Ladies and gentlemen, good day, and welcome to the Q1 FY 2023 earnings conference call of Macrotech Developers Limited, hosted by Antique Stock Broking. As a reminder, all participants' lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Biplab Debbarma from Antique Limited. Thank you, and over to you, sir.
Thank you, Jacob. Good afternoon, everyone, and welcome to the Q1 FY 2023 earnings call of Macrotech Developers Limited, hosted by Antique Stock Broking. Today, we have with us the management of Macrotech Developers, presented by Mr. Abhishek Lodha, Managing Director and CEO, Mr. Sushil Kumar Modi, CFO, Mr. Gautam Jain, CEO, Pune, and Mr. Anand Kumar, Head IR. Without further ado, let me hand over the call to Mr. Lodha. Over to you, sir.
Thank you, Biplab. Good afternoon, everybody. Thank you for joining us once again for our earnings call. I hope all of you, your families and loved ones are well. To start, let me speak a little bit about the broader macroeconomic situation, both globally as well as in India. The first quarter of the year continued to present significant challenges as geopolitical conflicts continued to drive oil prices up, which poses the biggest danger to India's resilient economy. Events over the last few quarters have resulted in inflation surging to high levels for almost all economies around the world, causing central banks to be in a race to raise interest rates.
As fears of high inflation resulting in sharply rising interest rates started giving way to fears of recession in the U.S. and a sharp slowdown elsewhere, most of the commodities have given up significant gains, but oil prices still remain higher than they were in January. The situation continues to have various risks and unpredictabilities ahead of it. For the housing sector specifically, the two largest economies, China and the U.S., face problems of different natures with similar outcomes of impact on the housing market. The USA saw a sharp increase in mortgage rates and refinance rates resulting in housing activity slowing down, while the various problems in the Chinese real estate market threaten to result in a very significant impact on its economy.
You will, however, appreciate that housing is a very local market, and the Indian housing market did not benefit from the significant boom that the rest of the world experienced between 2015 and 2020. We are now at the start of a very different cycle in India, and we have highlighted the drivers in our previous calls, where we believe that the housing market in India is at the start of a long, sustainable upcycle, lasting for a significant period of time, as long as 10-15 years. That is reflected in our results over the last few quarters. In India, in the last quarter, like the rest of the world, the RBI raised interest rates sharply, but the increased mortgage rates, to a certain extent, have had a very limited impact on the EMIs for the borrower, EMIs being the monthly mortgage payments.
As a matter of fact, Lodha brought in a program wherein our purchasers have a fixed interest rate of 6.99% for the next two years, which helps in significantly cushioning the impact for a middle-class housing buyer, especially in affordable and mid-income housing, which are significant drivers of growth in India and specifically for us. This will have no significant impact on our operating metrics. As it is, increasing raw material costs too had little impact on our overall costs. Thankfully, input prices like steel have already started reducing over this last quarter, and inflation has started moderating in terms of construction cost.
To a great extent, the increase in costs is taken care of by the modest increase in house prices, which we aspire to keep below the salary growth levels in order to ensure that affordability remains high and increases further, and that in turn increases volume. Thus, inflation in turn might be creating a positive cycle for us as waiting buyers see the modest increase in prices and start buying homes at an earlier point. The strong drivers of housing growth cycle, as we have explained, enable us to maintain great momentum during the quarter, and we have been able to deliver 75% of our targeted growth guidance for the entire year in the first quarter itself, and we remain very confident about achieving our targets for the year.
Collections remained on track and strong cash flows enabled us to reduce debt by just under INR 500 crores, and we continue to focus on reducing our net debt to below INR 6,000 crores by the end of this fiscal. We continued with our asset-light model of growth through the JDA route, adding three new projects worth a GDV of INR 6,200 crores, which puts us well on track to achieve our guidance for the full year of adding projects worth INR 15,000 crores of GDV.
We launched about 2.7 million sq ft in the first quarter, and we expect to further launch about 8.5 million sq ft for the rest of the year, which will give a strong pipeline for the coming fiscals too. The potential to sign more new JDA projects continues to show great potential, and we will continue to follow the asset-light high return JDA model over the next 12-18 months in order to increase our ROEs and enable us to grow into the geographic locations where we currently don't have presence while simultaneously keeping our debt at a very conservative level and meeting the guidance that we have given, which is to keep our net debt at or below one year of operating cash flow.
Our digital infrastructure business continues to demonstrate the potential of creating significant recurring annuity income. As you are aware, we have already repaid a vast majority of the debt taken for our U.K. business, the USD bond taken for our USD business, and the rest should also be paid very soon, well ahead of maturity. The repatriation of the surplus back to India should be starting within this fiscal itself, bringing an end to the investment that we have made outside India and enabling us to fully focus on the growth within India, which we are extremely excited about. I also want to highlight two important developments that happened during this quarter.
As I mentioned in the last call, we were evaluating entry into the Bengaluru housing market and had promised a decision to either enter or stop this investigation during the course of this quarter. After careful evaluation lasting almost nine months, we have decided to enter the Bengaluru housing market and have signed our first JDA on the same lines as we have done in Mumbai and Pune with attractive return profile and strong cash flows. The attractiveness of the Bengaluru market was well highlighted in the release we made at the time of the entry, and we will continue to provide updates on this in due course, including an introduction to the CEO of the business over the next couple of quarters.
The Bengaluru market, I reiterate, does not alter the elements of our guidance for fiscal 2022, fiscal 2023 in any manner, and we continue to focus on meeting and keeping our net debt at or below 1x operating cash flow. Secondly, with full confidence that our cash flows are sufficient to meet our debt guidance, we have updated our dividend policy from this fiscal and expect to start distributing our dividend two fiscals for the year ending fiscal 2023. This is a reflection of the strong underlying cash flow generation of the company and will enable our shareholders to be rewarded not just by appreciation in the value of the share price, but also by recurring cash flow coming from the operations of the company.
Finally, as we have done in previous conference calls, we would like to continue introducing our management team to you so that you can assess the great depth of management skill that we have in the company, which underlines and underpins the strong growth and performance as well as future potential of the company. Today, we are going to have Mr. Tikam Jain, who has been with the company for more than 15 years, earlier as head of our procurement function, and over the last years, he has taken on the important responsibility as CEO of growing the business in the Pune region. I now request Mr. Tikam Jain to join the call and thereafter, Sushil Modi, our CFO, and myself are available to answer any questions that you may have. Mr. Jain, over to you.
Thank you, Abhishek, and welcome to all the participants. I've taken over charge of CEO last year, and my tenure in the company is more than 17 years. It is a challenging job I've taken, and I'm very confident that I will see that the Pune market grow very well. Our presence in Pune is more than a decade through our one of the Belmondo project, which is giving us the revenue of INR 250 crores-INR 300 crores every year. In the expansion, we have entered joint venture development at NIBM Road, where we named this project as Lodha Bella Vita, which is around 1.6 million sq ft and where we have the typology of two BHK, three BHK, three BHK with study, four BHK. Sales are very nice, very good in this.
In the last 10 months, we could achieve INR 450 crore of sales, which is more than the 60% of the launched inventory. We have also increased the rate, selling price in this last quarter, 3%-5%. We have another JDA, which is in the Hinjewadi, which is the GDV having around INR 2,600 crores, and we have a 75% share. Based on the encouragement from the NIBM, a lot of landowners are approaching us, and they want to do the joint ventures. We are also very aggressive, and hopefully, we will enter into some of the JDs this year only. For executing a good business, we require a good team also. We could able to achieve a formation of the good team over there.
We have reached around 200 people where proper CEO, COO, city head, sales head, marketing head, and BD person is also there. Pune market, real estate market is INR 35,000 crore-INR 40,000 crore. Right now we are at 3%-5% of the Pune market, and we aspire for more than 10% market in coming two, three years. We are very aggressive in Pune, very enthusiastic for the Pune market. We want to cover the all micro market as a strategy. We want to have our presence in all the markets, whether it is north, east, south, west. The ultimate goal is to achieve the 15%-20% real estate market of Pune. I hope, we will achieve this. We have achieved a lot in past, and hopefully in Pune we'll definitely achieve it. Thank you.
With this, potentially we can get into the Q&A. We will be, you know, very happy to take the questions that you would have or any clarifications that you might be desiring around our performance.
Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Kunal Tayal with Bank of America. Thank you. You may proceed.
Sure. Thank you. Abhishek, my first question is, it's great to see enhanced launch plans for fiscal 2023, but given that your bookings outlook is unchanged, does it mean that you are anticipating a lower conversion here, or is there a different dynamic at play?
Hi, Kunal. Good question. I think as you're aware, you know, the overall launch pipeline is also reflected in the funnel. It also reflects in sales depending on the timeline of the launch. Given the overall outlook for launches this year, we believe that this launch pipeline will contribute to achieving the sales outlook for fiscal 2024. For fiscal 2023, we believe that the launch pipeline should lead to a similar level of sales as we have guided to. We do not and have not seen any reduction in conversion rates. It just is a matter of the timing of the various quarters and when these launches will come to bear.
Got that. My second question is around the dividend policy. Obviously, great to see something formalized here. You know, just curious that given we are also headed into maybe a softer environment on the macro, what were the puts and takes between choosing for a dividend policy as against letting cash accrue on books?
Kunal, I'm sure you're aware, the company's underlying operating cash flow generation is quite strong. We'll be generating somewhere close to INR 6,000 crore of operating cash this fiscal. Consequently, we expect our net debt to be down to approximately INR 6,000 crore also by the end of this fiscal. In that context, this year, if you look at the utilization of INR 6,000 crore, we will be using almost INR 3,000 crore for debt reduction, while the balance being used towards growth as well as interest payments.
Now, if you look at it for the next fiscal, we are guiding to a situation of 15%-20% of the PAT being used for dividend distribution, which number will be given where we are for fiscal 2023, somewhere between INR 250-INR 300 crores of dividend distribution quantum for fiscal 2023. Given the fact that we are not looking at any significant further reduction in debt at that point in time, the dividend distribution is an indication of the company's belief and of the strength in our operating cash flows.
Yet you will notice that even if we were to maintain a modest increase in operating cash flow for fiscal 2024, the surplus available after growth and interest payments will be very, very substantial, and there will be significant amounts of cash accruing to the books of the company after the payout of the dividends.
Kunal, just to add, you know, nonetheless, point being taken that, you know, this is a subject that one would keep, you know, visiting from time to time. The growth at that point will definitely be kept as a precedent. Depending upon the environment, if the need be, then to that extent, in any case, dividend percentages can be suitably will be deliberated at the board. Based on the board guidance, whatever kind of board feels taking into account both micro, macro environment, one would judiciously kind, you know, get to the final number that we distribute, that we decide to distribute.
Yeah, makes sense. All right. Thanks a lot.
Thank you. The next question is from the line of Pritesh Sheth from Motilal Oswal. Please go ahead.
Based on the base set of numbers. First, just a follow-up on dividend again. My view is little different. I mean, INR 250 crore-INR 300 crore potentially this year and maybe two to three years down the line, which is 15%-20% of consolidated PAT cap that we have right now. Currently, we would be at around INR 500 crore. I think the visibility of cash flows that we have, wouldn't the dividend have been more from. I mean, what we have guided for, I mean, what we are capping it for.
As you said, you know, this one, there is no right or wrong answer to. I think from the company's perspective, the intent is to showcase the fact that the company's operating cash flow is now at a point, and its capital structure and debt equity positions are at a point where we feel very comfortable. The company's growth plans, which we have augmented significantly as you have seen over the last four, five quarters, are well- supported by the operating cash flow of the company. Therefore, now we are in a position where the company shareholders can be rewarded through regular distribution of dividend. As Sushil mentioned, all factors, macroeconomic performance, etc , are always going to be taken into account by the board as we look at the dividend distribution.
As you would have noticed, the company prefers to be modest and conservative in terms of its outlook and guidance, and therefore, we believe the 15%-20% range on the dividend distribution is the right metric to be considering at this stage. The board has taken that view after a lot of deliberation. Obviously, we will be open to, you know, not only reviewing it from the perspective of the macroeconomic as well as our performance factors, but over two to three years, we will of course take into account how the business of the company evolves and what else we can do to make sure that our shareholders are having the best utilization of the capital that their company is generating.
Absolutely. I mean, that's what I wanted to know, whether there is a scope of revision in this 15%-20%, and you've answered that. My second question, since Mr. Tikam is here, on Pune. I think we have started this exercise of, you know, JDA additions since last 15 months, and we have progressed particularly well in, you know, our core market, which is Mumbai, but not so in Pune. We have had, you know, couple of project additions obviously. That's good. But how is the visibility from here on, in terms of project additions? And you know, to start with, what are the core markets that we are looking at?
Probably what we understand from here is, you know, western Pune market, which is the Chinchwad belt, and which also includes Hinjewadi, where we have had our first project addition, is kind of picking up well, both in terms of demand and supply that is coming in. What's the outlook on the other micro markets in Pune and potential of adding projects in those markets?
As I told you in my just introduction that we want to cover the entire Pune, not as a particular market. We are looking for spread into all the areas of Pune where you know we can create a lot of inventory in all the areas. That is the whole strategy, basically.
I think, you know, the point being that, as you know, Pritesh, our strategy is more micro-market focused. Thereby meaning we are not kind of. While we speak, we are looking into all the markets in parallel, in tandem, and kind of trying to consummate the transactions one after the other. Obviously, as you would appreciate, this is a journey, and it will have its own. You know, it will take its own time. But just seeing what we have achieved in last six, seven months, potentially you would appreciate that, this is pretty significant because in last 10 months, we got to the new project itself has given us sales of has become the indicator initially, around INR 450-odd crores.
That means the Pune market itself potentially may contribute to our overall top line this year is kind of 10%+ in this year itself. With hopefully some of further launches around the new tie-up that we do. One being, as you know, we have announced with this quarterly result itself in Hinjewadi.
If I may add to that, you know, our strategy in any market is first driven by the focus on generating good profitability and good ROEs. We are always balancing that with the desire to grow. Therefore, what you expect from us in any new market is steady growth, focused on profitability, focused on ROE. In Pune, our trajectory is exactly that. The growth is coming. The partners see performance. The partners want to see execution.
The partners want to see how we deal with the JDA partners, and that in turn creates momentum and positivity. You will see over the next three quarters, four quarters that Pune market will also start, you know, showing good business development, i.e. land, JDA partnership projects coming through. Always our focus being on gradual growth, which is profitable as well as good on ROEs.
Sure about it. One last question on the INR 300 crore of digital infrastructure sale that we had in this quarter. What are the contours to it? I mean, is the 110-acre Palava land that we transferred to the platform also part of that sale?
Sushil, do you want to take that?
The dominant part of the sale is what has been put into this platform, which is effectively our contribution to the platform also gets taken care beyond the cash flow that we generate. Obviously, our share being 1/3, so 2/3 becomes the incremental cash to me in the process.
Got it. For 110 acres, we need to take 2/3 of the sale into our consideration, right? That's how we look at it.
At the approximate consideration.
Sorry. Consideration will be 100%. Against that, we would have our share of investment that goes as an outgo because from a bookkeeping standpoint, it's 100% gets realized first.
Okay. I was actually particularly concerned about the value that we have had. I mean, from 110 acres to close to INR 300 crore sales. So realizations are somewhere around INR 3 crore per acre, and we were already at, you know, a round INR 4 crore per acre. So is my math right or, you know, there's some difference to it?
No, that is not incorrect. The land value at which the land has been sold to the platform is approximately about INR 3 crore an acre. So total consideration is a little north of INR 300 crore, somewhere close to INR 350 crore. The fact is that as we have a wide variety of different users and mixes that we use for the lands in Palava, we have used, you know, land for these large-scale platforms, which we have done with Morgan Stanley earlier with ESR and now with Bain Capital and Ivanhoé Cambridge. We do land which is sold to direct users, which we have done with various operators.
We have, you know, land which is sold to players who are actually bringing in different kinds of asset classes like training. Like a bank has set up a training center. A pharma company is setting up its R&D unit. A hospital chain is setting up a large-scale hospital and so on. Depending on the size of the transaction, the pricing can move north or south, and also depending on the restriction on use because we also put restriction on the use in order to encourage a diversity of economic activity at Palava. The land values are linked to both these factors.
On average, the land value realization continues to be north of INR 4 crore an acre, INR 4 crore an acre when you look at it for the full fiscal. This quarter, obviously, because there was a single large transaction in the industrial and logistics park category of use, the average realization is slightly lower, but generally we are north of INR 4 crore.
Okay, got it. Thanks for clarification. That's it from my side and all the best.
Thank you.
Thank you. The next question is from the line of Sameer Baisiwala with Morgan Stanley. Please go ahead.
Yeah, thank you and good evening, everyone. The first question is, what's the total repatriation potential from London?
Hi, Sameer. Sameer, as we have guided, in the past, that amount will be approximately, in the range of INR 1,500 crores, of total repatriation from the U.K. back to India, in fiscal 2020, partly in fiscal 2023 and partly in fiscal 2024.
Okay, great. The second question is, you know, over the last few months, you know, a lot of companies have reported or projects have reported strong sales in South Central Mumbai. Just wanted to check how do you think Park and World Towers are doing and the outlook on these?
Sameer, I'll request Sushil to share the, you know, the detailed performance, but we continue to see that our market share in South Central Mumbai continues to remain very strong. Generally, the demand is more focused on projects which are high quality and given Lodha's projects and the delivery that we have done, and if you have visited and some of the others on the call have visited, clearly both Park and World Towers are the most sought after projects when it comes to that price ticket. The price bucket of, you know, INR 5 crores-INR 10 crores in South and Central Mumbai. We continue to see very good both walk-ins as well as good conversion levels in the projects.
As we sort of, you know, we move forward, we continue to see that South Central Mumbai is a good market when it comes to sales momentum.
Sameer, we recorded new sales of around INR 300-odd crore in this quarter, and the World Towers, the new sales were in the handle of around INR 200-odd crore. Kind of pretty much in line with what we were seeing the last year, last financial year. I think the strength of both the projects continues to be appreciated and continues seeing the momentum.
Yeah. Thanks, Vishal. What's the expectation that your quarterly sell down would be, say, INR 500 crore per quarter, or is it going to be any different?
Sameer, we'll have to take into account the seasonality. As you well know, real estate sales are quite tilted towards the second half of the year, and especially in South Central Mumbai, you know, the first half gets affected by vacations as well as then there is a sharp period which comes in in late September. We expect that the first quarter is generally, you know, I would say from a ranking of performance, it's the third best quarter of the year, with Q2 being the worst quarter of the year. We expect that, you know, sales momentum in South Central Mumbai will only increase, and we surpassing our last year sales performance for sites for South Central Mumbai in this fiscal.
Okay, great. Thanks. The final question I have is on the cash flow from operations. Is it fair to say that, you know, right now we are, you know, getting a pretty good helping hand from the finished inventory, but as you go forward, you know, next few quarters ahead, you know, our collections will drop, I mean, as a percentage of pre-sales, and the construction costs will go up. You know, so just your thoughts on how would cash from operations pan out going forward?
I mean, we for the full year guided to cash flow from operations of about INR 6,000 crores, of which INR 1,350 crores were generated in Q1. We are of the view that the cycle on construction as well as cash inflow has been well seen in our company over the last seven to eight years. You will notice on a consistent basis that our collections tend to be in line with our sales or often, you know, slightly higher than the sales number that we report also. We see no drop in that ratio of collections to sales. There may be quarterly variation, but generally there is not going to be any change in that ratio that we are collecting compared to the sales that we have.
Therefore, you know, you notice that this quarter, in spite of adding INR 6,200 crores of new GDV, our debt has gone down by about INR 450 crores, which is really a reflection of, you know, A, the strength of the operating cash flow, and B, the ability of the company to utilize the cash flow both for debt reduction as well as for growth. We maintain our full year guidance of generating approximately INR 6,000 crores of operating cash.
Yeah. Thanks for that, Vishal. My question was actually going beyond fiscal 2023, because you will continue to get the benefit of, you know, finished inventory on your book for some time. I'm just looking out, say two to three years that, you know, you are right now in a bit of a sweet spot is all that I just wanted to check on.
Sameer, I guess, you know, we are happy to share with you our operating cash projections for the medium term also, which is beyond fiscal 2023. We do believe that ours is a cycle. As you will notice, we are, you know, sitting on INR 7,000 crore-INR 9,000 crores of ready inventory even today. That number, you know, we keep selling that down and it keeps getting added because our construction at various projects is at various stages. We believe it isn't given the scale of our operations and the quantum of throughput that we produce. I'm sure you will notice that, you know, we'll deliver just over close to 12,000 units this fiscal.
With that kind of scale of operations, it isn't that any one building or any one project leads to an outsized impact on the operating cash flow at any one point in time. It just is that there is a significant number of projects at different stages at all points in time. We're very happy to walk you through our operating cash flow projections for the next three years. Anand will connect with you to take that forward, if you'd like.
That's fair enough. Yeah.
Just to add, considering that, you know, our continued growth trajectory, what we would see as we envisage that kind of INR 6,000 crore of an operating cash flow that potentially we have projected for this year becomes kind of, if I may say so, a floor going forward too. Because as you know, our business in any case runs on a bit of a negative working capital cycle. Thereby meaning even with the intensity of higher construction costs, with the increase in the pre-sales number, the collection will keep improving equally, and thereby the operating cash flow intensity will continue to kind of, you know, improve beyond what we have forecasted this year.
Okay.
For sure would not see any downward trajectory in terms of the operating cash flow strength.
Okay. Got it. Thank you.
Yeah.
Thank you. The next question is from the line of Kunal Lakhan with CLSA. Please go ahead.
Yeah. Hi, good evening. Abhishek, we plan to start paying dividends from next year. You also said earlier that, you know, company's growth plans can be supported by the operating cash flow. I just wanted to understand how are you looking at reducing the promoter stake to the prescribed limits? Would you look at raising equity and, you know, diluting the shareholding? Or would the promoters look at selling down the stake?
Hi, Kunal. I think, Kunal, you've answered the question within your preface itself. Given the fact that the company's operating cash flows are quite strong and the company is, in fact, moving towards payout of dividend, there is very limited need for the company to raise primary capital. Therefore, the dilution of the rest of the promoter stake, which we are still, you know, 20 months away from the timeline to achieve it. Most of the sell-down of the promoter stake will have to be secondary sale.
Given that the company has a very high focus on achieving an ROE of close to 20% over the next three years, it would not be prudent for the company to raise primary capital further. This is our current assessment, and therefore it will largely be through secondary sale.
Sure. Thanks for that clarification. Secondly, on the ESG spend, right, we have earmarked about $500 million over the next five to seven years. Any analysis we have done on what will be the ROI of this spend or what could be the cost savings due to such a spend?
Kunal, the spend that has been highlighted when we did our recent announcement of the accelerator for sustainable urban development in partnership with globally renowned Rocky Mountain Institute is a reflection of our company's commitment to becoming a global leader in the ESG space, and specifically setting a benchmark when it comes to sustainable development of housing and real estate in general. The accelerator at Palava will enable global solutions to be tested live in a real- world environment in India, and therefore be rapidly accelerated for implementation in India, not just in Lodha projects, but we intend to have that information freely available for all stakeholders so that, you know, as fast as possible, India can move towards this climate change goals.
In terms of that investment, that investment is inherent and not additional to our planned spend on our projects. As you are well aware, we have been focused on sustainable development for a very long period of time. Therefore, as you would have noticed in our various investor and quarterly updates, the actions around making a minimum negative impact on the environment and making a positive impact are inherent to what we build and design. Therefore, these investments are already part of our standard costs that we incur for our projects, and therefore our underlying profitability and ROE parameters already reflect these costs. It's just that over the next few years, as we scale up, the quantum of spend towards this initiative also scales up in ratio of the growth in the company.
As India's largest housing developer and one where we see we can deliver sustainable growth of 20% or higher for the medium term, we expect that doing this in a manner where ESG continues to remain high focus is the right thing for us to be doing as a company. There isn't any change on our underlying profitability or ROE, but we believe that by doing so, we will set a very high standard and benchmark for India as well as globally and make our contribution as a responsible corporate citizen.
Sure. Thanks again for the clarification. My last question was on the Bangalore market. Look, Bangalore has been a quite organized market with a lot of reputed developers. So what will be a strategy here, you know, in terms of penetrating this market? Because we have tried some of your peers entering that market, and you know, not doing much over the past few years. How are we approaching this market? Do you think, you know, the kind of success that we are seeing, say, in Pune market today, we'll be able to replicate that in Bangalore as well?
We feel very confident about the fact that our entry into Bangalore is a strategic choice we have made, and we have made it with after careful deliberation on what it is likely to do for us as a company. As we have mentioned in our release, our focus will be on gradual growth, again, focusing on underlying profitability and good ROEs. We are doing so by investing in our team, building a strong team so that we can deliver these outcomes. Where do we differentiate ourselves is in our product quality. As you will notice also in a very competitive market like Mumbai, Lodha's product design, product delivery, service quality, it stands out. We are seeing the same in Pune, and we expect to do the same in Bangalore too.
Yes, Bangalore is a good market with good developers, but ultimately the share of the top five players is only around 30%. We respect those players, but at the same time we believe we have certain skills, knowledge, global learnings and capabilities which we'll be able to bring to that market and raise the overall standard in that market, too. As I mentioned, do so in a gradual manner, focusing on underlying profitability.
The next question is from the line of Abhinav Sinha with Jefferies. Please go ahead.
Hi, sir. Thanks for taking the question, and congratulations on those set of numbers. My question is on the cost and pricing front. On the construction cost, the labor component, which is the largest, is still not moving despite the large inflationary pressures we are seeing broadly. I mean, does it worry you that this will start moving up in the next half of the year? Secondly, can you also update us a bit on how the pricing has behaved, you know, in some of your key micro markets on a Q-over-Q basis in Mumbai? Thank you.
We can repeat your board.
Hello?
Hello.
Yeah. Yeah, sorry, the line. I think there was some disturbance. Would you please mind just repeating that question?
Yeah, sure. Question on if the labor component where the cost hasn't really moved over the last, you know, several quarters, but there is a lot of inflation and, you know, this can start moving. Does it worry you towards the later half of the year? Secondly, on pricing in the various micro markets and how it can change, and you know, what you've basically seen there in the last three odd months.
Sure. Both very good questions. Thank you. In terms of the overall mix of inflation, you know, we believe that the labor market inflation over the last two years, and it's not just the last 12, 15 months, is reflective of the fact that in India, construction is an attractive sector for those who are moving from the farm to the urban areas. Therefore, the labor cost inflation in construction continues to remain moderate. I think that's not likely to change very quickly. We aren't unduly concerned of any sudden spike in underlying inflation of labor costs.
Generally, you know, I think given where the commodity cycle is, where the global macro picture is in terms of demand in the developed economies, we feel that also there will be some moderation going forward in some of the components, non-labor components of construction costs. Therefore, we are sanguine about the overall construction cost inflation going forward. As we've explained in our quarterly presentation, the annualized rate right now is running at about 9%, and this takes into account the period from 1st April , 2021. All the impact of the last 15 months, which has been as globally quite an inflationary period. And the impact of that 9% growth in, you know, inflation is translates into about a 2% increase in our cost of goods sold.
Overall, the risk of inflation to housing profitability in India is quite moderate and very different from most of the other markets, where the ratio of construction cost to sales price, as well as the labor cost inflation are very high. As I noted in my opening remarks, every housing market is very different, and I think India's housing market, both from the demand side, as well as from the supply consolidation side, and also on the inflation side, is very different from some of the other markets that are followed globally, and it's quite well poised. In terms of price growth, what we saw in the first quarter is average price growth of between 1.5%-2%. This is quarter-on-quarter, averaging about 1.7% across our portfolio.
This is in line with our guidance that we expect to see 6%-7% annualized price growth for this fiscal, and which will be below wage growth, and therefore, in our opinion, will keep affordability high and keep volumes growing. We saw in the first quarter of this year that as there is modest price growth, volumes have also grown quite significantly for the industry, which is a very heartening sign, and tells us that the price growth is actually a positive for the industry and can be supported going forward.
Thanks, Abhishek. Glad for you.
Thank you. The next question is from the line of Alpesh Thakkar with Antique Stock Broking. Please go ahead.
Thank you for taking my question, sir. Just couple of questions. First one is like, you know, more from the strategy perspective. By that I mean, you know, since you started doing this asset-light strategy and you're mostly focused on the JDA, you know, type of business model. Few of our peers, you know, they moved away from JDA to JV. So, is there any, you know, a thought or strategy behind that JDA model is more beneficial or more profitable for us, or any thought on that? And why not JV model?
Thank you for your question. It's an interesting question. Typically the question that is asked is why not outright versus, you know, a capital light model. Both JDA and JV are examples of modalities of doing capital light model. Given the fact that we like to do all our business within MDL's full control, end-to-end control when it comes to design, construction, sales, and so on, we find that the JDA model has very clear demarcation of responsibilities between the landowner, whose job is to get the land and get the approvals, and the rest of the responsibilities are clearly with Macrotech. We find that the JDA model is much clearer.
Having said that, I think, you know, the balance between outright and JDA, and JDAs is important for our business because JDAs have higher ROEs and moderate profitability. Outright have higher profitabilities and moderate ROEs. The combination of both of these will allow us to, you know, generate our 20% top line growth with ROEs approaching 20%. Therefore, we have no particular view on why not JVs, but we like the JDA model because it is clearer on responsibilities.
Got it. Got it. That's very helpful. Just second question more from, you know, Pune and Bangalore. What is the team size in Pune and Bangalore? And what would be the team size, you know, because we have recently got into Bangalore and Pune. We have a decent presence. What would be team size there?
I'll answer on Bangalore, and I'll ask Mr. Tikam Jain to respond on Pune since he himself is present on the call. Bangalore, we are currently about 20 people in Bangalore, and we will grow in line with our growth in our projects. Currently a modest size team in Bangalore. Mr. Jain, if you can give an overview of the team in Pune, please.
We are right now more than 150 people, and we are continuously on the recruiting process. By end of this financial year, we want to reach around 250 people. That is the overall team size we estimate.
Cool, cool. Thanks a lot. Thanks for taking my question and all the best.
Thank you. The next question is from the line of Mohit Agrawal with IIFL. Please go ahead.
Yeah, thanks for the opportunity. My first question is again on the Bangalore market. Typically Bangalore projects we see, you know, have a different margin profile versus Mumbai. What is the kind of margins we will see in Bangalore projects? You've clarified for the Mumbai projects it's going to be around 18% at the PBT level. If you clarify that, and again, you know, what kind of IRRs also from the overall projects in Bangalore that we see. That's the first part of the question. Secondly, you know, you've also mentioned about 15% market share in Bangalore over time. That's like almost, you know, INR 6,000 crores of annual sales and like 8 million-10 million sq ft of sales.
What kind of timeline are you giving yourselves in terms of reaching that target of 15%?
In terms of, you know, as we have said repeatedly, our entry into Bangalore is strategic, and the growth will be gradual. Our goals for achieving that kind of market share are over a moderate period of time. We expect to get to 10% market share in five years, and then grow to 15% thereafter. It's a very gradual increase. You can almost count, you know, 2%-3% share coming to us every year. So it's no dramatic investment or no dramatic, you know, presence in Bangalore. It will be gradually increased. The idea being that between Bangalore, Pune and Mumbai, that is almost 2/3 of the value in the top seven Indian cities.
By serving these three markets, we have access to markets which are currently worth almost INR 175,000 crore, and over the next three years, will grow to almost INR 225,000 crore in terms of value. Therefore, Lodha's growth trajectory from here onwards, we close fiscal 2022 with a base of INR 9,000 crore of sales. We feel quite good that given that scale of market that we are serving, we can maintain consistent top line growth of 20% or thereabout, and do that in a prudent, profitable manner.
Sure. What about the IRRs and margins there?
I think, you know, IRRs for our business continue to be driven by the acquisition model. As we have guided in the past, overall, we are aiming to have JDAs typically have IRRs, which are, you know, close to 40% or higher, and that is no different for Bangalore. In terms of margins, Mumbai margins are about 200 basis points higher on the JDA model, compared to Pune and Bangalore. Pune and Bangalore, PBT margins tend to be modestly lower. You know, Mumbai will do between 18% and 20% on the JDAs, when it comes to PBT levels, and Bangalore and Pune will do between 16%-18% when it comes to PBT levels, on the JDAs. Outright projects of course tend to have higher profitability.
For the next 12-18 months our focus is largely on JDAs. Outside Bombay, we, which is Pune and Bangalore, till we build up substantial capability and substantial success, our focus will continue to be on the light model, capital light and risk light model of JDAs.
Okay, understood. One more question is, you know, on your digital vertical. So you have given a target, I guess of INR 600-INR 700 crores annually, annual sales. Now, with this joint venture with Bain Capital and Ivanhoé Cambridge, does that target change? What role do you see, you know, beyond this 110 acres, injecting into the platform? What role do you see in this platform? Like, do you see yourself going pan-India in warehousing also over time?
Yes, the platform with Bain Capital and Ivanhoé Cambridge is a pan-India platform. It will focus on the bigger cities, including the top metros. We from the Macrotech Developers side have given the platform the seed asset at Palava, which is 110 acres of land. We will continue to add other assets from our portfolio so that our overall investment into the platform is largely in terms of assets and not in terms of, you know, significant incremental cash flow. We'll keep adding other assets over time. Yes, the platform is gearing up now to expand across the country.
We will over the next quarters, bring in the CEOs, and leadership team of the business to interact with you so that you can directly ask them questions. They are looking at Bangalore, they are looking at NCR, they are looking at Pune, as they build out the warehousing and industrial platform, because they are intending to invest $1 billion, and build almost 30 million sq ft over the next three to four years. It's a very significant platform, and it will be across various geographical locations in India.
Yeah. Just to clarify, is Macrotech looking at, you know, operating and getting involved into the construction and operating of these assets as well, or they'll just be financial investors outside the Mumbai market?
No. Macrotech Developers Limited is the owner of the OpCo. The structure of this platform is a PropCo and an OpCo. The OpCo is significantly managed and owned by Macrotech Developers Limited. There is a completely separate team which looks at our green digital infrastructure platform as a completely separate operating team, which sits in this OpCo. With, of course, this new platform coming in, that team is being significantly augmented. That team will look at doing all the parts of operations, which is land acquisition, approvals, construction, leasing, and for the platform. It will be the operator of the platform and will generate significant recurring fee income for Macrotech Developers Limited in addition to the rental income which will come from Macrotech's share as the financial investor in the PropCo.
Okay. Sure. Sure. Thanks, Abhishek. That's all from my side.
Thank you.
Thank you. This was the last question. With this, we hand over the line to the management.
Thank you, everyone. Thank you for joining the call today. As highlighted earlier, consumer interest in housing remains very strong. Business on the ground is robust and growing stronger with each passing month. We are well on track to achieve our stated guidance and our strong launch pipeline in the second half, going ahead will, including this quarter, will help us achieve our guidance. Feel free to reach out to me or Sushil for any further queries that you may have. Thank you.
Thank you.
Thank you.
Thank you all. Thank you for your time.
Thank you.
Thank you. On behalf of Antique Stock Broking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.