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Kolte-Patil Developers

BSE: 532924|NSE: KOLTEPATIL|ISIN: INE094I01018|SECTOR: Construction & Contracting - Real Estate
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Chairman's Speech (Kolte-Patil Developers) Year : Mar '18

Dear Shareholder’s

Sectoral outperformance

During the last two years - possibly the most challenging encountered by the sector in living memory -the Company reported a record performance even as the sector was affected by a weakness in sentiment, translating into sales sluggishness.

What gives me deep satisfaction is that the Company reported profitable growth, whereby the percentage increase in the bottomline was higher than the percentage increase in the topline, indicating the robustness of our business model. Besides, incremental margins - the portion of profits by which the Company grew divided by the portion of revenues by which the Company grew expressed as a percentage - were considerably higher, indicating the intrinsic profitability of our business.

At Kolte-Patil, we believe that this improvement was not the outcome of doing a few things right; it was the result of a 360-degree pursuit of excellence. We widened our sales network; our region-specific sales teams (Pune, Maharashtra and India) were complemented by our international sales channel; we undertook several technological initiatives to reduce the turnaround time in addressing customer needs; we invested proactively in automation; we measured and enhanced agent productivity; we strengthened our Balance Sheet.

The result is that Kolte-Patil marketed better, sold faster, widened margins and reported superior financial efficiency.

We didn’t perform; we outperformed. We didn’t just play the game; we transformed it.

Robust customer collections

At Kolte-Patil, we recognised that a sluggish macro-economic and sectoral environment meant that customers would be more selective in their apartment purchase: they would trust only those realty brands that provided them with the best value, built with speed, communicated periodically and delivered on schedule.

During the course of the sectoral slowdown, we brought a distinctive urgency to our business: we continued to invest in systems, processes and technologies that would accelerate construction. The result was a stronger traction for our properties when customers recognised that our projects would not slow down; besides, their trust was reflected in timely instalments. The result is that even as the broad realty sector in the country was affected by a decline in liquidity, our collections increased 15% Y-o-Y from RS.965 crore in 2016-17to RS.1,109 crore in 2017-18.

Marquee financial partnerships

In the business of real estate development, one of the most precious drivers is the availability of financial resources. At Kolte-Patil, we strengthened our Balance Sheet and, in turn, reinforced our non-debt funding pipelines that provided us with access to low-cost net worth to sustain the growth of our business.

In the past, the Company entered into associations with marquee brands like ICICI Ventures, IL&FS, ASK Investment Managers and Portman Holdings (USA) that enabled us to mobilise higher net worth. In 2015-16, the Company had entered into RS.120 crore agreement with a J.P. Morgan Asset Management affiliate for the Jay-Vijay Society redevelopment project in Vile Parle (E), Mumbai.

In December 2017, the prominent global investment firm of Kohlberg Kravis Roberts (KKR) committed RS.193 crore in the R1 segment of our flagship Life Republic in Pune, which helped the project attain financial closure, address working capital requirements and reduce the overall cost of outstanding debt attributable to that project’s development. We believe that these relationships validate the strength of our management and Balance Sheet, making it possible to mobilise low-cost net worth that helps monetise our land parcels faster and more profitably, creating a prospective pipeline of superior revenues, margins and profits. More importantly, these partnerships have enriched our business insights, strengthened our discipline, helped improve governance practices, moderated our gearing to one of the lowest levels in the sector and reinforced our asset-lightness in a cash-intensive business.

Over the last two years, the Company did not just repay debt and strengthen its Balance Sheet; it also enjoyed lower cost of borrowing on its books following its enhanced credit rating (CRISIL A / Stable), the highest by CRISIL to any publicly listed residential real estate company in India. The result is that the average cost of borrowings declined from 13.5% at the end of 2015-16 to 10.4% at the end of 201718, strengthening our liquidity and interest cover.

Multi-city expansion

A key performance positive during the year under review was the increased momentum coming out of our presence in Bengaluru.

The Company grew its Bengaluru revenues from 3.6% of sales volume in 2016-17 to 12.9% of sales volumes in 2017-18; it recorded the highest-ever sales and collections in 2017-18. We expect Mumbai projects to pick up in FY19 following the government’s initiatives to resolve dumping ground issues and announcement of Development Plan 2034 leading to improving projects and revenue visibility for our company. The Company reported significant 61% Y-o-Y growth in collections to RS.156 crore in Mumbai, accounting for 14% of our overall collections in 2017-18.

Execution discipline

When we embarked on the process of transforming our company a few years ago, the biggest priority that we selected to address was construction discipline.

The Company had always been respected for building properties on time. However, we recognised that as properties got larger, the number of concurrent construction sites increased and our geographic footprint widened, what had worked for us at one point now needed to be re-assessed and restructured.

Besides, the focus was timely. As the markets slowed and consumers were wary of trusting their hard-earned resources to long-gestation projects, we believed that the winners would be companies that built faster than promised, resulting in a superior return on the customer’s employed capital.

The ‘Finish on time’ statement virtually helped reinvent our company: through an overarching focus, through multiteam commitment, technology investments, superior working capital management and the effectiveness of every single function.

This power of execution translated into quicker completion, timely handover, lower construction costs, better equipment utilisation, better technology-led project control and informed decision-making.

Business outlook

At Kolte-Patil, we have never been more optimistic of our business model.

We expect to strengthen our 360-degree business model that covers the residential demand spectrum covering all price points in the key micro-markets of Pune, Mumbai and Bengaluru.

We expect to launch -4.4 msf of properties across Pune, Bengaluru and Mumbai in FY19.

We believe that we possess attractive projects visibility to grow our Mumbai and Bengaluru revenues from 11% in 2017-18 to -25% of our revenues by 2020, broadbasing our geographic footprint and business stability.

We possess a strong 1.4 msf pipeline in Mumbai across 14 redevelopment projects warranting low capital deployment. In Bengaluru, we launched one project (Exente on Hosur Road) and are poised to launch another project (Koramangala).

At our company, the focus will not be to merely scale the number of projects under execution but to strengthen business quality as well through an enhanced focus on execution, collections and cash flows. We will continue to evaluate strategic and financial partnerships that enable us to scale or accelerate operations while limiting our capital commitment. We are evaluating acquisitions and partnerships across the MIG, affordable housing and luxury project categories.

Overview

The broad message that I have for our shareholders is that we have only just begun.

In this reinvented Kolte-Patil, we expect to strengthen sales from around 2.1 msf in 2017-18 to a projected 5 msf five years from now. This means that compared to what we reported in the last two decades in our business we expect to achieve more than twice that in only the next five years.

In doing so, we expect to enhance value for all our stakeholders in a more decisive way than we have done until now.

Rajesh Patil

Chairman & Managing Director

Source : Dion Global Solutions Limited
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