As always it is a pleasure to communicate with you.
Overview of the Real Estate Sector:
Financial Year 2018-19 was a year of evolution for the Indian real estate. Variouschallenges posed by ongoing structural reforms by the Government and its keen interest toimplement benefited a lot to the players on the demand side in this sector especially inthe low cost affordable segment.
The real estate sector is currently undergoing massive transformation due to land markreforms like Real Estate (Regulation and Development) Act 2016GST Act (Goods and ServiceTax) and latest the Insolvency and Bankruptcy Code 2016.Although these initiatives arehelping to shape up the Sector they also led to increased uncertainty in the short term.
The Government of India and the Reserve Bank of India have proposed strict provisioningnorms that have caused a severe liquidly crisis. Further the situation has worsened onaccount of refinance problems faced by the Non Banking Financial Companies who havetraditionally been lenders to the Realty Developers.
The real estate sector is notoriously cyclical. Typically healthy demand leadsdevelopers to over commit supply which creates pressure on pricing and eventually leadsto a real estate down cycle. Then when conditions are difficult developers tend topostpone or cancel planned supply which over the time demand increases leads to thenext up- cycle in the sector.
The Indian real estate sector has been in a down cycle for the past seven years.However all the typical indicators of the end of this down cycle are now present .Theweak market with difficulties in the financial sector means that supply has been low andis likely to remain low for the next couple of years. There are however tremendousinterest shown by portfolio investors in quality commercial real estate.
Residential Real estate-Affordable Housing:
The residential real estate is more affordable than it has been in over 15 yearsbecause of the implementation of Prime Minister's Affordable housing Scheme of Govt. ofIndia which had taken up the mission of "house for all by 2024" and decline inthe interest rates by 300 basis points income have risen by over 50% and property priceshave been flat. However a recent report by RBI shows that housing affordability hasworsened despite developers launching homes at lower prices. Data from Knight Frank Indiareport noted that during the last four years home price increase in top eight cities ofIndia had been below the retail inflation growth.
As RBI's quarterly residential asset price monitoring survey(RAPMS) on housing loansdisbursed in 13 cities showed that house price to Income(HPTI) ratio worsened from 56.1%in March 2015 to 61.5% in March 2019.Among the cities Mumbai was the least affordablewith HPTI of 74.4%
My strong feeling is demand revival and an imminent cyclical recovery is bound tohappen very soon.
In the Financial Year 2018-19 despite difficult market your company Marathon hasdelivered relatively a better performance. This is testament to Marathon's superiorresilience and agility and the capacity to manage uncertainty. Current market dynamicswhere the NBFC crisis has further worsened an already challenged liquidity environmenthave surmounted and we have bolstered our balance sheet through strong cash flows and haveextended our competitive advantages by entering into JV and investing in the equity of oneof the group companies as part of our Growth strategy.
The most critical performance measure for the real estate industry is Operating CashFlow and is linked to scale and efficiency.
Our total income increased by 24% and stood at INR 92 crore. EBITDA increased by 30% toINR 63 crore and net profit 10% to INR 34 crore. It is however important to keep inmind that new IndAS dictate that the P&L and operating performance for a given perioddo not necessarily align. Project completion accounting which only recognizes revenuesfrom projects once they are completed means that the current period accounts reflectlargely what the Company sold around three years ago.
Your Company is working to create a unique value proposition to position itself in themarket on one side high end office building (Marathon Futurex) in mid-town area and highend residential towers (Monte South) in Byculla close to City and on the other handaffordable segment of residential housing in suburbs at Bhandup. It is scoutingopportunities in these segments to grow further. Further the company through its whollyowned subsidiary has invested in 67% of the equity in Sanvo Resorts Pvt Ltd which isengaged in the construction of residential towers in Panvel.
The investment of the Company in joint ventures and subsidiaries would addsignificantly to the value and profitability of the Company.
Your Company has always had the interest of the shareholders as paramount. over theyears it has considerably increased the wealth of the shareholders. Ever since theMarathon Group took over the management control of the Company there has been that isbeing paid. Despite the liquidity constraints the Company has declared a dividend of 10%on the face value of the share.
In closing I am grateful to every Marathonite at all levels for their tremendouscommitment that has kept the company running.I would like to thank all our customerssuppliers and Board of Directors for the co-operation extended to us. Finally a bigthanks to you our shareholders for your continued belief in Marathon Group.
Chetan R Shah
Chairman & Managing Director