Sales, debt reduction shape strong outlook for Macrotech Developers

Realty company on track to meet FY23 target of Rs 11,500 crore in bookings

Strong demand, healthy cash flows, and reduction in debt should help Macrotech Developers, India’s second largest realty company by market capitalisation, maintain sales and meet targets.

The company’s June quarter (Q1FY23) bookings grew by 194 per cent to Rs 2,814 crore and it is on track to meet its FY23 target of Rs 11,500 crore. After launching 2.7 million square feet of projects in the June quarter, the company is expected to launch 8.5 million square feet (mnsqft) in the remainder of FY23 taking the cumulative launches to 11.2 mnsqft. This is higher than the 8.7 mnsqft it guided in the March quarter.

The company, which was formerly known as Lodha Group, added three new joint development agreement (JDA) projects in the June quarter in Mumbai, Pune, and Bengaluru. These projects have a saleable area 5.1 mnsqft and a value of Rs 6,200 crore. “Given the Rs 40,000 crore size of the market, a fragmented market structure and an experienced leadership, we feel its entry in the Bangalore market is a step in the right direction,” said Manish Agrawal, of JM Financial Institutional Securities.

Also Read: Macrotech Developers profit rises 68% to Rs 271 crore in June quarter

The company could monetise from its digital infrastructure platform. The $1 billion venture will develop warehouses and light industrial parks across India with the participation of private equity payers. About 110 acres of Palava land (Dombivli, Mumbai) has been used for this with an enterprise value of Rs 350 crore.

Ongoing deleveraging is positive for the company. Net debt levels for the India business is at Rs 8,900 crore now, compared to Rs 9,300 crore at the end of March quarter. Net collections exceeded overall expenses by about Rs 440 crore helping the company reduce debt. The company expects net debt at the end of FY23 to be at Rs 6,000 crore. The reduction this year is expected to be on the back of a higher operating surplus in the residential business and repatriation of UK investments. Given the strong cash-flows, the company has adopted a formal dividend policy which entails setting aside 15-20 per cent of net profit starting FY23 to be paid out as dividend.

On the demand front, a mortgage rate hike has not impacted the company. Macrotech is expected to stick to below-wage hike pricing growth strategy. Long-term confidence, according to Jefferies Research, has improved, as indicated by the Bengaluru market entry and initiation of a dividend policy.  Jefferies maintains a buy with a target price of Rs 1,420.

Given that target prices are in the range of Rs 1,400-Rs 1,600, the upside is a healthy 23 per cent at the lower end of the range. Invest on dips.