Arihant Superstructures Limited (506194) Earnings Call Transcript & Summary

Thank you. Good afternoon, everyone. I would like to welcome Mr. Ashok Chhajer, Chairman and Managing Director of Arihant Superstructures Limited; Mr. Abhishek Shukla, Chief Strategy Officer; and Mr. Deepak Lohia, Chief Financial Officer of the company. I would like to hand over to Mr. Abhishek Shukla to give Q1 FY '22 results highlights. Abhishek ji, over to you.

Thank you, Vastupal. First of all, a very good afternoon to all of you. And thank you very much for taking time out on a public holiday and joining us. I'll first take you through some operational highlights for quarter 1 FY '22. And then I'll move on to the financial highlights, followed by a brief about the company's strategy from Mr. Ashok Chhajer, our CMD. So to start with, we have -- the quarter 1 was marked by second wave of COVID. However, we have been able to achieve one of the best performances in Q1 FY '21, having learned important lessons from the COVID shutdown last year. And we have unveiled the new avatar of Arihant Superstructures. And we -- it is a bolder newer avatar, and we do not shy away from taking on bold and aggressive bets. And that's the reason we have been able to digitally launch two new projects in quarter 1, when a lot of the market was in a shutdown mode. We have launched Arihant Advika at Vashi, which is -- which gets us to the high income group, and Arihant 5 Anaika at Taloja, which is an affordable category. Overall, these are 700-plus new units launched. Coming to the sales booking achieved in quarter 1 FY '22, we have sold about 368 units, which aggregates to 3.07 lakhs square feet of area. And in terms of value, it is INR 178.7 crores compared to INR 181 crores in quarter 4 FY '21. The total collection stood at INR 98.9 crores as compared to INR 112 crores in quarter 4 FY '21. In terms of number of units sold, we have been able to maintain the broad momentum in spite of the stamp duty waivers, et cetera, going away in Q1, and we have been able to deliver good numbers in COVID restriction time line. And if you see, even as compared to Q1 FY '21, the numbers are that -- the numbers and growth is pretty high. Taking you through the financial highlights, the total revenue stood at INR 84.66 crores as against INR 10 crores in Q1 FY '21. That is a year-on-year change of about 7x. And as compared to Q4 FY '21, the number stood at INR 124 crores, which is down about 30%. But Q4 is historically and cyclically, the best quarters for all real estate companies. Q1 is generally a slow quarter for most real estate companies. Coming to EBITDA. The EBITDA in the quarter 1 stands at INR 15.39 crores as compared to INR 1 crore in quarter 1 FY '21 and INR 20 crores in quarter 4 FY '21. The PAT figures stand at INR 8.29 crores in quarter 1 FY '22 as compared to a loss of INR 7 crores in quarter 1 FY '21 and about INR 13-odd crores in FY '21 quarter 4. So there has been a significant jump over quarter 1 FY '21 figures. And even if we compare the numbers from quarter 1 FY '20, which is the pre-COVID scenario, the number of units has grown from 149 units sold to 368 units sold now. In quarter 1 FY '20, which is 2 years back, the area sold was 1.45 lakh square feet. Now we are at 3.07 lakh square feet. And the value sold in quarter 1 FY '20 was INR 64 crores, we are today at INR 178.7 crores. So even looking at, since Q1 FY '21 was a noncomparable year for us, but compared to 2 years ago period as well, we have been able to nearly show new sales bookings at roughly about 2.7, 2.8x. So it has been a fantastic quarter. EBITDA margins have reached up from 16.77% in quarter 4 to 18.17% in quarter 1 FY '22. PAT margin has slightly reduced from INR 10.84 crores to INR 9.8 crores. However, quarter 4 had an exceptional item of land sale in Jodhpur. If we take out the effect of the same, the PAT numbers are more or less similar. Now I'll hand over the further presentation to Mr. Ashok Chhajer, Chairman and Managing Director, Arihant Superstructures. Thank you.

Good afternoon, everybody. Welcome. Welcome to the Q1 Con Call. As Abhishek has narrated that vis-a-vis is comparing to the Q1 '20, the non-COVID year, prior to the COVID year also, we have been almost able to do a double and more than double the number of all figures. And compared to the -- comparing to the total annual figures of last financial year ending, we are almost crossing up with the 50% of the total annual year in the first quarter itself. And looking forward, we see that the trend is same, though the shops from the government has stocked up on the year ending March '21, that is the stamp duty waiver and et cetera. In spite of it and in spite of partial lockdown in Mumbai for the month of -- Mumbai as well as Jodhpur partial lockdown in the month of April and May, and June being in full of rain, heavy rains where the transit has been too difficult for people to travel, maybe engineering, maybe sales, we still have been managing to do with our aggressive approach from the sales as well as the engineering team and got the fabulous numbers and achievements. And we see that this trend is going to continue. And in terms of business development, we added up with around that than a 2-acre of new purchases in the quarter 1 until today. And that helps out to add up the square footages on periodic and quarterly basis also. So with the totally paid up lands in the books of the holding company Arihant Superstructures Limited, the approval of plans would be submitted in the Q2 which is a tune of around 1.5 million square feet for both the projects. And looking forward, we are -- the new acquisition of lands are also being talked. And we hope that by the end of this financial year, as the company has targeted, we would like to put up an additional 10 million square feet of more spaces of construction and the projects in the kitty of the company, maybe on a satellite model or on purchase model depending upon the middle-income group to affordable housing, et cetera. And seeing this, we are open for many new ventures in terms of private equity, in terms of strategic tie-up for increasing the size of the book. Till today, with the sales figures which have been sold, the total receivable and not billed to the company is around INR 300 crores plus INR 60 crores of duly. So INR 350 crores -- INR 360 crores is already tied up from the existing clients to flow up in the next 1, 1.5 years. And so there is a clear visibility of cash flows also for a long, long good period of INR 150 crores, which will be added up by the new sales. We are about to have some good few launches in this quarter and waiting for the rains to just slowdown and see that the effective launching is successful. So as -- we are aggressive enough to gear up the books of the Arihant Superstructures Limited. I open the conference call for question and answer.

[Operator Instructions] The first question is from the line of Keval Ashar from DSP Investment Managers.

Congratulations Ashok ji for -- and your team for good type of performance in Q1 and FY '21 as well. So firstly, I wanted some idea on the real estate scenario currently. So that we have seen that over the past 5 years, there has been a stagnant prices in real estate. But in FY '21, we have seen that prices in real estate has risen up. So do we see the up cycle in real estate coming in for coming few years?

Yes. And if you see the trend in the last quarter, what informations are available from the analysts and the industry, there is already an increase in price by 5% to 7% to 10% depending on location to location. And looking forward, the trend would continue. It may not be a very speculative manner of working, which happened up in the era of 2008 to 2012, but there would be a good steady increase in pricing of sale price of the product also.

Correct. Second thing, which I wanted was, what is the current ready to sell inventory with us? And how much sales are we planning in FY '22, number of units?

Today, we haven't ready to stock move -- ready-to-move-in inventory of around less than INR 100 crores, including both the projects Arihant Arshiya at Khopoli and Arihant Adita at Jodhpur. And what we see that on a quarterly basis and annual basis, we are completing projects. So the ready inventory would be First In, First Out method also. It would keep on moving out and in. And would be steady to in tune of INR 100 crores throughout the years. And what we -- and we -- what the targets have been given to the sales team is to target of around 1,500 flats annually. And with respect to it, when we see the quarter 1, we already achieved that quarter 1 target of 3 months, in spite of the environment not being very much comfortable in terms of people to travel.

Correct. Correct, sir. Second thing, which I wanted to know is we've reduced our debt by INR 90 crores estimated in FY '21. So it is currently at around INR 290 crores. So how much debt reduction do you plan in FY '22 we do plan?

I think it would be very marginally because business development would be given a major priority. And for your information, out of this INR 290 crores and -- which has not changed from the year ending March '21 to quarter-ending -- quarter 1 ending this year. But out of this, around INR 125 crores is the secured debt. And the rest of is unsecured debt by the promoters, which are payable [ and enable ]. So this leaves the company to a very comfortable position of servicing in terms of cash flow to only INR 131 crores or INR 125 crores.

Great to know it. And sir, last thing which I wanted to know is Arihant Advika, that is our high-end luxury project in Vashi area. So is that ready for sale and -- because that can basically increase our average square feet prices for the yearly sales?

We already have got the plans approved, the RERA registration done, and the sales have already started off within a good size of campaign. And the rates are something around INR 15,000 a square feet. And we see that Vashi has a predominant very big demand from the last many years. It's almost around 13 years, the project -- first project has come. And we are about to start off the construction. It is a redevelopment project with an asset-light model. And hence, the time it starts off, the sales figure would contribute to a lot to the total number of figures.

Correct. So in FY '22, will be seeing sales in Arihant Advika, right?

Yes. It already has started off. We sold in the prelaunch stage a decent amount of it.

The next question is from the line of Tirath Muchhala from Elusividya Advisory.

I wanted to know about Arihant Advika, if you could just tell us more about the kind of margin or IRR profile? And how did you come across this redevelopment opportunity? Just to understand...

IRR would always be very high because the initial land payment is not there. And the equivalent to land payment happens a bit throughout the cycle of the project, which is in the model of rents and deposits been paid. And so IRR to the investment would be quite good and very high. In terms of margin to the sale price, we look forward for an average of 15% to 16%, 18%, 20% of market average selling -- margins to the selling prices.

And -- the old developer has repaid the premiums or the duties that need to be paid? Or how is the structuring of the deal?

Can you please come again?

So how -- I wanted to know how the deal was structured. Is it completely owned by us now, Advika? Or is it...

Yes, it is a redevelopment project, which the company entered up into a development agreement with the people in the year 2013. It took a reasonable time for the notification and the approvals to come, though investment was very paltry. And hence, that token investment has yielded to a greater opportunity. And it is owned -- it is 100% owned by the Arihant Aashiyana, subsidiary of the company. And so it is not within any external acquisition at a project level.

Okay. Superb. Can I ask a few more questions? Or should I get back in line?

Please. Continue.

So I wanted to know if -- I've seen some adds of Arihant Aleenta. So -- but I haven't seen it in the presentation. So is that part of the pipeline? Or is it a promoter building? Or what is that?

That project was taken in the year of 2009 prior to this listed company coming into place. And hence, as the strategy had been there in the year 2009, '10 when the company was INR 25 lakhs of prepaid up capital company with no assets and liabilities, and none of the projects were brought in by valuation method to the company's kitty, it was in the form of equity and debt. Where in the year 2010 onwards, the funds were utilized for the acquiring of almost 30 million projects -- 30 million square feet of projects all around in Jodhpur as well as in Mumbai. Hence, this forms to be the project prior to the company coming and hence, it happens to be in a partnership firm of the promoter's level.

Okay. So the listed company, we don't have any stake in this, correct?

Yes. They were -- in terms of project management consultancy and in terms of project administration, the holding company is getting in fees from this company. And hence, the management would be done for execution of the project at engineering level by the Arihant Superstructures Limited, wherein a fees will be given by the company -- by the Arihant Aleenta company to be holding company.

The next question is from the line of Vaibhav Kacholia from VK Capital.

I wanted to know at the end of quarter 4, we had something like 3,500 apartments of -- in pipeline plus what you are planning to launch. So what would that number be now?

The total size of the company with the existing project where the approvals are in place is to a tune of 5,500, out of which 3,500 is the number where the construction was ongoing. In to -- what was added up to these numbers is the two new launches, which happened in the month of April '21 that is Arihant Advika, bringing in 350 units and Arihant 5 Anaika bringing in the same size of 300 units to the total size of -- on the startup of projects. So that was already accounted for 5,500 numbers. And the 3,500 number where the projects are under shelf and open for engineering as well as sales today is to a tune of 4,100.

Okay. So this was not anticipated earlier. And this is a -- so I -- what I could make out from the Q4 con call was that 3,500 was including ongoing plus what you were planning to launch in FY '22?

Can I take that, sir?

Yes, please, Abhishek. Over to you.

Yes. So thank you Vaibhav for the question. So what has happened is with the new UDCPR coming in, there has been some FSI increase in a couple of projects. So that's where some of the additional units are coming in. And as compared to the Q4 presentation, looking at the current environment, we are envisaging further launches as well. So if you see in the current presentation that we have uploaded on the exchanges, you will see that the new launches have now gone up to about 2,900 units. And added to that was 1,200-odd units from the ongoing inventory. So that takes it to about 4,100, 4,200.

Okay. This is as of Q1 end, 4,100, 4,200?

Yes, yes, yes.

Okay. And Mr. Chhajer, so can we look to increase the sales velocity further? And what would be the challenges for us to sell more out of this 4,100, whatever plus, I'm sure new projects may also get added in the future. So how do we increase the velocity, 1,500 is what you said. So can it -- how does it become 2,000 or 2,500 this year or next year or whenever?

We see that we will be achieving around 1,500 plus sales and the rest would follow up because projects are of -- generally the real estate projects are of good size, and it doesn't get sold out at the start of the project's day. And over the period cycle of the project, the project gets sold out as well as the new projects get added up. So we don't find any challenges. We are pretty confident of getting the sales number of 1,500 for this year and which means almost a 50% CAGR to the last financial year ending '21.

Right. And this year, sir, average value per apartment will be higher? And what range will it be, like INR 50 lakhs? Or...

See, average always depends upon what type of project is getting launched. So by and large, I think it would be the same figures of 4,500 and around. And because the company owns a project right from INR 25 lakhs onwards till to a tune of INR 1.5 crores so the new projects which are going to come around affordable housing, there is [indiscernible] where RERA has been [ reduced ] yesterday only, and the project is scheduled to launch up in the first week of August or when we see that the rains have dropped down. And that is within CapEx of INR 23 lakhs for one bedroom, hall, kitchen and around INR 34, INR 35 lakhs for 2 BHK. So what is more important for the company, which is -- where 85% is into affordable housing, is the margins and the IRR rather than the average size -- ticket size of the project -- of each flat sold. For your answer, it will be everything out to be exactly the same what was in the last financial year.

We got that, got that. And sir, one more question. Like over the next 3 or 5 years, how do we scale up the company, like we've been performing fabulously. So how do we scale up the company to much larger sales like what can be your aspirational targets in terms of sales? Can we reach 4,000, 5,000 apartments and stuff like that? Like other builders have been doing huge numbers as well. So where can we hope in the next 3 years?

Given the existing capital, I think we can move out with a very nice CAGR of 50%. And given the equity infusion or the capital in the hands of the company, the results can be [indiscernible] of even 3x, 4x also. Because the strategies which we adopt has been already visualized by the markets and the analysts, how we take care of in the bad times of like '18, '19 also that is due to the experience of 1996 downfall by the main promoter group and the management committee, the downfall in the time of 2005, and we knew that we can sell through even this time also. So given the capital, I think we can easily go to 4x with the number of size of projects being increased. But with the existing cash flows and existing size of the capital, which we have, I think we'll be able to do up to 50% CAGR.

Understood. Understood perfectly, sir.

Capital will be required to get into the next orbit of that size. The business development department is almost ready for it. And it is having proposals of the same nature and kind on the table, which can be engaged. But as told, we generally do not do up and oversize of project to the capacity which we have and leaving out ourselves into a position where the existing projects are also disbalanced. So the first priority is to see that the -- nothing goes wrong in terms of implementation of the existing projects. And they are implemented first. The funds are being allocated to them. And a marginal excess cash flows are utilized for the new project acquisition. So capital would be required for these type of numbers that we can talk about and 4x size of the company also.

Understood. Understood perfectly, sir. And sir, in terms of business development or the sale of apartments, are we facing any competition like Godrej had bid for that Navi Mumbai CIDCO project. So had we also bid for that? And in general, are we seeing competition in business development and in apartment sales?

No. It is -- Navi Mumbai is a big market and it's a blooming market. So more number of players make more better market like what -- when we talk like the Zaveri Bazaar owns up almost all the jewelers, but still it -- though being competition, it's a successful market. The Navi Mumbai and Jodhpur where we talk about, it's a successful market. And more the number of players of organized developer comes and the consolidation happens with these smaller developers, we have a better position. And we are confident that when we talk about numbers with the Godrej's also, we have higher numbers than them in the region of operations of Navi Mumbai.

[Operator Instructions] The next question is from the line of Nilesh from Metadesign.

Excellent numbers, and it just seems like yesterday, we had quarter -- yearly review call. 3 months is such a short time for real estate to accelerate I think. So Ashok ji, the sales that have happened, what is the payment scheme that customers are preferring? Are they going with say construction-linked plan? Or is the subvention scheme still in favor or how? Can you just throw some light?

We do a simple sale on a project -- on a stage-wise completion manner payments. So we don't have any subvention schemes going on where the company has a contingent liability to pay the interest for the flats been booked. We just go as real estate has been all these years, plain vanilla, about selling and taking the payments as per construction-linked plan.

Okay. And these two projects which have been launched, they are expected for delivery by what date?

Can I hear you more clearly, Nilesh ji?

I said, the projects which have been launched, the Advika and the Taloja projects, they are -- they have slated for completion by what date, by which quarter or which year?

This would be completed within a range 4-year plan. We tell to the clients that it would be a 4-year plan. But for the -- for the compliances to be done and for the safety and for giving the company save product, we always have in RERA and very extended -- date [indiscernible]

So the INR 360 crores that you said, which is billable and to be received in the next 1.5 years, is this a part of these 2 projects or part of other projects also?

This will flow from all the projects.

From all the projects.

It's not for only two projects because the larger projects are Arihant Aalishan, which is ongoing. Arihant Aspire is almost 3 million square feet, which is ongoing. There is around 1.5 million at Arihant Arshiya. There is again around 1.5 million in Jodhpur at Arihant Anchal. So the size of the projects are in the two categories that is: a, 50% of the size are to a tune of 1.5 million to 2 million and 50% are faster cycle projects of less than 0.5 million square feet.

From a cash flow perspective, what kind of credits will you enjoy from your material suppliers?

Our time cycle is around 30 days for the vendors.

Even for the labor contractors?

Everybody.

Everybody. We also said that Ashok ji that around INR 100 crores is our ready-to-move-in inventory that we hold. I remember there were some taxation issues on the rentals being charged by IT department or something like that. So do we have provisions for those? And are we actually paying some tax for holding completed inventory?

We have accounted it for, but we are not paying it for. And whenever it comes in terms of assessment, we would take care of it.

Okay. There was also an item on the convenience deed, which has been by defect [indiscernible] for society. So does it have any impact on us or where we are gaining on some accounts by the UDPCR (sic) [ UDCPR ] giving more FSI. Are we also losing on some accounts because of convince directly gaining...

We have [indiscernible] strategies of completing the projects and handing over societies within the municipal time throughout the ages of almost 2.5 decades. And so we keep and support. We don't sell services. We don't sell maintenance liabilities, et cetera. We do support to them in terms of managing it in the initial days till the people have -- people in large come to the society. And an average of 12 months, we hand it over the accounts to them. And so we don't gain anything from it. We don't pay anything from our pocket either. And in terms of FSI, we know that we don't want to -- as a strategy, we don't want to add on more flows and -- enhance the life -- generally try to finish it off. So we know that lands are available. Opportunities are more available rather than keeping the customers waited another 1 more year.

From a profitability perspective. So if I understand correctly, you are also on the line that EBITDA of 20% would be consistent. And it would be possible for us to maintain that going forward, right, for a foreseeable future?

Sorry to interrupt, Mr. Nilesh, this is the conference operator. There's a disturbance coming from your line. Request you to mute your line while the management answers your question.

Yes, I'm sorry. Sure. Yes. Do I need to repeat the question?

Can you repeat the question?

Yes. I'm saying from a profitability perspective, this 20% EBITDA is something that we can -- I think if I understand correctly, you are also targeting that for the foreseeable future. Can we consider this to be intact or ensured?

Ensured? The EBITDA margin would remain the same, and we'll try to inch it up to another 10% to the existing 17%, 18%. But -- so if your question is what the EBITDA margins would be in the coming days, you can add on to it -- to around 20% or 22 -- with a wide range, and then with the 20% to 22%.

Okay. Okay. And to increase our margins, are there any forward or backward integrations like, [indiscernible] of the world have integrated forward or any backward integration of manufacturing of doorways, windows of that sort. So is there something you can mention?

In terms of the increasing margins, we don't have that strategy. We price it out in the year 2012, where subsidiary was formed, Arihant Technoinfra Private Limited, wherein the AC block units was -- manufacturing unit was put up in the state of Rajasthan, which was the only unit in the state of Rajasthan. So it was a monopoly product. Somehow the real estate got not to a fair good upward turn cycle, the construction was dropped out. The unit was -- the unit went into big losses. And Arihant Superstructures were holding 60% of the stake in that particular entity. And then from the promoter side, we offered out the exit to the company from the losses as well as the entity and took a buyout of 60% shareholding from their -- from them -- from the holding company to our personal kitty. And the company was protected from the losses coming to the balance sheet of the company, which was to almost a tune of something around INR 35 crores, INR 40 crores.

Okay. Okay. Last question, sir, when do you think we are ready or we would want to raise capital again now? There is an approval, which is there. So when do we see that come into the markets?

We are approaching markets from this day Q1 ending itself. And we see that -- well, we are open for it by the -- by any given time, whenever the investor is fairly interested. Because that is the only way where the growth of the company would happen. And wherein the promoter holding would get reduced from 74% to -- if there is a dilution of 20% from 74% down to 60%. And then the debt of the promoters can be converted again into equity at that same price what the investor is coming in. And this is how the numbers of the balance sheet of the company would change to a larger extent, how the ratios would change, how the advantage would go to the each and every shareholder and the minority shareholders also. So that is the strategy. That is the plan that -- given the capital, business development would be spilled up. Given the capital, the equity holding of the promoters will get reduced. And consequently, the debt of the promoters can be converted into equity at the same price of the incoming investor. Just how [indiscernible] would happen is where the company's real worth and real -- the numbers would be there. As we -- as initially in the conference call of today, we had told during the year 2009, it was by the way of rights and reverse merger, the company was taken after the price was issued from INR 25 lakhs to INR 40 lakhs paid up capital company, where 75% is holded by me. So it is only INR 10 crores of public raising where the company has started off. And the management has been able to build the company from INR 10 crores of investment from the public to a size of company with INR 7,000 crores of book and within INR 150 crores of net worth. So this tells the strength, given the [Foreign Language]. So when we compare peer companies, it is like Arihant has yet not raised from the markets largely. And it's a real good time for an investor to come in fairly. As more and more business development happens, the value of the company would change. And the greater opportunity going forward leaving behind the opportunity, which could have been left out in the past deals when the [ investment ] would happen.

Correct. No, of course, that has been a dream run for us going forward. But from the promoter's perspective, how much minimum majority [indiscernible] you would want to ensure can you see that we will not go below x percentage as a promoter holding?

Exactly, I cannot figure out today. But by and large, what we see is that what the investor want to put in would decide upon the reduction or dilution percentage would be decided to -- from there onwards. As a wishlist from my promoter, personal shareholding, I would wish to dilute it out from the top to bottom by 20%.

Okay. Okay. Sure. We surely want you to be at the helm of [ affairs ] irrespective of any [indiscernible] to continue the dream run.

[Operator Instructions] The next question is from the line of Apurva Mehta, an individual investor.

Congratulations for the good set of numbers. Sir, I have a few questions. My first question is, what is land bank we have currently?

We have around in terms of buildable, 9.5 million, which can be to a tune of something around 50 acres.

Okay. And sir, my second question is, as the market is improving, do you see rising land costs?

Generally, wherever there is a momentum, the -- all the verticals try to get the best of it. Undoubtedly, there will be a rise in land cost also, compared to the previous years or previous ages.

Okay. So does it have impact on our land acquisition strategy?

[Foreign Language]

As there are no further questions, I would now like to hand the conference over to Mr. Vastupal Shah from Kirin Advisors for closing comments.

Thank you, everyone, for joining the conference call of Arihant Superstructures Limited. If you have any queries, you can write us at [email protected]. And once more, many thanks for joining the conference call. Thank you.

Thank you.