BL interview. Mahindra Lifespace sees prudence in sticking to few, core markets

We are on a very good growth trajectory. If I look at where we were over the past few years, we’ve gone from roughly ₹600 crores of annual sales in the residential business in FY21 to over ₹1,000 crores last year. We’ve already done close to ₹1,500 crore in the first nine months (of FY23). We have stated very publicly that we want to get to our first milestone of ₹2,500 crores by FY25.

So certainly, we’ll be showing another significant jump. There are dependencies in this, such as land acquisitions. New launches are what give fuel to our business and that is a bit lumpy. It’s hard to predict because they will come into play as and when the approvals are in place. I have a fair amount of confidence that between the next year and the year after that we’ll be certainly in that zone of ₹2,500 crores.

For this first milestone of ₹2500 crores, we worked backward and we need to buy land with a gross development value of ₹2,000 crores per annum. We’ve been running well ahead of that for the last two years. To get to, let’s say, ₹5,000 crores of sales, we will need to get to ₹3,500 crores of land per annum in development value. The cost of that land would be roughly ₹600 crores.

In residential our focus markets are Mumbai, Pune, and Bangalore. At some stage, we will look at NCR as a fourth market. We’ve been very clear that we want to stay kind of narrow, and deep, without spreading ourselves across many cities. Historically, we’ve done work in Hyderabad, Nagpur, NCR, etc. Given the size of our business, we felt it more prudent to restrict our geographical scope, and go deeper into these markets.

Within these markets, we are happy to look at any locations but would typically like to operate in the ₹40 lakhs to ₹3 crore segment. Therefore in a city like Mumbai, that automatically precludes certain locations, and certain compass directions. So we will be in Andheri, North of Andheri, and Vikhroli. But in Pune and Bengaluru we will be all over the place; those markets have been good for us.

Mumbai is by far the largest market. By value, it’s 40-50 percent of the Indian residential market. The other advantage of Mumbai is it gives you the ability to play in a wide spectrum of price points. You can do projects at ₹5,000 a square foot, or you can do projects at ₹1 lakh a square foot. We, of course, choose to be somewhere in the ₹7,000-10,000 or ₹12,000 per square feet range, even up to ₹20,000. We have a product-led strategy. You want to be able to bring a product to a market that is ₹15,000 a square feet, but be able to command ₹17,000, and Mumbai allows you the headroom to play that game. In Pune and Bengaluru, the range is much more narrow, which is why Mumbai is very important for us. It’s also our home market.

You’re absolutely right, a lot of people are chasing land. And this, unfortunately, is the downside of a bull market. Everyone suddenly gets hyper-aggressive and feels that this is the last chance for them to capture this. From the land seller side, there has been a shift where they are wanting to deal with only large companies that are well funded because they too have gone through their travails in the past where they might have signed term sheets with buyers, who then didn’t find the funding and could not do the deal.

They got strung along for a while but were left without a deal. So now they are preferring to deal with large, well-funded developers, and that gives us an advantage. But they are also seeing the same news headlines that we all see - which is that real estate is in a boom and therefore wanting to extract their pound of flesh. Hence, prices are getting competitive.