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Good morning, ladies and gentlemen. Welcome to Mahindra Lifespace Developers Limited Q4 FY '22 Earnings Conference Call. We have us on this call, Mr. Arvind Subramanian, MD and CEO; Mr. Vimal Agarwal, CFO; and Mr. Sumit Kasat, Head, Investor Relations. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.
[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Arvind Subramanian, Managing Director and Chief Executive Officer, Mahindra Lifespace Developers Limited. Thank you, and over to you, sir.
Thank you very much. Good morning, everyone, and welcome to our Q4 FY '22 earnings call. Firstly, I'd like to thank all of you for participating in this conference call. As you know, many of our key operating entities in our residential business like Mahindra Homes and Mahindra Happinest, and all of our entities in our IC & IC business, which is Mahindra World City Developers, Mahindra World City Jaipur, and Mahindra Integrated Park Chennai and Mahindra Integrated Private Limited, all these 4 entities do not get consolidated on a line-by-line basis. I'd like to start by sharing a little bit of how we see the macro picture evolving then turn my attention to the performance over the year and how that sets us up for the years to come. So firstly, looking at the macro picture, let me again pick up some indicators both on the B2C side, on the consumer side as well as some on the B2B side. On the B2C side, we are seeing, particularly for residential real estate, a very clear increase in affordability, with home loan to income ratio declining to very comforting levels. We are seeing a rise in working population, a marked trend towards urbanization in the decade to come from below 30% to 40% plus. And overall, a low mortgage to GDV ratio, so headroom there to grow the book of mortgages. And all of these play well into what we are seeing as early signs of a midterm up-cycle in residential demand. On the B2B side, which is pertinent to our industrial box business, India is very clearly staking its claim in the global economy. We see this playing out in the global politics as well. But certainly, from an economic perspective, India is one of the largest economies, the fifth largest in the world. It was also among the fastest-growing nations in FY '22 and has embarked on a cycle of massive infrastructure spending. From a geoeconomics perspective, India is now well positioned to attract manufacturing investment arising from the regionalization of supply chains and the post-pandemic world where most MNCs are going to think very differently about their country level supply chains. Looking at our performance over the last year, let me start with the 4 highlights, the 4 areas where we have achieved highest ever performance. The first is residential presales coming in at just over INR 1,000 crores. The second is our industrial land leasing at just below INR 300 crores. The third is land acquisition for our residential business, roughly 3 million square feet worth of development potential, INR 3,800 crores of gross development value. And the fourth is residential collections at over INR 1,100 crores. All of these have been the strongest ever performance we've done as a company. That being said, it does feel like it's too early to puff our chest and pat ourselves on the back. It almost feels like we're being proud of being the tallest among the 7 dwarfs. There's still a long way for us to go. But this is a great endorsement of the direction that we've taken, and we are walking the talk in terms of the milestones we've set for ourselves and where we want to be. I'd like to break up my commentary on our operating performance over the last year into 3 buckets. And given I've personally been on a health journey over the past few months, I'm going to use a health metaphor, so the leading indicators, the current health indicators and the trailing indicators, so the triglycerides, the fasting blood sugars and the HbA1c equivalent of our business. So let me start with the lead indicators. I see kind of 4 of them being important. The first is talent. And we've continued to build and invest in building a fantastic thing, which I'm very proud of, and I believe is among the best in the peer group, not just at the leadership level but at several levels below that in the organization. The second is technology, again, an area of continued focus, and I use technology in a broader sense to mean not just IT and digital and things like that but also technology in construction, in products. And many of you would have noticed some of our recent announcements around sustainability and net zero. The third is -- from a lead indicator bucket is presales on the residential business. As I mentioned a short while back, we clocked INR 1,028 crores of presales value last year. It's a very healthy mix between the mid-market business and the value housing business and is very broad-based in terms of geographic and ticket size contributions. Over 80% of this, close to 90% of this actually, has come from sustainable sales. Two of our big launches that we were hoping to get through the door in Q4, which was Kanakapura and Bangalore, and Luminare Tower B, moved out into the current financial year. And despite that, having clocked more than INR 1,000 crores of presales is not just a psychological threshold that we've put our foot across but also a great endorsement of the capability and the commitment of the sales and marketing team. Land acquisition is the fourth where, again, as I mentioned, just over 3 million square feet of development potential, INR 3,800 crores of GDV. We've followed that up just last week with another INR 1,700 crores. So totally about INR 5,500 crores acquired over the last 13 months, which is again setting us up very well for the years to come. In terms of current indicators, I'd pick 3 of them. The first is residential collection, clocking at INR 1,100 crores plus. That has led to a very strong operating cash flow of almost INR 600 crores, which is again fantastic and gives us the resources to continue to build on our growth trajectory. And the most important, which has clearly been a highlight, particularly over Q3 and Q4, is the industrial leasing coming in at just below INR 300 crores, INR 298 crores to be precise, a fantastic performance by Rajaram and his team to really hit the ground running there. The good thing about that business is it's a long-cycle sales business, and therefore, we have strong visibility into the current financial year as well. Last year, a lot of the heavy lifting happened in which was very good to see. This year, we are seeing a strong pipeline already building up in Chennai as well in addition to Jaipur continuing to grow from strength-to-strength. Ahmedabad -- Origins, Ahmedabad continues to be in a wait-and-watch mode. We are looking for that right anchor clients that can position that park correctly. And it looks like that's going to take a couple of more quarters to manifest. And then the last bucket was the trailing indicators, which our reported financials would fall into that bucket. That, to my mind, is still work in process, and I expect the strength of the lead indicators and the current indicators to start trickling through and flowing through into the financials over the coming years. One of the things you would have noticed there, and I'm sure you have questions on that is reversal on impairment in Mahindra Homes at Luminare. I just offer you one view on that, and Vimal will elaborate on the actual accounting and the financials behind that, which is that the strong performance in Luminare, the fact that we were able to not just sell out both Tower A and Tower 3, which are the 2 launch towers, but also realize a higher price than we had originally envisaged has contributed to this reversal of impairment. With that, let me turn it over to Vimal and I'd request him to take you through the highlights of our financial performance.
Thank you, Arvind. And good morning, everyone. Moving on to the financial performance for quarter 4 FY '22. The consolidated income stood at INR 155 crores as against INR 33 crores in Q3 F '22 and INR 58 crores in Q4 F '21. The consolidated EBITDA, including other income and share of profit from JV, stood at negative INR 15 crore as against INR 20 crore in Q3 F '22 and negative INR 30 crores in Q4 F '21. The consolidated PAT after noncontrolling interest stood at INR 137 crores as against INR 25 crore in Q3 F '22 and a loss of INR 27 crores in Q4 F '21. Financial performance for full year '22 versus '21 is as follows. The consolidated total income stood at INR 408 crores as against INR 188 in FY '21. The consolidated EBITDA, including other income and share of profit from JV, stood at INR 15.5 crores as against a loss of INR 59.8 crores in FY '21. The consolidated PAT after noncontrolling interest stood at INR 154.5 crores as against a loss of INR 71.7 crores in FY '21. Your company has debt of INR 280 crores at consolidated level as per NDS accounting, while cash in hand and bank as in previous March was around INR 225 crores. The cost of debt continues to be very competitive at about 6.5% at consolidated level and 5.7% at MLDL standalone level. As Arvind mentioned during the year, MHPL, specifically Luminare projects, saw a significant increase in sales with improvement in selling price, velocity, volumes and collections from the project. And also, we had done a buyback of equity shares sale. Based on this, the company has evaluated the carrying value of its investment and on the basis of estimated net present value of forecasted cash flow expected to be generated from this entity, we have reversed the impairment by about INR 97 crores in consolidated books. So these were the key highlights. I'll request if you can open the lines for questions from participants, please. Thank you.
[Operator Instructions] The first question is from the line of Adhidev Chattopadhyay from ICICI Securities.
Sir, first question, I have is on this, there's now a lot of talk about input cost inflation, considering whatever global events have been happening the last few months. Could you throw some light over, let's say, last 12 months or in the last 3, 4 months, what has been the overall increase in construction costs? And considering the mix of ready under construction and new launches, whichever is coming up, what would be the overall impact on the input cost? And any price hikes you are taking to mitigate the impact? If you could give some overall picture on that.
Sure. Thanks, Adhidev. So overall, as you rightly pointed out, there's been significant input cost inflation anywhere from 50% to 100% increase in some of the key commodities: steel, cement, aluminum, copper, plastics, all have gone through the roof. And more recently, with oil prices also peaking, that has increased the logistics costs of bringing materials in, et cetera. Overall, we have seen somewhere between a 12% to 15% increase in construction costs, which is roughly 300 to 400, 450 basis points margin impact. The way we are seeking to mitigate that is through 3 broad buckets of work. One is value engineering and design efficiency. The second is around procurement and contracting techniques, so consolidated buying long-term contracts, forward purchasing, et cetera, of some of the key materials. And the third is pricing. You specifically asked how we are doing on pricing. Across the portfolio, we've had a discipline of increasing prices quarter-on-quarter by anywhere from 1.5% to 2%. So that is the default increase across the portfolio. Any project that is not able to support that kind of increase has to justify why that increase can't happen as opposed to the other way around. And as a result of that, plus some other -- wherever we see demand strength, we take price up faster, we've had price increases ranging between 4% to 14% across the different projects over last year. So we are in a good space from a pricing perspective.
So if you are to understand correctly, whatever mitigation on either on supply side and on the pricing, it should have a minimal impact on the margins, maybe not more than 2%, 3%? Or is it neutral?
See the way to think about this is it varies by project and depending on how much is sold early. So the irony of it is some of our best-performing projects where a lot of inventory was sold at launch and are now facing cost inflation is where the margin it will be the most because we have very little residual inventory left to absorb that cost increase. But if you look at it from a portfolio perspective, I'm fairly confident that overall, we are able to mitigate this cost increase.
Okay. Sir, next question is on whatever land deals we have done, right, in the last -- the INR 1,300 crores in FY '22 and obviously, the new one which are launched in Pune. Could you elaborate what are the payment terms? For example for Pune, is it again outright, you are paying all of it upfront? Or are all these staggered payments?
The most recent transaction in Pune is an upfront acquisition. So it's fully acquired and then we'll -- we are responsible for everything hereon from approvals, et cetera.
Sir, so we would have utilized the cash on books as of March to or some debt to make the payment, right? That will not go?
Yes, that's right. So a large part -- a reasonable part of the cash on books as of 31st March has been used to acquire that land.
The next question is from the line of Parikshit Kandpal from HDFC Securities.
Congratulations on a strong year for the land acquisition. So if I go back a little bit in the history, so we had given guidance of [ 20 billion to 25 billion ] of GDV. Earlier we used to do smaller projects, INR 500 crores, INR 600 crores. Now the size has gone up. It went upwards of INR 2,000, INR 1,000. So my question is, the guidance was based that the 25 -- guidance of INR 2,500 was based on the premise of adding [ 20 billion to 25 billion ] of GDV. Now we are -- 2 things are happening on that the sizes have gone up. So we will get faster approval and we can bring these projects to market faster because earlier, we had multiple projects. Now we'll have 2, 3 large projects. And second thing is there has been outperformance on GDV addition from [ 20 billion to 25 billion ] almost. Now we are adding close to INR 4,000 crores. And today, also in the morning, with the NBC you said that we may see a repeat performance in FY '23. My question is, why are we still maintaining that guidance of reaching INR 2,500 crores of sales. And on these 2 counts, we are seriously outperforming. That's my first question.
So thanks, Parikshit. And yes, these are 2 -- as I said, these are 2 leading indicators that set us up well for the journey going forward. But those do need to translate into the current book of business in terms of approvals and launches and then completions. So therefore, I would wait for 1 or 2 more quarters to see whether it warrants either an acquisition or an uptake in our guidance for FY '25. Let these come to market. Look, I'm happy with where we are on these 2 parameters in particular. And God willing, we should -- we can exceed our targets that we set.
Okay. And the second question was, on the last call, 3Q call, we have said that. So very much -- I mean, pretty much we have delivered on this close to about INR 1,700 crores, INR 2,000 crores, which you had said which should happen by March or April, that happened in April. Now you said another INR 8,000 crores of prospect pipeline, we are engaging with partners and 25% probability of that happening by September. So are you on track? Has that INR 8,000 now gone up after this outperformance? Are we slowing down on looking at deals? So if you can give some flavor or color on how the business development on the land side will pan out for next year, for FY '23?
Parikshit, you're cruel, out of the INR 8,000 crores, we've converted INR 4,000 crores already, but you're still greedy for more. But look we do have a pipeline. We are backfilling that as we've converted this roughly INR 4,100 crores, INR 4,200 crores has roughly got converted. The balance, INR 3,800 crores has grown to about INR 4,500 crores and continues to grow as we speak. We are seeing very good traction from an inquiry perspective. In particular, I talk about 2 areas where we are looking to build out more rapidly, one is society redevelopment in Mumbai. We are seeing a strong interest and particularly with a brand like Mahindra, many societies feel comforted that they won't be left in the lurch and chasing us once they sign consent with us. So society redevelopment is an area that I'm quite excited about. The second is stressed assets where, again, we are starting to build the networks into the ARCs and financial institutions who have a bad loan portfolio to start sourcing deals in the stress portfolio. The third area, which I do want to talk about, we had taken a conscious call 2 years back to double-down on Mumbai and Pune for the foreseeable 2 or 3 years so that we can go deeper. We've now decided over the next 3 to 4 quarters to also reopen Bangalore. It's not that we ever exited Bangalore and I had always indicated that Bangalore would be the third market. We feel, given the pipeline we've seen and the traction we are seeing on land acquisition that now would be the right time to reopen Bangalore as well. So I do expect towards the end of this financial year and going into next year, we will start looking at converting some deals in Bangalore as well.
Okay. And the last question will be on the -- so you did spoke about adding talent at all levels. So my question was more on the construction side and the choice of vendors. So now we have a portfolio which is -- the mix is moving towards higher realization of better realization. Traditionally, we're doing affordable housing which is more exposed or sensitive to crore material inflation. You're doing more like something like in Kandivali, it should mean upwards of like 13,000, 14,000 realization. So I just wanted to understand between the portfolios to become a little more premium. So whether you continue to still believe that affordable will be the way forward given the volatility in raw material prices?
And second thing would be, will the vendors be much different? So have you worked over the last couple of years since you took over the leadership of the company in terms of supply chain vendor, opening up the quality of construction vendors? If we can just touch upon those softer issues.
Sure. And in fact, it's very -- you've rightly linked it to the talent and the supply chain issues because we recently brought onboard a new leader for contracting and procurement function under Sudharshan, our Chief Project Officer. And his mandate very clearly is to build more strategic relationships with key supply chain partners. I see these strategic relationships being struck with more of the, let's say, Tier B+ kind of contractors rather than the very large EPCs. The very large EPCs have their book of business filled with a lot of the infrastructure work that is happening in the country. I think we have better served working with the B+ contractors where we can together invest in their capabilities, build more long-term partnerships which are multi-project kind of relationships. And that's the direction we are taking. It is still early days. We will -- this is an area of very active work for us over the next 4 to 6 quarters.
Okay. Just lastly, if I may squeeze in. So on this 38 billion, which we did last in the GDV addition. So today, in the morning said that you're looking to repeat that performance in FY '23. So are we geared up to deliver that kind of number? Or we will scale down to again that 2,000 crore number, which we have guided earlier?
Look, I would like to maintain the momentum. There's no sense in scaling down, and we are definitely not going to deliberately scale down. That being said, I don't want us to be -- and I've said this before, to be doing this with a gun held to our head saying, "Come what may, I need to, because I've done 3,800 last year, it has to be 3,800 plus some this year." It has to be the right deal. They have to fit our underwriting criteria, parameters in the right location, ready to market. That's more important. Given the pipeline we see, I believe that it should be at or above last year's number this year as well.
Last thing for Vimal, sir, this year, how much of outgo will happen on the pending land payments? What is the total pending land payments and how much of that will happen in FY '23?
As of now, we are looking at about INR 300 crores to INR 400 crores of outflow, it really depends on our one large transition of Kandivali, there are a few steps which are left before we really consuming that transaction.
That's the pending amount, right? And nothing else beyond that for the current portfolio?
The amount which I mentioned is a combination of 3 or 4 transactions, which are at different stages, right?
No, no. I'm talking about the ones which have been announced and not the ones that may get announced, so the Pune one and the Kandivali one. These 2 are the ones, right, where we have to make payments. So you said the Pune is already a large part of that has been taken care in March.
Pune is completely done. Kandivali, we will have about INR 150 crores of payout, most probably which will come this year.
Pending, that's a pending one or like overall?
This is the initial one, which will go.
Okay. But the overall INR 300 crore to INR 400 core will happen this year, including some more deals which may happen during this year, right?
That's right. That's right.
The next question is from the line of Manish Agarwal from JM Financial.
So my question will be pertaining to the Kalyan launch, which we have done. So how do you view this? We have done INR 56 crore worth of sales. So is it good, bad or is it momentum expected to accelerate going forward? That will be my first question.
Yes. So look, candidly, it's not great. I would have liked to see more. That being said, it is roughly 4 weeks of performance in the last financial year. So there is a runway into all of this year. The feedback we have from customers is they really liked the product. It's a very strong endorsement of the product. So I believe it will build up over this year. It is not a project that has shot through the roof at launch. But that's fine. I mean we will have a mix of those kinds of projects.
Okay. And any traction which we see in the Kanakapura launch?
Kanakapura launch earlier response has been fantastic. We are still in the prebooking phase. We will start bookings from this weekend. The inquiries and initial kind of book building on that has been fantastic, exceeded my expectations.
Okay. And for FY '23, the projects which you have already acquired, all of them are likely to be launched along with Ghodbunder Road?
Ghodbunder could go into first quarter of next year, first half of the next year -- next financial year. Pimpri, Pune, both the Pimpri land parcels as well as Kandivali, we are trying to bring into market this year.
And Dahisar also?
And Dahisar, that's right.
And lastly, on the debt front. So in the presentation, it's a written cash position of INR 145 crores in the residential business, it's a net debt. So this includes Pune-Pimpri transaction, which was done recently or that will be additional?
Sorry, I didn't understand your question, Manish.
So in the presentation, the net debt for residential business is given as minus INR 145 crores.
Yes. This is as on 31st March, and it do not include the payout which we did for Pimpri transaction.
So Pimpri will come and land payments for Dahisar and Kandivali will also come through?
Pimpri is already done in April. And for others, yes, you're right, it will come.
Dahisar is not large. It's a joint development agreement, so.
The next question is from the line of Amit Dalal from Tata Investment Corporation Limited.
Congratulations, Arvind, it's really nice to see that the pieces with which you started off with is now perhaps more than satisfactorily performing. Going forward, you obviously have larger plans than you were even envisaging in the last 2 years. Will you have any capital requirements in terms of equity? Or will you be able to gear it a little more and perhaps that should be enough?
Amit, wonderful to hear from you. Look, I think in the near term, we will build up a little bit of debt. We have a very low net debt position, and I think it makes sense given the low cost of borrowing that we have to leverage in the right way. But we don't expect -- I mean, we will always be prudent with the debt and not leverage to the hilt. So this year, I don't think we need a capital raise depending on the momentum we see towards land acquisition this year and going into next year, we will take the right calls whether further equity infusion is warranted.
The next question is from the line of Himanshu Upadhyay from O3 Capital.
It seems things are moving in the right direction, but a lot still needs to be done okay. My one question was on the residential side. We have always stated that at the project level, we want to have a 20% margin. But when we look at our slide, it says that we are at 10% to 11% on INR 600 crores of revenue, what we have done. On the residential side segment, so this is Slide 33. And from hereon, the launches and projects on hand, can we expect the gross margin to improve upwards to at least 20%? Or do you think the gross margin will remain around this level only? And in your sales expense at the project level, is it included into the cost of sales or it is in the other operating expense?
So I'll give you a kind of one response and I'll ask Vimal to elaborate on that. So one, I do expect margins in the teens, in the mid-teens, and IRR is in the -- project IRR is in the low 20s, as I've said in the past. The challenge with looking at these financials in a growth phase of the business is there is a mismatch between when the costs flow through and when the particularly period costs when the period costs flow through to the P&L and when the revenue recognition on the product happen. So you're right on -- if you look at last year's financials, it does look like a 10% margin. But as I said, there's a timing mismatch putting when some of those costs get booked and when the corresponding revenue is booked. Vimal, do you want to elaborate further?
Yes. Just to bring up what Arvind said, there are a couple of specific points which I want to highlight here. For example, if you look at the Luminare project, which we talked about earlier on the call, there are 2 things. One is the number of INR 657 crores you are seeing in the investor presentation, actually is a straight submission. And Luminare, because in March '20, we had moved to a straight -- to net realizable value accounting. So the upside of the gain on performance per project is actually reflecting in that INR 97 crore number of exceptional gain. So that's basically about 40% of INR 657 crore is coming from Luminare. The performance is reflecting the exceptional gain there. That said, the other 2 points, which Arvind actually highlighted is the marketing spend. For example, sales in latest at this time is upwards of INR 1,000 crores. And all of that marketing spend is right now getting booked and reflecting these numbers. In addition to that, Luminare again was actually an area share agreement, and therefore, all the sales expenses of that because this year, we focused on selling partner share completely. And therefore, whatever is leftover will be almost -- almost 95% of the leftover is a focus on liquidating partners inventory, which is ideal in this case. And therefore, the brokerage expenses have got also booked into these numbers, which are upwards of INR 10 crores, INR 11 crores, INR 12 crores. So these are a few of the examples. But coming back to the last 2 points...
Sorry for the interruption, the sales expenditure, is it booked in cost of sales or it is in other operating expenses at the project level?
Including other expenses. The cost of sales for which the revenue is getting reported is part of cost of sales, right? For example, a normal brokerage is there. But marketing expense will be in other expenses.
Okay. So Luminare, whatever sales you are saying you did and whatever you had to fee is included in cost of sales -- the broker margin or broker commissions are in cost of sales?
That's right Himanshu. Absolutely right.
Okay. But even if we look at this margin or what we have said is mid-teens type of margin, so breakeven level for the company is at least INR 1,500 crores type of thing because my other operating expense will also increase in inflation.
It will always yes, that's right -- two ways to look at it. It will always be dependent on how your other projects are performing and therefore, what kind of realization. For example, Kanakapura, as Arvind mentioned, prelaunch, this spot has been extremely good and is reaching our [indiscernible]. The second point is which is also there is IC business. What you're seeing here is like a completely sort of a scenario where IC business overheads are not reflecting there at all because all the costs, what you see as a resi is actually resi plus corporate office expenses. And to that extent, part of it will always be a problem in terms of allocation between the resi and IC, it also is there.
And one small question, in terms of Happinest, the stand-alone numbers of Happinest when we see they were into the losses only. But with now the business model is maturing, has that model started breakeven EBITDA? So let's say, in the last 4 quarters also -- are we on the breakeven level at least in 1 or 2 quarters or that continues to be the way it has been?
No, no. We are at a breakeven level. And as Arvind mentioned, this is really the project level economics, which will be at play, for example, Palghar 1 where we completed all our sort of phases in Palghar 1. We are fairly positive there. Similarly, Kalyan 1 is doing wonderfully well. And we don't see any challenge versus what -- versus the project or underwritten case. So no issue. And you're right that it's maturing well. We do expect the value home segment or the Happinest segment to do very well for us.
Okay. And 2 last questions. In the last 3 years, the collections have been much ahead of sales value. But with new launches increasing, can we expect sales would start increasing ahead of collections and even my cost will be more. So let's say, construction cost and the sales expenditure will be much ahead of collections, so the cash flows may be peaking on operating level, let's say.
So you want my cash flow to be negative, whatever I do, that's the objective.
No, no, I am not wanting, but I'm trying to understand because if -- for 3 years, the collections have been better. But have you seen the peak of that from an operating level? Or do you think how it will be just to understand now?
So fundamentally, there are 3 things which are at play here. One is more internal and fairly close to us is the overall technology leverage, bringing visibility and transparency, ensuring that we are not, for example, with right intent, not waiving of interest and therefore, driving the collection. So if you were to look at the collection aging, it's possibly one of the best aging, which you will see across industries, across companies and all of that. That's one. Second is that usually because there is significant focus as Arvind has brought in on the overall project launch and the payment plan and on IRR, usually, the demands are fairly front-loaded to ensure that the cash is -- cash for a project which is doing decent and not great, we turn positive in fairly in first 2 or 3 quarters itself. That's second. Third really is the overall aspiration, which we have to reach our FY '25 goals. If that aspiration progresses well, I'm sure there will land acquisition-related spend and outflow which will happen. And therefore, it links back to the other responses which Arvind gave in terms of raising funds in this year and in subsequent year.
But look, at a broader trend, one has to see sales and collections moving in tandem. There cannot be a significant gap in those over time. Right now, we're playing a bit of a catch-up, and therefore, you're seeing collections ahead of sales. But as we grow the business, the 2 will move largely in tandem. The second thing that I would want you to look at kind of side by side is the 3 numbers of areas: so area launched, area sold and area delivered. Again, in a growth stage of the business, those 3 numbers will be slightly different. But in a mature business, those 3 numbers will start moving in tandem. And if you look at last year, for example, we had roughly 1.3 million plus or minus in each of these 3 buckets, 1.3 million square feet launched, 1.3 million square feet sold and 1.3 million square feet delivered.
Okay. And one last thing. See, this Palghar project, okay? In one of the earlier calls, we had stated that we want to have at least 60% sales in the Happinest type of project at the time of launch, that helps in the profitability and because the margins are low, so cash positive, it starts breakeven, okay. But if a project like this happens -- sorry, that's Kalyan 2, okay, not Palghar, sorry, Kalyan 2. So if -- what are the levers to improve from here on? And what are we doing to improve the cash flow and again, better sales now or in the next 2 or 3 quarters. So some thoughts of that, it will be helpful to understand the Happinest type of project.
Yes. So look, I think, firstly, it is about being very clear and kind of not defensive about understanding how each launch has performed. So in Kalyan 2, we've gone very deep into understanding what has worked, what has not worked. And when I say that there's been strong endorsement of the product, it is not just my belief, it is backed by a significant amount of post-launch consumer research, not just prelaunched consumer research. Now with a strong product in a good market where we've done well, I am very confident we will catch up on our business plan. In fact, we are already tracking to the underwriting business plans. So we're not behind our underwriting case. It's been only 4 weeks, as I said, of performance that is reflected in the numbers I shared with you. So watch this space. I mean I don't think it is as alarming situation as you seem to fear.
The next question is from the line of Puneet from HSBC.
My first question is with respect to your marketing expense, how should one think about your marketing expense going ahead? Is it broadly some? Or do you think of it as a percentage of sales? And what should that number be?
One should actually look at the total project life cycle and therefore like any other product [indiscernible] in any other industry, you will see a significant investment getting into at the time of launch.
So what should that be as a percentage of sales [indiscernible]?
It will vary in the range of, say, 2.5%, 3.5% over the life cycle of the project.
Okay. And other than salaries and all, would there be any other overheads that one needs to consider?
As in?
I mean in terms of overheads, there will be obviously corporate overhead and employee salaries. Anything else that does not get accounted in your cost of material?
Okay. So we account for everything which can be directly correlated with that project or launch. We don't leave anything sort of unallocated or anything which should be allocated and not left behind.
Okay. My second question is, can you give some color on what you're seeing on the land acquisition side and your JV [indiscernible] redevelopment. Everybody seems to be talking about these. Are you seeing any increase in competitive intensity there? Or things are so reasonably priced?
So we are seeing a lot more activity from competitors. And just like we are wanting to grow, all our competitors are wanting to grow as well. So it's not surprising. That being said, we are also equally seeing a clear preference among landowners, and I talked about society redevelopment in both these categories. We are seeing a preference to do business with the larger developers where financial closure of transaction is not a risk, right? So one of the challenges that's happened in the past with land acquisitions or line sales, if I were to look at it from a seller's perspective, is term sheets get signed, but then there's a protracted period when the buyer has still not achieved financial closure and therefore, the landowners kept hanging. I think there's a clear sentiment being expressed that working with developers like us, there is confidence that once we sign a term sheet, we will be able to close the financials very quickly.
And versus a year back or maybe 2 years back, are you seeing an implicit demand for a higher land price or higher share of profits from the landowner partners.
Look, unfortunately, with newspaper headlines screaming out that there is a lot of upcycle in real estate, and there's a boom, et cetera, landowners also read the same newspapers that we read. And their expectations do go up. So yes, there is heightened expectations. But that's part of our business. And we are sticking to our guns in terms of the kind of returns and underwriting parameters that we have.
Understood. So versus, for example, the INR 3,800 crores of GDV that you culminated last year, the year before that the implicit share of profit would still be largely the same.
Implicit share of?
Share of profit that you will get from those deals will still remain unchanged. Some of it will be.
Yes. The underwriting parameters, as I said, all remain intact. We've not dropped those thresholds at all.
Okay. And in your underwriting parameters, are you building in higher realizations than what you were a year back?
We are building in both higher cost and higher realization because cost of construction has also gone up.
We'll move on to the next question, that is from the line of Pritesh Sheth from Motilal Oswal.
So 2 questions. One is, traditionally, we have been doing smaller-sized projects with multiple phases of small -- are broken into small phases, right? Now the scale of projects have increased to 1, 1.5 even to an extent 2 million square feet, right? So now will the phase launches that we do would be much higher in size to execute those projects quickly than what we used to do it earlier?
Look, hard to give a general rule on that. It's very tactical. It depends on the competitive nature of that particular micro market. In certain situations, we want to make a quick entry with a small phase so that we plant our flag and announce our presence in that micro market. In certain cases, we want to bring a substantial amount of inventory together because we believe that's what is right for that particular situation that it's about demand and supply and constantly monitoring both. So there is no general rule that we will follow on that.
Right. But overall, when we are entering the project size of 1, 1.5 million square feet, what is the timeline that we are looking at to exit those projects, 5 years, 6 years probably? What's the internal timelines that you set out?
We will still try and complete those within 5 years. That's very important for the economics because, as you know, the longer the project stretch, the IRR drags and within particularly in an inflationary cost environment, you're subject to more cost risk as well.
Sure, sure. And second question is on your breakthrough transaction at the Kandivali parent land, right? So we have acquired the first phase of the 9-acre. And the potential we know, that obviously, it's higher than that. So from here on, I mean, would -- the second transaction that we might do would at least have a gap of like 3, 4 years until the time we generate enough cash flows to pay out the successive land costs that we might have to incur for acquiring the next phase? Or how are we thinking about it?
Honestly, too premature because line of sight into the next phase is still being developed. But yes, it's not imminent. It's going to take a little bit of time.
[Operator Instructions] We'll move on to the next question that is from the line of V.P. Rajesh from Banyan Capital.
Arvind, congratulations. And my first question is that on the cost side, what kind of inflation are you thinking about from here on? I know you mentioned it was 12% to 15% for the last year. But from hereon, do you think it will continue to accelerate? Or the second derivative will come down? How are you thinking about that?
Look, we are planning for about 8% to 10% going forward as well because all the advice and views we are getting from the economists, including our group economy sales that inflation is here to stay. It's not a temporary phenomenon. It's not just a Ukraine war issue. There is a structural reason why inflation will continue for several quarters. So as in our underwriting cases, we are planning for an 8% to 10% cost inflation in the years to come as well.
Got it. So as you are launching the projects, are you then sort of spacing out the inventory you released at the launch, et cetera, maybe make it lower, just so that you don't have to increase it too much? How are you thinking about how much inventory you want to sell at launch?
Yes, absolutely. You're absolutely right. So we are going to stagger out our launched inventory and sales as well. Earlier, I was of the firm view that sell as much as possible as quickly as possible because that made sense in a stable cost environment. But now one has to try and sell closer to the cost incidence rather than too far ahead of the cost incidence.
Right. And then my second question is regarding the society redevelopment projects you're taking on. If you can elaborate a little bit as to what these projects will look like in terms of timeline, in terms of square footage? Are they going to be large or turnaround projects, that will be just helpful?
Yes. Look, that's a very interesting space, and we are getting our arms around it. And as we get deeper, I'm getting more excited by it. The size of the transaction varies from fairly small individual projects to very large societies. The small projects are still attractive because what is -- what we are finding is the minute you start engaging with one society in a particular location, the neighboring society is also start engaging with you. So what will likely end up happening here is a cluster or a string of pearls kind of an approach where in a very small catchment area, you're doing 2 or 3 small size projects, which aggregated together, is a meaningful size. And so we are thinking about that space a little bit differently where we're looking at clustering these 4, 5 societies. It's not that their land will get aggregated and it will become one society. They will still be individual development. But from a management perspective, sales perspective, overhead perspective, et cetera, you have still 500 crore to 1,000 crores GDV to play within a 2-kilometer radius.
Okay. So your minimum cash hold will be around INR 500 crores across multiple housing societies, which makes sense for you to take on such projects. Is that the general way to think about it?
Yes, that's right.
The next question is from the line of Rohith Potti from Marshmallow Capital.
My first question is sort of a follow-up on the initial comments that you shared. So you talked about the, I mean, how the industry is shaping up right now. But in general, recently, we've seen letters from [indiscernible], et cetera, complaining about the rising cost environment and about how some developers are stopping work, et cetera. So if you could share, I mean, the general scenario of how you see the industry right now in terms of -- is there reduced competition, in terms of launchers, in terms of number of participants looking for land parcels, et cetera? That would be great.
So look, one trend that's very clear Rohith, is the formalization or consolidation of the supply side, and we've seen this over the last 5 or 7 years as you track the numbers in each of the Tier 1 cities, the top 5 to 7 players are starting to contribute as much as 30% of the sales value, which used to be in the 10% to 15% range. So it's grown quite a lot. And so therefore, that is of indication for the direction we've taken about going deeper into a few markets rather than spreading ourselves too thin. Cost inflation is certainly a pressing topic. It's something that is hurting all of us in the industry. I think, as I mentioned in response to an earlier question, it's not just hearing now thing where we can bury our head in the sand and say, let's get through 1 or 2 quarters and life will be great after that. We do need to plan for a sustained period of cost inflation and gear our business model to that. And we are tuning to that as, again, responding -- I responded to an earlier question by adjusting our loan strategies about how much inventory to bring, how quick -- how closely can we time sales to construction spend so that we cannot have a big mismatch between those and be exposed to a high amount of cost inflation. But we're also working very hard with top quality consultants, many of them international consultants now on design. We think there's a lot of value to be extracted still from optimization of design and construction methods.
That was very helpful. So my second question is something that you referred a couple of times that you've not just changed the entire top management, but you've brought in a lot of good hires in the middle. So in asset, what you're trying to -- what you've done is sort of rebuilding the firm or rebuilding the culture from scratch because with so many new people coming at the top and at the middle level, that will change towards what the top management is looking towards achieving. I'm just curious to know, so how has that experience been basically rebuilding the firm? And has there been any sort of attrition? What are those numbers? I mean we see talent attrition in IT and other sectors. But is that a worrying real estate right now? If you could elaborate on that particular asset that will be great.
Yes. So firstly, let me correct the impression if I've created a wrong impression. So it's been a good mix of people who have been with us for a period of time as well as new talent that's come in. So it's not just that we are clearing the decks and replacing all roles with new people. So I want to make that clear. What we have done is spent a lot of time simplifying the organization structure, empowering the people in their role and giving them their line of sight into how their professional growth will happen over the next few years. It's something I deeply believe is going to be a competitive advantage in the years to come. And I'm fully aware, I'm talking to a group of hard-nosed financial analysts and talking the stock stuff, but I know all of you do appreciate this. Real estate is not a sector that has traditionally been a talent magnet. But we are in a fortunate position because of our parentage being part of the Mahindra Group where we are able to attract great talent, very often talent from outside the real estate sector, but even within the real estate sector from brands that are much larger than us. Our recent hires have come from places like Godrej and SOBHA, et cetera. And they've chosen to join us because they believe in or they buy into what we are trying to do here. And that is, to my mind, kind of very important. So getting people who are seeing the mid- to long-term story, wanting to be part of that wanting to put their shoulder to the wheel and giving them the right setup to be able to express themselves and deliver against that is what a large part of -- I see my job as construction and sales, finance, marketing, et cetera, will be done by the respective leaders. I don't add as much value there.
This is helpful. Just a follow-up, so in the top management and the senior hires that you've done over the last couple of years, in general, has there been any attrition of -- is there anything to worry about on that front?
Top management, we've not seen a lot of attrition in top 2 layers of the organization. But we are starting to see just like everybody else that the talent market is hotting up. And we are constantly tracking that and staying competitive in terms of our overall offering. It's not always only remuneration, it always is a combination of career growth, professional development and remuneration.
The next question is from the line of [indiscernible] from [indiscernible] Securities.
Sir, a couple of questions from my side. One, pertaining to our resi business, one that probably we are hearing a lot of noise in terms of interest rate hikes. So in case if that is to happen, how do you see the scenario dwelling? So do we foresee any risk to our sales numbers as far as resi is concerned? Second, in terms of our IC & IC business, just wanted to understand how much capital we have deployed to date and how much we'll have to deploy more in terms of activating the origins, which has been lined up?
Yes. So on the mortgage rate or the interest rate hikes that are expected in the quarters to come, I'm not unduly worried about that. And the reason for that is we just talked about the talent market becoming competitive and compensations going up. So particularly for the salaried segment, wage growth is going to be much higher than the growth or the impact of the higher interest rates. Also, the segments we've chosen to play in, which is the mid-market and the value housing segments. Very often, our buyers have been planning for several years to buy their apartments there. They are not going to be dissuaded by 50 basis points hike in mortgage rates. What ends up happening if that happens is the purchase may get deferred by 3 months, I'll save up a little bit more, so that I can increase my down payment, reduce my mortgage so that my EMI remains in the range that I wanted to be in. But they will not say because the mortgage rates has gone up from 6.3% to 6.5% or 6.7%, I won't buy a home anymore. And that -- I don't see that happening. On your question on the industrial park side, most of the investment cycle is behind us. We don't expect significant capital allocation to that in the years to come.
Sure, sure. And sir, a couple of follow-up questions. One, in terms of price hikes, how much price hike do you expect in FY '23, given that, again, probably Feb-March replaced the majority of the price increase in terms of raw materials.
As I said, we have a discipline of 1.5% to 2% every quarter. So that is the bare minimum I expect. Projects did perform well, we will take price up faster than that.
Got it. And lastly, sir, in terms of coming back to IC & IC, third quarter, we saw some up move and some traction as far as IC & IC, but probably 4Q, we saw that trending down. So just wanted a sense whether we are -- on that front, whether we are moving in the right direction in terms of the pace.
As fourth quarter, we did INR 70 crores of IC business. That's not a small number. So I think IC is a on very strong wicket. As I said in my opening remarks, the team has done a fantastic job. Pipeline going into this year is also very strong. So I'm confident we will continue to do well in that business.
So you see, you foresee that going or at least consistently doing around 130, 140-odd acres?
Look, as I said, by 2025, we want it to be INR 500 crore annual run rate. So that's what we are building towards.
Ladies and gentlemen, that was the last question for any further questions or clarifications, please get in touch with the Investor Relations team. I now hand the conference over to Mr. Arvind Subramanian for his closing comments.
Thank you. Thank you very much. And just by way of a quick summary, as I said, we have a very keen eye and tracking very closely the lead indicators of our business, the current health indicators as well as making sure that our trailing indicators are also reflecting that performance and all 3 move in tandem. On the residential side, we continue to build out for growth. We are seeing a good pipeline from a land acquisition perspective. We've had strong impactful launches and continue to see a preference for our products and our brand. And on the industrial park side, as we just discussed in the last question, we are seeing an excellent runway into FY '23 and beyond and are confident that the team is well set up to deliver a strong performance this year as well. So thank you for your support, and do keep the faith. I think this is still a story that is being scripted. By no means are we sitting on our back side, thinking that we've achieved anything so far. There's still a lot more to be done.
Thank you. Ladies and gentlemen, on behalf of Mahindra Lifespace Developers Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.