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Alpha | Macrotech Developers Ltd . – Equity Research Desk

December 9, 2024 . Equities Desk

Alpha . Equity Research

Macrotech Developers Ltd – Building a better life

MacroTech Developers Ltd., part of the Lodha Group, is one of India’s largest residential real estate developers. Founded in 1995 and based in Mumbai, the company excels in luxury, premium, and mid-income housing. With 65,000+ homes delivered across 100 mn sq. ft., its portfolio spans nearly 40 projects. Expanding into annuity income streams, it has expanded into facilities management, industrial warehousing, and leasing retail and office spaces. The company has maximum operations in MMR, Pune, and Bengaluru.

Products and Services

Residential real estate: Luxury, premium, mid-income, and affordable segments (~60% sales from mid-income and affordable).
Logistics & industrial parks: Built-to-suit structures, standard facilities, and land parcels for manufacturing, warehousing, and data centers.
Commercial spaces: Corporate offices, IT campuses, boutique offices.
Retail projects: Shopping and entertainment spaces.

Subsidiaries: As of FY24, the company has 14 subsidiaries, 3 joint ventures and 4 associate companies.

Growth Strategies

Industrial Parks Expansion: Diversifying into logistics and industrial parks with a 4,500-acre development in Palava and Upper Thane, Mumbai, offering excellent connectivity via rail, road, and ports.
Focus on Data Centers: Preparing the Palava site for data center use by selling land parcels to major players and exploring annuity models through land leasing.
Strategic Acquisitions: Acquired stakes in three industrial and logistics park entities for ₹307 crore and a 100% stake in Opexefi Services, enhancing capabilities in industrial and digital infrastructure.
High-Quality Land Bank: Leveraging premium land holdings to attract major clients; Amazon India purchased ~39 acres in Palava at ₹12 crore/acre for a hyper-scale data center.
Controlled Expansion: Engaging in high-value deals with major data center players, negotiating land sales at ₹20 crore/acre for future developments.

Operational Performance

Q2FY25

Revenue: ₹2,630 crore, a 50% increase from ₹1,750 crore in Q2FY24.
Pre-Sales: Improved by 21% YoY, rising from ₹3,540 crore to ₹4,290 crore.
Operating Profit: Grew 75%, reaching ₹960 crore compared to ₹550 crore in Q2FY24.
Net Profit: Doubled to ₹420 crore from ₹210 crore YoY.
New Projects: Signed two developments in North and East Bengaluru with a Gross Development Value (GDV) of ₹3,800 crore.

FY24

Revenue: ₹10,316 crore, up 9% from FY23.
Pre-Sales: ₹14,520 crore, a 20% YoY growth.
Operating Profit: ₹3,430 crore, an increase of 15% YoY.
Net Profit: ₹1,610 crore, a 19% YoY growth.
New Launches: 30 launches, including new phases at existing projects.
Bengaluru Foray: Entered the Bengaluru market with two successful project launches.

Financial Performance (FY21-24)

Revenue Growth: Achieved a 3-year CAGR of 24% (FY21-24).
Profit Growth: PAT grew at a 3-year CAGR of 69% (FY21-24).
Return Ratios: Maintained an average ROE and ROCE of 10% each over FY21-24.
Debt-to-Equity: Strong balance sheet with a ratio of 0.44.
Pre-Sales Growth: Recorded a 3-year CAGR of 34% in pre-sales (FY21-24).

Industry outlook

Key Sub-Sectors: Housing, retail, hospitality, and commercial.
Housing Demand Drivers: Strong job creation, rising incomes, favorable affordability, and preference for quality living spaces.
Growth Factors: Urbanization, expanding rental market, and rising property prices.
Corporate Sector Expansion: Increased demand for office spaces and urban housing.
Commercial Growth: Rising demand for retail and office spaces alongside urban housing development.

Growth Drivers

FDI Policy: 100% FDI allowed for township and settlement development projects.
Smart City Mission: Aims to modernize 100 cities, enhancing quality of life with tech-driven urban planning.
Future Growth: Real estate sector projected to reach $5.8 trillion by 2047, contributing 15.5% to GDP (up from 7.3%).

Competitive Advantage

Macrotech stands out among competitors like DLF Ltd and Godrej Properties Ltd by delivering superior returns on capital invested. This performance is driven by a consistent increase in sales, highlighting the company’s efficient operations and strategic focus.

Outlook

Pre-Sales Growth (FY25): Targeting ~20% growth in pre-sales to Rs.17,500 crore, with a 5-6% price increase.
Volume Growth: Expected 4-5% in existing locations and ~10% in new locations.
New Launches: Plans to roll out 17 new projects in FY25 (excluding current project expansions).
Future Goals: Aiming for a 20% ROE and Rs.500 crore rental income by FY26.
Strategic Strength: Strong brand flexibility enables sales across various price points.
Growth Drivers: Palava and Upper Thane projects identified as key growth catalysts.

Valuation

Macrotech is well-positioned to achieve its management guidance, supported by its robust operational capabilities, diverse income streams across price points and client segments, and steady expansion into new geographies. We recommend a BUY rating for the stock with a target price (TP) of Rs.1,656, based on 55x FY26E EPS.

Risks

Macro-Economic Conditions: High inflation, economic slowdowns, or elevated interest rates could impact the company’s turnover.
Input Costs and Regulatory Changes: Rising input costs may squeeze profit margins, while regulatory delays in approvals could disrupt cash flow.

Note: Please note that this is not a recommendation and is intended only for educational purposes. So, kindly consult your financial advisor before investing.