Macrotech Developers Limited (NSE:LODHA) Q2 FY23 Earnings Concall dated Nov. 02, 2022
Corporate Participants:
Abhishek Lodha — Managing Director and Chief Executive Officer
Sushil Kumar M — Chief Financial Officer
Shaishav Dharia — Director, Lodha Green Digital Infrastructure and Chief Executive Officer, Townships & Rental Assets
Analysts:
Biplab Debbarma — Antique Stock Broking Limited — Analyst
Kunal Tayal — Bank of America — Analyst
Pritesh Sheth — Motilal Oswal — Analyst
Sameer Baisiwala — Morgan Stanley — Analyst
Parvez Akhtar Qazi — Edelweiss Securities — Analyst
Abhinav Sinha — Jefferies — Analyst
Saurabh Kumar — J.P. Morgan — Analyst
Kunal Lakhan — CLSA — Analyst
Kushagra Bhattar — Old Bridge Capital — Analyst
Presentation:
Operator
Ladies and, gentlemen, good day and welcome to the Q2 FY ’23 earnings conference call of Macrotech Developers hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Biplab Debbarma from Antique Stock Broking Limited. Thank you and over to you, sir.
Biplab Debbarma — Antique Stock Broking Limited — Analyst
Thank you, Stephen. Good afternoon everyone and welcome to the Q2 FY ’23 earnings call of Macrotech Developers hosted by Antique Stock Broking. Today we have with us the management of Macrotech Developers represented by Mr. Abhishek Lodha, Managing Director and CEO; Mr. Shaishav Dharia, CEO Townships & Rental Assets; Mr. Sushil Kumar Modi, CFO; and Mr. Anand Kumar, Head IR.
Without further ado, let me hand over the call to Mr. Lodha. Over to you, sir.
Abhishek Lodha — Managing Director and Chief Executive Officer
Good afternoon, everybody. Thank you for joining us for our earnings call. Best wishes of the Indian New Year to you and your family.
I will begin by highlighting three key updates. Number one, our U.K. investment cycle is now visibly reaching conclusion. We have repatriated back approximately INR100 crores during this quarter and we will receive an additional INR1,000 crores in the course of calendar year 2023. We have also paid off the U.S. dollar bond of $225 million, net the U.K. investment in two tranches in March and September 2022 and there is no further liability or risk to the Indian balance sheet from the U.K. investments. Deflation [Phonetic] in the Sterling and the deterioration of the local economy, as well as certain other project-related expenses not likely to be remitted to India from the U.K. operations is going to be a total of INR1,100 crores, INR100 crores already received and about INR1,000 crores to be received next year against our earlier estimate of INR1,500 crores. It is to be noted that the one-time non-cash provision of INR1,177 crores that we have taken in this quarter in our P&L is to reflect the difference between the [Technical Issues] of the debt instrument we had used to finance the U.K. investment and the value of the actual receipts.
Now that the repatriation has started back, it was appropriate for us to take into the view of what the final repatriation would be, and therefore take this non-cash provision for the differential amount. Please note that the remittance amount of INR1,100 crores, INR100 crores already received and INR1,000 crores to be received, is completely independent of this and that money will be received, as I mentioned, in the course of calendar 2023. Of course, the provision taken will also lead to a tax benefit of about INR350 crores to us in due course. So therefore, effectively, from the U.K., we’ll receive back about INR1,100 crores and we’ll get a tax benefit because of this provision/write-off of about INR350 crores, totaling to a total cash benefit of INR1,450-odd crores to Macrotech Developers Limited and this will bring an end to our U.K. investment cycle and allow us to completely focus on only doing investments in India.
Point number two, as we had promised earlier, from this quarter onwards, we will report the embedded EBITDA from the pre-sales done this quarter. The embedded EBITDA is calculated using the sales price of the sales done in the current quarter and the estimated lifecycle cost of the relevant building or plant in which the sales are done. This will give you the clear visibility into the profitability and free cash flow generated from our quarterly sales. Since we have very little depreciation and amortization costs in our business, the EBITDA can be converted into profit before tax, PBT, by deducting the interest cost. So we update you on a quarterly basis as well as our total debt as well as the cost of borrowing. For this quarter, we had an embedded EBITDA margin of approximately 33% on pre-sales of INR3,148 crores, implying an embedded EBITDA of approximately INR1,050 crores. For H1 as a whole, the embedded EBITDA amount is approximately INR2,040 crores.
Third update, we had the strongest H1 in our history with INR6,000 crores of sales and our strongest ever Q2, which is seasonally the weakest quarter. But that also had reached almost INR3,150 crores. The start to the current quarter has been equally strong, i.e., Q3. Two factors are supporting this momentum. One is the consolidation, flight to quality on the supply side and the second is the strong demand, driven by the accessibility of mortgagers and the moderate price growth that’s in the marketplace. The underlying momentum in the housing market is in spite of the inflationary pressures on the consumer and almost 150 bps increase in mortgage rates from about 6.75% to just under 8.5% during H1. We believe that this is the evidence that the long-term upcycle in Indian housing is now well underway.
So the broader economic context now. It was yet another quarter of volatility and uncertainty in the global economy and markets. Higher inflation readings caused the U.S. Fed to continue raising rates. How much does higher interest rates have an impact or how deep or long the U.S. recession is going to be, we’ll all have to wait and watch. Alongside, there was turmoil in other economies as well, the U.K. most noticeably, and China continuing to have its own sets of challenges. The idea is not to share global expertise but highlight one [Technical Issues] impact on the currency. The INR had seen depreciation of significant quantum in this quarter but it is not out of whack with what’s happening with most other currencies. The RBI has used both it’s forex reserve as well as rates to shore up the rupee. And we think that the RBI is now approaching an end to its interest phasing cycle. And we expect probably another 50 basis points or so of further rate increase from the RBI.
Mortgage rates, as I mentioned earlier, are up from just under 7% to almost 8.5% now and we have not yet seen any significant impact on the housing sector. As I mentioned, we do expect mortgage rates to go up by approximately another 50 basis points and as such we remain comfortable with the demand in the housing sector, not being impacted by even this further moderate increase in mortgage rates. We have also, as we have informed you in earlier calls, sheltered homebuyers by capping their mortgage rates at 6.99% [Phonetic] until June 2024. This scheme has had good take-up with almost 56% of our sales by volume and 40% of our sales by value taking advantage of the scheme. The total cost to us is about — for the take-up this year, for this quarter, just under 0.3% of the cost of goods sold. So the overall cost of this scheme is quite moderate, but it is giving the consumer a reassurance that they can buy the home that they have been dreaming of [Technical Issues] getting impacted by the sudden volatility in mortgage rates.
Of course, inflation does impact the wallet of the consumer and the sentiment of a potential homebuyer and we have to continue to exercise caution on that front. But for now, it does feel like the strength of the market is quite strong, sentiment in our core areas of operations, i.e., Mumbai and Pune, continues to remain buoyant as can be felt on the ground in this festive season in terms of inquiries and sales. On the other hand, as the financing environment tightens, it will provide us with further opportunities in terms of landowners coming to us more for JDA’s.
Thus, overall looking really out of the playbook to report for this quarter. As I have mentioned in the past, we continue to remain convinced on the multi-year housing cycle and decides to tell us anything otherwise. The pre-sales of over INR3,000 crores was our second-best ever quarterly performance and our best-ever Q2 as I mentioned. And while collections were a bit slow, it’s only about a shift from one quarter to the next. Similarly, revenue recognition as profitability as reported was impacted due to revenue recognition phenomenon and we can, of course, provide further details, if so required. However, we believe that looking at our pre-sales and the EBITDA of those pre-sales, which we’re both reporting, will give you a much clearer look into our business and its cash flow as well as underlying profitability.
The business development opportunities continue to remain quite [Technical Issues] available and we have signed four further projects in this quarter providing additional development value of approximately INR3,100 crores. With every quarter and every opportunity that we evaluate and sign, we are laying the foundation for growth in the following years. There’s nothing to suggest that our targets for this year will not be achieved, both in terms of pre-sales and collections.
Commodity pressures have already eased and costs for us continue to go down. Just to let you know, our absolute interest cost per quarter has fallen from over INR550 crores in June ’22 to just over INR250 crores in the quarter ending September ’22 — sorry, June ’21 and September ’22. Momentum remains strong and we are on track for FY ’23 and working closely towards our guidance of [Technical Issues] net-debt to approximately INR6,000 crores and even if we fall short modestly, that will only be for about a quarter or so.
In terms of our business progress beyond Mumbai and Pune, in Bangalore we are on track for a launch in the first half of 2023 and all the groundwork is being done and the seeds are being planted. This is a test product in a new market with minimal capital deployment [Technical Issues] returns on the same through the same asset-light model. We intend to use the next 12 to 24 months to become local in Bangalore and do a limited number of projects and really learn how that market operates and then scale up using the strength [Technical issues] project deliveries so that in due course, Bangalore can become another opportunity to scale up in a significant manner [Technical Issues] Pune is now filling out.
In terms of the Pune market, we feel very strongly about how we are placed in that marketplace and we believe that sometime in the next 12 to 24 months, our sales will become amongst the top — the largest in that market or if not the largest, definitely amongst the Top 2.
Coming to the operating as well as financial highlights of the quarter, despite this being the seasonally weakest quarter, we clocked our best ever Q2 sales of INR3,148 crores, growing by 57% year-on-year. The Q2, of course, is weak due to the monsoon plus the inauspicious period of Shraadh or Pitrupaksh. The cherry on the cake is that it is a second instance when we have grown [Technical Issues] number in quarterly pre-sales in the same calendar year, the earlier instance being Q4 of fiscal ’22. With this strong performance, we have achieved pre-sales of INR6,004 crores in H1 of FY ’22, our best ever first half in terms of pre-sales and this is 52% of our guidance of INR11,500 crores and positions us very well to definitely deliver on our guidance and, to the extent possible, surpass it.
As mentioned earlier, we will continue to provide you with the embedded EBITDA margin on the pre-sales done for this quarter. This will help our stakeholders and financial community to get a sense on the profitability of our pre-sales. As mentioned earlier, for this quarter, the embedded EBITDA margin is at 33% and for the first half of the year, it is at 34%. This information will bring much needed transparency for stakeholders and provide understanding around not just the pre-sales, but also around the quality of the pre-sales in terms of profitability and cash flow. This also helps take away from the focus on revenue recognition in our P&L, which is informed by the India standards and allows revenue to be recognized only upon the physical completion of the building, which is evidenced by the occupation certificate and therefore can lag sales by almost three years.
Moving on, the collections continue to track the pre-sales growth and the same came in at INR2,375 crores for the quarter, showing a growth of 24% year-on-year. We expect collections to keep growing in line with our overall collections target for the full year, being approximately INR11,000 crores, of which we have collected just under [Technical Issues] in the first half.
As mentioned earlier, we’ve added four new JDA projects with a GDV of INR3,100 crores across MMR and Pune. With this, INR9,300 crores of projects have been added during the first half, which is 62% of our guidance for the full year. And as we keep launching new JDA projects in each quarter, it further enhances our brands and capabilities with brand owners looking to partner with a player like us who can maximize the NPV of their land. We have a strong pipeline of business development opportunities, which makes us confident of achieving the business development targets that we have laid earlier. Our average cost of debt has further come down to approximately 9.9% as on 30th September 2022, showing a decline of 60 basis points in the first half of the fiscal, even as there was an increase of 190 basis points in the policy rates. Recognizing the improved business fundamentals, as well as the strength of our balance sheet, ICRA has assigned a credit rating to the company of A plus in the month of October, which is one notch above rating, which was A with a positive outlook. This should further enable us to improve our cost to our funds in the times to come.
Moving further and updating you, digital infrastructure business. During the quarter, we have monetized our first joint venture by selling our stake in the ESR Park for approximately INR158 crores. This is consistent with our strategy of monetization after developing an asset either at the asset level or the platform level. Our platform with Bain Capital and Ivanhoe Cambridge has commenced activity on developing the first land parcels as well as scouting for new land to put in the platform is also progressing well and there should be announcements in terms of the growth of that platform over the course of the next six months. Just to recap in terms of this platform, the platform has been established with a view to create a pan-India presence in the digital infrastructure space that includes logistics and light industrial parks, as well as in-city fulfillment centers. The platform will entail $600 million of equity contribution divided equally between the three partners. The platform can then lever it up modestly and jointly invest over $1 billion and create approximately 30 million square feet of operating assets to serve India’s digital economy. Lodha’s share of equity contribution will largely be in the form of asset that we will inject into the platform.
In addition to the signing of the 1 million-plus square feet box with Skechers in Q1, we have now signed up Schlumberger in our park in Palava. Advanced negotiations with various end users in a diverse set of industries like FMCG, EV ecosystem, 3PL logistics, cold chain, etc., is currently ongoing. A number of closures are likely to take place over the next six to 12 months. This is likely to generate a large number of jobs, thus boosting the economic activity in and around Palava and kick-starting a virtuous cycle and augmenting our residential business as well.
Let me now update a topic which is close to our ethos of Do Good Do Well, that is sustainability. On this front, we have continued to make significant progress. This can be seen through the rating given to us by GRESB, which is one of the most globally renowned real estate focused sustainability benchmark providers. In the residential category, we received a score of 95 out of 100 in our very first attempt in 2022, which gave us a 5-star rating. This score is also amongst the Top 3 in Asia. You already know, we have also established a Lodha Net Zero Urban Accelerator in collaboration with the Rocky Mountain Institute of USA. The accelerator has already identified five focus areas where they have started work on, being passive design, efficient equipment, embodied carbon, clean energy and green mobility. Palava will serve as a city-scale living laboratory to solve these challenges and pioneer innovations on the path to net zero. After finding solutions, these would be rolled out to multiple projects, not only transforming the way construction is done, but also improving the lives of so many people who would be seeing development. The information and knowledge generated in the accelerator, it will be freely shared with the entire industry in India so that the transition in India towards net zero in the building space can be expedited.
We have also become a part of the Build Ahead coalition launched by Xynteo, an industry-first alliance, consisting of forward leaning businesses such as JSW, Godrej Construction, Shell India, etc., committed to scale decarbonization efforts across the Indian construction value chain. With this partnership, we aim to accelerate the use of low carbon building materials in the construction process.
On the governance front, the company has strengthened its Board by inducting Ms. Harita Gupta as an Independent Director. Ms. Harita Gupta has over three decades of global experience in digital and IT services. She has held leadership positions at globally renowned companies like Microsoft and NIIT amongst others. She is presently leading APAC and Global Head Enterprise Business at Sutherland Global Services. Being a digital innovation focused organization, we will benefit immensely from her guidance and experience as we step into our next phase of growth.
As discussed earlier, to further enhance our disclosures, we are committing to provide the embedded EBITDA margins for the pre-sales of each quarter. This is one more step to enable stakeholders to better understand our business and the quality of pre-sales. We have, from time to time, made an effort to introduce the depth of our management team to you and showcase the details of the different parts of our business. Today, we are going to have with us Shaishav Dharia who is the CEO of our Townships business as well as represents the company on the Board of the digital infrastructure that we have with Bain Capital and Ivanhoe Cambridge. The model of townships that we have built is, in our opinion, unique in India. We are proud of the fact that we are able to bring the highest standards of living to the lower-middle class families of India’s large metros. And not only do we enable them to live in great environment, but we also create comprehensive work, play, live and learn environment including healthcare, education, workspaces, sports and so on, which provides people with a quality of life, which is extremely rare in our country.
As a part of further using our scale and our township model to create positive impact for society, we are now working with a variety of corporate partners on an initiative to increase the female workforce participation rate which is much lower than in several other economies. We are trying to create a model wherein women can get high [Technical Issues] jobs within a short walk or short drive from their home, which enables them to not only take care of their primary responsibilities of managing their household but also work in a manner which is physically and mentally reasonable for them.
Before I hand over to Shaishav and Sushil, the one last point I would like to make is that the accounting for our sector has made it difficult to understand the profitability and therefore for the first time in the sector, we are providing the visibility on the embedded EBITDA margin of these sales. We hope that with this initiative, our other peers in the industry will also follow suit and that will allow this industry to be better understood by all those who are stakeholders of this industry.
I now hand over the call to Shaishav and Sushil before we get to questions.
Sushil Kumar M — Chief Financial Officer
Hi, Shaishav, you may like to kind of give a bit of a glimpse around our township business, in particular, what kind of activity on the ground that you’re seeing, please.
Shaishav Dharia — Director, Lodha Green Digital Infrastructure and Chief Executive Officer, Townships & Rental Assets
Sure. Thank you, Sushil and Abhishek. Good afternoon, everyone. Am I audible?
Operator
Sir, if you can be a little louder.
Shaishav Dharia — Director, Lodha Green Digital Infrastructure and Chief Executive Officer, Townships & Rental Assets
Yeah, hi. So as I — so our township business today has, basically, we achieved about INR1,940 crores of pre-sales in FY ’22 and expecting about a 20% growth this year. We’ve already reached about INR1,130 crores in the first half of this year. So, well on track to achieve our targets. We expect this business to continue to see high-teen growth for the next few years and can get even stronger as some of the infrastructure that is being developed across MMR starts getting completed. We are very fortunate that Palava, which is our largest township and more of a city, has become a blueprint of how we see to develop new townships and replicate the similar success.
The way I see it building or what Abhishek said, we have basically mastered, I think, four areas and that has allowed us to create a moat that cannot be replicated by other developers or other projects in creating successful townships. So the first one that I feel is our ability to deliver high quality homes along with world-class amenities at an affordable price point. We’ve been doing this over the last 10 years and each of our townships’ high quality education is very important. For example in Palava today we have five schools. And I would think it’s amongst the best education districts in the country now. We have fantastic sports facilities, infrastructure within the township which is fully reliable around water, power, sustainability, healthcare in the form of clinics and now multiple hospitals with a tie-up through AIIMS as well as Jupiter Hospital, world-class parks and amenities. So this is — all of which is within walking distance. All of this, put together, ensures that what we’ve created as a product for our customers is truly world-class and the ability to deliver a price point.
The second, over the last 10 years, the ability to have mastered how to deliver homes continuously and consistently at scale. Today, we have demonstrated and are easily capable of delivering 7,000 to 10,000 homes every year, just within our township business. To do this at scale and consistently is something, which very few have ever shown the capability. The third important point is, sometimes it’s easier to develop and build physical assets, it’s more difficult to govern and build communities. This is the softer side of what we’ve been able to achieve. For all our customers, majority of them, this is a new way of living. Our governance model along with a very strong focus on building communities across the entire segment is what really differentiates our townships and today that’s why we have over 150,000 people already living in Palava and 15,000 people living in our Upper Thane Township, which is a more recent township.
The fourth is the ability to innovate and bring in different products. So we had the Casa homes, then we brought in the Crown affordable homes, but equally, our focus is now on growing the aspirational home business, which are ranging from INR1 crores to INR2 crores, plotted homes and villas that we have done very successfully in Upper Thane and now bringing to Palava, small offices and retail through our Signet brand. What this does is that we are able to capture the market and the ecosystem that our townships provide through all of these five product categories and build a more consistent business model.
These four elements are basically what we have developed and mastered over the last 10 years. But now we are seeing, finally, a very important lever, which is an external one to us, the upgradation of road and rail infrastructure from our townships to business hubs. What is a very high quality number I think in a Mumbai context is a 30-minute driving distance or a 10, 15 minute ride to a train station. Because of the infrastructure upgrades that have started many years — a few years back, which are now coming to a completion, we will see significant benefit. I will just take a few of them as an example. For Palava City, the major infrastructure upgrade, which will complete in the next six months, is the elevated road to the business hubs of Ghansoli and Airoli in less than 30 minutes driving distance. These are predictable times and that will become a big game changer to a very large segment which wants access to high quality homes but now well connected.
For our Upper Thane Township, the bridge to Dombivli station will be opened by March 2023, which will reduce travel time to less than 10 minutes. In the future, we will also get a metro station within Palava, three stops. This suddenly will create a disproportionate jump in our business, because we will now, in addition to having everything internally, we’ll also provide great connectivity. Equally important is our own job creation as Abhishek referenced within our township business. One example, being the green digital infrastructure and the large development we’re doing at Palava Logistics and Industrial Park. A lot of the work is already under development and over the next two years, this will all become operational creating 5,000-plus jobs and growing continuously along with the emphasis we have put on economic empowerment and job creation for women, right close to our townships, which allows them to manage both their home life as well as have an economic as well as have a work career. I think this growing our strength around infrastructure as well as job creation within — close to or townships is going to create further disproportionate jump in our business.
So in a summary, the township business has been in a virtuous cycle of world-class product, community, infrastructure and now great connectivity — external connectivity and with this, we can continue to grow the business with a moderate price increase year-over-year, large volumes and almost become like an FMCG business.
Let me stop there and hand it over to Sushil.
Sushil Kumar M — Chief Financial Officer
Thanks, Shaishav, for this update and the ground reality checks for the stakeholders at large. Biplab, would you like to take it up in terms of queries that various folks would have?
Questions and Answers:
Operator
Yes, sir. We’ll open it up for the Q&A session. [Operator Instructions] The first question is from the line of Kunal from Bank of America. Please go ahead.
Kunal Tayal — Bank of America — Analyst
Sure, thanks. Hi, Abhishek. Abhishek, I was hoping to get some more color on the footfalls in conversions you would have seen during the festive season. And if there was anything there that would have given an unchanged pre-sales guidance for rest of the year.
Abhishek Lodha — Managing Director and Chief Executive Officer
Hi, Kunal. Important question. So what we’ve seen is that unlike in previous years, the strength of the sales interest continued even through the second quarter and the same trend has held up also in October. So we are continuing to see similar conversion rates in the 8% to 10% range. We’re seeing very good quality footfalls and we — I think the strength of the market can be only assessed from the fact that even in months like August and September, which are traditionally very slow months, we ended up, on average, doing a INR1,000 crores of sales, which is how we got to INR3,150 crores for the quarter, which is just showing that, yes, the demand is strong but not only is it strong, it’s also consistent and the throughput is coming through in a much more predictable manner now.
Kunal Tayal — Bank of America — Analyst
Yeah, got that. Thanks. The next one was on the monetization of the ESR JV. I just wanted to check, what is the broad realized rate per acre of land parcel that you would have fetched here? And is that a good representative of how we could value the remaining land bank?
Abhishek Lodha — Managing Director and Chief Executive Officer
So we have monetized the ESR land at about INR4 crore an acre. As I may have mentioned to a similar query in the past, the range at which we sell land will vary to an extent, based on the users, because datacenters, for example, can sell for even INR20 crore, INR25 crore an acre and it will also depend on the extent of the land holding. So warehousing land of large scale — this was a 90 acre JV with ESR, it’s probably the lowest value per acre. This has gone at about INR4 crore per acre. The average will be north of that.
Kunal Tayal — Bank of America — Analyst
Understood. And last one from me for Sushil. Sushil, if we just look at your CFO target for H2 as well as the debt reduction target, it seems to leave about INR800 crores that can be incurred towards interest expense and investments. So broadly, does it mean that you’re looking at less outflow on the investment side in H2?
Sushil Kumar M — Chief Financial Officer
Yeah, potentially, you are right, but nevertheless keep that in mind that our operating cash flow trajectory for the second half generally is far stronger than the first half and henceforth — so this debt reduction target has got — is going to be more and more visible from the quarters that we really speak of, Q3 and Q4. But nonetheless, I think we reasonably kind of, see the visibility of getting us anywhere in the band of INR6,000 crores net debt handle — some number around that by the end of the year.
Kunal Tayal — Bank of America — Analyst
Got that. All right, thank you so much.
Operator
Thank you. The next question is from the line of Pritesh Sheth from Motilal Oswal. Please go ahead.
Pritesh Sheth — Motilal Oswal — Analyst
Hi, thanks for taking my question. First is on your micro market sales that you have reported. So I can see a drop in sales in your affordable markets like extended eastern suburbs in Thane, affordable mid-income. So anything to read into in terms of interest rate that was impacting the trajectory of these micro markets because they’ve gone down by at least like 30%, 40% if I compare quarter-on-quarter? And on an average, what the run rate has been for the last three to four quarters? So your comments on that.
Abhishek Lodha — Managing Director and Chief Executive Officer
The extended eastern suburbs especially tend to be the one which is most affected by the monsoons because these are the individuals who tend to [Technical Issues] public transportation as well as the autorickshaw or taxi services most for their commuting. So typically if you look at it, while you are comparing the Q1 versus the Q2 numbers, of course, Q1 also had certain launches in the extended eastern suburbs, but even adjusted for launches, Q2 will typically be weak on account of [Technical Issues] most affecting that segment, but we don’t really read anything into it. On the contrary, as Shaishav mentioned, we are well on track to deliver sort of mid-teens growth in the townships business for this fiscal compared to the numbers for last fiscal off of fairly significant delays.
Pritesh Sheth — Motilal Oswal — Analyst
Sure, sure. And in terms of collections as well, just broadly, your comment on that? So are you seeing any trend in terms of people delaying or customers delaying payments because we are adjusting to their budgets or any specific trend you’re catching up there or collections are pretty much in tandem with what it is supposed to be?
Abhishek Lodha — Managing Director and Chief Executive Officer
No. I have not seen any increase in delayed payments. We measure delayed payments as greater than 30 days delayed and we’ve actually seen a fall in that absolute value in the larger base of units from which, of course, collections are coming through as each quarter we sell more units. So at this stage, we don’t see the Indian consumer in any manner, or at least our consumers in any manner affect by — trying to delay or trying to delay their payments. It’s just the normal throughput of our sales, registrations, and then cash flow coming in any quarter. Sometimes the Pitrupaksh period is in Q2, sometimes it is in Q3. So that 15 days the people don’t like, for example, registering their documents. They don’t want to make major payments. These are all sort of very [Indecipherable] factors, but we believe that the collection machine is pretty strongly in place. First half, we’ve collected, just under INR5,000 crores, and we are guiding — and we have an internal target for about INR11,000 crores of overall collections for the full year.
Pritesh Sheth — Motilal Oswal — Analyst
Sure. Got it. And lastly on your debt, your target remains the same for below INR6,000 crores, so you’ll have to literally reduce that by INR3,000 crores in second half. Is it all going to be coming from operating cash flows? Or are we also building in the repatriation money helping it reducing the debt? I mean, initially I don’t think that was built into our expectation, but now the target, is it including the repatriation money?
Abhishek Lodha — Managing Director and Chief Executive Officer
We are targeting to be around INR6,000 crores by the end of the fiscal. If you’re a few hundred crores over it, it will be for a maximum of a quarter, but it will be somewhere in the — around the INR6,000 crore handle. We have some asset sales, we are disposing a mall in Palava. That is definitely a part of the number that we are looking at. We also have a few other sort of leased spaces which are part of our normal divestment, which will also happen in the second half of the year. And I do not have a detailed breakup on when the money will come back from the U.K. quarterly, though we know that INR1,000 crores will come back in the calendar year, next year. So yes, we have assumed that about INR250 crores out of those INR1,000 crores will come back in the first quarter of calendar ’23.
Pritesh Sheth — Motilal Oswal — Analyst
Got it. Thanks, that’s it from my side. All the best.
Operator
Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Sameer Baisiwala — Morgan Stanley — Analyst
Thanks, and good afternoon everyone. Shaishav, great commentary on townships. So, thanks for that. Just if you look out in a mid-to-long term, are there any risks that you see to Palava’s development, something like an airport coming in taking away development away from you, or any other thoughts if you can share with us?
Shaishav Dharia — Director, Lodha Green Digital Infrastructure and Chief Executive Officer, Townships & Rental Assets
Sure. Thanks. Actually, the airport development will be a positive because the new airport will be about 30 minutes from Palava City. So in terms of connectivity, it becomes even better for companies that are operating there, as well as folks who are living in Palava. So that’s actually a positive. I think we’ve been able to, over the last 10 years, as I mentioned, develop this moat which is now very difficult to replicate by somebody else or, and more importantly, to have this kind of scale is very difficult again, probably in the history of MMR. So I would say that, natural black swan events that can impact any business always exists. But we’ve reached a stage where I do not see any major — any normal course of events causing major disruptions.
Sameer Baisiwala — Morgan Stanley — Analyst
Okay, great. And if I have to think, if I have to just put some number around, you talked about sustainable volume and price increase, I mean about 2 million to 3 million square feet per annum 5% to 7% price increase per annum for extended period of time, do these numbers look achievable or higher or lower, your thoughts?
Shaishav Dharia — Director, Lodha Green Digital Infrastructure and Chief Executive Officer, Townships & Rental Assets
Let me take the price growth. I think the 5% to 7% which is just below, let’s say, inflation is a healthy price increase and sustainable because affordability will always remain good with that particular aspect. So that I think is, yes, very much possible and within our target. Second, I would think, as a business of township, much more than 2 million to 3 million is what we should achieve especially given the growth or the developments on the external infrastructure side, that will connect us better to the business hubs, both with road and rail. So I think we have the potential to do more than that.
Sameer Baisiwala — Morgan Stanley — Analyst
Okay, just to be sure 2 million to 3 million is excluding DI, it’s just the residential part.
Shaishav Dharia — Director, Lodha Green Digital Infrastructure and Chief Executive Officer, Townships & Rental Assets
Correct.
Sameer Baisiwala — Morgan Stanley — Analyst
Okay, so you can do better than that, but it would get the benefit of the commercial and the DI development over there. That’s the point you’re making, yeah?
Shaishav Dharia — Director, Lodha Green Digital Infrastructure and Chief Executive Officer, Townships & Rental Assets
Correct.
Sameer Baisiwala — Morgan Stanley — Analyst
Okay, great. And second question I have is on One Lodha Place. Abhishek, now that it’s coming to completion, what percentage is leased out and how do you plan to realize the capital value here?
Abhishek Lodha — Managing Director and Chief Executive Officer
We’ve just started the leasing process for the building. The building — the lower one-third of the building was under the for-sale model and that is almost 50% [Phonetic] sold. We intend to lease the building out over the next 18 months and then post-stabilization we, in all likelihood, will dispose off our interest in the building, the recurring rent from the building will be in excess of INR200 crores per annum, and therefore you can see that a significant — I would say a significant one-time income will accrue to the company when we divest this asset most likely some time in calendar 2025.
Sameer Baisiwala — Morgan Stanley — Analyst
Okay, great. And, Abhishek, great initiative on embedded EBITDA, so that will definitely help us a lot. If I understood you correct, you were saying that this is calculated using the launch price, but the cost is over the cycle of the project. So it builds in certain inflation over there.
Abhishek Lodha — Managing Director and Chief Executive Officer
Yes, the cost side is taken for the life cycle of that building and the price is the actual price realization for the quarter. So it’s not necessarily the launch price. If it is launched in that quarter, it will be the launch price but whatever is the actual realization in a given quarter and the estimated life cycle cost, including the inflation that one would expect in the [Technical Issues] the building.
Sameer Baisiwala — Morgan Stanley — Analyst
Okay. Got it. Thank you so much.
Abhishek Lodha — Managing Director and Chief Executive Officer
Thank you.
Operator
Thank you. [Operator Instructions] The next question is from the line of Parvez Qazi from Edelweiss Securities. Please go ahead.
Parvez Akhtar Qazi — Edelweiss Securities — Analyst
Yeah, good afternoon and thanks for taking my question. My first question is about the pricing, I mean, given an increase in mortgage rates, what kind of pricing increase can we take from our customers keeping affordability in mind?
Abhishek Lodha — Managing Director and Chief Executive Officer
Hi, Parvez, a very important question and one which we think about long and deep about. I believe generally, that the total cost growth, which is a function of the price growth plus any increase or change in the cost of mortgages should be below wage growth so that affordability keeps getting better. We had guided at the start of the year that price growth should be in the range of 5% to 6%, given that wage growth would be in the range of [Technical Issues] 9% this year. Given our initiative around interest costs being capped at 7% till mid-2024, our consumers aren’t seeing any significant impact on account of the increase in mortgage rates. And as I mentioned earlier, the cost to us so far has been averaging about 0.25% of the value done in any given quarter. Therefore we continue to guide to the same number of 5% to 6% price growth for the full year for fiscal ’23.
Parvez Akhtar Qazi — Edelweiss Securities — Analyst
Sure. And with regards to our South Central Mumbai projects, how do we see sales velocity there and, in general, what has been the sales momentum seen in that micro market? Thank you.
Abhishek Lodha — Managing Director and Chief Executive Officer
As you would have looked at in terms of the sales done during the quarter, South Central Mumbai was a very strong contributor, bringing in about INR1,100 crores of sales in this [Technical Issues], just under INR2,000 crores of sales for the half year. So South Central Mumbai continues to see a good strength and we are seeing growth over comparable period last year — strong growth over comparable periods last year. I think what I see in South Mumbai across different price points, starting from as low as INR2.5 crores and all the way to the top end of the market but with a great concentration of between INR2.5 crores to INR7 crores, INR8 crores and we are having product at different points of the lifecycle, we have ready product, we have advanced under-construction product, we have just launched, for example, Lodha Bellevue opposite Vivarea at Jacob Circle or Saat Rasta as it is colloquially called, gives us the ability to serve that market quite well and we are seeing good traction.
Parvez Akhtar Qazi — Edelweiss Securities — Analyst
Thank you. That’s it from my side. All the best for future.
Abhishek Lodha — Managing Director and Chief Executive Officer
Thank you.
Operator
Thank you. The next question is from the line of Abhinav Sinha from Jefferies. Please go ahead.
Abhinav Sinha — Jefferies — Analyst
Hi, just a follow-up on the embedded EBITDA part. So just to be clear, this is your share or this is the project total embedded EBITDA that’s here — looking at here.
Abhishek Lodha — Managing Director and Chief Executive Officer
This is the total for us. Those numbers are the same, because for us the — our EBITDA is the same as the projects EBITDA because any payment made to the landowner is treated as land cost in our account base. So there is no share of EBITDA which goes to the landowner in most of our joint development. So the actual EBITDA which would accrue to us.
Sushil Kumar M — Chief Financial Officer
If the sales is 100, that means, be it coming from the joint development or be it coming from our own land, the EBITDA margin is the blended that we have indicated applies on that 100.
Abhinav Sinha — Jefferies — Analyst
Okay. And in case of our own land, how are we treating the land cost here because you have some very legacy sort of projects also?
Sushil Kumar M — Chief Financial Officer
Obviously, Abhinav, those are — those will carry the historical cost, right, in cost of acquisition along with — to the extent that if any interest has been incurred during the construction period and has got capitalized, that interest will also be getting capitalized. But we are giving you the EBITDA number so thereby meaning any finance cost incurred would not be there, but in any case, as we move along, you will [Technical Issues] finance cost effectively will completely get — completely get kind of out of the picture when it comes to anything that is included in the cost of project because our finance — the debt itself is getting down to the INR6,000 crores handle and thereby — or below whereby you can have the finance cost separately taken below the line from the EBITDA downwards.
Abhinav Sinha — Jefferies — Analyst
Okay. And just for my clarification also, and maybe we are talking about FY ’24 now, it seems in another three odd quarters you should be done with reducing your net debt. So what’s the utilization of cash there? Will you, say, abandon the JD/JV model and go back to buying land or there is something else on your mind?
Abhishek Lodha — Managing Director and Chief Executive Officer
Firstly, we would like to say that the target of approx. INR6,000 crores of debt is one milestone we are seeking to achieve. We will, of course, review the macroeconomic situation. And if the situation [Technical Issues] and even a lower level of debt, we will definitely even use up the cash flows towards that. We haven’t made any decision because we are, of course, watching the externally evolving situation closely. Having said that, whatever is the growth capital available will be significant and we will continue to use the growth capital in a prudent manner in order to generate the ROEs that we’re targeting of approximately 20%. In order to generate those ROE’s, we will have a blend of joint development and ownership in our sales mix. We expect that for the next 12, 18 months it will continue to remain focused towards JDA’s and in the medium term it will settle down, ultimately 40% of sales value coming from joint development and 60% coming from outright owned land such that, that mix allows us to generate the 20% that we’re targeting.
Abhinav Sinha — Jefferies — Analyst
Thanks for that. Yeah. That’s all from my side.
Abhishek Lodha — Managing Director and Chief Executive Officer
Thank you.
Operator
Thank you. The next question is from the line of Saurabh from J.P. Morgan. Please go ahead.
Saurabh Kumar — J.P. Morgan — Analyst
Hi, I just had two questions, one is this 33% margin you’ve given. This is margin at the project level or is it your share?
Abhishek Lodha — Managing Director and Chief Executive Officer
Hi, Saurabh. This is the net margin to us. This is our margin after all expenses, including overhead costs as well as whatever goes to the landowner. This is margin to us.
Saurabh Kumar — J.P. Morgan — Analyst
Okay. So 33% is the EBITDA that you — and this is the gross margin, right, of the EBITDA?
Abhishek Lodha — Managing Director and Chief Executive Officer
EBITDA — the only debt out of it is whatever very miniscule depreciation or amortization we may have, and then only the interest costs and taxes.
Saurabh Kumar — J.P. Morgan — Analyst
Okay. Okay, got it. Because normally — I’m just asking you because normally we have seen the JDA margins are much lower. In the industry, they are in that 20%, 25% handle, best case. So what would explain that you’re getting these kind of margins on an incremental basis?
Sushil Kumar M — Chief Financial Officer
No, Saurabh, you’re right. So to the extent that — the composition of the JDA will always have a lower margin, but from an EBITDA standpoint, if you recall, what we have indicated on any JDA that we do, we target depending ROCE [Phonetic] anywhere between 15% to 20% handle of PBT and thereby, by default, means taking 10% as an overhead effectively from an EBITDA standpoint, there also, it will — it becomes 25% to 30% kind of — so basically the 15% to 20% of an EBITDA margin on the JDA projects. But in this quarter, the contribution of the JDA is not that significant [Technical Issues] and what you’re seeing is more coming out of our own projects. As time goes and thereby the JDA composition improves, potentially this margin as a [Technical Issues] potentially will have a downward trajectory.
Abhishek Lodha — Managing Director and Chief Executive Officer
If I may just come in, in addition to what Sushil has just said, we estimate — obviously, it will vary project to project, but the owned land have the margins in the mid-to-high 20s and the JDA’s have PBT margins in the high-teens. So there is definitely a delta between the two and therefore the blend, of course, depending on how much JDA’s are contributing to sales in any given quarter.
Saurabh Kumar — J.P. Morgan — Analyst
Okay. I got you. Thanks. The second is, I just want to understand this impairment you’ve done in U.K. better. So your cash flow receipt has not changed. So what has changed for this INR1,100 crores impairment to happen? Can you just throw a better light on this?
Abhishek Lodha — Managing Director and Chief Executive Officer
Saurabh, of course, Sushil will be able to explain better but I’ll take a little bit of an attempt and then Sushil can add. We had made the investments in the U.K. by means of a debt instrument. And the debt was accruing interest that had interest rate of 12% to 14%. So that is what the balance sheet was carrying in terms of what would be returned from the U.K. Now in terms of that — now, this quarter, the net receipts from the U.K. have started coming back and we know with a fair degree of certainty what the final amount that is going to come back is. That rate of return is not going to be in the 12% to 14% handle but that rate of return on our investment is going to be more in the single-digit handle. And therefore the delta between the two is that impairment that we are taking, which is really just an impairment in terms of the return. The principal, of course, is all being returned and it is being returned with the return but the return is not [Technical Issues] as a debt instrument was assuming.
Sushil Kumar M — Chief Financial Officer
Saurabh, actually, while from a cash flow standpoint, we always kind of guided you on a conservative basis that we would be targeting a repatriation of around INR1,500 odd crore handle number, but internally we were still optimistic looking at how things perform and potentially there was a scenario that we were painting whereby we can have a repatriation even higher. But knowing where — how things has evolved and how — what U.K. is seeing in terms of economy, we — and obviously equally, the kind of depletion in our own inventory having received expedited sales whereby to concentrate more and more on India side, so that — some of those optimism, which we had internally, perhaps is no more relevant, but in any case, to all the stakeholders, we always guided conservatively to be the handle of INR1,500 crores. And if you really see, on the whole, while the form of this INR1,500 crores now changes, whereby the effective [Technical Issues] becomes more like INR1,100 crores, INR100 crores already received in this quarter and INR1,000 crores expected next calendar year, but on this provision, we will have the tax break and a tax benefit, which will also be in the handle of around INR350 crores, INR400 crores. So net-net, effective results from a cash flow standpoint, positive side for the business, for the company, would continue to be in the handle of INR1,500 crores, in line with what we have guided.
Saurabh Kumar — J.P. Morgan — Analyst
Okay. I think I’ll take this offline, sir. And just one last question. Abhishek or Sushil, what will be your end March debt guidance and March ’24 growth expectation of net debt zero? I mean, where do you think this end by March ’24?
Abhishek Lodha — Managing Director and Chief Executive Officer
Saurabh, at this stage, we don’t have a March ’24 guidance to provide. We will of course do it when we share the entire guidance for fiscal year ’24 and that’s what I mentioned in response to an earlier question. This is the first milestone of getting to approximately INR6,000 crores of debt by March ’23. We are working aggressively towards getting there. Even if we miss it by a little bit, it will be maximum for a quarter but we’ll get there quite soon. And then, of course, whether to continue to further reduce debt will depend on the external environment. We are quite open-minded about making sure that the company at no time has any risk when it comes to leverage. So, while INR6,000 crores, given the scale of our business is not significant leverage, but even if we want to — if we believe that it’s better to be lower, we will go lower.
Saurabh Kumar — J.P. Morgan — Analyst
Okay, understood. And just one final question, I’m sorry to prolong this, with your permission. Can you just provide what percentage of your borrowers would be taking a mortgage? So this is my final question. Thanks. What percentage of your customers will be taking a mortgage, maybe after booking a flat three years, five months out
Abhishek Lodha — Managing Director and Chief Executive Officer
Yeah, I don’t, Saurabh, right now have an exact number, but what I remember from my memory is that it is in the mid-60s, the numbers as a percentage of total buyers who take mortgages.
Saurabh Kumar — J.P. Morgan — Analyst
Okay. Understood. Thank you.
Sushil Kumar M — Chief Financial Officer
It’s — to be precise, it’s around 68% at this point.
Saurabh Kumar — J.P. Morgan — Analyst
Thank you, Sushil.
Operator
Thank you. The next question is from the line of Kunal Lakhan from CLSA. Please go ahead.
Kunal Lakhan — CLSA — Analyst
Yeah, hi, thanks for taking my question. Firstly, on the spend on new projects that we have spent close to about INR1,300 crores plus in the first half. How should we look at this in the second half considering, like, we have already achieved GDV’s worth — I mean INR9,300 crores versus INR15,000 crore guided. So how should we look at the spend in the second half?
Abhishek Lodha — Managing Director and Chief Executive Officer
Kunal, that number will moderate because obviously if we’ve already done 60-plus-percent of our target in the first half, then the second half that number will be lower.
Kunal Lakhan — CLSA — Analyst
Sure. Okay. My second question was on — Abhishek, you mentioned that you expect demand to remain healthy even after another 50 bps increase in mortgage rates. According to you, at what mortgage rates you think the demand or affordability will get impacted?
Abhishek Lodha — Managing Director and Chief Executive Officer
I think, Kunal, it’s of course, a question which we can only guesstimate. We had earlier said that up to 9%, demand remains unaffected and therefore another 50 basis points from wherever we are right now, 8.25% [Phonetic] is within that range. But to provide another way of thinking about it, I don’t think it is too much about mortgage rates. Of course, if mortgage rates are at 12%, 13%, it will matter. But it’s not so much about mortgage rates as it is about job security and job creation. As long as there is job security and jobs creation, even if mortgage rates were modestly higher than 9%, I don’t think it will impact on demand. It really is about job security and job creation question.
Kunal Lakhan — CLSA — Analyst
Sure, sure. Thanks. Thanks a lot and all the best.
Abhishek Lodha — Managing Director and Chief Executive Officer
Thank you.
Operator
Thank you. The next question is from the line of Kushagra from Old Bridge Capital. Please go ahead.
Kushagra Bhattar — Old Bridge Capital — Analyst
Yeah, hi, thanks for the opportunity. A few questions. One, can you give us cash outflows, which you’re expecting on construction, SG&A and those land and JDA investments over the next two years, not probably the second half, but FY ’24, ’25? Broad color would be helpful.
Abhishek Lodha — Managing Director and Chief Executive Officer
Hi, good question, but not something we have prepared for. I don’t want to answer something of that nature off the cuff. So let us sort of revert to you on that offline.
Kushagra Bhattar — Old Bridge Capital — Analyst
Sure. No worries. And second question is on your JVs — JDA’s basically. So till now whatever JDA’s you have signed, what would be the cash outflow towards the landowner share in the project, which probably you would have given — if it would have been your own project, you would have been — you would have given as your land purchase acquisition costs. So what that amount would be out of INR17,000 crores, INR18,000 crores of JDA’s which you’ve signed till now?
Abhishek Lodha — Managing Director and Chief Executive Officer
So we have signed approximately INR24,000 crores of JDA’s in the past five quarters and estimating what the landowner share is going to be is obviously a little bit of a guesstimate. Having said that, what we would expect it to [Technical Issues]
Operator
We request all the participants to please stay connected while we reconnect the management. Ladies and gentlemen, the line for the management is reconnected. Thank you, and over to you, sir.
Abhishek Lodha — Managing Director and Chief Executive Officer
Yeah. Sorry. So we were answering what percentage would be expected as outflows to the landowners. It would be in the range in our expectation around the 20% to 25% of those revenues. So if the revenues are about 25%, it will range between INR5,000 crores to INR7,000 crores of outflows.
Kushagra Bhattar — Old Bridge Capital — Analyst
Got it. And just one last question on this wage inflation. So at one point, you sort of mentioned that wage inflation will continue to sort of pick up resulting in better affordability. But at the same time, wages, which is almost one-third of your cost, there seems to be lower than inflationary numbers than the other components. So just picking your thoughts on how you’re thinking about this dichotomy between the wage inflation at the lower end of the pyramid and wage inflation which is supporting the broader affordability factor. Like, will this percolate in your wage cost as well? And are you building anything over there in your price hike strategies?
Abhishek Lodha — Managing Director and Chief Executive Officer
It’s a good — it’s a very thoughtful question. Obviously, wages are determined by the trade-off of supply and demand. And as we know, India is abundantly supplied with the semi skilled labor at the bottom of the pyramid. If you look back at the data series over many, many years, the wage growth for those at the bottom of the pyramid tends to be disconnected from the wage growth at the middle and the top of the pyramid, purely based on the level of skill and the supply demand level. So I don’t really see this as a dichotomy. This is historical fact. We do build in construction cost inflation into our models, which is a blend of the material as well as the labor cost inflation. And we have really found that the way we model it is quite reasonable and accurate. So, so far we haven’t been surprised negatively. But the two inflation of the middle and the bottom — the upper end of the pyramid of more skilled labor — of more skilled people who ultimately end up being homebuyers, to be a homebuyer, your annual household income at the minimum has to be between INR6 lakhs to INR10 lakhs. That’s a very different situation from a construction worker whose monthly wages will range between INR15,000 to INR25,000 a month, and therefore a very different part of the pyramid.
Kushagra Bhattar — Old Bridge Capital — Analyst
Okay. Sure. Got it. That’s helpful, thanks a lot and all the best, guys.
Abhishek Lodha — Managing Director and Chief Executive Officer
Thank you.
Operator
Thank you, ladies and gentlemen, due to time constraint, we take that as the last question. I now hand the conference over to the management for their closing comments. Over to you, sir.
Abhishek Lodha — Managing Director and Chief Executive Officer
Thank you everyone. Feel free to reach out to me or Sushil. As we have highlighted, we are in a very exciting time period where the sector continues to perform very well. So if you have any further questions, please feel free to reach out to me. Thank you.
Operator
[Operator Closing Remarks]