Eldeco Housing & Industries Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Supply scarcity drives pricing power: Sales bookings fell to 1,56,000 sq ft from 2,56,190 sq ft YoY, but the Lucknow market has shifted from stagnant inventory to a supplier-favourable dynamic, giving branded developers strong pricing power.
• Realization surge, not a margin surge: Weighted average realization jumped roughly 25-30% over the last year, but higher land and input costs cap further EBITDA margin expansion from already industry-leading levels.
• A launch pipeline is finally activating: Management guided roughly ₹800 crores of sale value to be launched in the next 12 months, with at least 50% booking expected at launch itself, after a year of almost no new project launches.
• First-ever formal guidance signals confidence: Management, for the first time, gave explicit FY24 sales value guidance of ₹300 crores-plus and a two-year volume target of 0.15-0.2 crore square feet, framing it as a milestone moment.
• What to watch next quarter: Whether the two Lucknow projects secure environment clearance and RERA registration within the 4-5 month window, and whether the promised launch pipeline actually converts into bookings.

Lucknow Market Structure

• Supply scarcity entrenched: The market has moved from stagnant inventory to a state where supply reacts to demand with a lag, constrained by the time needed to assemble land parcels and a roughly one-year approval cycle.
• Pricing power concentrated: Demand-supply dynamics are totally in the supplier's favour, and good brands command a premium; management sees no correction in realizations.
• Upgrade cycle underway: Buyers are gravitating toward branded developers and higher-end product, moving away from affordable housing, which structurally lifts realization per square foot.
• Low home-loan sensitivity: Only 25-30% of total receipts come through home loans, and customers tend to pre-pay in the sixth or seventh year, insulating demand from the rate cycle.
• Consolidation opportunity: Eldeco holds less than 10% market share in an under-penetrated Lucknow market, and a consolidation trend is underway, creating a share-capture runway.

Bajaj: "The Lucknow real estate market has progressed from a state of stagnant inventory to one-off supply scarcity."

Launch Pipeline & Growth Visibility

• Two Lucknow projects imminent: Main local-body approvals are already received; environment clearance and RERA registration remain, a process management estimates at 4-5 months, targeting launch by end-FY23.
• Pipeline value quantified: About ₹800 crores of sale value expected to be launched in the next 12 months, subject to approval speed, with booking value at launch itself expected to be at least 50%.
• Early-stage deals in progress: The company is in early term-sheet stage negotiations for two additional projects to be launched in the coming financial year.
• Land bank replenished: 16.52 acres of land acquired between April and December 2022, largely for Imperia Phase III, supporting the launch pipeline.
• Revenue recognition will lag: Bookings take over a year to a year and a half to convert to recognized revenue, depending on completion certificates and sale deed execution; until then they sit as advances on the balance sheet.

Bajaj: “Our team is excited and for the first time if you would have noticed I am actually giving out a guidance for the next year.”

Margins & Mix

• EBITDA margins already exceptional: Current margins are among the highest in the industry; management noted peers need roughly 3x the top line to achieve the same bottom line.
• Further expansion capped: Higher land prices and higher input costs contend with price increases, so management would not bet on significant further margin improvement from current levels.
• Product mix is the margin lever: Plotted and horizontal developments carry higher EBITDA margins than group housing; the current ~40% margin is indicative of a mix skewed toward plotted development.
• Future mix to normalize: Going forward, the product mix is expected to be roughly 50-50 plotted development and group housing, which implies some margin dilution from the current skew.
• Margins expected to hold, not necessarily rise: Management expects EBITDA margins to be maintained, if not improved, in coming years, but the outcome depends on revenue recognition, sales value, booking value, and project launches.

Bajaj: "I would not bet on it because on the same side, we also have higher land prices and higher input costs that we are contending with."

Sales Trajectory & Volume Recovery

• FY23 was a low-launch year: Only one small project, Twin Tower, was launched this year; approvals got delayed, and nothing significant hit the market, suppressing sales velocity.
• FY24 sales value guided at ₹300 crores-plus: Management expects to cross ₹300 crores in sales value next year, with a similar run-rate the year after, cumulatively reaching about ₹800 crores over two years.
• Volume target set: About 0.1 crore square feet targeted for FY24, mostly residential, with nothing significant in office and very little in retail; the two-year target is 0.15-0.2 crore square feet.
• Pricing and volume both rising: Realizations are expected to rise definitely, and volumes are expected to rise subject to the ability to launch tied-up projects, creating a dual tailwind.
• Recovery from a low base: The low calendar year was driven by COVID-era disruptions, approval delays, and land assembly issues; higher velocity is expected in coming years as the supply pipeline activates.

Capital Allocation & Structure

• Bareli stake increased: Beneficial share in the Bareli projects was raised from 40% to 50% because the project performed well, reflecting a willingness to concentrate capital where returns are proven.
• Geographic diversification is incremental, not transformational: Baby steps have been taken with the Bareli project, and a couple of other markets are being evaluated, but management is explicit that it will not dilute focus from Lucknow and has no plans to enter NCR or other cities at this stage.
• Merger with promoter entity under evaluation: The thought of restructuring or merging the two real estate entities often crosses management's mind, but regulatory approvals from RERA bodies and stamp duty implications make it complex; costs and benefits are being evaluated, and no decision has been taken.

Bajaj: “By no stretch of imagination is our growth constrained by the fact that we are concentrated in Lucknow.”

Guidance & Commitments

Key Metrics