Safe to invest in real estate directly and indirectly? Lodha Group- giant leap in Net sales

Macrotech Developers, more commonly known as Lodha Group was founded in 1980 and their headquarter is in Mumbai.

Ever since the IPO was issued, the company has entered into 5 Joint Development Agreements worth Rs.46 billion. The company has also reached a decision to raise Rs.40 billion worth of capital for growth and this can in-turn add Rs.400 billion worth of projects and it will also bring down the net debt to under Rs.100 billion.

The residential sales which fell strongly owing to the pandemic, increased sharply in Q2 FY22 as the prices had significantly decreased which attracted more and more customers even though the second quarter of the year is generally very slow due to the monsoon season and also the Shraadh season (when people usually don’t buy houses). The decrease in home loan interest by banks was the icing on the cake.

Despite the high disruption caused by the pandemic Macrotech Developers reported a high operational performance with an increased amount of booking. The Net sales increased from Rs.16054 million in Q1 FY22 to Rs.21238 million in Q2 FY22 which is a 32.3% increase QoQ and a 135.8% increase YoY. The adjusted PAT increased 37% QoQ. In the financial year 2022 the net debt remained stable at Rs.12,508 crore.

The company’s projects in UK saw a sharp upturn in sales booking in the second quarter given the easing of restrictions. If this upturn continues then the company can capitalize on the UK project and this will help further the aim of deleveraging by the end of FY22.

The company plans on adding Rs.100-Rs.70 billion worth of projects by FY22 and most of the development will be focused in Pune, Eastern suburbs of Mumbai and Navi Mumbai, before they move on to newer markets. Also the company reported their agenda to launch Rs.60 billion worth of projects in this financial year.

The prices of all the projects are being increased by 2-4% owing to the increase in raw material (+10% YoY) and input costs which are being passed on to the customers. The demand still looks strong and the pent up inventory is decreasing at an increased level which gives us a positive future outlook.

The company is also in talks with different agencies in order to invest in and create a platform for Digital infrastructure.

The company is on a firm track to realizing its aim of deleveraging by end of FY22 in presence of the high amounts of JDA. Lodha being a well trusted and very reputed company has attracted more and more land owners and small builders thus leading to a lot of JDA opportunities.

Macrotech has set a goal of achieving Rs.9000 crore worth of sales bookings, 50% more than what it achieved in FY21.

Keeping in mind all the positive aspects, a BUY call has been reported by the analysts, along with a price target of Rs.1262.