MANAGEMENT DISCUSSION AND ANALYSIS Economic review Global economy Global growth again fell short of expectations in 2015, decelerating to 2.4 percent from 2.6 percent in 2014. The disappointing performance mainly reflected a continued growth deceleration in emerging and developing economies amid post-crisis lows in commodity prices, weaker capital flows and subdued global trade. In developing countries, growth in 2015 is estimated at a post-crisis low of 4.3 percent, down from 4.9 percent in 2014. The economic rebalancing in China is continuing and accompanied by slowing growth. Brazil and Russia have been going through severe adjustments in the face of external and domestic challenges. On an average, activity in emerging and developing commodity exporters stagnated in 2015, as they continued to be hard hit by declining commodity prices. As a result, the contribution to global growth from these economies has declined substantially. Notable exceptions in an otherwise gloomy outlook for developing countries include South Asia (reflecting reduced macroeconomic vulnerabilities and domestic policy reforms in India), as well as some commodity-importing countries in East Asia. Indian economy Indian economy has consolidated the gains achieved in restoring macro-economic stability from the beginning of last fiscal year (FY2015). Inflation has continued to moderate steadily. Consumer price inflation (measured by the CPI-NS) has declined from 5.4 percent in February 2014 to 5.18 percent in February 2015. The WPI has been in negative territory for 12 months since November 2014 and is at (-) 0.91 percent in February 2016. Rural wage growth and minimum support price increases-important determinants of inflation-have remained muted. Similarly, the external position appears robust. The current account deficit has declined and is at comfortable levels (about 1.2 percent of GDP); foreign exchange reserves have risen to US$ 355.9 billion as on March 31, 2016 which seem ample, measured against conventional norms; net FDI inflows have grown from US$ 15.8 billion in H1 (April-September) 2014-15 to over US$ 17 billion in H1 2015-16 which is noteworthy against the background of uncertainty in other capital inflows; and finally, the nominal value of the rupee, measured against a basket of currencies has been steady or even strengthened. The rupee has gone from being one of the worst performing currencies—as a member of the fragile five-to one of the best performing currencies against the dollar this year. Industry review In India, real estate is the second largest employer after agriculture and is slated to grow at 30 per cent over the next decade. The real estate sector comprises four sub sectors - housing, retail, hospitality, and commercial. The growth of this sector is well complemented by the growth of the corporate environment and the demand for office space as well as urban and semi-urban accommodations. The construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. India's real estate market is expected to reach US$ 180 billion by 2020 from US$ 93.8 billion in 2014. The housing sector alone contributes 5-6 per cent to the country's Gross Domestic Product (GDP). Emergence of nuclear families, rapid urbanisation and rising household income are likely to remain the key drivers for growth in all spheres of real estate, including residential, commercial and retail. Real estate is currently the fourth-largest sector in the country in terms of Foreign Direct Investment (FDI) inflows. The Government of India has been supportive to the real estate sector. Below are some of the other major Government Initiatives: The Government has raised FDI limits for townships and settlement development projects to 100 per cent. 100% FDI is also permitted in real estate projects within the Special Economic Zone (SEZ). ¦ In Union Budget 2015-16, the government allocated US$ 3.72 billion for housing and urban development. Further, Finance Bill 2016 has exempted REITs from Dividend Distribution Tax (DDT). The Ministry of Housing and Urban Poverty Alleviation (HUPA) has commissioned a study by Indian Institute of Technology, Kanpur on testing of new construction technologies, with the objective of promoting new housing technologies in the country. In August 2015, the Union Cabinet approved 100 Smart City Projects in India. India's Hon'ble Prime Minister Mr Narendra Modi approved the launch of Housing for All by 2022. Under the Sardar Patel Urban Housing Mission, 30 million houses will be built in India by 2022, mostly for the economically weaker sections and low-income groups, through public-private-partnership (PPP) and interest subsidy. The Securities and Exchange Board of India (SEBI) has notified final regulations that will govern real estate investment trusts (REITs). Both Lok Sabha and Rajya Sabha have passed The Real Estate (Regulation and Development) Act 2016, the Bill which seeks to protect the interest of the home buyers by enhancing transparency. Mumbai Real Estate Mumbai real estate market has shown signs of improvement and increase in off-take of inventory. Further, customers have shown a clear brference to the developers with good track record of timely delivery, quality product and with sound financial stability. Good developers have seen regular demand throughout FY2015-16. Opportunities and challenges Opportunities As India awaits policy reforms to pick up speed, your Company firmly believes that the demand for Real Estate in a country like India should remain strong in the medium to long term. Your Company's well accepted brand, contemporary architecture, well designed projects in strategic locations, strong balance sheet and stable financial performance even in testing times make it a brferred choice for customers and shareholders. Your company is ideally placed to further strengthen its development potential by acquiring new land parcels. Challenges While the management of your Company is confident of creating and exploiting the opportunities, it also finds the following challenges: Unanticipated delays in project approvals Availability of accomplished and trained labour force Increased cost of manpower Rising cost of construction Growth in auxiliary infrastructure facilities Over regulated environment Company strengths Your Company continues to capitalize on the market opportunities by leveraging its key strengths. These include: 1. Brand Reputation: Enjoys higher recall and influences the buying decision of the customer. Strong customer connects further results in quicker conversions and higher realizations. 2. Execution: Possesses a successful track record of quality execution of projects with contemporary architecture. 3. Strong cash flows: Has built a business model that ensures continuous cash flows from its investment and development properties ensuring a steady cash flow even during the adverse business cycles. 4. Significant leveraging opportunity: Follows conservative debt practice coupled with enough cash balance which provides a significant leveraging opportunity for further expansions. 5. Outsourcing: Operates an outsourcing model of appointing globally renowned architects / contractors that allows scalability and emphasizes contemporary design and quality construction - a key factor of success. 6. Transparency: Follows a strong culture of corporate governance and ensures transparency and high levels of business ethics. 7. Highly qualified execution team: Employs experienced, capable and highly qualified design and project management teams who oversee and execute all aspects of project development. Key Developments in FY2016 Your company received an overwhelming response to the launch of Sky City at Borivali East. Three towers were launched on 30th October, 2015 and one more on 14th January, 2016. Till March 2016, your company has been able to generate an order book of Rs.1,700.76 crore, resulting from sale of 624,421 sq. ft of carpet area. Business overview Despite the subdued state of overall sector, your Company was able to sell nearly 802,833 sq.ft. carpet area in FY2016 as compared to approx. 610,958 sq.ft in FY2015. A brief description of the update across each project is given below: i) Oberoi Garden City (Goregaon) Oberoi Garden City is the flagship mixed-use development of your Company. It is an integrated development on approximately 83 acres of land in Goregaon (East), in the western suburbs of Mumbai, adjacent to the arterial Western Exbrss Highway and overlooking Aarey Milk Colony. The development is approximately eight kilometers from Mumbai's domestic airport and approximately five kilometres from the international airport. ii) Eternia and Enigma (Mulund - West) Your Company is developing two land parcels (adjacent to each other) of approximately 9 acres each situated at Mulund (West), Central suburbs, Mumbai, having a potential of developing approximately 1.9 million Sq. ft. of carpet area. The project comprises of two brmium high storey residential towers namely, Eternia and Enigma. The project site is situated on LBS Marg, overlooking Yeoor Hills and Borivali national park to the west and Eastern Exbrss Highway to the east. The project is your Company's first development in the eastern suburbs of Mumbai and it offers configurations in various sizes of 3 BHK and 4 BHK. The configuration sets the target audience to include Upper Middle class and NRIs. iii) Sky City (Borivali - East) Your company is developing 25 acre land parcel at Borivali East with an estimated total carpet area of about 3.4 million sq.ft. The project site is situated at Borivali East, Off Western Exbrss Highway overlooking Borivali National Park to the east. The surrounding infrastructure allows the site to be well connected to the rest of Mumbai iv) Prisma (Andheri - East) Your Company is developing Prisma, a residential building with an estimated total carpet area of about 174,633 sq. ft., which is a part of the ongoing projects within the Oberoi Splendor Complex. Prisma is conveniently located on the arterial Jogeshwari Vikhroli Link Road in the Western suburbs of Mumbai and overlooking Aarey Milk Colony. v) Three Sixty West (Worli) This is a joint venture to develop a mixed-use project in Worli, located on the arterial Annie Besant Road consisting of two high-rise towers; The Ritz-Carlton, Mumbai, a five star luxury hotel and a residential tower, by the name Three Sixty West, to be managed by The Ritz-Carlton. This development which aims to be a global icon for Mumbai will mark the entry of The Ritz-Carlton into India's financial capital. Strategically located in Worli, less than a kilometer from the prominent Bandra-Worli sea link, the development has been designed to be a luxury landmark adorning the Arabian Sea. Your Company is confident that this partnership will enable us to craft an iconic development. Human resources The objective of the human resources department at your Company is to "attract the best talent, build the employee capability and nurture the right culture to deliver on the business goals". This year the focus largely remained on strategic hiring, capability building through developmental programs and providing talent with an environment that fosters continuous learning, recognition, innovation, leadership development and employee well-being. The human resources function is the prime custodian of the culture at your Company. This year some key initiatives were undertaken with the above objectives in mind; namely: (1) gender sensitization workshops conducted for all employees (2) new Value 'I Connect' focusing on creating a culture of camaraderie, was adopted (3) new performance management system designed (4) 5 days working introduced for all employees along with an option of flexi working hours (5) fresh talent from campus on-boarded in departments like EPC, Sales, Finance and Human Resources. The other key highlights are as below: Hiring: Hiring is an extremely critical function at your Company. The hiring process not only aims for talent that is fit for the role but also someone who fits in the organization culture. Company's values and culture drive the characteristics that your Company seeks in from the prospective employees. Your Company has evolved into a multi-tier hiring process to assess compatibility level of an individual on the technical/ functional & cultural fit at an organizational level. With an intention of building the team for the new projects in pipeline, last year the employee hiring count touched 315. The closing headcount for the FY2015-16 was 1,022. Capability building & employee development: In your Company, there is a continuous focus on employee development. The employee development is primarily driven based on the developmental needs shared by the respective department head. Over the last year, 36 training programs were conducted for both technical & behavioral competencies. Performance management system: The focus of your Company is to build a performance and meritocracy based culture. Keeping this in view, your Company has redesigned the performance management process. Your Company has introduced a goals based performance management system to drive achievement orientation and ensures that meritorious performance is further recognized. The goals review will be done on a quarterly basis through a discussion between line manager & subordinates. This revised process will help in driving transparency and structure in the performance discussion between the line managers and subordinates. This will be implemented effective FY2016-17. Building progressive culture through forward looking policies: One of the key goals of your Company is to be one of the "Best Employers" thereby building a great organization which will last beyond an individual's lifetime. Keeping this in perspective, your Company has introduced a new policy of 5 day work week for all employees along with an option of flexi working hours. Your Company has also adopted a new Value "I Connect" in its values framework. This value focuses on the importance of connecting personally and seamlessly both within and outside the organization therein fostering an environment of Respect, Trust, Openness, Knowledge Sharing and Camaraderie. Also to encourage fun & camaraderie among the employees there are several team/ organizational success celebration, festivals & world events. Over 9 events, both fun & CSR were organized across the organization. This year as well, your Company continued to engage its employees with personalized health initiative through a tie up with a leading health service company. The program covers a series of regular health check with private consultations by doctors & dieticians, awareness seminars delivered by doctors, physiotherapy & yoga sessions. Prevention of sexual harassment of women at workplace (Prevention, Prohibition and Redressal) Act, 2013: Your Company has a zero tolerance for sexual harassment at its workplace and has adopted a policy on brvention, prohibition and redressal of sexual harassment at the workplace in line with the provisions of the sexual harassment of women at workplace (Prevention, Prohibition and Redressal) Act, 2013 and the rules there under for brvention and redressal of complaints of sexual harassment at workplace. Last year gender sensitization workshops covering all employees across the organization were conducted. Further, there were focused training sessions for the leadership team and the internal complaints committee. During the last year, no complaints on sexual harassment have been received by your Company. Risks and concerns Market price fluctuation The performance of your Company may be affected by the sales and rental realizations of its projects. These prices are driven by brvailing market conditions, the nature and location of the projects, and other factors such as brand and reputation and the design of the projects. Your Company follows a prudent business model and tries to ensure steady cash flow even during adverse pricing scenario. Sales volume The volume of bookings depends on the ability to design projects that will meet customer brferences, getting various approvals in time, general market factors, project launch and customer trust in entering into sale agreements well in advance of receiving possession of the projects. Your Company sells its projects in phases from the time it launches the project, based on the type and scale of the project and depending on market conditions. Execution Execution depends on several factors which include labour availability, raw material prices, receipt of approvals and regulatory clearances, access to utilities such as electricity and water, weather conditions and the absence of contingencies such as litigation. Your Company manages the adversities with cautious approach, meticulous planning and by engaging established and reputed contractors. As your Company imports various materials, at times execution is also dependent upon timely shipment and clearance of the material. Rental realizations The rental realizations on the space leased depends upon the project location, design, tenant mix (this is relevant in the case of shopping malls), brvailing economic conditions and competition. Your Company has set up its retail property in prime location and maintains a fresh ambience resulting in crowd pull and attracting first time kind of retailers. As far as the office space rentals are concerned, the same depends on demand and supply, general economic conditions, business confidence and competition. Land / Development rights - costs and availability The cost of land forms a substantial part of the project cost, particularly in Mumbai. It includes amounts paid for freehold rights, leasehold rights, fungible FSI, construction cost of area given to landlords in consideration for development rights, registration and stamp duty. Your Company acquires land / land development rights from the government and private parties. It ensures that the consideration paid for the land is as per the brvailing market conditions, reasonable and market timed. Your Company also enters into MOUs and makes advances for the land / land development rights prior to entering into definitive agreements. The ensuing negotiations may result in either a transaction for the acquisition of the land / land development rights or the Company getting a refund of the moneys advanced. Financing costs The acquisition of land and development rights needs substantial capital outflow. Inadequate funding resources and high interest costs may impact regular business and operations. Your Company has always tried to build sufficient reserves resulting out of operating cash flows to take advantage of any land acquisition or development opportunity. Outlook In FY2015-16, Indian real estate sector witnessed regulatory changes that included relaxing of foreign direct investment laws and the Union Cabinet approving the much awaited The Real Estate (Regulation and Development) Act, 2016. There are mixed reactions from realty experts on the regulatory changes for the real estate sector, but broadly everyone sees it as a positive move for the real estate sector. Further the rate cut of 50 basis points by the RBI in its September 2015 and 25 basis points in April 2016 monetary policy review and the seventh pay Commission released by the government panel will give a boost to the real estate sector in terms of increased demand. The Company believes that the year 2016-17 has begun on a positive note for the sector and may witness a pick-up in sales with an improvement in the off-take of unsold inventories. High demand for ready-to-move in projects and increased focus on project completion will set the contours for the realty sector outlook in 2016-17. Focus on Mumbai and beyond We shall continue to explore development opportunities in and around Mumbai and also explore hubs in the nearby regions on a case by case basis. Your Company is actively scouting for land parcels in NCR and Bangalore among other metro cities. Strengthen relationships with key service providers and develop multiple vendors. In order to continue delivering landmark offerings to our customer, we shall further strengthen our relationship with our key service providers, i.e. architects, designer and contractors. Your Company is also working on strategy to develop more and more vendors who can deliver product and services in line with Company's philosophy and product offerings. Internal Control Systems The Company has also focused on upgrading the IT infrastructure - both in terms of hardware and software. In addition to the existing ERP platform, the Company is brsently reviewing the process documentation to ensure effectiveness of the controls in all the critical functional areas of the Company. Cautionary Statement This management discussion and analysis may contain forward looking statements that reflects your Company's current views with respect to future events and financial performance. The actual results may differ materially from those anticipated in the forward looking statements as a result of many factors |