Eldeco Housing & Industries Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Outlier year for realizations: Average realization jumped ~20% to nearly ₹4,600/sq ft, an upward correction after years of stagnation, with another ~10% rise expected in FY24.
• Sales guidance scaled ambitiously: FY24 fresh bookings guided at ₹300–400 crores, contingent on launching delayed projects, with a path to ₹900–1,000 crores total sale value from the existing pipeline over 2–3 years.
• Lucknow delivers standout profitability: Consolidated PAT of ~₹45 crores on ~₹150 crores revenue produced the highest ROE and ROCE among all listed real estate companies in India.
• Project delays are a near-term drag but a pricing tailwind: Land assembly and approval issues stalled some launches, but micro-market price increases mean these projects will now launch at higher-than-underwritten price points.
• What to watch next quarter: Whether the two delayed projects resolve in Q1 or Q2 as guided, the formal launch of Latitude 27 by end-May, and the pace of land bank additions to sustain the 2–3 year pipeline.

Realization & Pricing Power

• FY23 was an outlier: Average realization rose from ₹3,800/sq ft to nearly ₹4,600/sq ft, a ~20% increase that management called the highest improvement in many years and an upward correction compensating for years of stagnant prices.
• FY24 outlook still above-normal: Another ~10% realization increase is expected, described as more than normal growth because the correction cycle still has room to run.
• Pricing power has structurally shifted: The company historically bought and sold at market price, but now sells at "market price plus," a change management attributes to brand and product positioning.
• New launch margins start healthy and improve: New projects are expected to launch at 30–35% gross profit margins (EBITDA level), above the industry average of 20–25%, with margins rising over the project life cycle as prices tend to increase toward the end.

Pankaj Bajaj: "For a company like ours, we buy at market price, and we used to sell at market price. But now we don't sell at market price, we sell at market price plus."

Sales Pipeline & Launch Cadence

• Latitude 27 is the nearest catalyst: RERA registration received, construction commenced, and formal launch is planned by end of May 2023.
• Two delayed projects are the gating item for FY24 guidance: Land assembly and approval issues prevented these from reaching launch stage, with ~₹25 crores already advanced; resolution is expected in Q1 or Q2 FY24, and the delay carries a silver lining because micro-market prices have risen above original underwriting.
• Imperia Phase 2 launch: Planned for the second half of FY24, with strong sales expected; the first phase (Imperia) will be handed over in FY24, likely by Q3.
• Total sale value visibility: Existing and forthcoming projects represent ~0.2 crore sq ft, which at ₹4,500–5,000/sq ft translates to ₹900–1,000 crores in total sale value to be booked over the next 2–3 years.
• Revenue recognition is back-end loaded: A large portion of this sale value will be recognized only upon completion certificate and title transfer, except for running projects where recognition is more linear.
• FY24 revenue: Expected to be slightly higher than last year on a consolidated basis, with the Imperia handover as a key contributor.

Pankaj Bajaj: "The positive side of this delay is that the prices have turned up in our micro-markets and the launches will happen at price points higher than our original underwriting."

Market & Geographic Strategy

• Lucknow is the entire game, and that is by design: The company has historically only operated in Lucknow; the Eldeco group originated there, and a separate unlisted entity was formed years ago to look at other markets.
• The Lucknow market is set to double: Management expects the market size to double in the next 3–4 years; land assembly has become very difficult but is expected to unlock in the next year to year and a half.
• Consolidation opportunity: A strong trend toward consolidation is underway, and the company aims to capture a bigger share of a rapidly growing Lucknow market; significant business development has already been done, and management does not believe growth will be constrained by geography.
• Expansion, if it happens, stays within U.P.: If constrained for growth, the company would first look to other parts of Uttar Pradesh; Gorakhpur is a market being evaluated as a fallback option.
• Bareilly investment: The company made an investment in Bareilly, signaling early steps beyond the core Lucknow market.

Profitability & Capital Allocation

• Lucknow operations are exceptionally capital-efficient: Consolidated revenue of ~₹150 crores produced PAT of ~₹45 crores; management stated that any other real estate company would need 4 or 5 times that turnover to achieve the same PAT, delivering the highest ROE and ROCE of all listed real estate companies in India.
• Dividend payout is rising: Dividend recorded at 400% this year, with the payout ratio increased to almost 17–18% of profit; the long-run intention is to take the payout ratio to about 25% of profit.
• Reinvestment is the priority in an upcycle: Management sees a great opportunity to invest money on behalf of shareholders given the long-term secular uptrend in real estate; if the market were stagnant, money would be returned via dividends or buybacks.
• Debt raise planned for growth: The company plans to raise ~₹100 crores in debt during FY24, mostly against existing and new projects, using an optimum mix of external debt and internal equity.
• Other expenses turned negative in Q4: This was a year-end balancing adjustment: provisions taken on the higher side in earlier quarters were reversed when the full-year position showed they were not required.

Pankaj Bajaj: "If you look at the number, I think that our company in Lucknow gave the highest ROE and ROCE of all listed companies in the entire country. It is the highest."

Product Strategy: Luxury Over Affordable

• Luxury is the growth segment: The company is introducing a couple of projects in the luxury segment because that end of the market is showing the highest growth at the moment.
• Affordable housing is explicitly avoided: Management does not believe affordable housing is a sustainable model; margins are too thin, and RERA exposes developers to inflationary pressures without the ability to pass costs to customers once an agreement to sell is signed.
• The RERA risk is structural for low-margin plays: Once an agreement to sell is executed, the price is fixed, leaving the developer exposed to input cost inflation with no recourse, a risk that is manageable only when starting margins are healthy.

Pankaj Bajaj: "The margins are just too thin there. And given how RERA has played out in the last four, or five years, whereas as a developer, you are open to inflationary pressures, but you cannot pass that on to your customers, because once you enter into an agreement to sell contract with the customer, your price is fixed."

Unlisted Entity & Corporate Structure

• Merger is being explored informally: A merger of the unlisted entity (which operates in markets beyond Lucknow) makes sense for both sets of shareholders, but nothing can be declared right now; the process is complicated due to multiple agencies and multiple RERAs.
• Stock split improved liquidity: A 1:5 stock split was executed last year to increase liquidity.

Guidance & Commitments

Key Metrics