovery path in 2021 and 2022. However, higher home loan rates could dampen consumer sentiment and affect housing sales growth. The RBI has increased repo rate by 190 basis points since May 2022 to tame multi-year high inflation. This has driven up home loan rates from sub-7% levels last year to over 8.5% currently. Nevertheless, Mahindra Lifespace management remains optimistic about demand trends in the mid-premium and premium housing segments. The company aims to capitalize on this demand by accelerating new project launches. The company had over Rs 2,800 crore of cash and equivalents on its balance sheet as of September 2022, providing it financial muscle for land acquisitions and project launches. Execution of its residential projects as per schedule and cost efficiencies will be key factors to watch for the company’s profitability. MLDL has set a target of launching around 5 million square feet of residential projects across the country this year, and delivering over 2.5 million square feet. Its focus will also remain on monetizing land banks across its integrated city projects.

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