Arihant Superstructures Limited (506194) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Results Conference Call of Arihant Superstructures Limited hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference to Mr. Rahul Jain from Emkay Global Financial Services. Thank you, and over to you, sir.

Good evening, everyone. I would like to welcome the management and thank them for this opportunity. We have with us today Mr. Ashok Chhajer, Chairman and Managing Director; Mr. Abhishek Shukla, Chief Strategy Officer; and Mr. Deepak Lohia, Chief Financial Officer. I would now hand over the call to the management for the opening remarks. Over to you, gentlemen.

Thank you, Mr. Rahul. Good afternoon, ladies and gentlemen, and thank you for joining Arihant Superstructures conference call to discuss Q2 FY 2022 results. First, I will go through key operational highlights for Q2 FY '22, followed by the financial highlights of the quarter before handing over to our Chairman and Managing Director, Mr. Ashok Chhajer. Arihant Superstructures is consistently working towards building sales in engineering infrastructure, which has once again led to a strong performance reflected in our Q2 FY '22 figures. During the quarter, we launched affordable housing project, Amisha Phase 2 at Taloja, Navi Mumbai, after launching Arihant Advika at Vashi and Arihant 5 Anaika at Taloja in quarter 1. Overall, 134 units were launched, out of which we were able to do sales bookings of around 40%. Coming to overall sales bookings achieved in quarter 2 FY '22, we have sold about 508 units, which aggregates to 4 lakh square feet of sellable area and INR 208 crores in value terms. This includes some quarter 1 sales bookings, which have been reclassified to quarter 2. This takes the half 1 FY '22 sales bookings to a total of 751 units, translating into area of 6.25 lakh square feet, with a total value of INR 334.8 crores. The total collection stood at INR 110.2 crores as compared to INR 93.9 crores in quarter 1 FY '22, up by 17.3%. Strong end-user demand and low interest rates are some of the key factors driving growth, with majority of our projects located in outer MMR and Navi Mumbai and remote working practices. These markets offer lower-density environments and more spacious apartments at affordable rates, which we believe has been positive for us. Now I'll brief you on the financial highlights. The total revenue stood at INR 88.15 crores in this quarter against INR 64.23 crores in quarter 2 FY 2021. That is a year-on-year growth of 37%. The total revenue of quarter 1 FY '22 stood at INR 84.64 crores. EBITDA in quarter 2 stands at INR 20.18 crores, as compared to INR 13.14 crores in quarter 2 FY '21, with a growth of 53.5% year-on-year, and INR 15.4 crores in quarter 1 FY 2021, which is a growth of 31% quarter-on-quarter. EBITDA margins increased to 22.89% in quarter 2 FY '22, as compared to 20.4% in quarter 2 FY '21. The profit after tax figures stand at INR 11.63 crores in quarter 2 FY '22, as compared to INR 4.15 crores in quarter 2 FY 2021, a growth of 180% year-on-year, and about INR 8.2 crores in quarter 1 FY 2021, which is a growth of 40% quarter-on-quarter. PAT margins increased to 13.2% in quarter 2 FY '22, as compared to 6.44% in quarter 2 FY '21. For half year ended September 30, 2021, the total revenue, EBITDA and PAT stand at INR 172.8 crores, INR 35.6 crores and INR 19.9 crores, respectively. The revenue and EBITDA has grown by 131.7% and 145.4%, respectively. We remain confident of continuing about our business in real estate sector while extending full support to our customers, suppliers and other valued stakeholders. Now I will hand over the forum to Mr. Ashok Chhajer, Chairman and Managing Director, Arihant Superstructures. Thank you.

Good evening, everybody. Welcome to the conference call. The half year of this financial year was firstly viewed by majorly during the start that the shops by the central and central government and the state government is stocked, hence, the pent-up demand is already met up its needs and the sector may not see the same style of numbers of sales what it saw in Q2, Q3, Q4 of last financial year. And to their surprises, what has been found across the leading players and the listed developers and in the major metro cities, the sales have been growing more at a faster pace than in the period of COVID, even if the stamp duty relaxation was not there, even if development charges were reduced to some extent only. And in spite of that, the traction showed after COVID that the larger size of home buying and majority people of taking up and call to buy a home across has resulted into numbers which are unimaginable. And after a long, long period of 5 to 6 years, the real estate is back into its spring mode. And that has been accoladed loudly by the investor -- the industry gurus and everybody. When we come to Arihant Superstructures Limited, yes, in the tune with the market right from Q2, Q3, Q4 of the last financial year and Q1, Q2 of this financial year, as we see that the sales have been progressing consistently on an upward direction. And the method of revenue recognition which Arihant Superstructures has been adopting, which is percentage completion method on the project completed, and the revenue in this mode of -- where the collections are continuous, it shows and will always be very progressive and resulting into a great consistency in terms of business profits. And we see that we would be in tune with the trends of the market. And internally, we are also gearing up for the same mode of growth charts. And I open up the forum for Q&A. And so everybody is welcome. Over to the con call managers.

[Operator Instructions] Mr. Rahul Jain, would you like to ask any questions? And meanwhile, the queue assembles.

Yes, sure. Sir, thank you for letting us host you. So I think what people would be -- all the participants would be interested in knowing your growth trajectory in terms of sales. And any guidance on that front for FY '22 or FY '23?

The sector looks to be very progressive, and the scalability looks to be very achievable by the sector. And we are also in tune with the same momentum. And we have shown up that consistency since last 5 quarters. And what it hopes for that the next 3 years would be 3 to 4, 5 years of cycle is a realistic sector upward trend cycle, wherein there is a great participation by the developers. We could visualize it in the BD department also where land deals have been little costly or little squeezed tight. And that tells the trend of sellers of the land that there is a great momentum in the markets of real estate.

So one more from my side. You've recently acquired a land in Taloja 6.5 acres land. What is the total potential, saleable potential? Or -- and how do you see -- how do you plan on positioning that pretty good product?

It's potentially around 8 lakh square feet, so that's 0.8 million. And the Kalyan is in developed market, and the periphery is showing up in good traction. And when it comes to affordable housing, which is sub 75 lakhs, I think we would be able to do up good, though we call it -- identified as Kalyan market. But in terms of revenue reports, it happens to be what we call as new districts that is villages around Kalyan.

[Operator Instructions] Our next question is from the line of [ Chirag Jain ], an individual investor.

Yes. Sir, I just wanted an update with regards to -- your presentation mentions that you will be doing about 11 lakh -- about 11 million square feet of projects. So what is the time line of the [ tester ] road map regarding the future and the deliverables with [indiscernible]? How much you will be delivering it? So let's take that first.

Yes. So this 11 million is scheduled to be completed in around 6 years of time, wherein the first 4 years would take up the completion to an extent of 75%, 80%. So you'll find a bell chart in terms of completion of project when spread across for the 6 years.

Okay. And sir, you predominantly are into purchasing of land and then delivering projects. You're not into the JD, JV model, right?

No, not very much largely. We have our internal policies where in affordable housing, we don't do joint venture development very largely as it is not profitable to the company. And in affordable housing, we target out the land component to the sale price to the extent of 10% to 15% of the sale only. And in that note, it is not advisable to give 30% to the landowner, and which makes the project not viable. And that's why we generally buy land when it is affordable housing or sub 75 lakhs. When it comes to the about -- around 2 lakhs, that is the upper middle group or HIG housing, we already do joint ventures like we have entered into redevelopment as well as one project in Turbhe, where the ticket sizes are large, where it can accommodate this proposition.

So sir, even more of currently purchasing land and delivering it in that mode, generally, if what I have seen is generally the margins are better. But in your case, if I see the margins are not -- in case of other developers who are doing in the JD, JV model, they have a better margin and EBITDA with you. Because you are having your own land so I think -- so the margin should be better in your case. So if you could elaborate on the shape?

Margins in terms of...

Both I guess, in terms of [indiscernible] as well the PAT level.

Yes. To PAT level may -- because the interest is already being sewed to the funds of the companies. And hence, after deducting the funds, it looks up into that the margins are reasonably -- reasonable or is in tune to it. But if you see our PAT margins, it has already increased to 13.20% in Q2 FY '22 as compared to 6.44% in Q2 FY '21 last year. So given the cash flows and the momentum of the construction taking place, the overheads will get reduced, the interest components will get reduced and margins will increase to an upper level than the current one.

And sir, just the thing that I just read the annual report so in that you last to mention your borrowing cost was somewhere about 11%. So currently, it has come down? Or it is at the same level? So have we done a rating done in order to improve our margin or improve our -- so that we can have better borrowing costs in the future? So is there related credit rating then?

We already have done that and credit rating on that, and it is done by India Ratings, where they have rated us BBB- and stable.

And current borrowing cost would be, sir, as on date?

Around 12% per annum, whereas the larger one in terms of construction finance from HDFC is at 10.7% also.

Okay. So blended would be about 12%.

Blended would be a little near about 12%.

Okay. And sir, just a final question on the current land bank. What would be the current land bank with the company with regards to future developments? Now you mentioned that you have about 11 million square feet. So on this 11 million, I think, sir, the land bank is already in place. So in future, can we -- have we purchased or have we advanced something for land purchase?

There are few acreages of around 20 acres of land in the books of the company. And further new acquisitions would take place on a quarter -- on a consistent [ pacing ] in the coming years. So with the given cash flows, the company will try to acquire new projects to the best extent it is possible.

Okay. And you would be basically based out of in the outer MMR region only? Predominantly just Kharghar, Vashi [indiscernible] and beyond mainly outskirts of Bombay, not -- and we are entering into Bombay, for any of the regions which we've identified, in which you want to enter into?

Our main target is to be in the ticket size of 25 lakhs to 75 lakhs. And this type of product can be delivered and made possible only in the MMR regions, where we have our projects that is Karjat, Khopoli, Badlapur, Kalyan Shil Road, Taloja, Panvel, in this belt only. In the premium regions, belts of Vashi as well as Mumbai, the ticket sizes are something around 2 crores plus. So give -- as a policy, the larger chunk of the company's portfolio happens to be and will be in affordable housing. And hence, we will have to restrict ourselves to this area of operations.

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

Yes. So first of all, congratulations [indiscernible].

Sorry to interrupt, Keval, but your voice is not that clear. If you have got the phone on speaker, can you please take it off speaker?

Am I audible now?

Yes, much better.

Yes. Congratulations to the team for a good set of numbers. So I wanted to know, regarding the funding that we are coming up with, how will we utilize the fund?

As and when it happens out, the objectives as designed and decided by the Board will be achieved.

Okay. And sir, by when do we plan to close the funding? Have we come up with a certain time period?

No, we have not come up with any time period. In the due course of time, as the moment the Board receives and proposal, we will be sharing out to the shareholders and exchanges. And we've already initiated the fresh approval with the shareholders in these aspects.

[Operator Instructions] Our next question is from the line of [ Jerry Shakabat ] from Ambit Capital.

My question is relating to the amount of cost inflation that you have been experiencing and the price hikes that you might have taken. So if you can just help me understand, say, versus the 2019 levels, what have been the kind of cost inflation, given that, say, the major raw materials, be it steel, cement, all of them have been on the uprise and are now continuing? And what have been the kind of, say, average price hikes that you might have been taking across the projects?

The cost of construction has increased to an extent of 10% blended. Cost has been increased to the earlier, around '19 -- 2019, '20. Post COVID, the cost of materials have increased very drastically, though labor cost has not increased. And that effectively means a cost hit of around 5% to the sale price of the product range between the bandwidth of INR 4,000 to INR 8,000 a square feet. And we have incorporated that in terms -- by way of increasing our pricing or reducing our discounts. And hence, we have ensured and secured that there is no contingency losses or operational losses due to this negligency.

Right. So would it be fair to state that you might have already taken a price hike in the range of 4% to 6%, if not more?

Right.

Members of management, there are no questions in queue.

Okay. Thank you very much, everyone, for joining the quarter 2 earnings call. I hand over to Mr. Rahul.

Thank you, sir. Thanks for your time. It was a pleasure hosting you, and I will follow up with any individual requests, if any.

Thank you very much, sir. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes today's conference call. Thank you all for joining us, and you may now disconnect your lines.