Hello Sir,
Hope you are doing well.
Off-late there's been a buzz that the demand for the real estate is picking and the real estate stocks are expected to do well.
In the past we haven't recommended any real estate stock, nor do we have any real estate stock under coverage for our Premium Members.
However, recently we were reading about Eldeco Housing and Industries which is primarily focused on Lucknow market and has had a good track record over the past few years.
Below, we have shared notes from the Q1 FY 23 con-call of the company. Hope you find the details useful for your own investments or to add the stock to your watch list.
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Eldeco Housing and Industries - Notes from Q1 FY 23 con-call
General -
- India’s residential real estate demand remained unaffected during the quarter despite the global and domestic disruptions which include the Ukraine conflict and the increase in interest rate, increase in input cost etc.
- During Apr-Jun'22 the demand remained solid and there was a steady flow of inquiries for our projects
- Unsold inventory across cities including Lucknow has come down during the last few quarters
- With this background the business economics for leading developers looks comfortable and have a cushion to withstand input price shocks
Business Model -
- Our model is largely township focused
- Eldeco city was a big township by our own standard as it was about 133 acre. Now within that 133 acre, it is like a mother project which keeps skewing out smaller projects
- Going forward we are looking at aggregating land in the region of 20 acre to 50 acre and they would in turn act like a mother project and will start skewing out smaller projects when the mother project becomes mature
- If we are taking a standalone project I do not foresee taking anything less than 2 lakh to 3 lakh square feet for our standalone project, but if it is a project which is part of mother project then of course it would be a small local shopping center within our township it could be much lower
Lucknow market -
- I would guess that the unsold inventory is not very high, not more than 2,000 units in all over Lucknow and the off-take is nearly that much
- Right now, Lucknow market is a short supply market with a very strong demand
- It is one of the emerging new economics magnets of the country, just like Pune and Bangalore and many of these newer cities were about 20-25 years ago
- In my view this is going to grow very fast. The kind of infrastructure investment which has happened in Lucknow, the kind of growth the UP is seeing over the last four, five years and it is a big place, it is an administrative town, it is a capital city
- With that background, Lucknow and UP are the most attractive right now
Outside Lucknow -
- We are going to go outside also. As of now Lucknow looks the most attractive market, but if you remember we have taken tentative steps in Bareilly
- So, we are thinking of rolling of the Bareilly project into the main company by having a majority stake there, but since it is a related party transaction we want to trade very carefully
Outstanding projects -
- The current pipeline is about 750 crores. So, that in itself is about 3.5 years of project pipeline and to that we are going to add more
- Our challenge right now is to purchase land at a suitable location, however, we are confident of adding at least three new projects within this financial year to our development portfolio
Q1 performance -
- During the quarter we have successfully handed over 1.1 lakh square feet with the registration of 78 homes
- The collections continued to remain strong during the quarter and stood at nearly Rs 50 crore
- Our average realization this quarter was Rs 4,300 per square foot which is very much in affordable range
- I think I would not get worried till it reaches 5,000 and 5,500
Construction cost -
- Our construction cost as a component of our total sale is not more than 30% to 40%. So, even if it increases by 20% that is an impact of 7% to 8% in our overall scheme of things. That kind of price rise is transmittable to the market
Debt -
- We are completely equity driven company. We have been building a war chest for the last couple of years
- We have substantial cash surpluses which we are going to supplement with the judicious amount of debt not only for construction finance, but also for land acquisition
Guidance -
- In the next 3 years if we have not doubled I would be very disappointed. So, it could be before that, it could be 6 months after that, but in 3 years definitely we should have doubled from our current size if not
(End)
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Best Regards,
Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.
SEBI Research Analyst Registration No. INH100001690
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