MANAGEMENT DISCUSSION AND ANALYSIS

Mr. Sahil Vachani

Managing Director & CEO, Max Ventures and Industries Limited

Mr. Arjunjit Singh

Chief Operating Officer - Max Estates Ltd.

Mr. Kishansingh Ramsinghaney

Senior Advisor – Projects, Max Estates Ltd

222 Rajpur in Dehradun is Max Estates’ first project to be completed

222 Rajpur in Dehradun is Max Estates’ first project to be completed

Company Overview

Max Estates Limited (MEL) was formed with the vision to bring the Group’s values of Sevabhav, Excellence and Credibility to the Indian real estate sector. Unfortunately, the real estate sector is facing a huge trust deficit owing to lack of regulation and unscrupulous practices. MEL is well positioned to capitalise on these shortcomings, owing to widespread acceptance and recognition of the Max brand, with its in-house expertise in real estate activities and on account of the high standards of corporate governance in place.

MEL has successfully delivered its first residential project - a 5-acre, 22 villas, luxury development in Dehradun. Besides this, Max Towers, Noida – a ~0.6 million sqft luxury commercial structure is built in the most prime region of Noida, set to go live in the first half of FY2019. Max Towers is being designed as a LEED Platinum Green building, setting the bar for sustainable development in the office space sector. The third project, the re-development of Max House in Okhla, New Delhi, is slated to begin in August 2018.

Max House Okhla is located in the heart of New Delhi, with excellent connectivity to the CBD and SBD of NCR.

Going forward, MEL will continue to focus on the office space segment, while adopting an asset light approach. The objective will be to develop a diversified portfolio of annuity income-generating assets, while preserving capital.

Real Estate Sector in India

The growth of the Indian real estate sector is attributed to India’s growing population, rising income level and rapid urbanization. However, despite the positive outlook, the sector is battling challenges. The real estate industry is currently witnessing encouraging structural transformation towards becoming a well organized sector, thus uplifting morale.

Commercial Segment

The Indian Office space market has been plagued by an abject lack of viable office space over the past four years, while demand has been purposefully steady. The overall office stock in the country has more than doubled in the last eight years at the back of increased investor confidence in this sector. Office has seen a steady increase in inflow of investment, reversing the trend of residential market being a favored target for inbound capital. Consistently falling since 2012, the vacancy levels are at a decadal low. The IT/ITeS sector share in transactions has been showing signs of weakness while that of other services has increased. Rental growth has been strong across markets and has reached double digit figures in certain premium micro-markets.

The Experience Centre at Max Towers in Noida

The Experience Centre at Max Towers in Noida

Performance Highlights

The total revenue earned by the company during the year was ₹ 27.66 crore, with loss before tax being ₹ 3.91 crore. The Company accrued a loss after tax of ₹ 3.96 crore.

While the overall sentiment in the luxury residential market was poor, the Company has been able to sell ~50% of the inventory in its Dehradun project. The Company has also secured pre-lease commitments of ~50,000 sq ft of office space in Max Towers.

On the construction front, we are ahead of our budgeted timelines for Max Towers, Noida while 222 Rajpur, Dehradun saw its first residents in May 2018. Max House Okhla execution has been initiated in August 2018, and is slated to be one of the most distinct office buildings in NCR.

Business Strategy

Max Estates will focus on the office space segment, wherein the company is developing socialisation to best address the gaps that exist in the market. The Company intends to offer its tenants a workplace which should act as an area of advantage for retention, recruitment, development and well-being. This will act as a unique value proposition will further differentiate Max estates’ developments relative to competition.

The strategy for differentiation has been titled “WorkWell”, which has been pioneered at Max Estates. The WorkWell initiative aims to blend design, superior amenities, and F&B within the workspace to trust enable the work force with what they need. WorkWell will serve as a core which will be present in our office space developments.

The company sees office space as much more than square feet to be leased or sold by providing services used by occupants in the building. This would be done through a separate vertical called “Pulse”. The intention is to generate additional income stream from consumption requirements of building occupants and eventually develop it is as a unique proposition to take to other developers for their commercial projects.

Market Outlook and Future Trends

The Real Estates Regulation (and Development) Act viz., RERA aims to increase transparency, accountability and overall efficiency in the real estate sector. We expect major developers to enter into joint venture partnerships or undertake joint development with smaller developers to complete stalled projects.

On the construction front, we are ahead of our budgeted timelines for Max Towers, Noida while 222 Rajpur, Dehradun saw its first residents in May 2018. Max House Okhla execution has been initiated in August 2018, and is slated to be one of the most distinct office buildings in NCR.

There is significant investor interest in India realty thanks to a consistent increase in demand. By 2020, the real estate sector in India is expected to attract investments worth USD 10 billion. Besides, India is also putting in place regulation and approvals for launching Real Estate Investment Trusts (REITs) which will not only broaden the investor base within Indian realty, but will also provide alternative avenues for fund raising and investments. The first of India’s REITs is expected to launch in India’s highly attractive rental yielding commercial office segment. Around 280 million sqft of qualified office stock is estimated to be available in this market with 46% of stock being spread in Bengaluru and Delhi NCR alone.

Green buildings and Co-working spaces are emerging as two key drivers in the commercial segment. India secured 3rd position in the US Green Building Council annual top 10 countries for LEED ranking. These registered and certified green building projects in India are expected to increase three fold to 3.5 billion sqft by 2020 as per the Green Business Certification Inc.

Co-working space is witnessing increasing momentum as seen in not just the volumes of space taken up but also the diversity of players that are now queuing up to serve occupiers in this quality starved office space market. In 2018, decreasing availability of quality leased office assets coupled with yields reaching historic lows will push investors to look at alternative segments such as retail and warehousing and moreover, “built to suit” deals are likely to become imminent for office occupiers.