Eldeco Housing & Industries Ltd Q2 FY2023 Concall Summary

Key Takeaways

• Supply, not demand, is the binding constraint: Fresh bookings collapsed to ~₹25–28 crore because no new project was launched, as approvals were delayed. Management expects supply rather than demand to be the primary hurdle to growth for the next few quarters.
• One-time charges and product mix compressed margins: EBITDA margin fell to 29.1%, hit by a ~₹5–6 crore GST input credit reversal and a shift toward lower-margin group housing projects. Margins are expected to revert as the GST hit is non-recurring and higher-margin plotted projects come through.
• Realizations are climbing on brand and scarcity: Weighted average per-square-foot realizations have moved up to ₹4,300–₹4,500, driven by cost pass-through, supply constraints, and a consolidation premium accruing to the Eldeco brand.
• A ₹450 crore pipeline is stuck in approvals: Two launches planned this financial year, Imperia Phase-2 and a group housing project, carry a combined top-line potential of ₹450 crore over three years. Cash flows and booking uptake cannot begin until RERA registration is secured.
• What to watch next quarter: Whether either of the two planned launches receives approval and starts contributing to bookings, and whether the Bareilly completion certificate application progresses on the six-month timeline to unlock locked-up inventory.

The Supply Bottleneck: Launches Stalled, Pipeline Building

• Bookings evaporated without a launch: Fresh bookings fell to ~₹25–28 crore in Q2 FY23, all from leftover inventory of existing projects, because no new project was launched. Bulk booking typically occurs at project launch, and approvals were delayed.
• Two launches are ready but waiting: Imperia Phase-2 and one group housing project in Eldeco City are planned for launch by the end of this financial year. Site and plans are ready; whichever receives approval first will be launched first.
• The revenue at stake is material: The two projects together are expected to generate a top line of ₹450 crore over the next three years, but cash flows cannot start until all approvals and RERA registration are obtained in a sequential process.
• Three more land parcels are in the pipeline: Two primary land aggregation parcels and one prime group housing parcel in Lucknow have reached the term sheet stage, with a combined land acquisition CAPEX of ~₹200 crore. The company plans to bring them to market next year, using a judicious mix of external equity and debt at the project level.
• Bareilly inventory is partly locked: The first 35 acres are 80–90% booked, but some inventory cannot be sold pending a completion certificate per local authority norms. The company hopes to apply for that certificate in about six months, which will release more inventory for sales.

Pankaj Bajaj: "For the next few quarters, I believe that supply rather than demand will be a primary hurdle to growth."

Margin Mechanics: A One-Time Hit and a Mix Shift

• EBITDA margin dropped on two factors: The quarter's 29.1% margin reflects a one-time GST input credit reversal of ~₹5–6 crore, which alone accounted for an 8–10 percentage point impact, plus a product mix shift toward group housing projects like Dreams and Naksha that carry lower margins than plotted township projects.
• Revenue recognition favored lower-margin projects: Profit recognized this quarter came mainly from group housing projects, which typically have lower profit margins than horizontal plotted township projects.
• A reversion is expected: Margins are expected to improve in coming quarters because the GST reversal is non-recurring and higher-margin plotted horizontal and commercial projects are entering the recognition mix.
• FY23 profit guided flat to slightly down: Profit for the full year is expected to be similar to or slightly less than last year, driven by the one-time GST reversal and a product mix that favors lower-margin group housing projects this year.
• H2 revenue recognition seen flat sequentially: Revenue recognition in H2 FY23 is expected to be more or less the same as H1 FY23 because not many projects are getting completed, though EBITDA margins could be higher.

Lucknow: A Supply-Starved Market with Consolidation Tailwinds

• Demand remains strong despite macro concerns: Residential real estate demand in Lucknow continues to remain strong, though management acknowledged concern about rising interest rates and inflation eventually affecting consumer pockets. The supply-starved environment for quality real estate and the consolidation trend may insulate Eldeco.
• Branded players command a premium: Consolidation since the pandemic means consumers are prepared to spend more for branded players. Eldeco's weighted average realization has risen to ₹4,300–₹4,500 per square foot, up from a historical mid-₹3,000–₹3,700 range, partly from cost pass-through and partly from this brand premium.
• Market share runway is long: Management estimates Eldeco does not have even a 20% market share in Lucknow, and with consolidation, leaders are expected to hold double-digit share. The company sees a clear runway to grow within Lucknow before needing to expand geographically.
• Geographic expansion is conditional: If the new Lucknow projects and land parcels come online, management does not think it will have the bandwidth to step out of Lucknow. If they do not materialize, the company will definitely consider expanding to other cities in Uttar Pradesh.

Pankaj Bajaj: "The residential real estate demand in Lucknow continues to remain strong although there is now a concern about macroeconomic and global factors like a rise in rates of interest and inflation. We feel that at some point this would start having an effect on the pocket of the consumer and consequently the demand. However, we continue to be in a supply-starved environment as far as quality real estate is concerned especially in Lucknow."

Realization Trends: Scarcity, Inflation, and Brand

• Three forces are pushing realizations up: Supply constraints in the market are positive for realizations, general cost inflation is being passed on to the market, and consolidation means bigger branded players are getting a premium. Management expects realizations to continue going up for some time.
• The Bareilly project is performing well: The first 35 acres are 80–90% booked, collections are strong, and money is being used to complete the project. An additional 5-acre parcel will be applied for approvals soon.
• Bareilly returns are back-end loaded: Money will start coming back in the next couple of years, and the return is expected to be much more than the 8% guaranteed return. The company is proposing to increase its beneficial share in the project to around 50% from the current 40%, with existing investors getting diluted via a secondary sale where money does not go into the project.

Pankaj Bajaj: "I actually think so nobody can predict the future, but in my opening remarks I mentioned a couple of trends. One is there were supply constraints that is positive for realizations going up... Second, there is a general inflation in the market cost are going up and it is going to get passed on to the market... and third there is a consolidation happening for which the bigger and branded players are getting the premium."

Capital Allocation: Growth First, Dividends Steady

• Land acquisition will use external capital: The three term-sheet projects carry a total land acquisition CAPEX of ~₹200 crore. The company does not want to deploy only equity for that and plans to partner with a judicious mix of external equity and debt at the project level, with strong interest reported from PE funds and real-estate debt funds.
• Debt-free is not a dogma: Management clarified that being debt-free is not a conscious strategy; a project simply has to justify taking on leverage.
• Dividend policy is informal but consistent: The payout ratio has been about 15% of total profit in recent years. The company would like to continue at 15%, but if some growth projects do not materialize, it would consider increasing the payout to 25%.
• Model agnosticism on JDA vs ownership: The company is agnostic between joint development agreements and complete ownership models; investment decisions are based on achieving at least 22–24% pretax equity IRR.

Project Completion Timelines and Revenue Visibility

• Imperia Phase-1 unlocks next year: Revenue is expected to be higher from next year onwards because Imperia Phase-1 should receive its completion certificate, which will allow revenue recognition under the completion method.
• Imperia Phase-2 timeline: Once approval is obtained, which is expected anytime now, the project is expected to take about 2.5–3 years to complete.
• Group housing project timeline: The planned group housing project, GS 03 or GS 04, is expected to take about 4 years to complete.
• Bareilly completion certificate: The company hopes to apply for the completion certificate in about six months, which will release more inventory for sales.
• Product mix impact on margins to reverse: The lower-margin projects weighing on the current year are expected to give way to higher-margin ones going forward.

Guidance & Commitments

Key Metrics