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

Ladies and gentlemen, good day, and welcome to Century Textiles and Industries Limited Q2 FY '24 Earnings Conference Call, hosted by JM Financial Institutional Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumit Kumar from JM Financial Institutional Securities Limited. Thank you, and over to you, sir.

Thank you very much. Good afternoon, everyone. On behalf of JM Financial Institutional Securities, I would like to welcome everyone to the 2Q FY 2024 Earnings Conference Call of Century Textiles and Industries Limited. Today, from the management, we have with us Mr. R. K. Dalmia, Managing Director; Mr. Vijay Kaul, CEO, Pulp and Paper Division; Mr. K. T. Jithendran, CEO of the Real Estate Division; and Mr. Snehal Shah, Chief Financial Officer. I would now like to hand over the call to the management team for their opening remarks. Over to you, sir, and thank you.

I'm R. K. Dalmia. Good evening, everyone, and welcome to the earnings conference call for the second quarter of the financial year 2024. Let me first take you all through the financial highlights, followed by the business-wise operational highlights. For the second quarter for financial year 2024, the consolidated turnover stood at INR 1,087 crores. The EBITDA for the quarter was INR 46 crores with a net loss of INR 33 crores. For the first half of the financial year 2024, the consolidated turnover INR 2,193 crores. The EBITDA was reported at INR 181 crores with a net loss of INR 40 crores. Now let me take you through some of the key highlights across our 3 business verticals. Starting with our Real Estate business, during Q2 financial year '24, the sector has displayed strong demand and absorption rate across all categories. There is a fall in the inventory overhang across cities with reduction in new launches ahead of the upcoming festive season. Birla Estate achieved booking worth INR 708 crores in Q2 FY '24 at our already launched projects. Our collection remained strong at INR 251 crores from all projects during the quarter. During Q2 '24, we acquired 2 notable projects at the premium locations with an estimated GWV (sic) [ GDV ] of approximately INR 10,300 crores. We signed a binding MOU for the purchase of approximately 30 acres of land in Thane, which has a potential of more than INR 7,600 crores, and we acquired approximately 6.8 acres of land in Mathura Road, New Delhi, which has a potential of more than INR 2,700 crores. These acquisitions represent our commitment to growth and strengthening our presence in the city where we are present in. We launched the first phase of Birla Trimaya, Bengaluru, and we received a spectacular response from the customer. We achieved booking value worth INR 467 crores, selling almost the entire phase within 36 hours. At our launch, product education is progressing smoothly with a strong focus on safety, maintaining high-quality standards, and on-time delivery. We have completed approximately 23.5 million safe man-hours at all our under construction projects, emphasizing our dedication to safety and quality. The delivery of Birla Alokya, Bengaluru, has commenced from October '23 and other 2 projects, Birla Vanya, Kalyan, Birla Vanya (sic) [ Navya ] Phase 1 Gurugram, are on track for delivery in financial year '24. And we are committed to providing an exceptional experience to our customers at the time of delivery. Birla Navya, Gurugram, received a Platinum Award in quality, excellence during the eighth Apex Foundation Expo held in Udaipur. Additionally, Birla Tisya, Bengaluru, has received ESG and Sustainability Awards at the 2nd edition, Sustainability Summit and Award 2023 by UBS Forum for maintaining sustainable green practices at the site during the construction phase. These recognition highlights our commitment to quality and sustainability. On commercial asset, Birla Aurora and Birla Centurion continue to generate stable rentals and re-prioritize creating a safe environment for all stakeholders at our properties. Lastly, the Indian Estate sector is entering a new phase of growth, driven by buoyant consumer sentiment, robust property launches, and competitive pricing and a stable interest rate environment, and we believe the momentum is expected to continue with increasing demand with strong consumption record. Our focus on the luxury segment and growing interest of buyers in premium housing allows us to maintain an optimistic view of the sector's future. Moving on, the Pulp and Paper segment. Paper prices continued to be under pressure during the quarter, and the fall has been quite drastic, although around 15 September, prices seem to have bottomed out in all likelihood. International Pulp price also went up after 15 September by about $100 per metric tonne, which is a positive side. In the second quarter FY '24, the overall capacity utilization was 89%, with overall sales volume increased -- increasing by 8% as compared to the last quarter and marginally declined by 1% on the year end -- on year end 107,608 metric tons. This was primarily due to poor demand by tableware consumers -- customers in the quarter and -- as most of the tableware plants were not operational due to heavy rain and flood in Gujarat, Himachal Pradesh and other places. In Q2 financial '24, the net sales declined by 15% on year to INR 799 crores, while EBITDA stood by INR 76 crores in margin at 9.5%. We witnessed normalized demand for writing and printing paper in Q2. The domestic and export demand on tissue products remained sluggish. And on board segment too demand remains sluggish, although there was improvement after mid-September '23 against the backdrop of the upcoming festival season, and mills have also announced price increases due to extreme cost pressure. Demand in writing and printing paper as well as the board segment is expected to increase due to seasonal impact of festivals. Exports are expected to pick up in the upcoming months with a better realization and more price stability. Tissue demand should be also improve with a higher focus on domestic sales for better realization. Export demand from Europe, U.S. is increasing slowly. However, the situation of oversupply will continue till the end of the -- this financial year, as demand growth is lower than the additional capacity expansion by domestic build. Lastly, talking about the Textile division. For the first quarter under review, the net sales where INR 235 crores with EBITDA loss of INR 20 crores. In Q2 financial year '24, sales turnover increased by 8% on quarter by 5% on year. However, over a lower sales in Q1 and Q2 or on account of sluggish demand and excess inventory levels with Indian domestic apparel brand. In Home Textile, there had been some relief in drying order and aggressive pricing as retailer have started to place replacement and explore new opportunities. We have won Society of Energy Engineers and Managers, SEEM's GOLD award successfully third time in row, this is about improving energy efficiency by any manufacturing facility. Considering the constantly changing market dynamics against the backdrop of ongoing geopolitical crisis, we have shifted our focus for maximizing productivity to optimizing cash flow, which involves closely monitoring our working capital and inventories. We are developing new sustainable products by utilizing our dedicated state-of-the-art and R&D facility, design and supply chain. With several FTAs in finalization stages, we expect the fabric and garment retail market demand to improve from Q4 '24. Thank you.

Sir, shall we begin with the question-and-answer session?

Yes, go ahead.

[Operator Instructions] We take the first question from the line of Mr. Vivek Ramakrishnan from DSP Mutual Funds.

This is Kunal from DSP Mutual Fund. So I just have 1 question around your Real Estate business. So since now we have so many projects in hand already in the under construction space, and we have also acquired 2 projects. So I just wanted to understand how would our cash flows look like over, let's say, next 3, 4 quarters? And related to that only, how would our debt levels pan out?

So -- it's Vivek?

Yes, Vivek Ramakrishnan.

No, I think there is somebody else.

Vivek Ramakrishnan.

Kunal, from DSP.

Yes, Kunal. So right now, as you can see, our debt is somewhere around INR 2,200 crores. And we actually -- that is a gross debt. Net debt is around -- we have another about INR 400-odd crores in mutual funds and bank balances. So roughly, our debt is around INR 1,000 crores or whatever, INR 800 crores. So we expect the debt to go up more or less at the same level INR 2,200 crores or something like that. Hopefully, with a debt-to-EBITDA of around 2 or something. And that would take care of some of the, what you call it, investments that the real estate might be doing, which are in the pipeline at the moment, anywhere in the range of INR 500-odd crores or something like that. As far as the existing projects are concerned, because of some good response that we get for our project, they are self-paying for themselves. So basically, the money that we require is only for growth capital. So that is fairly provided for us. So we don't see -- foresee any major issues in funding those things. So cash flows are pretty good enough.

Is it fair to assume that the cash -- debt level would be at the similar levels?

Yes, absolutely. So I said that to similar levels with the expected INR 500-odd crores investment from -- with the investment -- approximate investment of INR 500-odd crores, but if the Real Estate business is lucky enough to get more deals, probably to that extent, the debt might go up. But even with INR 2,000-odd crores of debt, we were comfortably placed with about [ 2 ] debt-to-EBITDA.

We'll take the next question from the line of Avish Jain from Antique Stockbroking.

Congratulations for excellent response in Birla Trimaya. Sir, my first question is on -- in terms of revenue potential, how much could be launched in the second half of FY '24? And what are those projects?

Amit, K.T. here. So our target is to -- aspiration is to reach a gross prebooking value of about INR 3,000 crores. We are expecting to launch the new projects in Bangalore, which is currently R. R. Nagar, which we had acquired last year. And we are also planning to launch Walkeshwar in Q4. And we're also planning a new phase of Birla Niyaara, Worli in the coming quarter. All of these together with our current sustenance sales should help us achieve a target of around INR 3,000 crores.

Okay. And sir, my next question is on the employee cost. Sir, it has increased substantially by 14-odd percent. So why is this a sudden jump in employee costs?

I'm not sure about 14% or what. But as we grow, we keep growing, we keep increase, we keep recruiting new people. Right now, we are on a very strong growth path. So employee costs will keep growing. And we are not too concerned about employee growth. I think we need the right talent and the right capability to build the organization, and we are not leaving any stone unturned out there. And we are [indiscernible] employees, managing this overall projects -- more than 6.4 million square feet under construction. Very soon that will go to about more than 100,000, I mean, 1 million -- sorry, 10 million under construction. We are handling about 12 projects. So by that time, we are -- I mean, less than adequately staffed is what I would say. So I think...

Actually, K.T is trying to answer it from a perspective of real estate, but I think the question that you're asking is from a Century Textiles overall expense, which has gone to from some INR 87 crores to INR 100 crores or something like that, right? if I'm not mistaken.

Yes, yes.

So that is basically in the July cycle, we give a variable pay, and we gave your -- what we call it, year increments, et cetera, to our staff. So this is a normal increase in the salary, nothing to worry about [indiscernible]. It's already provided for in our budgets, et cetera.

Okay. Okay. The next question is, sir, how much has been the collection in Birla Niyaara? And when do you plan to launch the second tower?

So we have approximately collected close to about INR 750 crores in Birla Niyaara, approximately there. And our focus is to launch this in the coming quarter, Q4.

The next question is from the line of Akshay Ajmera from Nirzar Securities.

Sir, could you please provide us a breakup of the INR 700-odd crores of sales booking during the quarter?

The breakup?

Yes. I mean, project-wise if we can have the breakup of -- from which project how much we have collected?

Yes, we can even provide you offline, [indiscernible]. So broadly, as I said, in Birla Trimaya, which has been -- our launch is about INR 467 crores. Navya, Gurugram is about INR 108 crores. Niyaara Tower A balance whatever inventories, we have done about INR 64 crores. We have done in Vanya about INR 37 crores; Alokya, INR 14 crores; Tisya, INR 18 crores. Yes, so broadly, that's a breakup of the INR 708 crores for quarter 2.

Okay. And sir, regarding the paper division, we have seen that the margins have dropped drastically from 18% EBITDA margins to 10%, largely, what we see is because of realization, and what you have guided in the earlier calls is, we will be targeting 20% -- about 20%, 22% EBITDA margin. So can you explain this 10% EBITDA margin in terms of realization and in terms of cost input?

So Akshay, basically, we look at it this -- actually, it is more in the second quarter that we are seeing this as a temporary blip. So roughly, the realizations have gone down by almost around INR 10,000 per ton on an aggregate basis. So a great part of it is because of the pricing and not much on the cost front, et cetera. Essentially, the volumes are -- actually, the volumes have gone up compared to last quarter, but the bigger hit is on the realization front, which now is looking up. And the realization was down for various reasons. We can get into it if you want to.

No, thank you. And again, on the paper division, can you also give us a little bit on the outlook side, on the margin front?

This is Vijay Kaul here from Paper. Mr. Ajmera, the outlook for the next 2 quarters seems to be quite okay. And we should be doing much better than what we have done today because by 15th of September, almost the prices have bottomed out. And now the prices are slightly looking up. And as also the imports of pulp, the prices of the pulp have gone up. So because of that, the market is also a little bit bullish on that front, that the prices will increase. So the outlook for the next 6 months is quite okay. We should be doing...

And we would be looking at a similar kind of margins that we enjoyed in past, 18% and above?

Yes, yes. Definitely 18% and above. Yes.

[Operator Instructions] The next question is from the line of Mr. Mukesh from Moon Venture.

I have a couple of questions. We are going to book the revenue of 2, 3 projects in this financial year. But after that, in FY '25, '26 in Real Estate business, we are seeing that quite a bit lull period in terms of revenue booking. And how you're trying to avoid in future conditions such that this lull will not come in future years also?

So see the point is the way the real estate revenues are booked is on completion. Unlike in the past, they used to do project percentage completion, unless you have a noncancelable contract, et cetera, but since we are in multiple locations, and the right way to do it is on percentage completion. So it's a given that this is going to be lumpy, unless we have enough project launches, a number of projects and -- so that we can have steady project launches every quarter and also project deliveries every quarter going forward. So that will -- that is going to take some time. So over the next few years, at least, it is going to be lumpy. That's the way industry is, and we have to -- and that's why, it has -- is going to be. And yes, and since we have started relatively newer than many others well-established developers. So yes -- so it is -- so this year, we'll have a chunky number. Next year, it will drop down, and it will pick up based on the deliveries. So I don't think -- unless we really stack up the number of projects and it'll take a few years for this to kind of become steady.

Sir that's what -- but my question is that what actions we are taking to make sure that this consistency should be taken care of, and what actions you are taking on the employee side and projects launching side?

Action is very simple, keep signing new projects, the right new projects and keep launching it and keep completing those projects as quickly as possible. Just keep on the grind, launching, add projects, get approvals, launch it and complete it, keep on adding, that's the way. Since we have started, the only problem is that we have started much later than the others. The others look 15, 20 years, then we will do it in 5, 6 years more.

But sir, the problem is that as demand keep rising, and we don't find enough good opportunities for land and all that. So how are we trying to just to make sure that we have a very healthy pipeline for that?

So far, it has been good. We have added INR 16,000 crores of projects this year. We did 3 projects and added 3 new projects in Q1, 2 new projects in Q2. We have a very strong pipeline. There's nothing to worry about. We'll keep continuing the way we are doing it, and it's all doing -- going very well for us. Yes. We have a [indiscernible] pipeline of about INR 45,000 crores of gross development value. We are looking at adding another about INR 10,000 crores this year, maybe another INR 20,000 crores next year. And we have enough and more gunpowder for that. So we are pretty confident that we are on the right track.

That's great to hear, sir. Sir, 1 more question on the side of Worli project. Your RERA approval is in FY '28, but we feel that as the speed of execution is quite good, can -- be able to deliver it much before in FY '27?

As of now, it's going good, but we'll stick to our guidance of '28. Maybe we can deliver it a few quarters before, but we are in still in the early stages, so we'll continue with our current guidance.

Okay, sir. Small suggestion from our side, sir. Can you provide project-wise collection of all the projects, it will be better for us.

Sure, we can give it to you offline.

The next question is from the line of Sourabh Gilda from Motilal Oswal Financial Services.

Yes, congrats on the good quarter sir. Sir, I just had 1 question on the cash flow. Can you please let us know what was the outflows for the 2 business development projects that we did? And overall, do we have any targeted outflow for [ bidding ] this year?

I think roughly, we spent INR 300-odd crores this year, outflows for new projects that we have signed, and we have provided for another INR 500 crores expected outflows for the balance of the year.

Okay. So INR 300 crores as in -- after this INR 300 crores or do we have any payment for this trend? Or will it get spilled over in the balance INR 500 crores portion?

So these projects -- 1 project was basically a JV. So we put in -- already put in the required deposits and balance of purchase of land, which also we have done. So there is nothing much further on the current what we have done. But now there are quite a few projects in the pipeline. The moment we sign deals that based on either land acquisition or joint venture, we will put in the money and we provide it by INR 500 crores. We are okay to add another INR 500 crores if we are lucky to find good products.

The next question is from the line of Avish Jain from Antique Stockbroking.

Sir my question is, sir, when do we see our Gurugram project to launch? And what is the GDV for this project?

Gurugram has already launched now. Birla Navya, we launched it in 2020. We are now -- we have sold almost INR 1,500 crores there. Are you talking about Gurugram? Or are you talking about Delhi, the project, which we signed this year?

Sir, I'm talking about the third phase. When do we plan to launch that?

The new phase. So we are planning to launch this in Q4. So if you're lucky we'll go ahead because there is some resistance from the Haryana government. They're not clearing some of these -- these floor projects, wherein -- this thing so floors -- as a fact, clearance of floors. They're saying instead of 4 floors, we'll clear only 3 floors. So all these projects which are floor projects are currently stuck at the government level. We are hoping that it will get cleared by either Q4 or it may go -- but there's a possibility it may go into the next quarter. Yes. So that is the only -- financial year, I'm sorry, yes.

And sir, what was the GDV for this project for third phase?

About INR 1,000 crores.

Okay. And so is there a possibility of any further project acquisition?

Yes, yes lots of possibilities. Several projects are in the line. They're lined up.

The next question is from the line of Mr. Mithun Soni from Geecee Investments.

Sir, just 1 query. Can you share like what has been our collection efficiency? In the sense, how much we would have asked for from our customers? And how much we have got?

Yes. So thank you for the question. So of course, aided by a very strong rising market, positive market, collections have been very healthy and strong and efficiency is unheard of, is close to more than 98%, is at an extremely positive, unheard sort of efficiency in collections.

This is for Q2 or for H1?

Overall.

Overall.

We look more from the point of view...

So whatever billing we have done, we have been able to get money for [indiscernible], yes.

And sir, can you share like what has been our construction cost? Like how much construction expense altogether where we would have spent...

Yes. That's a -- checklist item, we can do that. We can -- better those numbers we can share you offline. Construction cost varies from project to project, region to region, stage of the construction...

I mean to say -- what I mean to say is that just the overall, if we would have got about X collection for this quarter against that -- so all right, I'll...

Yes. We can give that number. I mean we'll have to, kind of take it out, but we can share that with you offline.

Okay. And 1 request, sir. So like if you can provide a waterfall like in the sense, given the booking, what is the overall collection we are doing, construction costs we are spending, on how much money is going towards development -- business development expense, so keep investments? So what is the cash flow? So that will give us a good feel as to how are things moving for us.

Yes. This keeps varying from project to project, but we can send you those insights...

If combined also is fine for now. Like whatever is convenient for you.

[Operator Instructions] We take the next question from the line of Mr. Karan Mehta, an individual investor.

I just have a couple of questions. Firstly, on the Paper segment, our power and fuel costs have decreased drastically. So is this trend sustainable?

Sorry, I couldn't get your...

Power cost has reduced...

Yes, power cost -- yes, we are focusing on the total energy cost and that has gone down considerably. And we have got the -- from the -- we had the linkages of coal, which has been revived by us of late. And because of that, we got the coal at a reasonably good rate, which earlier we had to purchase from the market and the market rates are quite high. So the coal rate has also decreased, and the consumption also of coal has decreased at our power plant, yes. And we are continuously working on that, and we want to see that we come to the world benchmark as far as the power consumption is concerned.

Okay. So this trend will continue for the whole year?

Yes. This trend will continue.

Okay. Sir, secondly, on the Real Estate business. So we have done great business development and land purchases in the last 2 quarters. So what's your outlook on further land purchases and business development for the rest of the year?

Our outlook is very positive, Karan. We have several projects to be signed, lined up in all our markets, chosen market, be it NCR, Bombay, Pune and Bangalore. We are pretty confident that we'll be adding at least another INR 10,000 crores of new projects, the way things are looking up. Yes.

Okay. Sir, so on this, we don't expect our debt level to increase by more than INR 500 crores...

Yes, Snehal has already explained to you how this positions. So we are not too much worried about that part.

Okay. And sir, you mentioned that the Haryana government is create -- like not allowing...

Yes, there has been some PIL, and they are considering it. The matter is at the Chief Minister's Office. It hasn't moved for quite some time. All the developers are stuck, and we are hoping that there will be some positive resolution soon.

Okay. Sir, in case that if the Haryana government doesn't allow us to do so, do we have any plans to launch a 3-floor project for the Gurugram project?

Yes. I would rather not -- of course, that's the only thing, because there's a -- I mean, 25% of the FSI going down is not a very favorable situation. So we'd rather wait and hope that things would -- the government will favor us.