During the year under review the Company (consolidated) registered a decline inrevenues from H249.99 cr in 2014-15 to H182.13 cr in 2015-16 due to subdued marketconditions.
However following a deeper inquiry shareholders will have reasons to be pleased thatin a year when most real estate players in the country reported considerably weakerofftake and corresponding numbers CHD Developers Limited reported a 166 bps increase inEBITDA margin and succeeded in reporting a profit after tax of H8.96 cr.
The increase in profitability coupled with adequate liquidity represents a validationof what we have always believed: that in the real estate sector it is not necessarily thelargest Balance Sheet that is an index of a company's competitive advantage but the mostattractive one. Given the sluggishness of the sector we believe that companies with arelatively small Balance Sheet and selecting to consciously engage in quality projects(and hence quality revenues) along with attractive margins and liquidity are likely toemerge as the more sustainable across market cycles.
We believe that the relative attractiveness of our numbers during the financial yearunder review was the result of a conscious long-term de-risking.
Most companies of our size within
our sector generally select to specialise in one format of the large real estatesector. At CHD Developers Limited we selected to broaden our presence from theresidential to the commercial to the retail to serviced apartments; within the residentialapartment niche we widened our presence from the premium to the affordable making itpossible to virtually address every kind of customer within the locations of our presence.Even during the most challenging times in the real estate sector we continued to addressthe needs of our customers translating into revenues and cash flows.
Most companies of our aspirations would have considered it prudent to widen theirgeographic footprint. At CHD Developers Limited we selected to do the reverse. Companiesthat operate in the real estate sector
focus on growing deeper as opposed to wider they stand to leverage economies of brandprocurement and managerial bandwidth. This explains why even after having spent 25 yearsin property development we have selected to grow our presence only in Gurgaon and Karnal.We believe that the more we have worked in these locations the better we have beenrecognised as focused players; the more this has transpired the quicker has been thespeed with which we have been able to market properties; in turn the quicker inflow hasprotected our Balance Sheet and generated adequate surpluses to reinvest in new projectsreinforcing our virtuous cycle.
Most companies would have selected to invest in land and then progressively develop theproperty with the objective of capitalizing on the entire value chain. At CHD DevelopersLimited we strengthened our conviction that the real estate development industry isreally a coming together of two subbusinesses: one which focuses on prudent landaggregation; two which focuses on the efficient transformation of land into developedproperties. The former business is cash-intensive across an extensive period during whichthe company is required to get clearances to be able to launch. The latter business isquite the opposite: it can be run with relatively zero working capital and can becompleted in shrinking tenures following the infusion of modern technologies. In the realestate sector it has been usual for a company to assume both roles. For the last couple ofyears CHD Developers Limited considered it prudent to focus on efficient conversion. Ifwe needed to develop properties we felt it would be more prudent to buy from the openmarket or develop jointly with land owners (in exchange for a part of the profits arisingfrom property development). We believe that this single decision has helped us reallocatethe resources that would have gone into land banking into equipment and technologiesaccelerating project completion.
Most companies would have focused on one kind of customer on the grounds that thiswould reinforce their recall and brand. At CHD Developers Limited we felt that it wouldbe business-strengthening if the 'CHD' recall stood for a superior value propositionirrespective of the format or size of our offering.
The result is that CHD emerged as progressively format-agnostic. During buoyantmarkets we generated traction for premium residential offerings; during sluggish marketswe reported attractive sales of lower ticket apartments. The result: even in a challenging2015-16 we had successfully liquidated at least 60 per cent of all our propertyofferings providing those specific projects adequate working capital to take them tological project completion.
Most companies tended to complain about the prevailing sluggishness. At CHD DevelopersLimited we selected to see the positive side of realities: negotiating aggressively forvolume- based material discounts on the one hand and investing in cutting- edgetechnologies to accelerate construction on the other. The result was that at a time whenmost customers felt that given the sectoral weakness there would be delays in projectcompletion we pleasantly surprised with timeliness in addressing project milestones. Webelieve that this outperformance at a time of weak real estate sentiment has helpedreinforced our recall as a customer-driven player with long-term seriousness.
Most companies complained of weak collections which affected their construction paceand working capital costs. At CHD Developers Limited the challenging year under reviewwas yet another occasion when our focus on actual users (as opposed to investors andarbitrageurs) paid off.
We reported an average collection efficiency of about 94 per cent during the year underreview moderating our need to mobilize external debt and protecting the attractiveness ofour Balance Sheet.
Most companies complained of how external realities remained grim. At CHD DevelopersLimited we focused on maximizing the efficiency of factors within our control. One of ourdecisive initiatives was a planned rationalisation of high costs and encouragingmulti-skilled responsibility taking. The result was higher motivation and increasedper-person productivity rightsizing the company for profitable and sustainable growth.
The principal message that I wish to send out to our shareholders is that the companyselected to invest in proactive initiatives strengthen its business model and prepare forthe economic recovery.
Motivated at a time of pessimism. Resilient at a time of weakness.
These are the thoughts which I wish to communicate to our shareholders.
With warm regards
R. K. Mittal Chairman