Eldeco Housing & Industries Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Booking value surged 316% YoY, driven by the luxury Trinity project and higher per sq ft realizations, but reported EBITDA margins contracted on a lower-margin project mix.
• Management sees definite signs of a broad economic slowdown: inquiries have dropped from a benchmark of 100 to 75-80 over two quarters, though Eldeco's premium mid-market positioning has insulated it so far.
• Lucknow remains the singular focus, with management comparing its growth trajectory to Pune 20 years ago; the company is aggregating land and may take on more debt to avoid constraining growth during this "golden period."
• Margins have recovered to the 40% range after a 50% price increase over 1.5 years, but FY25 will see slightly lower margins as the lower-margin Imperia Phase 1 books revenue.
• What to watch next quarter: The pace of approvals for the 45-acre land parcel (submission imminent), the trajectory of inquiry levels amid the noted slowdown, and any update on the stalled merger with the unlisted entity.

Demand & Market Environment

• Broad slowdown acknowledged: Management stated there are "definite signs of slowing down" across the entire economy, citing higher inflation and weaker car sales. Inquiries have dropped from a benchmark of 100 two quarters ago to 80 or 75 currently.
• Mid-market insulation: Eldeco's core product, middle and upper-middle class premium housing, continues to sell at a decent pace. Management believes this segment is sustainable in the long run and is not feeling the slowdown's impact as acutely.
• Lucknow demand-supply: For Eldeco's product in Lucknow, demand exceeds supply. Independent housing on the outskirts at a INR1-1.2 crore ticket size faces no demand-supply mismatch.
• Luxury segment glut risk: A number of projects have been launched in the Trinity area in the INR5,000-10,000 per sq ft range. Management believes these could face resistance, creating a potential glut after Trinity.
• End-user driven market: Lucknow demand is driven by end-users and long-term investors, with inbound investment from Prayagraj, Varanasi, and Bihar for long-term placement.

Pankaj Bajaj: "So, on the whole, there are definite signs of slowing down. And I think that is true not only for real estate, that is true for the entire economic scenario in the country."

Project Performance & Margin Dynamics

• Booking value driver: The 316% YoY increase in booking value was driven by higher area booked and higher per sq ft realization, with the majority of bookings coming from the luxury Eldeco Trinity project.
• Trinity sales velocity: Approximately 30% of the overall unit area was sold within 4 months of launch, while construction is still at the basement stage. Management expects the project to be majorly sold out by the time the structure comes up.
• EBITDA margin contraction: Reported operational margins contracted primarily due to the mix of projects recognizing revenue this quarter. Imperia Phase 1, a large 47-acre project, carries a lower EBITDA margin for the company.
• Margin recovery story: Margins had fallen to the 30%-35% range 1.5 years ago, but a roughly 50% increase in pricing without a proportionate cost increase has brought margins back to the 40% range.
• Imperia 2 margin offset: Imperia 2 margins are expected to be very high, which management says will more than compensate for the lower margins in Imperia 1 when it is recognized.

Pankaj Bajaj: "But over a 4-year period, our EBITDA margin remains the same weighted average."

Product & Pricing Strategy

• Not pivoting to luxury: Trinity is described as an outlier in the portfolio and the only luxury project. Management is not sold on luxury housing as a long-term strategy, believing middle and upper-middle class premium housing is what is sustainable.
• Pricing premium: Eldeco typically launches projects at a premium of about 30% to 40% over adjacent developments.
• Quality housing thesis: Management cites huge unmet demand for quality housing, with people willing to pay a premium and travel farther for a quality gated township with full amenities.
• Average realization mix: The current INR6,500 average realization is skewed by Trinity. The rest of the portfolio is in the INR4,500 range. Going forward, management expects a blended figure somewhere in the middle, with INR5,500 being a fair expectation for the next year or so, depending on the quarterly project mix.

Pankaj Bajaj: "We are not sold on as a strategy. We are not pivoted to luxury housing because we know that in the long run, middle, upper-middle class premium housing is what is sustainable."

Land Bank & Launches

• Land aggregation progress: The company acquired an additional 3.84 acres, bringing total fresh land aggregation to 63 acres for new township projects. Combined revenue potential is much more than INR600 crores.
• Approvals timeline: Approval time has reduced from about 12 months to roughly 9 months, and the process seems to have simplified.
• Imminent 45-acre submission: The company is finalizing the plan for the first 45 acres and expects to officially submit for approvals in about 10 days from the call date.
• Launch timeline: Management is optimistic about getting approvals early and launching this project in the first half of next year. The revenue potential is expected to be more than INR600 crores, possibly closer to INR800 crores, depending on the final approved plan.
• Active pipeline: Three projects are under active approval and expected to get approval quickly. Three more projects where land is under aggregation will subsequently apply for approvals. Launches occur immediately after RERA approval and initial site preparation.

Balance Sheet & Capital Allocation

• Debt appetite for growth: Management indicated debt on books may increase as they tie up more land parcels in Lucknow. They view Lucknow as entering a golden period of growth as the capital of Uttar Pradesh and do not want capital to constrain growth if opportunities arise.
• Rapid debt repayment: Any debt raised is intended to be repaid within a couple of years, supported by the fast pay-for-sale and collection cycle at the project level in Lucknow.
• No LRD exposure: The company has no Lease Rental Discounting (LRD) debt and no rental assets.
• Inventory monetization: The company holds INR2,600 crores of inventory to be monetized over the next 4-5 years.

Geography & Execution Focus

• Singular Lucknow focus: Management has no plans to expand into other geographies, stating it would be a mistake to dilute attention from Lucknow. The city is compared to Pune 20 years ago, poised at the start of a major growth trajectory.
• Execution priority: The strategy for the next couple of years is to focus on execution in the current market, with the possibility of expanding even more within Lucknow later.
• Growth runway: Management believes there is enough revenue for growth in Lucknow for the next 3 to 4 years, and the outlook is "quite good."
• No EPC ambitions: The company is not an EPC player and will not look for government EPC projects.

Pankaj Bajaj: "We feel that it is poised at the exact same place that maybe what Pune was 20 years ago."

Guidance & Commitments

Key Metrics