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Ladies and gentlemen, good day, and welcome to Mahindra Lifespace Developers Limited Q1 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. We have with us on the call today, Mr. Amit Kumar Sinha, MD and CEO; Mr. Vimal Agarwal, CFO; and Mr. Rabindra Basu, Head of Investor Relations. I now hand the conference over to Mr. Amit Kumar Sinha, MD and CEO. Thank you, and over to you, sir.
Thank you, Seema. Good morning, everyone, and welcome to our first quarter FY 2024 Earnings Call for Mahindra Lifespaces. Firstly, I would like to thank everyone for participating in the conference call. And as Seema mentioned, I'll keep it short and then hand over to Vimal and then we'll open up for questions. So let me start with 3 key messages from my side. Let me just try to cover first message about how we see the market. The second message is about our summary of our quarter 1 performance. And third one is about our aspiration for future. Let me cover them sequentially. So number one, on the macro, how we see the industry -- we see significant buoyancy in the industry despite high interest rates. And despite pockets of slowdown that we see in some of the states and some of the industries, we see a significant buoyancy in the real estate industry, which is healthy for all of us. Residential demand continues to be high. We are seeing a high level of absorption across markets, especially those markets that we are participating, core markets for us. There is a large number of new launches that are already launched or in the pipeline. We also see the prices as holding study and in the right places in the right mark-to-market, we see the inflation and the price going well in the same direction. So overall, a healthy market. As you very well know, residential markets and real estate market tend to be cyclical, we are 2 years into this cycle where we see the buoyancy to continue. And hopefully, this cycle will be longer than some of the other cycles that we have seen in the past. The last message on the macro from my side is we continue to find a lot of customers who are attracted and appreciated of the Grade A developers. There is a flight to quality that we see. And we hope that the organized grade A developers will continue to capture share away from unorganized less-organized players in each of these markets. All in all, it gives me a healthy feel to the market and how we are positioned in this sector. Message 2 is about how we have done in the quarter 1. As you have seen in the announcement yesterday, we had a quarterly sales of INR 345 crores. This is -- does not include the Kandivali launch, which was planned in quarter 1, but will happen in the subsequent quarters to account for some of the changes in the regulation related to mother RG area. It also does not include a very successful lakefront state our first plotted launch that we did in Chennai. Most of that is captured in quarter 2 -- but overall, INR 345 crores captures the sustainable sales of the project that we have launched in the past few years. Part 2 of a business update is the number of launches that we had planned in the last earning call, I mentioned to you that 9 launches are planned for this financial year. One launch has happened towards the end of quarter 1, and we are seeing great success in the plotted launch, as I mentioned. 282 plots were launched, 200 sold out in less than 4 weeks. So our first -- big success that we had so far. The other 8 launches, and as I mentioned, I'm quite sure of the 9, 8 will definitely happen, 9th one we really are pushing hard. But Kandivali is a key part of our – Kandivali Phase 1 existing part of our launch, which is a large size launch that we are already excited to be launching later in the year. But overall, we feel very good about where we are today, that we'll be able to launch all these project launches that we have planned in the current financial year. The third part of business update is to talk about the GDV and land acquisition as we have put a lot of focus on business development and land acquisition. It currently stands at roughly INR 5,500 crores. There's always additions and subtractions happening based on the negotiations, diligence and the realization of some of those land parcels into potential launches. We continue to have a very disciplined state fit process to pursue those land parcels that create value for us and that we'll be able to bring to market in the shortest time frame. The IC business, last part is, as you know, had a great year last year. We had INR 456 crores of leasing in last financial year. It's a lumpy business given China plus one theme, given domestic consumption story, given the GDP expectation that RBI and World Bank have put forward, we feel that we'll have more and more interest in our IC & IC business. It's a plug-and-play infrastructure, suits many of the companies -- the pipeline is very healthy. We have closed 3 acres in the first quarter in MWC, Chennai. But the pipeline is very strong, very long, and we hope to able to convert most of these in the current financial year across all our IC portfolio. The third part, that's the quick business update. But in the last earnings call, I talked about and some of you have asked me about what is our aspiration, what about strategy for the next 5 to 7 years. And I just want to cover that very quickly. In fact, we have included some details in the IR presentation that we released yesterday. Over , we've had a strong last 2 years of performance driven by our residential segment, healthy growth across all the core markets. And as I said earlier, this has given us strong confidence that we can do better and can pursue larger opportunities. Our aspiration now is to be 5x bigger than where we are today, INR 8000 crores to INR 10,000 crores of presales in the next 5 years, obviously, focusing on customer centricity and focusing on profitability as we deliver these projects. This is a significant jump from where we have been in the past, but we feel that given the strategy that existed before, we're doing fine tuning of that strategy, but that fine-tuning of the strategy has given us confidence to aspire for more. We're also doing the right thing to augment our capabilities. And let me highlight 6 things that I had released in the investor document yesterday, which are critical for us to deliver and execute well on this strategy. The first is the choice of portfolio, as we call it, a well-engineered portfolio for our business. It means where we play in terms of geography. We talked about Bombay, Pune and Mumbai, Pune and Bengaluru. We talked about customer segments. We're going to play in mid-premium as well as premium segment. And when this is we'll keep an eye out towards value segment also, products, what kind of product portfolio will have, what kind of project sizes we'll have and what kind of deal types that we'll pursue. And you heard about our successful wins on the society redevelopment side. The second part is the robust acquisition engine that is critical for us to deliver on this aspiration. One of the good news I'd like to share here is the Thane land parcel, which we have for some time as we see a very favorable IITP policy change, which allows us to practically more than double the GDV value from INR 4,000 crores that we had announced to north of INR 8,000 crores. Obviously, we have a lot of work to do to bring this to the market. It's a mixed-use commercial plus residential requirement from an ITTP point of view. But if you want to aspire for INR 8000 crore to INR 10,000 crore presales in 5 years, Thane will play a major role in us delivering that. The third part is the customer centricity. Mahindra brand stands for a specific customer promise, and we are going to always exceed that through our designs, through our relationship with customers through our sustainability and technology solutions. That continues to be the differentiated value proposition for all of our customers who trust in Mahindra brand and buy our products. The fourth part of our strategy is to ensure that we deliver an excellence in delivery of the homes and also at the right cost structure and the right time frame. You may smile at it, but I want to be the indigo of real estate, delivering the products that we promised to our customers on time in line with their expectations in line with the cost and return that we have internally. We are having a first-time right approach to construction to very credible construction partners and contractors that will ensure that we deliver those promises in reality. IC & IC has always been a key part of our value proposition. This is how we've been able to extract cash and fund our real estate expansion. It will continue to be there. The China plus one theme, the Indian consumption story has given a lot of big pipeline that I touched upon, and we'll continue to mine our IC portfolio to support our residential business. And then finally, future proofing, Mahindra Lifespaces through right set of operating models, right set of capabilities, right kind of systems and processes that will set us apart from our competition. Those are the 3 elements of our strategy. Happy to discuss more in the questions. But with these aspirations in line now for us, a key part to start executing really well, and you'll start to see the action of our scale of journey on the ground in the subsequent quarters. With that, let me follow. I cover the summary of what -- how we see the market, what has been our quarter 1 performance, what our aspiration is and how the building lots of that aspirations are. I would be amiss if I were not to highlight the importance of Mahindra Group's backing to support our aspiration. As you may have seen that Mahindra Group has designated Mahindra Lifespaces as a growth gem, which means that there will be a lot of support, a lot of backing, a lot of resource allocation from different ways to support our aspiration.So with that, let me just pause here. request Vimal to jump in from his point of view and share the financial highlights.
Thank you, Amit, and good morning to everyone. Moving on to financial performance for Q1 F '24. There are the key highlights. The consolidated total income stood at INR 110 crores as against INR 117 crores in Q1 F '23. The consolidated EBITDA, including other income and share of profit from JV stood at a loss of INR 6.4 crores as against a profit of INR 54 crores in Q1 F ‘23. The consolidated debt after noncontrolling interest stood at INR 4.3 crores loss as against a profit of INR 75.4 crores in quarter 1 FY '23. -- company has a debt of about INR 270 crores as Ind AS level while the cash in hand bank and mutual fund investment stands at about INR 303 crores. Our cost of debt stood at about 8%. Operating cash flow for the quarter was INR 131 crores without including any outflow on account of land or TR. That's it from my side. We can move to the question-answer session, please. Thank you.
Sir, shall we begin with the Q&A session.
Yes, please go ahead.
We will now begin with the question-and-answer session. [Operator Instructions] Ladies and gentlemen, we will wait for a moment call the question queue assembles. We take the first question from the line of Mr. Parikshit Kandpal from HDFC Securities.
Congratulations on a decent quarter, sir. Thanks for outlining your strategy for FY '28. First question is on the INR 8000 to INR 10,000 crore of guidance. So just wanted to understand, right now, we've been doing GDV, of additional 3000 crores a year. Now to meet this number, then need to be almost 3x to 5x jump in this number as well target of INR 8,000 crores to INR 10,000 crores. So how is the organization geared up to deliver the numbers?
Sorry to interrupt Parikshit election, there's a lot of disturbance not able to make out. Can you just repeat, please?
Hello. Is it better now? Yes, sir, I was saying thanks for outlining the strategy on INR 8,000 crores, INR 10,000 crores of presales by FY '28. So obviously, this will involve 3x to 4x jump in your GDV addition, which is right now at about INR 3,500 crores on an average ballpark annually. So how do you -- how is the organizing up to deliver those kind of numbers because you need to have at least a rolling trailing kind of GDV book of almost 4x to 5x of the numbers which we are looking to deliver on presale?
So if I understood your question a little bit, clearly, that the aspiration is clear, but what are we thinking about the GDV additions? And how do we want to pick that GDV addition, right? Is that the question?
Yes.
It's a very valid question, and that's something that we have already started working on internally. So for us to do a INR 8000 crores to INR 10,000 crores, I think we need to target INR 40,000 to INR 50,000 crores of GDV, simple [indiscernible]. And we have categorized different types of deals that we need to construct and win. And we call them 4 categories. The first category is mega deal, which is large deals like Thane something which is a very large deal, anything more than INR 5,000 crores. And we need to have 2 to 3 of those with Thane, we already have one in the pipeline, which we already own. The IITP policy helps us. So of the INR 40,000 crores, let's say, lower end to start with INR 8,000 crores is just one mega deal. Then we have Category A, Category B and Category C. Category A is anywhere from INR 2,000 to INR 5,000 crore GDV. And we -- at least we need to those. 3 of those, we already have in pipeline, including Kandivali that you think that you already know about Citadel you already know what we're launching in the subsequent phases. Category B, because these larger deals tend to be in, let's say, in Mumbai and obviously large land parcels and Pune and Bengaluru. But typically, in Bengaluru and Pune, you'll find Category B, which is INR 1,000 crores to INR 2,000 crores and Category C between INR 500 crores to INR 1,000 crores. So we have -- we expect 5 deals of Category B and 15 deals of Category C that we need to construct and win over the next few years. And for us to achieve this, as I said, on the mega deal, we already have one -- similarly, we have a few for Category A, Category B and category C. The question is how do we create an upstream pipeline, which we are working hard. We are looking at all kinds of outright ADA, society development and innovative structures to pursue that. A very large pipeline that we have already created a very disciplined stage process. And that's allowing us to give us confidence that we'll be able to get to 40K to 50K GDV over the next few quarters. INR 5,500 crores that I mentioned on the call does not include [indiscernible]. So that's already 30% there in terms of where we are today.
Okay. And in terms of time lines, I mean, are these closures now be more instead of being like more lopsided towards like a particular year-end, Will this be more streamlined over the year financial year because last year third was in April that Malad deal after that, nothing has really happened. So in terms of like announcements in terms of closures, how do you see the rest of the year panning out for you like Q2, Q3, Q4? So any something in Q2 or will be more now H2 kind of a thing?
My sense is we'll start to see more action in the subsequent quarters, including current quarter. But you're right, I think we are very careful with the choice of deals. It needs to meet, obviously, our IRR return threshold, but also you can negotiate very well with the land owners in terms of what the expectations are. And the last thing I want to do Parikshit this time is at the peak of the cycle by at the highest prices and then bring them to market in the cycle is on the other side. So we're very careful about thinking about the location, the micro market, the commercials, the pricing impact, the IRR and those negotiations do take time. But I feel that you'll start to see the outcome of all these efforts in the second half of this year.
My last question is on the launches. So I know this mother earth issue has been going on. So any update on the hearing of Supreme Court hearing on this? And when do you expect to launch this? And what will be the Phase I launches of both Citadel and Kandivali for this year?
Yes. So it's a great question. In fact, this is Kandivali -- is a key part of our launch. So we are not waiting Supreme Court decision. We already have a backup plan that we're executing. We expect to launch this in the end of Q3 as of now.
How much you're going to open in the Phase I? Because I understand this will be almost INR 2,500 crores GDV.
Yes, Phase I is worth INR 1,200 crores of GDV.
How much Sorry, can you repeat it?
INR 1,200 crores, roughly INR 1,200 crores.
In Citadel? Citadel launch and Citadel Phase 1 would be how much?
Citadel Phase 1 is launched. Phase 2 is very close to is very close to will happen -- the -- hoping that quarter 2, we are able to launch towards the end of quarter 2 or early quarter 3, right? Just the approval process just can't predict. But what was your question, Parikshit was the timing or the value? What were you asking?
So about the timing for which you clarified -- and in terms of value, I think still there will be about INR 2,000 crores plus of GDV leftover here. So how much will be the Phase 2 of this project.
So Phase 1 is already launched. Phase 2, which we are expecting to launch end of this quarter is about INR 700 crores to INR 800 crores.
You got this right because these are the 2 largest -- 2 of the 3 largest launches that we have in the current financial year.
In the momentum here, I mean it depends on the price point that we are able to do it, it could be a big success on that could add to the Q3 numbers. My estimate is that Q3 is going to be really big for you. We should make up almost 70%, 80% of this year's presale. Hopefully, it happens.
We take the next question from the line of Mr. Adhidev Chattopadhyay from ICIC Securities.
Sir, just a follow-up question on Kandivali launch. So where are exactly on the approvals now considering whatever the Supreme Court judgment on the RB areas? And you said end of Q3. So what is the now launch contingent on in terms of the approvals?
I think we are following the following two pronged strategy. I think the 2-pronged strategy here, the Supreme Court judgment comes favorable. We already had IOD we were ready to launch in a short period of time. We just had to get EC and RERA registration, but IOD was done. So we were very close, but we held it back because of the Supreme Court decision or the M&A decision. However, given where we are today, we said let's not wait for the legal process to come through one way or the other because there could be delayed that we can't control there. So we already developed a plan B to say that if the judgment comes out, which forces all the developers to abide by the 25% RG room on Mother Earth, then what should our design be. Our designs are already -- we have redesigned the project. It's complete. We are in the process of reapplying and the approval process takes anywhere from 3 to 5 months. So we are accelerating that at our end, but that's why the expectation is that if the ruling doesn't help us or get delayed, we are ready with our Plan B, which should have a launch at the end of quarter 3.
Second question is on our geographical diversification. Obviously, we have so far stuck mainly to Mumbai and Pune's markets and a bit of Bangalore. So to get to the INR 8,000 crores to INR 10,000 crores of sort of GDV over the longer term, have you thought about any geographical expansion beyond what we are focusing on currently?
Yes. So is, I think we -- I'll give you some data. So right now, we are focusing on MMR, Pune and Bengaluru. I think we believe that we can attain INR 8,000 crores INR, cores to INR 10,000 crores across these 3 markets. The MMR market is currently roughly INR 100,000 crores. And we have INR 500 crores. So we have a 0.5% share. In fact, the largest guys Lodha has a 7% to 8% share. And all the organized players combined are together are less than 20%. So there is a significant opportunity for organized players to grow their overall share in this market alone. And if we target 4% to 5% market, which is a modest 4% to 5% in 5 years, that it still give us INR 5,000 crores to INR 6,000 crores because by 5 years, this market will be INR 150,000 crores. So we feel that, that's attainable given what I talked about Kandivali, Thane and a few others that we have in the pipeline. Similarly, Pune is roughly INR 60,000 crores, Bengaluru is INR 70,000 crores going to be by 2028. And we feel that if we are able to get INR 2,000 to INR 3,000 crores of the market in 5 years from now that allows us to get INR 6,000 crores from Bombay, INR 2,000 crores from the Pune, INR 2000 crores from Bengaluru with some puts and takes. And we will go deeper in these markets rather than trying to spread ourselves too thin across more markets. As you know, depth is more valuable in this market than breadth. And if you feel that we have attained the market size in each of those markets, which makes us strong, then we may look at another market. But at this time, we feel that focus alone will give us the aspiration that we currently have in mind.
And sir, last question is on this Thane land parcel now with whatever the policy renewals have come through. So by when do you think the earliest that we could see a formal launch of this project? And what is sort of approvals and other things you need to go through to get there? -- broadly, if you could just tell us?
Yes. So it will take 4 to 6 quarters, 4 quarters, if you are very lucky, 6 quarters from now. Given it comes – IITP policy comes with some conditions and some approval requirement that we are working on. So it will take -- it will most likely be next financial year.
Okay. So by the current highlights the second half FY '25 is a reasonable assumption, right, when this project could see the first phase being launched.
Yes, that's a good assumption. And infact it has 2 parts, I know 50% is towards IT, which is mostly commercial, 50% is residential and the policy currently says that for every million square foot of resi, you need to deliver 1 million square foot of commercial. So it requires us to carefully do the planning so that we are able to bring both to the market and meet with the policy guidelines. And that requires us to work on this deal contours smartly and creatively.
The next question is from the line of Mr. Pritesh Seth from Motilal Oswal.
Firstly, just continuing on the Thane. So you said 50-50 split between IT and residential, even the development has to happen simultaneously. So if probably if we are not planning to do commercial right now, if -- maybe if we are looking for a partner, can we still start development of residential and maybe later on take with the development of [ IT ]?
So Pritesh, good question, and that's exactly we are navigating because the commercial -- the policy as per our understanding today, and we are trying to clarify it is very recent, is the following -- it seems to imply that the delivery has to be together. Okay? So it's not the construction of launch, but the delivery, I can't offer a position to residential customers still have done equivalent, let's say, delivery on the commercial side. And the commercial construction sizes are much shorter compared to residential. So we will have to think through how we navigate through this, but something that we are working through it right now.
Sure. Got it. And this INR 8,000 crores would again split INR 4,000 crores each residential and commercial, right?
Yes. Actually, the FSI is very high. In fact, the FSI is probably double of what we are trying to consume. So if we look at -- like if you were to theoretically multiply the FSI available will be prevailing price in the commercial and residential side, it will be even higher, much higher, in fact, more than 50% to 75% higher. But for us to leverage that land parcel, which is a very pristine land parcel with a lot of green adjacent to Sanjay Gandhi Natural Park, we are not planning to consume all the FSI. We want to make a great product that residents will love, corporates will have a great choice of everyday space. Obviously, we have to work on the commercial aspect of it, but it could be a walk-to-work kind of a project that we are thinking through. And those require careful design consideration, commercial consideration and making sure that we abide weather policy contours.
And just to clarify on your 5-year strategy, INR 8,000 crores to INR 10,000 crores of sales would obviously also include IC & IC. What's the contribution split between the 2? I mean IC & IC, would we expect to go to INR 2,000 crores in next 5 years or INR 500,000 crores is what we are thinking and rest would come from residential?
IC has -- we will -- it's going to be closer to INR 500 crores annually today. So that's a business which is very lumpy. It's something which is very located in specific geography had land parcel across the country, I can say that I can grow it -- we are -- as we articulated it strategically, our goal is to use the IC & IC land banks and the infrastructure that we have to generate cash that allows us to build our residential business. So I think we are going to smartly manage how we want to sell at what timing and what price is, but it's not going to be anything significantly more than INR 500 crores annually.
So large chunk of it would come from [indiscernible]. And just lastly, on the margins, not talking about the current ones because I understand the lag between what we recognized and what we book actually. But in terms of our target for the acquisitions that we do from here on, we have been guiding about 15% to 18% kind of EBITDA margin. But should we target or are we going to target industry equivalent margins of around 20% and above from the launches or acquisitions that we do from here on?
Yes. So there, I think 2 parts to your question. I think what you see in numbers is a lagging reflection of what was -- what happened with 3, 4, 5 years back. So it's if the accounting rule that gets in the way of real economics. But the way we think about it is exactly what you articulated. We are going to -- we are aspiring for growth but something that will not do any expense of profitability. I think even at Mahindra Group, given my previous role, a profitable balance growth is what we aspire for. And in our projects, we target the range that we just talked about as IRR. But as a company, we are always looking for 15% ROE for the overall company. And that takes into account the lagging, the projects that have started earlier, but also the projects that we are starting today. So that's how we want to instill financial prudence in our decision-making for future launches as well.
Sure. So ROE target is what you keep in mind rather than the margin? I mean or what kind of implied margins does this 15% ROE target you have?
I'll request Vimal to jump in here.
Can you just repeat once?
Yes. So I was asking with this 15% ROE target, is it the target that you -- is it the only target that you run with? And what is the kind of implied EBITDA margin that this 15% ROE target has -- is it still like 15%, 18% or higher than that?
Yes. So this 15% ROE number is sort of group mandated number across all [indiscernible] to that extent our aspiration will be to beat this number in the years to come. Now the other point on EBITDA margin or IRR is fundamentally gets driven at project levels. For example, select IRRs can be upwards of 15% in respective of the project and the location of the geography we are getting into. Our gross margins usually will be 20% plus after taking into consideration all the costs, which are a direct level as well as the allocation, which comes so far as the project is concerned.
Our next question is from the line of Mr. Shreyans Mehta from Equirus Securities.
A few clarifications as far as the launch of our redevelopment projects in Dahisar, are we on track for the same?
We have 2 society redevelopment projects in pipeline. The first one was won in January. The second one was in April in the Navy, the first one is Santacruz. We are targeting the launch of both the projects in Q4. However, it's -- I'll be honest, it's a learning for us. It's very different from just buying a land parcel. In this case, in one society, we have 70-plus residents the other society, we have 170 residents. For us to get clearance, we need to make sure that each and every contract with each and every individual home owner who is staying in that complex is done. We want to do it in the right way. We are not trying to find a shortcut to accelerate. We want to be doing the right thing with each of the existing residents as well as buyers. So my sense is both of them should happen in quarter 4. But I'll update you at the end of quarters, if you're able to -- if you are facing some hurdles in getting them off the down. But it's a key priority for us. My teams are very focused on making sure that we bring these to market before we start signing any new major redevelopment projects.
And as far as Dahisar is concerned?
Yes. So Dahisar is something which we have not included in the current financial year because it's still awaiting some approvals, which -- without which we cannot move ahead. So we are waiting for those approvals.
Second is on our IC & IC part. This quarter was on a very soft side. So any particular reason for it? And how do you see the full year panning out?
Yes. So this is a business which is a lumpy business, as I touched upon earlier, we have a very healthy pipeline, Shreyans. And it will start to convert in the later quarters. After the financial year-end, things slowed down typically as we have seen. And you probably saw there was a huge deal that we signed in quarter 4 in March, very end like even the last day. So my sense is the China plus 1 India consumption story, India growth story actually is real for after a long time. We will see deals that are coming through, and I see I have a huge amount of LOI that I see converting it is something that we are working hard. As you know, we tend to be -- we have a bit of competition from some of the other cheaper sources of land parcels that are provided by, let's say, local and like government and GIDC, MIDC kind of equivalent. So we have to make sure that the customers understand the value proposition that we provide. And there are certain segment of customers that really love us, and that is working well for us. So we wait for the right customers. There is no reason for us to be hasty in offering our pristine land with all the infrastructure to -- at the lowest price point. So we are always waiting for the right customer, but it tends to be lumpy and hopefully, you'll see more action given the pipeline that we see today.
And lastly, any new updates as far as our active deal is concerned in [indiscernible], Ahmedabad and Pune?
So 3 questions, I think, right. Origins Ahmedabad, Pune and [ Axis ] deal right? So I'll ask Vimal to jump in for the Axis deal. But the Ahmedabad, that's something that we are always looking for the right client. We have gotten a lot of interest from very small clients. I -- we are awaiting the right anchor client. It will not make sense for us to start developing that land parcel given where it's located with a small 5-acre client, going to do it with a 50, 30 or decent size -- but we're also thinking about how best to monetize Ahmedabad -- so those discussions are underway. [Indiscernible] is a key priority for us. We are addressing some of the continuity and access issue. We should be able to bring to market in the next 12 months. We are pushing for this financial year, but it will be tough for us to get it in this financial year. So around this time around, we'll start to launch Bhor. The location is fantastic. It comes with like 25, 30 kilometers from Pune. Given Pune's prominence in the industrial road map, we think it will be a [indiscernible] to success as soon as we are able to bring it. But even some of the guys who own the country -- who own the land that is preventing the contiguity, they also know that. So that's the problem that we are trying to solve on Bhor. I'll request Vimal to jump in on the BTS side.
Yes, in so far as to suit industrial and warehousing platform is concerned, as I had updated last quarter, the management team is in place, and they have come out strongly. We are evaluating multiple and propositions and proposals with the India logistic policy getting announced. We will focus on infra development and all. We continue to believe that we are in sort of a good industry per se, and you should see some action in the next 2 or 3 quarters on that.
The next question is from the line of Mr. Rohit from Marshmallow Capital.
Thank you for the opportunity, and thank you for such detailed articulation of the strategy, it's very helpful. Now I mean, I want to refer your commentary in my question. So you mentioned that we are in the second year of the refi cycle right now. And coupled with the fact that we are planning to hit we are targeting INR 8000 crores, INR 10,000 crores GDV 5 years out. So it will be the seventh or eighth year of the cycle at that point in time. So I'm just curious now because you also mentioned in your opening remarks that the cyclical sector, right? -- you're talking about 7 or 8 years of the cycle where if you're doing so well, the others all be doing well and the market can be [indiscernible]. So how do you marry discipline in underwriting and reaching the target so late into the cycle the cycle. So how do you think about this angle in your strategy?
Yes, it's a great question, Rohit, and I'm glad you asked. I think this is where I worry a lot about signing the wrong deal. And that's why I think an earlier question talked about, I think, Parikshit, you asked that question. If you buy at the top of the cycle and your sell when the cycle slows down, your economics go down the drain literally. And that's something that we really want to avoid. So given that, we are very careful, and we have a very detailed analysis of each of the micro markets within the 3 cities that I touched upon where we participate. So Bangalore, Pune, they have very healthy absorption. MMR has healthy absorption but in certain micro markets. So we are carefully choosing where we want to participate what is the product that we want to bring in, what is the right price point given Mahindra brand promise and the location and the competitive nature of that. So all those things go in our assessment as we look at the business case underwriting for what we are trying to -- the GDV that we are trying to build in. Now we are definite that we will hit a pocket of slowdown in the next 7 years. The question is how do we accelerate? If you sign the deal, the question is, how do we accelerate bringing them to the market. So at least we lock in the initial sales velocity and able to sail through be sustained. But the last part for me is the market today, as I touched upon, is very large. In Bombay, INR 1,50,000 crores by 2028, INR 100,000-plus today. All the organized players today together are less than 20% -- local, mainly at best regional developers, right, given RERA, given GST, given all the other, let's say, I leave you the word constraints that they have to manage through. I see a consolidation or exit happening from many of them. And that allows the offer that gives the organized players the opportunity to capture that space pretty quickly. And if we are able to do that, we will have no challenge achieving the aspiration. No doubt, we have to sign the right deals with all the analytics that I mentioned. No doubt, we need to be prepared for a slowdown when it happens. The question is not if, it's a question of when it happens. But then the macro sentiments are favorable for us to capitalize on.
Perfect. This is a very helpful answer, and I'll probably keep parking every year or so to understand where we are in the cycle. My second question is you touched a lot upon -- I mean, very heartening to hear you touched a lot upon how we will enjoy in Mahindra group support, and we have seen one of the growth gems. So I've been investing more in trees, and this is great to see. And we can also see that evidence in the candidly pathway and probably most part hopefully will come through for us. So in this aspiration, when we talk about support, do you see us requiring some sort of capital infusion? And you see that coming from the group level. That is one. And second, one observation is in general you don't see much of private equity infusion into the residential space if we do see it in other spaces in the real estate sector, but part of not residential. So do you see that Indian real estate or Mahindra real estate getting interest in private equity going forward? So 2 questions broadly on capital in general.
Yes, yes. But that's a great point, Rohit. But let me just touch on settle point that talked about Mahindra supporting us. Mahindra is very supportive, but when it comes to selling land to us, it's an arm's length and to negotiate as hard as they do from their side. So it's true economic value, given they are kind of -- while they are a majority shareholder first, all the transaction at arm's length, including the Kandivali, we had to really negotiate out with that. So on a lighter note, they are not yet easy as a counterparty. But on the capital side, I think all sources are open. And let me touch -- we already have strong accruals on the residential side. We have IC & IC, which generates a lot of cash, which allows us to fund our residential growth. We have a healthy debt-to-equity ratio that gives us the opportunity to take that if we want, when we want. We are also looking at platforms. You rightly touch-- there's not been much private equity interest on the resi side because most of that interest went to the commercial side, right? And you know commercial a little bit slow and probably tapped out with the biggest already taken as space or part of the action already. We're starting to see a lot of interest from the private equity players, especially the patient capital on the resi platform. The issue tends to be how do you exit them. So we are working with some of the potential investors, private equity, patient capital partners to see how we can structure the Resi platform. Early stages, but a lot of effort is starting to go within that direction because our 8K to 10K will require us to find alternate sources of funding for the interim peak that we'll face in 3 years from now. And that's something that we're starting to think already. So that is a great question, but I will have concrete answers in the subsequent quarter, but at least theoretically, this is how we are solving it.
So last question from my end is this target of INR 8,000 to INR 10,000 crores. So what does it mean? So let's say, we do -- so we have many models that we have a joint venture, we'll have outside land purchase -- are there any other formats? And when you say INR 8,000 or to INR 10,000 crores, is it the -- let's say, the JDE where we have 60%, 65% of the economic share, right? So is this only our share of what will accrue to our P&L that we count to INR 8000 to INR 10,000 crores? Or is it whatever is branded as Mahindra product. The entire project booking number that will be concerned INR 8000 to INR 10,000 crores?
Yes. So that's a great question. I think when we look at -- so there are 3 kinds of deals that we predominantly do. We do outright purchase, we do society redevelopment. And we do JDA. And in our -- as I mentioned, megadeals, category, A,B and C, we also modeled what would be the typical percentage that we want to adhere to for JDA for outright and for let's say society redevelopment. And at least in Pune and Bangalore, we will be mostly outright. In Bombay, you'll see more of JDA, more of society redevelopment, some in different parts of Mumbai, you'll see outright. This number that we have includes total at least on the presale side. And in the financials that we'll report, we'll have the reflection of each of these 3 types of deals. But at least we want to make sure that in the sales part, we are reflecting the true is none.
Understood. So the presales of INR 8,000 crores to INR 10,000 crores is the total even if it is [indiscernible] will be taking the whole 100% presale value in our target .That's what we mean, right?
Theoretically, yes, but we'll not have 50%. We'll probably be 60%. From a financial return point of view, it will be tough for us to make the returns work, right? So we have factored a -- let's be not use exact, but lower percentage, much lower percentage than what you said.
The next question is from the line of Mr. Himanshu Upadhyay from Ore PMS.
See, if one thing which I appreciate this company, is the point number 3, okay, in your growth strategy, okay? And which is that if we look at your customer-centric city versus peers, historically, you have been always highly rated, okay, on that spend. And your rating in terms of peers has been always good in most of the micro markets where you have been there, okay? 1 or 2 places, it may be there, but it happens in a business of capital allocation, okay. But I would say, overall, we have been generally better than most of the peers in most micro markets. But even if I have historically -- and this is not just today, okay, this has been 5 years back also and even 7, 8 years back also when I started tracking this company, understanding this company -- but historically, the profits have been generally lower than the peers okay? There can be 2 issues on this, okay? One is costing. And the other is, we are not able to charge for what we should be getting in the market, okay? How are you looking at it? And the pricing of the finished product or the final product, are we doing something on that also? Because as an outsider, if a company's product is valued by the customers, I believe it should also be the most profitable company, okay? But in our case, not just today but historically also, that has not been the case, okay. Either costs are to be refocused or the pricing level we have to take further are we having that confidence to bring the pricing higher than just to also get higher value what we are providing to the customers. So can you elaborate on that part?
I'm glad you asked because this is a question I have raised with my teams, and we are creatively looking for ways to address it. And so you touched upon actually 2 points, but let me just try to address 2 and maybe add one more thing. Pricing is something that is a balancing act. And many times, even though we know that we are leaving money on the table, we do it for the reasons of velocity so that you can upfront cash. And the question is, what is the right price point where would the pendulum swing, which is the right middle ground and that's something, given the Mahindra brand promise, given all the things that we touched upon in terms of trust we carry with our customers, we always feel that we are leaving money on the table at times. And we will try to fine tune that. I don't think we'll ever be able to capture 100% of that money that we are leaving on the table. But we want to know how much money we are leaving on the table for the stae of velocity, not from value proposition point. So we will do some experiments, we've waited to some attempts at different launches to see what is the best for us to capture the right price point for the value proposition we offer to our customers. But we also have to keep in mind the velocity to fund the cash flow needs of the project. So that's the balancing act of the pricing. It's a very sophisticated effort that we have. Vimlendra Singh who is head of our sales pricing and customer experience and facility management is actually working very closely now with Vimal Agrawal, CFO. So they sit on the upper side of what the pricing should be to for us to deliver the IRR that we seek. The other point you raised is on the cost side. I think we've had issues, honestly sharing that what we planned for an IRR at the start of the project versus where we ended, we actually had dilution -- that's why we now have a costing center of excellence, which has been constituted in the last 6, 9 months, 1 year. We also have a contracting department, which is extremely savvy in terms of how they contract out. But I think I'm pushing this to the next level, like the ratios of constructed area to salable area or RNA. I think we can do better at those. And in each and every of our launch, we are going to abide by certain principles, which are informed by each city and each city is local laws. Now I'll just give you an example of design, the efficiency of the constructed area, but there are how do you design bathrooms, how do you design your windows, how do you design what kind of tiles you source. All those things are part of scaling our business from a cost point of view, which gives us a much improved cost position. So these 2 things together should give us better returns, better IRR and then a discipline to follow through what you said at the start of the project, we accountability that we are working through.
And yes, secondly, we have stated about revaluating capital allocation at the Mahindra Group, okay and that has happened, okay. But in a case, see, we have into IC, where the margins are high, but the cycle is very, very long, okay? And the risk is long cycle can –
Lost the first part of your question. Can you say what Mahindra Group capital allocation we didn't –
So what I stated was in last few years, Mahindra Group has focused on capital allocation and improving the return ratios, okay?
Correct.
And in our business, where we see we have 3 models, okay? One is IC where the margins are high, but a very long cycle, okay? And long cycle is a bigger risk, okay? And the high [indiscernible] where the margins are low, but velocity has to be very, very high to make the money, okay. And the third one is our -- what we are doing on mid-premium housing, okay? Are we looking at doing the capital allocation or have we rented our capital allocation in all these 3 businesses because -- even when we look at your pending inventory, okay, in the case of happiness, if the project where IRRs are very tight and it my inventory of 55, let's say, in Boisar and we say 79 in Palghar itself are pending -- my IRR can get a very, very strong hit, okay? And the way the company is and we are process-oriented and that can take time. Are these 2 business models really important for us? And have you thought about our capital allocation strategy and the INR 1,800 crores balance sheet is good, okay? No leverage. But if you want to go around INR 8,000 to INR 10,000 and you are yourself saying that you need INR 40,000 crores of deals for that business to grow. Are we going to -- or is that business getting sacrificed on these 2 businesses, which are slightly more riskier also in terms of IRR execution does not help?
Let me ask Vimal to jump in, and I'll comment after that. If I need to.
Fundamentally, Himanshu 3, 4 points here. Starting from the fact that allocation very, very focused, do not intend to get into business segments, projects for geographies where we believe that the IRR will not get delivered and I'm emphasizing on the world delivered here. That's one. Second, you talked about IC business. The very fact that we are not doing whole-hog investing into further expansion of IC business with eyes close and focused on increasing the velocity or cash upstream inputs fundamentally sort of should give confidence to follow of us that in terms of approach, we are on track. As you talked about Boisar and Palghar, I just want to be assured you that the numbers will be high because the share typography, which we have on the location, we have the value that are almost insignificant in the overall scheme of things. Kalyan one was the biggest affordable happen is projected, which when we had sold over 80% of the inventory at the time of launch itself. The other thing is if you were to go back and you talked about INR 1,800 crores of balance sheet side, if you go back and look at our balance sheet, say, about 3 years back, there used to be a long list of assets, which was there in the balance sheet but not really actively contributing towards operating cash flow and, therefore, delivering our IRR aspirations in the last 2.5, 3 years, we have unlocked many of those assets. And the intent again is to lot of -- even if I don't make significant bet, let me just get the cash in deploy it back so that I can make that money work for newer projects. And fundamentally, therefore, the key point is that we'll be -- we continue to be extremely mindful of the investment and the choices we are making, and that will be the key as we deliver on this 8% to 10% gross guidelines in FY '21.
Vimal, if you can just one small thing. -- and we have done Happiness in IC business also okay. If we remove that Happiness business in IC and we have taken, let's say, projects in Boisar and Palghar and all those things. Are we confident on those type of projects on the whole capital indication at happiness being upwards of 18% IRR which we bought third party, not the IC land because that is a very cheap land, okay?
Yes. 2 clarifications. One is, so far as happiness is within [ elites ] concerned, that also gets driven by the statutory requirements. That's one. Second is that we do not tend to differentiate between a happiness product premium or a mid-premium project so far is the financial guidelines and deliveries are concerned.
Okay. But are we -- whatever we expected because happiness is today 7, 8 years old product, what we are doing in the market. we on having that clarity or are we able to get those IRRs, what we would have intended for in the initial launch of this product or when this was consumed 8, 10 years back?
Yes. So sort of mixed bag, out of Q4 projects, which we have, I'd say that 2 projects we certainly would have overachieved and 1 or 2 projects we would have either delivered or struggled a little. But like any other -- so the key point is not differentiating even at operating level, even at delivery level, even in identifying the challenges we have on the affordable or the happiness side. And therefore, the previous conversation we mentioned that we will be mindful. So far as pricing of the project is concerned, and therefore, deliver also.
Anything you want to add – you stated that after –
Vimal has covered everything.
And one final question. In last 2 quarters, if you see the collections have been flattish and construction spend has nearly doubled to what was last 1 year, okay? And the surplus cash has been lesser, okay. But as more projects are now to be completed than what we have sold in the next 1 or 2 years, do you think the surplus cash would be slightly or lower than what was in FY '22, '23 when this was around INR 800 crores between what we were collecting and what we were selling. What we were collecting and what we were doing construction spend because launches have been generally higher than our completion. So any thoughts on that?
At an overall level, the operating cash for the company continues to be strong. Last year, for example, we delivered up to INR 350 crores. And because you are able to bring the product much, much earlier than, say, what we are doing 2, 3 years back, our ability to launch, get initial bookings and the cash collections are fairly strong. I hope that our work done and construction expense continues to grow because that is reflective of the health of the project execution engine which we have. And to that extent, whatever surplus comes in will certainly get redeferred for the new land acquisition. And hopefully, we'll get much more headroom to acquire more and launch new projects and therefore, the base will further go up.
The next question is from the line of Mr. Prem Khurana from Anand Rathi.
So more some of my questions are already answered. I mean there's a couple of questions and mostly sort of clarification. So first one on our deal pipeline. So when I look at the number, I mean, it's been in the range of INR 5,000 to INR 5,500-odd crores for some time now. And I understand I was deliberate because we were looking to add INR 2,500 crores on a yearly basis. So where I mean the number would have been able to suffice. Now given the fact that we have given us a strategy, long-term strategy where we intend to kind of scale to INR 8000 to INR 10,000 crores of number in terms of residential real estate, and you would need at least INR 40,000 crores of GDV to be able to manage that number. When do we start seeing this number in INR 5,500-odd crores, I mean when do you think starts moving up, which is that I mean you'll be able to build the pipeline and time to be able to kind of scale to that number? I mean, is it that next year onwards or I mean, you would want to wait for some more time to see whether the cycle would stay like this and then take a call or I mean how does the state? I mean, how does it look in terms of time lines that you would need to be able to start scaling up your deal pipeline?
So great question, Prem. I just want to clarify 2 things. First is that INR 5,500 crores did not include Thane, which is INR 4,000 crores before last month. Now Thane itself is INR 8,000 crores. So while we're keeping it out, you can just for clarity, and you can assume that INR 8,000 crores plus INR 5,000 crores, that's a big GDV pipeline that we have. Obviously, there will be some puts and takes. Some we will convert, some we will lose because the final negotiations are on. But as I mentioned earlier, we right now have enough to chew. GDV allows us to create the pipeline for the next year. So -- and I just don't want to rush into any transaction given the point I made about we peak of the cycle or the top of the cycle. I just want to be thoughtful and careful of which deals, which locations, which deal contours we end up signing. So you'll start to see the news in the next let's say, quarter to quarter, but don't want to be hasty in closing the deal and then repent that we got a deal that was too expensive for us from a return perspective. But I just want to make sure INR 5500 crores is not the full story, you have plus 8,000, but also we have a disciplined process that will always follow.
Sure. And just to continue on our long-term strategy. So I understand in terms of finance, I mean, won't face any issues because of our -- I mean, the visibility that we have in terms of surplus from our existing projects plus and the group support that you spoke about earlier in the call and even in terms of, I mean, deal again would not be a problem because, I mean, we have that kind of opportunity size in India. But -- how about -- I mean, other resources, especially the man power because when you want to scale from, let's say, 2,000 to 8,000 odds, I mean you would need more people on your side, right? And what we've seen is essentially now a day, it seems as it's been a little difficult to be able to find right talent because the industry is growing and everyone is looking to kind of hire more people. So how easy or difficult is it to be able to find right talent today, I mean, given the situation the way it is, I mean, the kind of exuberance that we have on the real estate side?
That's a very valid question Prem, and I'll put my previous jobs at like at M&M, Head of Strategy. I think we have a very strong brand pull, not only the question that Himanshu asked from a customer point of view, but from an employee point of view also, given what has happened in some of the other sectors that tech in the last 12 months, a lot of not only attrition but also exists as a result of retrenchment. There is a, I would say, plight of employees to an employer of comfort, employer of confidence, employers, somebody will give them a career. So that is a good, very strong draw for us. Our brand allows us to do that. It doesn't take away the fact that for us to grow from where we are, we need to augment our capacity at all levels. And we are working towards it. We've never had issues in attracting people. The question is now we have the opportunity to give them an aspiration, a dream to live. And I think we'll be able to attract many more employees who will love to participate in this dream and be part of this delivery.
And just one last, if I may, please, on -- I mean INR IC & IC vertical over the last year, we've seen DTA move seriously good for us. But then on the SEZ side been a little slow in Jaipur and we still have pretty significant chunk to go there. So any thoughts -- I mean, is it possible to be able to convert part of this and move it to the DTA and the way we did that -- I mean it did that kind of exercise some time back as well, I mean we run of DTA, we convey a part of our SEZ into DTA. Is it still possible to be able to convert a part of this SEZ into DTA or do we have plans to be able to kind of monetize this SEZ, I mean structured it in a manner where net becomes all the more lucrative for the seekers?
Yes, absolutely. A very valid value unlocked point that you are talking about. We are already working on it. As you know, the government RICO is a partner with us in the Mahindra World City Jaipur. -- and we are discussing with them how best to find ways for us to convert from SEZ to DTA. We have already have experience of doing that in Chennai. We are sharing some case study. It's also useful to see there is a center level effort going on given the lack of traction or many of the SEZ so the[indiscernible] which will also help us. But you rightly touched upon a great value unlock point. We are working on it with our partners.
Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to Mr. Amit Sinha for closing comments.
So very good. I think a good very engaging 75 minutes of the discussion. Really appreciate the opportunity to address the question that you had. I just want to rehash 3 points I raised at the start of the meeting that we are at a macro level, at the industry level, we are -- we see a huge buoyancy momentum in the market, and I think we'll continue for some time despite high interest rate despite slowdown, the residential segment will continue to be a key part of the future growth. And I think that the flight to quality towards Grade A developers, Brand A developers will continue to help some of us more than the others. So that was my first point about the overall market sentiment. I covered the key highlights of the business. We have healthy sustainable sales that's reflected in quarter 1, but a very exciting set of new launches that we have planned, including the Kandivali launch, which we will -- we have a plan B in progress. And the third part I covered was our strategy to 5x good from where we are INR 8000 crores to INR 10,000 crores of sales in the next 5 years, inclusive of IC business. And that is really exciting for us. And that's happening because of what we have delivered in the past few years, the strategy that we have articulated, which is augmenting the past work, but also the support we have from the Mahindra Group that we have. The IC business is a key part of extracting cash and helping us achieve the aspiration. And there are many other sources of capital that will help us attain that. So we look forward to staying in touch with you sharing good news as well as any of the news that we have and continue to seek your counsel feedback and guidance as we continue our growth journey. Thank you. Thank you to everybody, and we'll be in touch.
Thank you. On behalf of Mahindra Lifespace Developers Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.