Macrotech Developers Limited (LODHA) Q3 FY23 Earnings Concall Transcript

Macrotech Developers Limited (NSE: LODHA) Q3 FY23 Earnings Concall dated Jan. 25, 2023

Corporate Participants:

Abhishek Lodha — Managing Director and Chief Executive Officer

Aun Abdullah — Head – ESG

Mahika Shishodia — Social Impact Lead

Sushil Kumar Modi — Member and Chief Financial Officer

Analysts:

Biplab Debbarma — Antique Stock Broking Limited — Analyst

Saurabh Kumar — J.P. Morgan — Analyst

Kunal Lakhan — CLSA — Analyst

Sameer Baisiwala — Morgan Stanley — Analyst

Pritesh Sheth — Motilal Oswal — Analyst

Alpesh Thacker — Antique Stockbroking Limited — Analyst

Abhinav Sinha — Jefferies — Analyst

Kushagra — Old Bridge Capital — Analyst

Parvez Qazi — Nuvama — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Macrotech Developers Limited Q3 FY ’23 Earnings Conference Call hosted by Antique Stockbroking Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Biplab Debbarma from Antique Stockbroking Limited. Thank you, and over to you, sir.

Biplab Debbarma — Antique Stock Broking Limited — Analyst

Thank you, Faizan. Good afternoon, everyone, and welcome to the Q3 FY ’23 earnings call of Macrotech Developers Limited, hosted by Antique Stockbroking.

Today, we have with us the management of Macrotech Developers represented by Mr. Abhishek Lodha, Managing Director and CEO; 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. Wishing you a very Happy New Year. May 2023 be full of good health and success for you and your family.

Amidst all the global uncertainty of how high inflation can get to, how higher can interest rates go, how deep or how long can a recession in the developed world be, we ended yet another stable quarter in the direction of achieving a consistent counter cyclical growth trajectory for our company. Worried that interest rates are getting uncomfortably higher in India for home loan borrowers, home prices are rising up rapidly, and tailwinds witnessed in the last couple of years will disappear or even turn into headwinds are coming unfounded. As a strategy, we have adopted a policy of reasonable pricing, and that basically means that at all times, we will try and ensure that home price growth remains below wage and salary growth. YTD price growth has been about 5%, in line with our original guidance of 5% to 6% price growth for the full year. And we remain completely convinced that our thesis on the benefits of keeping price growth below wage growth and expanding the market will play out strongly in the years to come.

Additionally, we have also supported our home buyers, particularly in the affordable and mid-income segment by taking on some of the burden of the increased mortgage rates, which has come at a very minimal cost to our P&L. With all that, that we have had, it has been a quite a satisfactory quarter in terms of pre-sales with record pre-sales of over INR3,000 crores, exactly INR3,035 crores, growing 16% year-on-year, which puts us well on track to meet our annual guidance. Equally, our new project addition has been more than satisfactory, well surpassing our guidance and in the process ensuring growth in the quarters and years ahead. In spite of the significant investments in business development, we reduced our debt by INR750 crores in this quarter. While we will achieve about INR7,000 crores of net debt by the end of fiscal ’23, we have shown that we can continue to grow while reducing debt, and this will be our theme for the next fiscal, too. And we will continue to reduce our debt well below the peak limit, the limit or peak of 1 times of operating cash flow and 0.5 times equity debt that we’ve set for ourselves. Given the clear visibility of debt reductions, our debt ratings, credit ratings have continued to improve, leading to our borrowing costs further coming down by 80 bps to 9.7% from 10.5% at the start of the fiscal. This has to be seen in light of the 225 basis point hike by RBI in the same period.

In any case, the balance sheet remains in an extremely comfortable and healthy position and only moving further in the right direction. Revenue and EBITDA had a year-on-year drop, but that is purely because of the revenue recognition method, which forces the revenue be recognized only for the projects which are completed in this quarter, which are really projects which were started maybe 2.5 years ago, three years ago. And the slightly lower margins were because of the fact that, again, Ind-AS asked for cost to be recognized in line with the spend in the current quarter, whereas the revenues are recognized in line with only completions in the current quarter.

As discussed on earlier calls, the real KPIs of our performance are pre-sales, the embedded EBITDA margin, new business addition and ESG performance. The P&L revenue and EBITDA tend to be a lagging indicator of the business health. A few highlights for your reference. As I mentioned, we had our best ever Q3 pre-sales at INR3,035 crores, growing 16% year-on-year. This is the second consecutive quarter that we’ve achieved INR3,000 crores of pre-sales, showcasing the strength of the brand. And actually, in the calendar year 2022, we had three quarters out of four where we did more than INR3,000 crores of pre-sales. And our total presales for the calendar year 2022 were actually over INR12,000 crores, which is also ahead of our full-year guidance for fiscal ’23, which is at INR11,500 crores. This only evidences the strength of the brand and the rising attraction that brand Lodha carries amongst the consumer.

With the recurring strong performance in the first three quarters of the year, we have already achieved pre-sales of INR9,036 crores, which is higher than the pre-sales for the full year of fiscal ’22, registering therefore, a 62% year-on-year growth.

In line with our commitment to provide more transparency, we started disclosing the profitability of our new pre-sales done since the last quarter. We believe that this would help our stakeholders and the financial community to also get a better sense not only on the trajectory of top line growth, but also on the underlying profitability of the same. This embedded EBITDA margin, which for this quarter now stands at — is at about 31% of our pre-sales. The same for nine months of FY ’23 is at approximately 33%. The embedded EBITDA margin was achieved with nearly one-third of sales coming from our joint development projects.

Over a slightly longer horizon as the benefit from the modest price increases flow through, we should continue to deliver 30% plus EBITDA margin even as we hit the optimal mix of JDAs of about — being about 40% of our overall sales. This optimal mix of JDAs will also help us achieve our goal of 20% ROE. Based on this embedded EBITDA, one can derive the pro forma P&L for the quarter based on the pre-sales and looking at the embedded EBITDA of 33% for the pre-sales in the nine months up to fiscal ’23. The — and then taking into account the cost of finance as well as a very modest cost of depreciation, etc. and are assuming the tax rate at around 25%, we can see that the underlying profitability of the business for the full-year is likely to be in the range of about INR1,900 crores of PAT. The collections continue to remain — to track the presales growth with a lag of about a quarter or so and came in at about INR2,682 crores, showing a growth of 26% year-on-year. We expect collections to remain robust in the current quarter two, further aiding us to reduce debt. And while we reduced debt by about INR750 crores in the last quarter, we expect to reduce debt by almost INR1,000 crores in the current quarter.

In terms of additional updates, outside our core residential business, on the UK front, the repatriation of the money coming back from London continues at pace. In addition to INR100 crores, which were repatriated in quarter two of fiscal — of the current fiscal, we had approximately INR155 crores further repatriated in the quarter three of fiscal 2023. We continue to have good visibility for the full repatriation of approximately INR1,000 crores, including the INR155 crores, which has come in this last quarter to come through in calendar year ’23 as we had noted at the previous call.

I also wanted to bring your attention to three areas, which has the ability to contribute to value creation beyond our core residential business. We now have ready commercial assets with annual lease income potential of approximately INR2.4 billion per annum. At 7.5% cap rate, this is over INR30 billion of assets that we have available, which are — which could be over time, a good source of both rental income and if and when relevant also of the cash flow from the disposal. Our green digital infra-based business, which is a platform in partnership with Bain Capital & Ivanhoe Cambridge, CDPQ, is growing well. We welcome Mr. DS Rawat as the new CEO of the platform; Mr. Rawat was CEO of Bharti Infratel for almost 10 years in his earlier roles. We expect the green digital infra business to start creating annuity income stream for us and we expect this income stream to be almost INR3 billion per annum by fiscal ’26 and then growing significantly further by the end of the decade. The third element is our facilities management business, which is growing steadily as the underlying residential business is growing, and we are now augmenting this facilities management business with a digital services app. We expect this business to generate recurring fee income of approximately INR1 billion per annum by fiscal ’26 and then further growing significantly to almost INR5 billion per annum by the end of the decade.

Moving forward on the cost side. The construction costs have remained largely stable before the — stable vis-a-vis the previous quarter. Essentially now, for the seven quarters between March ’21 and December ’22, construction cost has increased at an annualized rate of approximately 6%. Just to reiterate, construction cost intensity in India is quite modest as it accounts for just about a third of the sales value. In addition, within this construction cost bucket, almost one-third of the cost is labor cost, which is plentifully available in India, especially when it comes to unskilled and semi-skilled labor and therefore, is not grown to any steep inflation. So in effect, it is only the commodities which are exposed to inflation and thus, manageable in the overall costs. Our higher share of ready and near-ready inventory further provides us with further question against inflationary pressures. Overall, the fact that construction cost inflation is now down to about 6% per annum is evidence of the fact that the impact of the geopolitical circumstances from last year is now starting to moderate. And we hope that not only will it in having more predictable construction cost going forward, but also help in moderating the inflation in the overall economy and therefore, help the rate cycle to start moving to a peak and then downward later in this year.

In terms of the land supply, we continue to see significant availability of land for us. As I mentioned at the start of the call, we’ve added almost INR18,000 crores, INR178 billion of new projects in the nine months of this fiscal against our full year guidance of INR150 billion. We believe that this is just an indication of the fact that not only landowners are bringing land to us, but they are also convinced about the fact that success in future projects will only come from a handful of players, and therefore, land availability will continue to remain reasonable or good for players like us. This consolidation of supply is a healthy trend for the industry and will ensure that in the longer term, the industry has disciplined supply dynamics as well as disciplined pricing. We — moving forward, at this stage, we do not see any amber flags on the demand environment and my educated guess is we are close to the peak of the current interest rate cycle, which is also encouraging. Almost all the parameters on our P&L and balance sheet are looking upwards and very promising.

As a company, very focused on ESG, in addition to our financial metrics, we are very proud of our continuing focus and performance on the ESG front. I am proud to inform you that we were rated as being among the top one percentile of real estate companies across the world by S&P’s Global Corporate Sustainability Assessment. We also received a five-star rating from the Global Real Estate Sustainability Benchmark, GRESB, which was — and that ranked us as the third best developer in all of Asia. To dive deeper into the reasons for these recognitions and explain our future strategy in this regard, today, we have with us the Head of our ESG initiatives Aun Abdullah; and our social impact lead, Mahika Shishodia.

Before I hand over to them, I just want to provide a small capital market update as well. There has been no shortage of uncertainty and facility here too, as it looks like so much attention has just gotten diverted towards China. In that environment, we have completed yet another important milestone in our journey with respect to capital markets. Following the — this follows the numerous milestones achieved in the last two years, including, most importantly, the listing of our company, thereafter the raise of primary capital for debt reduction and growth. And finally, now meeting the last hurdle to meet the minimum public shareholding criteria of 25%. We were the first company to use the QIP method to do an OFS. I can now safely say that we do not envisage any further equity issuance, primary or secondary for quite some time now. In the process, the Promoter Group has also paid off its entire debt obligations and freed our shareholding in Macrotech Developers from all encumbrances with the highest level of disclosures and corporate governance, not to mention of long-term secular growth prospects, we welcome our new marquee investors in the shareholder list, and we relentlessly continue on the journey to become one of the most respected corporates.

In conclusion, I will reiterate that this is just the second year of the 10 to 15 year housing cycle, which has started on the back of strong affordability, household income growth and consolidated supply. We are now ending the year and Q4 generally tends to be a strong quarter and the early read of Q4 reinforces our belief of the industry being in a structural uptick. We are confident of achieving our twin objectives of 20% CAGR in pre-sales and about 20% ROE over the medium term, at the same time, keeping leverage well below 1 times operating cash flow and 0.5 times of our net worth.

With this, I now hand over to Aun and Mahika for a short brief on our ESG journey. And after that, Sushil and I will be available to respond to your questions. Thank you.

Aun Abdullah — Head – ESG

Thank you, Abhishek. Hello, and good afternoon, everyone. Today, I would like to share our philosophy and performance on ESG. What we build today will last or even outlast this century. And it will see the environmental and socioeconomic transition as it actually unfolds.

Being a leader, we therefore shoulder a significant responsibility to do what is right because that will determine that this transition is just quick and bodes well for all. So it is clear that growth of our business would actually be shaped to a large degree on how well we are able to converge our business goals with our ability to convert these risks into long-term value creation opportunities. And that’s the basis of our do good, do well philosophy. Our projects are home to lakhs of residents, projects like Palava are a unique template of sustainable urbanization in all aspects, including experiential to environmental to socioeconomic, and we want to build upon that strength.

Our environmental strategy is built on two pillars of decarbonization and resilience. You must have been aware of our 2035 operationally net zero target, which we are sure that we’ll achieve earlier than that. We have been able to reduce our GHG emissions by more than 50% in last five years. Today, our construction stage energy use comes mostly from renewable sources. All our projects have been built as green projects. And through our ambitious initiative that’s Lodha Net Zero Urban Accelerator, which we have found with Rocky Mountain Institute who are a global think-and-do tank in the energy transition space. We are working on initiatives covering the entire spectrum of emissions in the built environment all the way from embodied carbons to operational carbon to even be emissions beyond our operational boundary. We already treat 100% of wastewater and use it across our projects to enhance water resilience. We not only recharge the rain water, but we enable it storage and use to lower our external water needs. We are working with experts to decipher the physical climate risks, thereby gaining the ability to take the right mitigation measures in right proportions.

Our social strategy is currently focused on woman empowerment, upskilling and education. We have an ambitious gender diversity goal, and that goes with our best people practices and our ardent focus on safety and well-being of people in our ecosystem. We are engaging deeply with our value chain to partner in this journey and help us in a just transition. Avoiding the risk of repetition, I let my colleague, Mahika, to shortly elaborate on some of our initiatives in the social domain in a minute.

Coming to governance, we believe that trust and transparency is the backdrop of any enterprise. Although we have been — we have a short listed history, we have set a very strong governance benchmark for ourselves. As a private company, we have grown nearly 20 times in the last two decades. And in our view, such an unprecedented growth would not have been possible without a strong governance backbone and a very tall code of conduct.

In terms of our board, we have a very active diverse and independent Board that drives us in our journey. In fact, we are among those few companies which have an independent director as the Chairman of the Board. Our Chairman, Mr. Mukund Chitale who also sits on the Board of L&T and who is also the Chairman of the Ethics Committee of Bombay Stock Exchange. The induction of experts like Mr. Lee Polisano, Mr. Rajeev Bakshi and Ms. Harita Gupta in last 18 months as independent directors has helped us further enhance the expertise and diversity of our Board.

I’ll now end with our measured ESG performance and position on various global sustainability benchmarks, which basically is a testament to our do good, do well philosophy. You would have read more in our first annual integrated report last year, where we detailed our systems performance and ongoing initiatives. All that — that track record has actually helped us perform well in these benchmarks. Last year in November, we performed in the 99 percentile in the S&P Global Corporate Sustainability Benchmark. S&P Global CSA is the same assessment that is the basis of entry into Dow Jones Sustainability Index. While we are not in the DJSI, we are proud to be performing alongside the global — the top global companies rated through this assessment. With a five-star badge, we are also ranked third in Asia and the development benchmark in GRESB 2022. We are also participating in some more and will report as the results trickle in. Our approach of participating in these benchmarks is that it helps us learn and improve. It helps us quantify our ESG and also aid in continuously enhancing our transparency. We foresee that with our strategy and the set of actions that we are already taking, we will continue to lead this space.

With this, I hand over to Mahika to update on our social impact and initiatives. Over to Mahika.

Mahika Shishodia — Social Impact Lead

Thank you, Aun. Good afternoon, everyone. The Lodha Group just like its business has an audacious vision for its impact on society. Our focus areas in social impact are women empowerment and education. We are working on two large programs with the vision of building the prosperity and power of our nation.

I will first speak about our work on women empowerment. As you know, our country has amongst the lowest female workforce participation rate at about 18%. The reality is that working woman in India do two jobs, one managing the household responsibilities and other is their regular job. We observed that the largest drop in female workforce participation is after marriage or after having children. This significantly reduces the work life of women. Our country is not only paying a huge economic cost of an underutilized workforce, but also a social cost by marginalizing women. To solve for this, our program, Unnati, brings work to women rather than them traveling to work. At 20 minutes walking distance from our low-cost housing developments, we are providing workspaces at 75% discount to companies that can absorb at least 500 women in the vicinity into their workforce. These workspaces or Laxmi Bhavans will provide the right enabling environment for women to work consistently, productively and safely. Our aim is to create 100,000 new jobs in the next five years. As part of our efforts, we are mobilizing the female workforce, providing job appropriate skill training and developing daycare facilities for children. We believe that such an environment will reduce workforce attrition among females and improve work productivity. We recently kicked off our first pilot in Palava and are focusing on the BFSI, telecom, textile and food services sector to provide jobs to match the profile of the first cohort of women.

The second initiative, the Lodha Genius Program is in the education space. We are developing a program in partnership with leading Indian Universities to help the brightest students across our country achieve their full potential. The program fills a critical gap in the education sector in India, where differential needs of gifted students is often ignored. Most of them have high academic scores, and it is assumed that they need no additional support. To bring out the best in these students, they need to be supported academically, social, emotionally and financially. The Lodha Genius Program will identify such students across the country and support them from eighth grade by providing academic exposure, opportunities for growth, financial support and mentorship. The program is strongly rooted in the values of nation building and a sense of contributing back to society.

Both these programs will have a huge impact on the lives of people. Let me stop there and hand it over to Sushil.

Sushil Kumar Modi — Member and Chief Financial Officer

Thank you. Thanks, all, and thanks, Mahika. With that, I think we can take all your questions or queries around the performance, please.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Saurabh from J.P. Morgan. Please go ahead.

Saurabh Kumar — J.P. Morgan — Analyst

Hi Abhishek. Thank you for this opportunity. My first question is you know, you said that the impact of mortgage increases on demand is not very significant yet, but have you seen any slowdown in terms of footfall from your site or anything, know your pre-sales are still good, but in terms of footfalls, have you seen any slowdown? And if rates were to go to 9.25%, where do you think — at what point do you think the demand kind of slows down? So that’s the first one.

The second one is essentially on Slide 12, where you’ve kind of given this embedded EBITDA disclosure. So is the overhead calculation basis the current run rate or I mean, you’ve taken a two year out run rate of your overheads to get to this 32% EBITDA? And the third question is essentially the guidance for INR70 billion of net debt by March ’23, the Slide 10, that’s still intact, right, for [Indecipherable]? Thank you.

Abhishek Lodha — Managing Director and Chief Executive Officer

Thanks, Saurabh, your last question was not very clear. Could you just repeat the third question?

Saurabh Kumar — J.P. Morgan — Analyst

Yeah, so the Slide 10, so you have the INR70 billion net debt by March ’23. We are at INR80 billion. So we’re expecting about a INR10 billion odd reduction in this quarter. Will that be a way to think about it?

Abhishek Lodha — Managing Director and Chief Executive Officer

Thank you, understood. So yes, in terms of our — what we are seeing in the demand environment and we measure it in a number of ways, we measure it in terms of incoming inquiries, we measure it in terms of footfalls, we measure it terms of conversion rates. And whichever metric one has seen, one has found that the desire for homeownership, there has been no flagging of that over the last nine months in spite of the significant increase in the mortgage rates. To give you an example, the total number of footfalls that we had coming into our site in December, which, again, due to holidays and other things tends to not be such a strong month was almost 10,000 families walked in. And that is as high — it’s probably the second highest in any month of the year. So one has not seen any flagging of footfall, nor have conversion rates reduced per se, which is really reflected in the fact that we’ve delivered the INR9,000-odd crores of sales in nine months.

In terms of your second question around overhead costs, we estimate our company’s overhead costs on the basis of the project’s entire life cycle. And that is taken into account when one is looking at the EBITDA — the embedded EBITDA margin. If you look at the explanation at the bottom of Slide 5, you will note that we explained that embedded EBITDA is calculated taking into account the actual sales price that the unit is sold at less or — and then we take into account the life cycle costs, which are all life cycle costs, including construction, overhead and so on with only finance cost, obviously not deducted from the EBITDA number. So that is taking into account life cycle costs.

In terms of your third question around debt reduction, yes, we are looking at reducing debt by approximately INR10 billion in the current quarter. As you would have noted, with significant investment in land and approvals, we were able to reduce our debt by almost INR750 crores, INR7.5 billion in the last quarter, and we feel pretty good about being able to further reduce it by a slightly higher quantum in the current quarter. Not only that, I think even going forward, I would like to clarify to you as well as all the others on the call, that our guidance of debt at about INR60 billion is our peak debt number, which is really comes out of our limit of debt, our peak debt being 1 times operating cash flow and 0.5 times equity. But given the fact that we have been able to consistently show growth while reducing leverage, we expect our debt to continue to reduce through fiscal ’24 and therefore, be meaningfully lower than the INR60 billion number.

Saurabh Kumar — J.P. Morgan — Analyst

Okay. Understood. And just one last question, what will be the mix of JDA and pre-sales for this year?

Sushil Kumar Modi — Member and Chief Financial Officer

For the quarter, Saurabh, it was around 33-odd percent. But for the year — for the nine months, it will be somewhere around 23%. So perhaps for the year, it should settle somewhere around 25%, 26% is what we can estimate sitting today.

Saurabh Kumar — J.P. Morgan — Analyst

Okay. And this will go to about mid-30s longer term?

Abhishek Lodha — Managing Director and Chief Executive Officer

Around 40% is our sort of stable state, yes, is what we expected.

Saurabh Kumar — J.P. Morgan — Analyst

Got it. Okay, got it. Thank you.

Abhishek Lodha — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Kunal Lakhan from CLSA. Please go ahead.

Kunal Lakhan — CLSA — Analyst

Hi, so just a question on the guidance side. So we have done well on the pre-sales, and we are likely to exceed for the full-year. But on the operating cash flow side, we have lagged the guidance, right? So what is happening here? Like are we like — is it because of the collections are lagging or are we spending more or is it a combination of both?

Abhishek Lodha — Managing Director and Chief Executive Officer

So on the cash flow, actually, we are reasonably tracking. As you would have seen, we have indicated, too. So not that the cash flow, it is — we have any kind of negative, adverse performance. It’s just the kind of investment or the kind of business growth that is going hand-in-hand in tandem, which automatically then decides potentially from the cash flow how much the debt reduction happens. So it’s just a function of that, which is where we continue to remain confident that INR1,000 crore minimum we would reduce in this running quarter.

Kunal Lakhan — CLSA — Analyst

Sure, sure. Just a related question on that. So the dividend policy that we had, right, set out last year or beginning of this year, said that 15% to 20% of the PAT you would pay out as dividends. Now for the PAT purpose, would you consider the reported PAT, which — where you have the provisioning of INR1,100 crores odd? Or would you consider the adjusted PAT? Just trying to understand that.

Abhishek Lodha — Managing Director and Chief Executive Officer

No, in all phases, we would be looking for an adjusted PAT, taking out any extraordinary measures, such as like this. But obviously, the policy suggests perhaps the max that we would be considering. However, we would be considering will be a function of as is stated in the policy, equally our capital structure, vis-a-vis the business growth that is ongoing. So as a combination of all of these, we will get to — arrive at in consultation with the Board a rightful number as dividend, which when we declare in any case so that you note would be kind of paid out more like September, October because it will be more like a final dividend, so after the shareholders’ approval.

Kunal Lakhan — CLSA — Analyst

Sure, sure. That’s helpful. And lastly, on the accounting side, right, we say that our embedded EBITDA margin is better than the reported EBITDA because of the provisioning — because of the period costs. But just trying to understand this slighter. We say whatever is recording — getting recorded in our P&L, those projects must have also had their period cost, right? So if you’re talking about 1.9 million square feet of deliveries against 2.3 million square feet of new launches to which the period costs have been allocated to. So I’m just trying to understand like more or less over a period of time, that should get netted off, right? So I mean, isn’t that the way one should look at it?

Abhishek Lodha — Managing Director and Chief Executive Officer

Yeah, so I think while the principle of what you’re saying is absolutely correct. What has to be taken into account is the differential rate of growth. The current period cost, our basis, the fact that the organization is running at INR11,500 crores plus sales run rate and equally construction and business development and all of those activities. In the — over a medium term, obviously, the embedded EBITDA margin that we are reporting and the adjusted EBITDA, which will actually be in the P&L, they will converge. And the — if you see over the last few years, on an ongoing basis, our quarterly numbers when it comes to adjusted EBITDA are in — between the 30% and 35% range. So percentage wise, it will be the case. But when one looks at absolute numbers because when one is looking at the period cost, it is an absolute quantum, which is deducted from the lower revenue which is recognized. And that is what effects — or that’s why we say is that the P&L revenue and the P&L EBITDA are lagging indicators. Whereas when one looks at the pre-sales and the embedded EBITDA, one can get a much more real-time picture of the performance of the business.

Sushil Kumar Modi — Member and Chief Financial Officer

So just so that you understand, in any case, our embedded EBITDA percentage that we are indicating is pretty much tracking the current performance. As well as you would have seen adjusted EBITDA even for be it nine months or be it for the quarter is in the range of around 32%, so pretty much on track. What you are not getting effectively is a flow-through of that EBITDA to the PAT, which is on account of our past capital structure being squeezed towards debt, where the significant amount of interest got capitalized and gets — hits the P&L included in the cost of projects. So as we kind of — as our trajectory on the net debt reduction continues, then effectively all of that kind of completely wipes out. And which is what when you see the pro forma P&L, we have indicated for the current year on an average debt that we would have for this current year, our interest cost finance cost would be around INR1,000-odd crores. And we have taken the entire INR1,000 crores in the pro forma P&L showing it coming into the P&L as is and then what would be the PBT or a PAT.

Kunal Lakhan — CLSA — Analyst

Sure, sure. Thanks, thanks so much and all the best.

Operator

The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.

Sameer Baisiwala — Morgan Stanley — Analyst

Thank you very much and good afternoon to everyone. Abhishek, just on the new project acquisition side, JDA, how is the outlook for next 12 months, in the sense that is the space getting very competitive from a bidding point of view? And for the deals that you have done so far, what’s the sort of typical landowner, is it an industrial or if you can just shed some light on that?

Abhishek Lodha — Managing Director and Chief Executive Officer

Hi Sameer, sure. So our BD [Phonetic], what would I say, BD [Phonetic] cup is flowing over as it stands right now. It’s not only seen in terms of the quantum that we’ve been able to do in nine months, but also in terms of what the pipeline is and how much of deal inflow is coming through. So very clearly, we see that we are quite the preferred choice, especially in our focus cities of Mumbai and Pune for joint development. And we are seeing a very steady pipeline there. In terms of your question around who are the providers of this land, so by mix, there are landowners, there are financial institutions who are — who have historically been stuck with some assets, there are developers who are stressed. And so it’s a wide mix, as it has been over the last 20 months as we have sort of added almost INR30,000 crores plus of new projects.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. And at any point in time, Abhishek, are you thinking of reverting back to outright purchase of land? And for Bangalore, is there any update? And would JDA be the principle way of expansion over there?

Abhishek Lodha — Managing Director and Chief Executive Officer

Sameer, in terms of Bangalore, we are in what we call the seed phase. The seed phase is where we grow — do a few projects, deliver the projects, so that’s really why we entered Bangalore almost three years before we really needed to enter for growth purposes. Almost all our growth up to fiscal ’26 is going to come from Mumbai and Pune. Bangalore, we are using this time to establish our brand, become local, establish a strong operating structure and team. And we continue to be operating with a low-risk model, which is JDA driven. In terms of whether we will acquire land outright, the answer, of course, is, yes. As you will note in our presentation, we expect our medium term mix to be about 60% outright and 40% JDA.

So obviously, we are moving from a situation where we were almost 100% outright and are now slowly over the next 18-odd months, going to get close to the 40% JDA mark. This will also be the time period in which we have corrected our balance sheet through a combination of capital raise and operating cash flow generation you saw last quarter. And in this year, overall, we would reduce debt by almost INR2,500 crores, which is all organic. And therefore, it has been quite, I would say, useful for us to use the JDA model to keep growing while we have made our balance sheet as strong as we’d like it to be. Over — with the strong operating cash flow that we have, close to INR60 billion this year, a higher number next year, we’ll, of course, give detailed guidance in our April call, we expect to have the ability to of course, acquire land outright. The JDA will, like I said, be about 40%, the balance being outright.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great. Thanks. Just one final question from my side. Abhishek, Macrotech has always been known to be more of a South Central Mumbai company. So I can see on Slide 22, you have 1.2 million square feet of owned land and then nothing. So first of all, I mean, this is all in the park project. And the second is, going forward, how do you plan to continue your dominant position in this micro market?

Abhishek Lodha — Managing Director and Chief Executive Officer

Sameer, we have as you’ve rightly pointed out, about 1.2 million square feet of own land and then about 1.7 million square feet of JDA land in South and Central Mumbai, totaling to about 3 million square feet currently. Beyond of course, whatever is under construction as well as what is ready and unsold. So there is quite a, I would say, significant quantum available with us. If you look at the numbers, we have about ready unsold of INR37 billion and ongoing unsold of INR70 billion. So that in and itself is almost INR110 billion that we have. And in addition, beyond that, we have 3 million square feet, and you can ascribe whatever value, let’s say another INR100 billion to that. So between the two buckets, that’s more than INR200 billion of inventory that we have, which is a good three years plus of sales in the market. So we see very good — and given our strong performance in this market, the marquee quality of projects that we deliver, the business development pipeline also is very strong. So very clear visibility as you will already have noted for the next three years to four years and very significant business development, which is available for us. So we don’t see any concern in terms of our ability to continue to provide high quality product to the South and Central Mumbai market.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. That’s great. That’s very clear. And 0.9 million is all in park, right?

Abhishek Lodha — Managing Director and Chief Executive Officer

You’re talking about the 0.9 million of [Speech Overlap]

Sameer Baisiwala — Morgan Stanley — Analyst

The old land, beyond 12 months, Slide 22.

Abhishek Lodha — Managing Director and Chief Executive Officer

No. That’s our project in Prabhadevi. That’s partly in Prabhadevi and partly, there is another location. So park, I think almost everything will be under ongoing unsold.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, got it. Thank you.

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 the opportunity. First question, on Mumbai as a market from overall macro perspective, we have seen upsurge in demand in the last two years. I think Mumbai has been one of the best market. But now over the last probably five, six months, the volumes, which we’ve seen in terms of registration as well as the consultant’s report have been kind of steady. There hasn’t been much growth. What is your outlook on Mumbai as a market? Will we continue to see growth in terms of the industry volumes that currently the region is blocking in? And how do you see the upcoming infrastructure development helping boost further demand?

Abhishek Lodha — Managing Director and Chief Executive Officer

Hi Pritesh, thank you, that’s an important question. Our view is that Mumbai is at a cusp of a breakout driven by two things. One, of course, is the infrastructure creation, which has been in the works for almost a decade now. But a number of those projects will culminate in the next 24 months. And I think those are going to be really game-changing for Mumbai, including the Trans Harbour Link, the coastal road, several arms of the metro and a lot of many other not as prominent projects. This, I think is coming at the right time for Mumbai because I think in India now, we are going to see the impact of manufacturing led leg of growth in addition to, of course, the strong services leg that India has. And as capital investment, whether under the PLI scheme or otherwise, whether led by the domestic consumption or the China Plus One strategy, all of these fructify, Mumbai is likely to be an outsized beneficiary of that through front office as well as banking. So generally, we believe that Mumbai is very well poised because of these things that I mentioned. However, in our own internal assessment, we remain to do our numbers on a conservative basis. We expect nominal growth in the Mumbai market to be in the 10% to 11% range with a mix of about 5% to 6% in price and the balance in terms of volume. So generally, we are expecting Mumbai market nominal growth to be — we — our internal assumptions being conservative are below nominal GDP growth.

Pritesh Sheth — Motilal Oswal — Analyst

Got it. Fair enough. And just a follow-up on that, I think initially, while we were targeting the markets like Western suburbs, Eastern suburbs as well as Pune, Navi Mumbai was also one of the market where we were looking for growth opportunities. But I think we haven’t materialized anything in that. Any separate challenges that we are facing in that market? And what’s your projected additional outlook in that market?

Abhishek Lodha — Managing Director and Chief Executive Officer

That’s a very good read. You’re right that most of our new project additions have been in the other markets you mentioned, including Western suburbs, Eastern suburbs and Pune, in addition to the three markets of South Central Mumbai, extended Eastern suburbs and Thane where we’ve historically been very strong. Navi Mumbai and Eastern suburbs is a joint market for us. And we continue to — we have opportunities available in the Navi Mumbai market. We have just found that the profitability levels there are not as strong as what we are comfortable with. And therefore, we’ve been choosy in picking what to work on. We continue to evaluate opportunities, but as we’ve said in a different context, we are not only chasing top line. We are chasing profitable top line and therefore, will always be disciplined in the kind of projects we take up where both the top line and the bottom line should be understandable by us.

Pritesh Sheth — Motilal Oswal — Analyst

Great. That’s quite clear. Just one last question. I think you mentioned in your initial commentary that the embedded EBITDA margin, even if we are at a full scale contribution from JDA, that is at 40%, the EBITDA margin can remain at 30% kind of range, which is — in presentation, you have mentioned the mix, probably we are calculating at 25%. So just a clarification of that, whether 30% can be achievable with 40% JDA contribution or I misunderstood something?

Abhishek Lodha — Managing Director and Chief Executive Officer

We do expect that even as the contribution from JDA stabilizes around 40%, that given a combination of our scale and therefore, our ability to make sure that construction costs are continuing to be value engineered and our overhead costs also, given the larger scale, are improving, plus the price growth that one is seeing in the marketplace, which adds to margin, we will be able to maintain the approximate 30% of — in terms of our EBITDA margin, even with the 40% contribution from JDAs. Obviously, there may be a quarter where it may become 29% [Phonetic] in another quarter where it may be 32% [Phonetic] but over any meaningful period, that 30% should be achievable.

Sushil Kumar Modi — Member and Chief Financial Officer

Pritesh, actually, you can do the math straight, right? The difference between the outright on the JDA typically would be somewhere around, let’s say, 10% to 12%. And if you just extrapolate to the fact that we would have 25-odd percent of JDA mix this year, and even if you go to the 40% in the FY ’24, that means incremental 15%. On that, if you take the 12% equation being paid out, the differential between the two land models, the net impact would be somewhere around 2%. And that 2% if you then look at a price rise standpoint, price size being around 5%, 6%, even if netted down with any construction cost inflationary impact, if at all has to further play out for any conservatism, you can safely see that, that will get reasonably offset with the price rise and thereby 30% in itself perhaps should not have any challenge, maybe even more.

Pritesh Sheth — Motilal Oswal — Analyst

That’s what I wanted to clarify. Thanks for that answer, and all the best. That’s it from my side.

Operator

Thank you. The next question is from the line of Alpesh Thacker from Antique Stockbroking Limited. Please go ahead.

Alpesh Thacker — Antique Stockbroking Limited — Analyst

Hello, thank you for taking my question. So my first question is kind of continuation from one of the previous questions that we had. So as we understand that we are in the midst of a strong housing up cycle, and this comes with increased expectation of every stakeholder, including the landowners. So just want to make sure that how do we ensure that we still make reasonable returns on the projects that we get into? So what is the thought process behind that? And how do we ensure that we do not get into projects, which are not very profitable or meet our benchmarks?

Abhishek Lodha — Managing Director and Chief Executive Officer

Alpesh, it’s an important question. Two things you will have to take into consideration as you determine how landowners are thinking about the situation. Point number one is that with the steady consolidation in the industry, while the quantum of land supply is the same or similar or may even get higher as prices move up, the number of takers of that land are limited. And therefore, the negotiating leverage or negotiating power is titled towards those who are taking the line. That’s one element. The other element, especially in the joint development model is that the landowners continue to benefit from the upside in pricing. So they need not push hard on the percentage of revenue or profit that they would get because in absolute terms as the market strengthens, they will benefit from that upside too. So we have not seen any circumstance or anecdotes right now where we see undue pressure. Obviously, every landowner wants to make sure they get a good deal. But the good deal is not only the percentage of profit or revenue. It also includes who is the partner, what is the transparency, how likely is the project’s time frame and price realization is going to be close to business plan, what is ultimately going to be the NPV. So all these factors are taken into account by the landowners, and we don’t see any undue pressure on the land costs.

Alpesh Thacker — Antique Stockbroking Limited — Analyst

Okay, sure. Thank you. It makes sense. And my second question is, I’m referring to the slide where you guys provide a price inflation of different materials. There we see sharp increase in lifts and elevator costs. So how should one read it? So what has really gone wrong there? What is the reason behind that? That’s it from my side.

Abhishek Lodha — Managing Director and Chief Executive Officer

Alpesh, I don’t really know the specific question. That’s not an area — specific answer. I can only guesstimate that given the lockdowns in China and because China tends to be a provider of both input materials as well as finished goods in the elevator space, one may have seen a spike. And because it’s a December ’22 number, you may see that up to March ’22, the impact was limited. But then suddenly, you saw a much bigger impact in this period up to December ’22, but we will do a deep dive and hopefully be able to give you an offline answer on that.

Alpesh Thacker — Antique Stockbroking Limited — Analyst

Okay, okay. Thanks a lot for the clarification. That’s it from my side.

Operator

The next question is from the line of Abhinav Sinha from Jefferies. Please go ahead.

Abhinav Sinha — Jefferies — Analyst

Hi. I wanted to ask a question on the digital infra side. So you have put up some numbers on Slide number 17. So can you just provide some clarity on the area under development and area under construction? What does this mean? Is this what we have, let’s say, part of JDA where we can earn earnings, etc.? So that’s one. And also on this, what is the cost of the Kurla land parcel? And you’ve also given some numbers, some targets for this business. Can you just elaborate that? Thank you.

Abhishek Lodha — Managing Director and Chief Executive Officer

So I think your first question, if I understood correctly, is what is the difference between area under development versus area under construction. Area under development is the total land, which we’ve acquired and started infrastructural activities around. Area under construction is where the physical construction of the box has started. So that’s the two. So you can read it as saying that we have approximately 5.7 million square feet, which is available for development and the infrastructure activities around that have started, out of which 1.4 million square feet are under construction as physical boxes. So that was one.

In terms of the consideration for the Kurla land, the exact amount was — yeah, I will — I think it’s approximately INR150 crores. We will get you the exact figure. And I think while your line was a little unclear, the last question you had is what are our plans or growth plans in this area? As you are aware, the platform is earmarked a very significant amount of investment into this area. We believe that warehousing and industrial are secular growth stories in India and are supply constrained. And we expect to scale this platform up meaningfully in the next three years, such that our share of income, which is our one-third share in the propco plus our fee income from managing the opco will be approximately INR3 billion by fiscal ’26.

Abhinav Sinha — Jefferies — Analyst

Okay. If I may ask one last question quickly. The Worli World Tower, I believe it is now completed, right? So by when are we expecting to monetize it? And will we go for, say, a part monetization as it leases or you would like to do it in one shot?

Abhishek Lodha — Managing Director and Chief Executive Officer

So as you have noticed, we have about INR30 billion worth of office or retail assets, which are ready or almost ready now, including the One Lodha place office building, which you mentioned. In terms of our monetization plan, we do not have a clear decision yet under the form of monetization. Obviously, we do not expect to continue to hold it long term on our books. Our current focus is on leasing. The leasing activity has started off well. We are having a number of marquee clients, including companies like Conde Nast and Gucci, who have signed on. And we are focused now on leasing the building out. And once the leasing activity substantially progress, we will decide on what’s the best way of monetizing the asset.

Abhinav Sinha — Jefferies — Analyst

Thank you.

Abhishek Lodha — Managing Director and Chief Executive Officer

Thank you.

Operator

The next question is from the line of Kushagra [Phonetic] from Old Bridge Capital. Please go ahead.

Kushagra — Old Bridge Capital — Analyst

Yeah, hi. Thanks for the opportunity. Just one question. So if I look at your —.

Operator

Sorry to interrupt you Kushagra. Mr. Kushagra, the audio is not clear from your line. Please use the handset mode? Yes, please go ahead. Mr. Kushagra, please go ahead with your question.

As there is no response from the current participant, we’ll move on to the next question from the line of Parvez Qazi from Nuvama [Phonetic]. Please go ahead.

Parvez Qazi — Nuvama — Analyst

Hi, good afternoon and thanks for taking my question. So my question is regarding our township business. So what is the kind of resale that we saw from that segment in Q3? And what are the future launch pipeline in that segment? Thank you.

Abhishek Lodha — Managing Director and Chief Executive Officer

The township business is classified largely under what we call extended Eastern suburbs. So if you look at the details on Slide 20 of our presentation, you will note that we had about INR5.5 billion of pre-sales from the extended Eastern suburbs. And we obviously have very significant land holdings in our developments there. The number for the nine months so far is just under INR17 billion. And we expect that, that segment will grow to over INR20 billion, INR22 billion or thereabout for the full year. The launch pipeline is quite significant. For those who are in Mumbai, you may have even seen an ad this morning of a new segment, which is the Crown segment in Dombivali. And we continue to add in new segments like including plotting, higher-end aspirational housing, the continuing mid-income housing under our Casa brand, then lower down more affordable housing under the Crown by Lodha brand. We’re doing office spaces there, in terms of for sales Tata [Phonetic] office sales. So we’re seeing a number of different drivers of product — on the product side.

There’s a lot of interesting and positive infrastructure activity in that area. The Thane-Dombivali link road is now physically complete and should be open for operations in the next three months, which will make Upper Thane just a 10-minute drive to Dombivali West station. The Nasik — the Nagpur Samruddhi Mahamarg will also touch the Upper Thane project on one side, and that will make the drive from — Upper Thane will basically become the gateway to Mumbai for all of Northern Maharashtra. Similarly, in Palava, we have seen a lot of augmentation of roads. The Airoli tunnel work, it looks like it is quite a bit progress and will make Airoli a predictable 20 minutes away from Palava, which will be — which we expect to be a meaningful contributor to additional demand. And we also are seeing other activities. So overall, we feel quite bullish about the reset in the townships business, both helping reset in terms of pricing as well as in terms of volumes. And we do expect that maybe from fiscal ’25 onwards, you will see a meaningful shift upwards in the total contribution from the townships business.

Parvez Qazi — Nuvama — Analyst

Thank you. That’s it from my side.

Operator

Thank you. The next question is from the line of Kushagra [Phonetic] from Old Bridge Capital. Please go ahead.

Kushagra — Old Bridge Capital — Analyst

Hi, is this better now?

Operator

Yes, sir.

Kushagra — Old Bridge Capital — Analyst

Okay, sure. Thanks. Thanks for the opportunity. Just one question. So if I look at your JDA signings launch time frame on Slide 15, and if I compare this with your earlier disclosures, just curious to know that majority of the time lines have sort of postponed. Like, for example, certain projects, which were about to get launched and starting FY ’23 or mid of FY ’23 have been sort of postponed to FY ’24. I remember one of the key differentiating factors for JDA signings, which we have highlighted, are the lower launch time lines from the date of signings, right? So I mean, correct me if I’m wrong, should we read anything over there?

Abhishek Lodha — Managing Director and Chief Executive Officer

No. I think you know the fact is that if anything shifts by a month or two months, you will see that shifting from fiscal ’23 to fiscal ’24 because you are in the last quarter of fiscal ’23. So that’s about it. We actually — if you look at it from our new project launches, which is probably the better way to read what we are launching and what time it is taking to get us to launch, which is I think the previous Slide number 14 and then there is a detailed summary of that also, you’ll continue to see that our launch activity is very robust. You’ll see it on Slide 13 that our launch activity is quite robust, and that is summarized on Slide 14. So really no change in how we are able to get projects to market timely. Often a one or two month swing will happen, but when you see it in the last quarter of

The year, it will look like a year has shifted.

Kushagra — Old Bridge Capital — Analyst

Yes, yes. Totally understand that. Sure, thanks guys and all the best.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

Abhishek Lodha — Managing Director and Chief Executive Officer

Thank you, everyone, for joining the call. It was a pleasure to answer all your questions. Feel free to reach out to me or Sushil for any further updates. We’ll be happy to help you. Thank you.

Operator

[Operator Closing Remarks]