Aditya Birla Real Estate Limited (500040) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Q1 FY '24 Results Conference Call of Century Textiles and Industries Limited, hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Abhineet Anand from Emkay Global Financial Services. Thank you, and over to you, sir.

Good afternoon, everyone. First of all, I would like to thank the management of Century Textiles for giving us this opportunity to host the call. We have with us from the management, Mr. R.K. Dalmia, Managing Director; Mr. Vijay Kaul, CEO, Pulp and Paper Division; Mr. K.T. Jithendran, CEO of Real Estate; and Mr. Snehal Shah. Over to you, sir.

Thank you. A very good evening to everyone joining us today. It is my pleasure to welcome you all to the earnings conference call for the first quarter of financial year 2024. Let me first take you all through the quarterly industry and financial highlights. The global macroeconomic continues to remain challenging despite inflation easing from record high. As per IMF, the global growth is expected to drop to 2.8% in 2023 compared to from 3.4% in 2022. Developed economies are expected to see and especially pronounced growth slowdown from 2.7% in 2022 to 1.3% in 2023. Global headline inflation is expected to cool off from 8.7% in 2022 to 7% in 2023 on the back of lower commodity and energy prices. However, underlying core inflation is likely to decline rather slowly. And a slowdown in global economy, India will remain the fastest growing major economy with growth expectation of 6.5% to 7% in 2023. In the backdrop of global slowdown, sticky inflation and uncertain geopolitical conditions, we have been able to deliver satisfactory performance from all divisions. Talking about our financial performance for the first quarter of financial year 2024, the consolidated turnover stood at INR 1,106 crores. The EBITDA for the quarter was INR 129 crores, with consolidated EBITDA margin 12.1%. And there was a net loss of INR 7 crores. There is an exceptional item loss of INR 65 crores due to the closure of it's spinning and weaving process at the textile mill. Now let me take you through some of the key highlights across our 3 business verticals. Starting from real estate business, the Indian real estate business is currently experiencing a favorable up cycle, and one of the most [indiscernible] periods in over a decade. Residential trades across all major markets in the country has witnessed a strong growth with the industry growing nearly threefold in the past 3 years. Real Estates achieved bookings worth INR 207 crores from already launched projects in Q1 FY '24. The collection demand is strong at INR 369 crores from all projects during the quarter at an overall collection efficiency of 98%. During Q1 FY '24, the company acquired 3 notable projects at premium location in Pune, Mumbai and Bangalore with a GDV of INR 5,600 crores. The Pune project is 5.8 acres plot on Wellesley Road with a gross potential of INR 2,500 crores. We acquired a plot in Walkeshwar, Mumbai, which is a 0.2-acre plot with a gross potential of INR 600 crores -- The Bengaluru project is 28.9 acres in Sarjapur with gross potential of INR 2,500 crores. On the ongoing project from Birla Alokya Bengaluru, Birla Vanya MMR, and Phase 1 of Birla Navya, Gurugram are due to delivery in FY '24. The 2 earlier acquired projects in Bengaluru and near Devanahalli near Bengaluru International Airport and Rajarajeshwari Nagar are progressing well, and is expected to be launched in second half of FY '24, in addition to the new phases of already launched projects. The site 2 commercial assets Birla Aurora and Birla Centurion continue to generate stable rentals. Additionally, our 2 projects were honored with 2 prestigious awards where is Birla Navya Gugugram received the Merit Winner Award trophy from British Safety Council and Birla Niyaara was recognized as an Iconic superluxury project of the year at the Times Real Estate Conclave Awards '22, '23. Lastly, the Indian Real Estate sector poised sustained growth on the back of strong demand, led by rise in per capita income and shifting consumer behavior. Despite moderate increase in property prices, the real estate sector is expected to experience continuous growth due to encouraging GDP per capita, disposable income and urbanization. The company's strategy remains unchanged, which is to focus on the premium on luxury segment for sustained future growth. Moving on to the Pulp and Paper segment, demand was slow in the reported quarter due to general slowdown. Paper prices were under pressure due to raw material price volatility and increased price competition from international mills, resulting in lower NSR. Demand across tissue and board segments declined due to better prices offered from international mills as well as demand from high consumption sectors like FMCG, F&B, Pharma remains stagnant. However, corrective measures on the cost management front helped the company to maintain it's operating profitability. The first quarter of FY '24, the overall capacity utilization improved to 95% against 93% in Q4 of FY '23, with sales volume witnessing a decline of 8% year-on-year on 99,459 metric tonnes. In Q1 FY '24, net sales declined by 2% year-on-year to INR 836 crores, primarily driven by lower realization, while EBITDA stood at INR 144 crores with margin at 17.2%. Pricing and printing paper demand is expected to remain subdued in coming quarters despite opening of educational institution as this government tender. In Q2 FY '24, wood put pressure on market demand leading the price erosion. Tissue paper demand will see some seasonal impact in short term, but should stabilize by Q3 '24. Demand in both segments expected to improve in Q2 FY '24 as FMCG market is shaping up. However, cost pressure to remain high in domestic markets due to imports and excess supplies from domestic mills. Export demand from Europe, U.S. are expected to remain low due to recessionary impact. Lastly, talking about textile division, the first quarter under review, net sale was INR 218 crores and EBITDA loss of INR 12 crores. The Q1 FY '24, despite raw material prices being low, demand remains sluggish with most of the Indian mill operating at partial production capacity. Cotton prices in India have declined sharply by around 35%. And consequently, land prices also declined, but there is a slight demand for yarn due to weak market sentiment. Apparel service demand remains weak on account of inventory getting piled up across the value chain. After a long lull in the bedlinen market, inquiries have started floating, but this segment being a part of discretionary spend, demand remains subdued. We have made a strategic decision to see operation of our in-house spinning and weaving units. Instead, we will source all our gray requirement from trusted vendors, ensuring quality control under our strict supervision. This change will not impact on the revenue of the textile business. In fact, It is expected to enhance profitability due to savings in fixed cost. The company has provided INR 46 crores for the impairment of spinning and waving assets in this quarter, and INR 18 crores to what we are paid to the related workers. In terms of outlook, the textile retail demand is expected to start picking up by August '23 with the start of festive season. The demand is expected to be moderate in Q2 and through H2 FY '24. The markets have turned highly price sensitive and retailers are preferring lower-ticket MRP items. U.S. and Europe imports of textile products have fallen sharply. Industry experts believe that FY '24 will be challenging here in global economy as well. Over the medium term, global demand should stabilize from Q4 FY '24, and India will remain a big manufacturer supported by China plus 1 strategy and 3 trade agreements with developed countries. Thank you.

Sir, should we open the floor for questions?

Yes.

[Operator Instructions] Our first question is from the line of Kunal Khudania from DSP Asset Managers.

This is Vivek Ramakrishnan. I have 2 questions. The first one being on the debt levels, which have increased to INR 1,935 crores, of it's short-term debt is about INR 686 crores. Do you expect that some of this debt will come down as your projects get completed and we get collections? Or is it all going towards the land bank and the total debt level will be around these levels? And if so, what is the peak? If you're okay, I'll ask a second question also, sir.

Yes, please go ahead Vivek.

Okay. The second question is on the real estate business. Are we seeing any slowdown in sales velocity when you see quarter-on-quarter at all, especially in high-value projects. We've heard conflicting reports about inventory at Worli not in your property sir, but overall. So is there any slowdown in demand for really high-value properties? And any guidance on sales would be -- or the next quarter would be very useful.

Hi Vivek, this is Snehal here. To answer your first question is, we expect the debt levels to remain the same by the end of next year because the cash flows from the businesses will start kicking in. It has increased because we made these repurchases in the early part of the year. So that is one of the reasons why the debt levels have gone up, but they're expected to remain the same unless there is some new deals that the real estate business signs. So therefore, the debt, we expect to be somewhere around INR 2,000 crores, maybe if they spend another INR 500 crores on a new deal that might go up to INR 2,500 crores. To answer your question on the short-term debt, yes, we are going to release the short-term debt. We are in the process of replacing it with some long-term debts going forward. So those limits will be freed then. Is that okay with you?

Perfect sir.

So I will ask K.T. Jithendran to answer the second question.

Hi Vivek. Thank you for your question. On the real estate demand, I see the other way. The prices are going up, velocities are increasing, number of players are reducing, inventories are lesser. So we see a multiyear kind of a traction in sales velocities. So some of our project's prices have increased more than 25% to 30%, and we are short of inventory. So right now, the challenge that we are having is we don't have enough inventory to sell otherwise we could have done much better sales than what we are reporting now. When our new launches come in -- the next -- I mean, either late this quarter or early next quarter, I think our sales velocities will pick up. But I don't see any sort of a slowdown in the next -- the foreseeable future. Vivek?

If I can just ask a follow-up question on that. We are just looking at the number of units sold quarter-on-quarter. Is it that the late stage of the project, the pace of sales comes down, and that's the effect that we are seeing? Or is there...

Worli, specifically, there's lack of inventory now, most of the projects have seen possessioned. If you look at many of the marquee projects that all have cost position, most of the inventory is sold. There's a huge lack of inventory in the Worli market right now. So hopefully, when we launch our Tower 2 in Q4, we expect to get very strong traction at better prices.

Our next question is from the line of Pawandeep Bhatia from [NV Alpha].

Hello, sir. One of my questions answered by the -- asked by the past participants. So are we telling that our inventory -- our collection number in booking value is down because of inventory getting sold off and new inventory -- price inventory not coming in? And second question, sir, we used to comfortably clock INR 140 crores -- INR 135 crores, INR 140 crores on rental side, I can see INR 30 crores being booked -- being announced declared this quarter. So it's around INR 115 crore, INR 120 crores. What is the reason of our rentals going down, sir, in this market?

Yes. Thank you, Pawandeep. So primarily why we are not able to clock sales is lack of inventory. We are at a position where almost 80% of our inventory is sold in all projects. So largely, the impetus will come from new launches, which we are expecting to have in the future quarters. They're mainly Bengaluru, Worli, NCR, all of these projects. So that's one part of it. The other part on rentals, INR 140 crores we have never clocked. We have been clocking INR 120 crores, INR 125 crores over the last few years, the COVID years. Now with that rental has gone up to INR 130 crores. Yes. Yes. So INR 30 crores is a net figure, what you are seeing is, which means the gross rentals minus all the costs, the maintenance costs, et cetera. What word must be talking about is the gross rentals. But even gross rentals have not reached INR 140 crores. At best, it has gone about INR 125 crores, maybe initially when in 2017 or '18, when we had Vodafone giving us INR 250 crores -- INR 250 per square foot, we had slightly higher rentals at INR 135 crores. But otherwise, our rentals are currently, if you look at it, we are 100% leased out, zero vacancy. And we expect about -- we have an average rental of about INR 187 per square foot, all sold, all leased out, and we expect close to about INR 130 crores of annual rentals. And it is better than the last 2 to 3 years that we have seen.

So this number will be stable going forward or we do...

It will only increase from here, Pavan. We're only seeing the number increase, yes.

Our next question is from the line of from Biplab Debbarma from Antique Stockbroking.

Sir, I have 3 questions. First question is regarding yesterday we saw from the India Hume Pipes finds that Century and India Hume Pipes signed a JDA of 6.8 acres project development in Badarpur, South East Delhi. Just if you could throw some light about the projects, such as like what would be the expected GDV, what will be the area, by when it will be launched some timeline?

Thank you, Biplab. So yes, we kind of concluded a deal yesterday only. This is in prime Delhi on the Mathura Road. India Hume Pipes, it's about roughly 7 acres of land with a total profitability of about 1.4 million square feet. We expect rental -- we expect the GDV of about INR 2,800 crores or thereabouts over a period of 6 years, launch in about 12 months.

Okay, sir. And early in this month, I think. -- a few weeks back, you have announced 1 project in Thane from Hindalco. So what would be the GDV and area of that approximately?

That should be close to about 5.5 million square feet, 31 acres of land with a GDV of almost INR 8,000 crores, approximately INR 8,000 crores.

Okay. And 1 final question is on the Niyaara. So I was just checking the numbers. So if you see in terms of inventory, you have sold more than 80%. But in terms of value that we have given is, we have sold only 72% -- around 72%. That means the unsold inventory we have higher ticket size inventory. So in that context, you're also planning to launch the power to where the ticket prices will be higher. So in that context, would you have a relook at the products because the -- if my understanding is correct, tower 2 would be very super luxurious kind of products. So do you see some kind of slow traction or is it in order to see these as a trends?

So Biplab, as we mentioned, the bulk of the inventory in tower A is sold. Right now, we are selling at about INR 80,000 per square foot, INR 78,000 to INR 85,000 per square foot. One large apartment that topped we sold even at INR 85,000. We don't see any apprehension on that account. The only thing is that we are reluctant to sell inventory here because, as we mentioned, 80% of the units are sold, we need to keep to hedge against inflation, et cetera. I think we can realize much better prices we hold on to this inventory and sell it at a later part. All the cash flow that we require is largely taken care of for Tower A. Tower B were extremely confident given the demand supply situation in the market that we'll have very strong traction. The number of apartments will be much less in Tower B, we will be hardly having about 150 or less apartments. And I don't see any challenge in moving that inventory at much higher prices given the demand in the market.

Our next question is from the line of Dixit Doshi from Whitestone Financial Advisors Private Limited.

Thanks for the opportunity. Firstly, you mentioned about the Hindalco line. Over how many years you think you can realize this?

I think we'll take about 8 to 9 years.

Okay. And regarding the Sarjapur, Bengaluru line, you mentioned INR 2,500 crore potential. What kind of -- I mean, how many square feet we are planning to build there?

It's about 2.7, 2.8 -- 2.8 million, about 3 million square feet. With top line expected about INR 2,800 crores.

Okay. INR 2,800 crores Okay. And now my second question is regarding the launches. So in the previous call, you have mentioned that we are planning almost INR 5,000 crores of launch this year. So are we on track and I think...

Yes, we are completely on track. Dixit, yes. We are going to launch either late this quarter or early next quarter our project in Devanahalli, Bangalore, 52 acres. And then we will also launch the Rajarajeshwari Nagar. We are also planning to launch Tower B of Birla Niyaara in Q4 this year. We're also planning to launch the Walkeshwar project this year. We are also planning another launch of Phase IV of Birla Navya in November, December. We expect the second half -- the latter half of the quarter of the year to be heavily launch.

And one more question on -- so earlier, you mentioned that we are targeting annualized INR 5,000 crores kind of run rate. So after these recent purchases of land, do you want to revise it for, let's say, FY '25?

No, no, I think right now, we'll keep it at INR 5,000 crores. I think these are important because we are running out of inventory. This inventory is important for us. So I think with this kind of inventory, we'll keep the target of INR 5,000 crores. We will think about revising that as we acquire more projects.

Okay. And one last question from my side. So, obviously, we are more rather than JDA, we are more into buying out...

Project that we did yesterday completely was a JDA. That is the first JDA we have done so far. So we have about 4 JDAs and about 4 outright. It's 50-50.

Okay. So in outright purchase, what kind of IRR we generally look at?

Given today's market land size going up, et cetera, there is not many JDA opportunities in the market. Most people are preferring outright. JDA is largely opportunistic. So with that, we look at at least about 18% IRR post tax in our outright costs.

Our next question is from the line of Harsh Pathak from B&K Securities.

Sir, I wanted to check on this, the deal with Indian Hume Pipes. You mentioned that the potential is 1.4 million square foot and GDV of INR 2,800 crores. So is this value attributable to us? Or this is the entire potential of the project?

This is the entire potential, Harsh, that's the entire project potential..

Right. And from this, we have a 64% share?

That's right. That's right.

Okay. And this Thane project would be launched when in FY '25?

No, because it's a large project, this leads a lot of work on it and cleaning up the land, et cetera. We wanted assets there is. So we expect about 18 to -- 15 to 18 months is the target for launching this.

Right sir, and one more question on this Indian Hume Pipe deal. So how much deposits have we already paid or are yet to pay? And from this revenue sharing whatever we have with them, what is the time line? And as in when do this deposit get adjusted? Any color on that?

Yes. So we expect the land value is about INR 625 crores, INR 630 crores. The deposit that paying is about INR 145 crores. Of it, we have paid INR 25 crores now. The rest of the money will go for conversion, et cetera, will be directly paying to the authorities, about INR 105 crores, and at the time of the launch, such as before launch, we will be paying another about INR 15 crores.

Right. So this will be spread out in the next 12 months?

Yes, yes, yes.

Okay. Okay. Understood. And sir, on the balance sheet, you mentioned that on the debt side, we are looking to maintain the sales of INR 2,000 crores, maybe at max it can go to INR 2,500 crores. But this doesn't still include this payout for Thane land and also Indian Hume Pipes, maybe the potential deals will be signing for the rest of the year. So does this also take care of all these aspects or any upside you can see here?

I think answering the first question, I mentioned that -- as far as we are concerned, we have spent most of the money in the first half, but the cash flows from our manufacturing businesses are yet to come in during the year. So as far as they are able to manage any additional requirement because for Hindalco deal, for example, we just have to pay INR 200 crores as an initial price because it is deferred payment. So only if there are some major big deals that getting signed for which there is going to be an outlay required, only in that circumstances, I expect the debt to go up from it's present levels. It might have some peaks in the middle of the year, but at the end of the year, as of today, I'm expecting it to be as it is unless there is some major deal signing that happens, of course, which is there in the pipeline, but we don't know when it will materialized.

Our next question is from the line of Pritesh Chheda from Lucky Investment Managers.

Sir, just a couple of questions. First, a clarification. So along with any other project gets left out in terms of the new projects that you have taken. So you are mentioning in the presentation, one is Hindalco 4 and one is a JV, which we signed for Indian Hume Pipes. So anything other than that?

Other than that, what Dalmia Ji mentioned in the main speech.

Those were the 3 which were a part of the main speech, Pune, Walkeshwar, and Bengaluru, and then Indian Hume Pipes?

As of now, these are the 5 things we have signed for the current year. We're expecting more deals in the pipeline. So when it happens, we'll be happy to announce those.

And all these are JD's, right?

No, it's not JD. These are outright and mix of outright and JDA. The Hindalco is a deferred outright. And what we did with the IHP is a JDA.

Okay. Other thing is, have we thought about how much product do we want to take on 1 at a time or you want to exiting that at a time.. Is there any upward limit or basically, as and when basis, wherever you see your threshold IRR, you are willing to doing the capital?

At this point of time, we have enough and more bandwidth to finalize as many projects as possible in each of these markets, bandwidth or the resource is not a constraint. We are looking for the right projects, right location, right product that we can get at the right market value. There is no other constraints at this point of time.

Which means the INR 2,000 crore balance sheet debt level will be -- is not a sacrosanct number, right?

No, no, not at all.

Not at all. Okay. Okay. And all of these 5 new projects, which one of them would start in FY '25?

I think Walkeshwar will start in FY '24 only. We will launch it in FY '24. The rest of projects like Pune and Bengaluru will start in FY '25. We have planned to start even the Delhi project in '25, the Thane may take a little longer.

Okay. Okay. And you have paid INR 300 crores initially for that in the Thane one?.

Yes, we will. As of now, we have not paid anything. We will be paying over a period of time.

Okay. Thank you very much sir. Ok, lastly, on the online, whichever products that you take, there, what is the margins that you would look at?

Depends Pritesh, from project to project. So if you look at Kalyan, it's about 30%, 35%, Worli more like 50%.

And in terms of JD, there, what kind of margin in IRR is possible?

Yes. So again, it is location to location. There's no one specific number. IRR subsequently look north of 30% for JDAs. Yes, margins look at close to 30%, 30-plus percent in outright deals. Yes. But again, it's completely -- moves from location to location, depending on what's the potential size, opportunity, et cetera, et cetera, lots of factors.

Our next question is from the line of Pinaki Banerjee from AUM Capital Private Limited.

Coming to the presentation with your pulp and paper segment, you have stated that in the writing and printing paper that unless government order it's tenders in Q2 FY '24 will put pressure. But sir, actually going by whatever we are -- country is scheduled to have the general elections coming next year in various states and the Indian government would look forward to complete all their projects. So are you not expecting some better high quality of tenders in this regard?

Yes, Mr. Pinaki, what is happening is that there are 4 or 5 new tenders which are coming up in the country for the publishing of books. But that will come sometime after August 15 to October, sometime between August 15 to October. And that building process will take some time and the orders cannot come before end of October or November. So until that time, there is going to be a little bit of a difficult situation. Otherwise, it's still fine.

Okay. And my last question is that on an overall basis and based on the presentation and whatever comment you were given, like you are having just in the real estate segment, you are having some bit of optimism, while the paper and pulp and the textile segment is looking a bit subdued at this point of time, so is my understanding correct, sir?

Not really. I think what we are telling you the true -- what is happening at the marketplace. So until April, we were selling quite nicely. So everything has changed in the last 1.5 month, 2 months. So it can change back. if the tenders come in, maybe the sentiment goes back again. So it is not that we have given a subdued feature for paper and very high feature for Birla Estate even though yes, Birla Estate is going to be the -- there is a quite...

It is a cash flow right, at this point of time for you? Am I correct to say?

Yes. Yes.

Our next question is from the line of Dhruvesh Sanghvi from Prospero Tree.

Yes. Sir, I would just like to understand on the real estate side, if you can explain the cost structure because we are building up relatively new versus the leagues of Godrej or Oberoi or some of the southern players who are there in the market for a long time. And I'm sure we are learning and adapting a much better strategy from the start. So considering that, how are we adapting the cost structures? And if you can give a holistic view on how are we thinking about the fixed cost structures of the company. I mean, as I see today, it seems to be somewhere around INR 200 crores per year. If you can give some thoughts on that, it would be helpful.

Thank you, Dhruvesh for the question. So I believe we follow an outsource model for construction. Also, we don't take a project where we cannot afford good contractors, good consultants and designers, et cetera. So we largely operate in the premium segment, where we know that we can -- we are able to afford good quality contractors who will deliver with all compliances in place. That's very important. Number one. Number two is that we budget very carefully. We budget for escalations, we budget for contingencies. And over and above that, we look for margins. Number three, in our JDA projects, whatever we have done, most of them are profit sharing. So automatically, there is a hedging done. Even otherwise, when we do, we do it -- when we develop a project, we do it phase-wise. So your first thing is that way taken care of. That's what you're sales. And we also keep some inventory today end of the project, so that to take care of any kind of inflationary methods. And so these are some of the things that we talk about when you talk about project costs. We have a very strong monitoring system to make sure that we've raised there, we are still within budgets. And as far as the...

Corporate overheads.

The overheads are concerned, as I said, to prove it, you're right. Given our scale at the moment, our overheads look a little high. But you have to understand, previously, Mr. K.T. Jithendran, somebody asked him about whether we have the bandwidth or not, so we -- the current cost is because we have already built the bandwidth and sort of people are on the bench right now waiting for projects to launch. So over a period of time, this cost will get absorbed. And when we quote our what we call it, IRRs and our EBITs on projects, we have a process of providing x percentage based on the project size of our fixed cost to the project for arriving at the IRR and the EBIT. So that way, we are taking care of. So yes, they might look a little high right now, looking at..

I was not coming from whether it is looking high or not. I do understand it's a building phase. Just wanted to understand that -- so if you can expand a little bit more on this INR 200 crore or whatever the number is on the corporate overhead, how does this team structure look like? How many people? What are they brought? I mean if you can give some color on that area? Like why do we require so many people at the planning stage? I'm sure there must be reasons, but some flavor to it.

First of all, the IN 200 crores figure is a misnomer. It's only less than INR 100 crores is our overhead. It's over INR 100 crores, here about 250 to 300 people divided over this thing. So as I see, the number is only about less than INR 100 crores, the rest is all largely expenses for your marketing cost, what you have to expense out when you do your launches, et cetera. INR 200 crores is not the right figure.