Arihant Superstructures Limited (506194) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Arihant Superstructures Limited Q3 FY '22 Earnings Conference Call hosted by Dolat Capital. [Operator Instructions] Please note, that this conference is being recorded. I now hand the conference over to Mr. Kapil Yadav from Dolat Capital. Thank you, and over to you, Mr. Yadav.

Thank you, Nirav. Good afternoon, everyone. On behalf of Dolat Capital, I would like to thank Arihant Superstructures Limited for giving us the opportunity to host this earnings call. From the management, we have with us today Mr. Ashok Chhajer, Chairman and Managing Director; Mr. Parth Chhajer, Promoter; Mr. Abhishek Shukla, Chief Strategy Officer; Mr. Deepak Lohia, Chief Financial Officer, Arihant Superstructures Limited. Now I would like to hand over the conference over to Mr. Abhishek Shukla.

Thank you, Mr. Kapil. Good afternoon, ladies and gentlemen, and thank you for joining Arihant Superstructures conference call to discuss Q3 FY 2022 results. First, I will go through key operational highlights for Q3 and 9 month FY '22, followed by the financial highlights of the quarter before handing over to Mr. Parth Chhajer and then subsequently, our Chairman and Managing Director, Mr. Ashok Chhajer. During the quarter, the construction work commenced and gained pace for our affordable housing projects, Amisha Phase 2 at Taloja and Arihant 5 Anaika again at Taloja. If you recall from our last conference call, this was launched in Q2. We have already sold around 55% of 134 units launched in Amisha, which was launched in Q2 and over 60% of our 250 units launched in Arihant 5 Anaika, which was launched in Q1 FY '22. Coming to overall sales bookings achieved in Q3 FY '22, we have sold about 415 units, which aggregates to 3.66 lakh square feet of area. And in terms of value, it is INR 185 crores. This takes the 9-month FY 2022 sales booking to a total of 1,116 units, translating into an area of about 1 million square feet with a total value of INR 520 crores. With this, we have already surpassed the FY '21 sales booking of INR 400 crores. The total collection for the quarter stood at INR 100.8 crores. And for the 9 months, the collections were INR 305 crores as compared to INR 180 crores for the 9 months FY '21 period, which is a growth of about 70%. The collections also surpassed the full year FY '21 figures of INR 287 crores for FY '21. So strong sales and collections is a testament of the trust of our customers in the brand Arihant and the leadership position of the company in its macro markets. We have seen continued momentum in our projects and are set to take advantage of the same in the new launches over the next couple of quarters. Taking you through the financial highlights. The total revenue for the quarter stood at INR 88.67 crores as against INR 73.57 crores in Q3 FY '21. That is a year-on-year growth of about 20.5% as compared to INR 88 crores in Q2 FY '22. EBITDA in Q3 stands at INR 18.5 crores as compared to INR 14.8 crores in Q3 FY '21, which is a growth of about 24.6% year-on-year. And for Q2, it was INR 20.2 crores. EBITDA margins increased by 68 basis points to INR 20.8 crores in Q3 FY '22. And the PAT figures currently stand at INR 11.6 crores in Q3 FY '22 as compared to INR 5.15 crores in Q3 FY '21, which is a growth of about 125% year-on-year. PAT margins expanded significantly to 13.1% in Q3 FY '22 as compared to 7% in Q3 FY '21. This is due to 13% reduction in finance cost and tax benefits arising out of our ATIP project. For 9 months ended 31 December 2021, the total revenue increased by 76% year-on-year to INR 261.7 crores. EBITDA also rose strongly by 84% to INR 54 crores. And PAT increased the highest by 1,290% to INR 31.5 crores from just INR 2.9 crores in the corresponding 9-month period. And it has also doubled from INR 15.7 crores for the entire financial year FY '21. This can again be attributed to 27% reduction in finance cost on a year-on-year basis for the 9-month period. The gross debt is reduced by INR 9 crores in the quarter and is down by INR 96 crores since 31st March 2020, which currently stands at INR 290.70 crores as on 31st December 2021. Strong cash flow from sales, margin expansion and reduced finance cost will help the company to capitalize on the growth opportunities provided by the upswing in real estate cycle. Coming to the general market scenario. According to our recent drop equity research, 2021 demonstrated a strong demand across all top 7 cities. MMR, in particular, saw a 24% year-on-year increase in [ demand ] to 112 million square feet. So last 4 years have seen modest launches, which has also resulted in declining inventory. Calendar year '21 saw a 12% decline in MMR inventory levels to 26 months now, which is very, very healthy. Strong demand, coupled with modest launches, has resulted in an increase in price levels of about 7% to 8% on an average across MMR. It is now widely acknowledged that it is not just the pent-up demand that is driving housing sales, but also organic demand that is generated due to low interest rates, very high interest from the first-time homebuyers and favorable regulatory environment. This financial year has witnessed the beginning of the upcycle for the housing market for the next 6 years as quoted by Mr. Deepak Parekh. And even the government's inclination to the sector is also very positive. Coupled with this is a very proavailability of capital in the market right now for the right kind of projects with reputed developers having a good track record. Almost $8 billion have been invested in Indian real estate in the last 1.5 years, and many institutional investors have either raised or are in process of raising fresh capital. HDFC, for instance, has raised $2 billion recently to fund affordable housing projects, which is again very positive sign for the sector. And overall, the market and the company is poised to do well going forward. For the next round, I'll request Mr. Parth Chhajer to take over from here and brief everyone about the organization as well as the new launches that are in the pipeline.

Thank you, Abhishek. Good afternoon, everyone. So there is no change in the 9-month FY '22 presales guidance as we have achieved the targets and the cash flows. We are currently the market leader in our area of operations with 10% market share in Navi Mumbai. Our company's focus is to gain and grow from our position here on and expand into newer geographies in the MMR region. We are bringing in new innovations in our products from this quarter, starting with the launch of the O factor, wherein we are providing a separate office room inside the apartment and this is coming up in our flagship project at Arihant Aspire in Panvel. Setting in with the ongoing trends, we are planning up more such launches in the upcoming 6 quarters, focusing on the affordable and mid-income housing, which will help us achieve higher volumes. As an organization, we are increasing our manpower quarterly with continuous recruitment to gear up for the upcycle. In this financial year, we have added 106 new team members to our organization across all verticals taking the total organization strength to 308 employees. I now hand over the forum to Mr. Ashok Chhajer, Chairman and Managing Director.

Good evening, everybody. Ashok Chhajer here. Welcome to the conference call. With the business development, we have been selecting the projects with the best returns and very less risk, as one of the project which we invested in the last year at Arihant 4 Anaika, the land cost was INR 15 crores versus the total top line of INR 125 crores sales and resulting to around INR 45 crores of PAT margins. And such type of new projects are also there with the company's business development in hand, which we'll be engaging up in the next coming quarters very soon. Coupled up with the asset-light models, the tendered margins would be often pricing in higher numbers here onwards. And as we have seen in the last 6 quarters, we have been consistent in terms of growth on period-to-period and cycle-to-cycle as narrated by Parth and Abhishek in all the terms of business operations. And with the percentage completion method, for all the projects, it is pretty -- with the consistency and clarity to analyze the -- and judge the company and its numbers and figures and balance sheet given consistency and scalability -- quite a lot of consistency and the scalability is in hand to be taken for the next quarters. I open the forum for Q&A for all the guests.

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

Yes. So first of all, congratulations Ashok and team for a strong performance in terms of booking and collections in this quarter and 9 months. I have 2 questions. So first is since you have double-digit market shares in Navi Mumbai. So do we see this being saturated for us? Or do we still have high visibility in this market?

The visibility on MRR is largest because that is the area ranging to around 50 square kilometers, which is pretty large right from Thane starting on the one hand and ending Panvel and extended suburbs like Kalyan and Badlapur all over. And being scattered in different locations with different projects from mid- to small size, it enables us to derisk ourselves in terms of sales and market share, and we are able to generate sales at -- across all the 13 projects in different locations. Being into spread across MMR and the next project is also coming up in the same MMR region. The demand is very high. Hence for at least a decade, it doesn't looks to be any saturation.

Okay. Got it. And sir, second thing, I wanted to know is looking at the current environment, if interest rate goes up from here, then how do you see it being impacted for real estate sector?

What these industry leaders have interacted with the Prime Minister office as well as the Government of India, it looks that there would be greater inclination towards the sector to be -- for the homebuyer. And we look forward that there would be further more benefits coming to the home buyers, which increase the capability and capacity of an each homebuyer also. And we also see that there would be a change in definition of affordable housing cap of INR 45 lakhs, which means associations and industries have already projected to the government. For real estate sector policy, the marginal impact of interest rate would be covered up very easily by the sector support to the government -- by the government of India.

[Operator Instructions] The next question is from the line of Puneet from HSBC.

Congratulations on good performance. If you can give some more insight on what you're seeing on the pricing side. Is there a room for you to take some material price hikes in your market?

The pricing on -- first, I'd say, the market price of the selling product has already increased by 10% on an average across Pan-India metro city, which has well taken care of the cost and write-off materials across. And going forward, there won't be any big speculation and each of the leading industry players have adopted the method of factory style of model where the inventory is not to be holded out and to roll over the projects at the initial stages for sales in totality. And with that aspect, it looks like that property prices in real estate may seen an average increase of 5% to 6% on a year-on-year basis, but it won't be speculated to doubling up in a year or 2.

But for you specifically, what extent of price increase did you take in, say, last quarter, for example?

We increased our pricing in the month of April itself, and it was an average of 7%, 7.5% across all the projects, depending on the project to project. So some of the project we took an increase of 12%, some of them at 5%.

So 7% in April. And post April 2021, you haven't taken any, basically.

We have not taken any increase.

That's useful. And on the land side, do you want to acquire new land or do JD's? And what kind of trends are you seeing in terms of those relationships on pricing?

As a company, we generally go with the mixed model. Until today, it was all acquired land. Right now on the business development platform, almost 5 to 6 projects are to be engaged up in the next coming short period, which would be on asset-light model and around same 3 to 4 on an outright basis. So we will have a blend of both of it because it helps out to have an increased EBITDA when compared to outright as well as asset-light model. So it would blend of both of them.

And in terms of land pricing, how different are they versus a year back and now?

Land prices have increased drastically in the region where the sales are very high. So we could have already seen a 50% increase in the land price from 1 year -- from the past year until today. But what has helped out to the developers is the new unified DCR by the Government of Maharashtra across Maharashtra, which has increased the FSI from 1 to 2.6. So the land prices is -- increase in land prices is incited by the increase in FSI. And hence, the project reports have become more visible and more viable.

Okay. So from 1 to 2.6 in the areas that you operate, that's the growth?

It has come across for Maharashtra. So everybody has benefited.

Yes. And is it fair to assume that similar kind -- so first of all, is this 50% land price increase, is it now above pre-COVID levels? Or is it still pre-COVID level?

It's from pre-COVID level, the range in price.

50% above pre-COVID level.

Yes.

Okay. That's interesting. And second, have these land prices change also translated into the change in the sharing ratios with your joint development partners?

Marginally, yes. Largely the premium FSI there is not taken into consideration by doing a deal with the landowner. We always talk about the basic effects with the land saying that the premium FSI is in [ share in ] land, which has been given by the government. So we don't give a share from the premium FSI to the land owners.

Yes. But in terms of your relationship, for example, earlier, your JDA agreement would have, for example, 40% profit share. Is the landlord now saying instead of 40%, he wants to give you only 30% profit share or that equation hasn't changed?

Perfectly read. The overall ratio of land owner has decreased when compared to the whole project. So many of them have worked out to 20% and around when compared to 2 -- for the total 2.6 asset write.

Sorry, can you explain this? I didn't get it. So 20% is the landowner's share or it's your share?

So no, 20% is the landowner share. And in MMR region, affordable housing in these sector where the price of the flat is something sub -- less than INR 1 crore, the 40% of the share was for 1 FSI, which makes it 0.4. And when compared to 2.6, the 0.4 remains same and which means 40% of 1 is equal to 15% to 20% of 2.6.

Okay. So in a way, it has turned more beneficial for you than what it was pre-COVID, irrespective of the underlying implied land price going?

Yes.

[Operator Instructions] The next question is from the line of Faisal Hawa from H. G. Hawa & Co.

Yes. Can you able to...

Yes.

Sir, I believe that we have a basically large land bank also in the Navi Mumbai and Panvel area. So now with the land prices as well as the property prices going up, I think this land bank would be suddenly very much more valuable because it make us go into projects straight away since we now have our own land bank instead of negotiating with landowners et cetera. So what would be the land bank and what would be approximate acreage could we develop over the next, say, 5 to 6 years?

The company today has around 1.3 crores. So with 11.3 million square feet of buildable area spread across 100 acres of land in different 14 projects. So the additional land, which is yet to be converted into design states, the alpha would be of a more advantage. Still, acquisition would be there on new projects. As we look at the cycle of the next 6 years as told by the most honorable person in real estate industry, Mr. Deepak Parekh, [indiscernible] had to do the best in this in terms of next [ leadership ] cycle. The company will be looking forward for doubling up the total portfolio to 20 million square feet.

So you will be acquiring more land?

Yes. Either in an asset-light model or in an outright basis.

But this 1.3 crore square feet of land is totally in our own name and it is almost with clear title?

This is all clear land with approved projects and completely paid up in the books of the company.

Okay. But we have not yet started any kind of construction activity or any kind of projects on this land?

No, it is already on. Out of the total 1.3 crores, around 45 lakh square feet of construction is going on where concrete is poured. And the balance of INR 75 lakh square feet is developing on [ phase ] by its banner. Like one phase of Arihant Aspire is getting launched in the month of February. Similarly as we keep on delivering and giving position to the earlier phases, the new phases are enthused for the start of construction.

Sir, how do you see this [ grandfather ] ceiling of some theory and the other infrastructure, which is primarily actually favoring Navi Mumbai's development, really panning out. And do you see that this is differently an entire new development paradigm?

Yes. Because across India, there is no one city where such large size of infrastructure has been taking across, right, from the ceilings to [ infrastructure ] to coastal highways to airports to different ports being coming up, industrialization. So around 1 million new jobs have been generated in the region of a Navi Mumbai within the periphery of around 15 kilometers from the airport radius. So that see that this area would have a complete different city fit and picture once -- after a decade from here. So what today is at INR 4,000 a square feet or INR 4,000, INR 5,000 a square feet would be a history in the coming years to come.

And sir, actually this entire -- our company evolving, we will get into commercial, residential, even high-end luxury, so will we be wanting to capture all the verticals because as said, there is no very, very reputable real estate developer in this entire Navi Mumbai region. So we could be actually be able to be a very niche or a very large developer in this market. Do you see or aspire to be that kind of a player?

We take project -- If you see over 1 decade and plus records, we take projects with respect to population metrics of each country. So what do we mean by population metric, means that living apart the economic weaker section either below the -- sorry, living partly below the poverty line, BPL people. So the population below the BPL is for 5 lakhs, 10 lakhs houses which is catered by the government, leaving apart that, we see that 65% of the population lies into economic weaker section and LIG, around 25% lies into and MIG A and MIG B section and around 5,000 lies out into HIG and 1% into richer. Our company has always kept and taken projects with -- in all the categories of the income group. And we have done very luxury projects like Arihant Ayati where we have used maurizio Duranti designers, bath fittings also from Italy. We do also affordable housing where standard operating processes helps out to keep the quality of construction safe. And we have generally somebody by and large callers, the Marutis of Navi Mumbai where we have each and every -- for every class of category of people. And that would be the same strategy going ahead also. So with respect to population, we would be always having projects -- taking projects. It will not be like it will be going all into an affordable-only or going into -- all into luxury projects. [Foreign Language].

Got it. Sir, currently what is about debt level? And do we plan to bring it down?

Today, our debt level is INR 290 crores, out of which INR 135 crores is from secured debt which is where the major lender is HDFC and HDFC has been there -- has been lender to the company since last 1.5 and plus decades. And consistently, ICICI and HDFC has been lending to the company and supportive. Where INR 125 crore, INR 130 crore has been taken from HDFC today. And the balance of INR 290 crores, INR 160 crores by the promoters, which is unsecured, and they will run and enable. And it looks like the quasi equity. So debt-to-equity ratio, with respect to servicing being done on month-on-month basis, is quite low. And there is no plans to increase the debt going forward. Marginally, we will be able to reduce this complete debt in the coming 2, 2.5 years.

[Operator Instructions] The next question is from the line of Ronald Siyoni from Sharekhan.

A few questions. First one, in Navi Mumbai most of the land is acquired majorly through land auctions, in which land parcels are through auctions. So where I think we won't be able to participate because of the size of the land to be acquired or the amount of money required. So are there opportunities to grab smaller land passes? Or what kind of land goes into auction? And what is available from small type land parcels?

So I'll explain what is about Navi Mumbai and MMR region. CIDCO at the Navi Mumbai per se development plan, which was in 1981, which is called CIDCO Limited, where CIDCO Limited has -- is the owner of the total land. Where in small tender plots or auction plots come into market, which are not big in size. They ranges from 1,500 square meter to hardly a 2-acre or less than a 2-acre. The company is not into -- does not have 1 single product in this lands from CIDCO. And just adjoining region, which is all free hold lands, which is called Panvel Municipal Corporation and Panvel et cetera, which are not under the preview of CIDCO is where the operations of the company are, where larger pieces of land extendable from 2, 5 acres to 100 acres are available and which can be easily acquired also as a multiple choices. And as I narrated earlier that there are many projects which have an alpha of 3x, 4x also, blended out with a ticket size as well as affordable housing. There are ample of opportunities available across in the region of MMR region. And we are -- the company already is into Badlapur and Kalyan region, which are also big markets. So when we compare our affordable housing, we can tell that [ Badlapur ] is 1 zone, Kalyan and Dombivali is 1 zone and Panvel on other side is 3 zones. The company already has presence in 2 zones this way.

Okay. And so in absence of fundraising going through, what are we looking at like there will be more of JD and JV agreements instead of buying out because you say that you want to maintain it or possibly reduce by some extent. So if fundraising plans doesn't go through them, whether you would be more inclined towards this joint development agreements?

Yes, maximum would be turned out towards joint development agreement and few already are already acquired and yet to start off. And with the internal cash flows in hand and a different strategy of selling it and double the velocity or in higher the velocity from today, can enable us to generate cash across on a month-on-month basis, where these type of projects can be acquired. Though there is a great interest being showed by the leading institutions for the fundraising, which would be -- which would take the company to the next levels with all such actions happening, we hope the outcome to be on the positive in the very nearest future, and this will help the company to go rapidly.

Great, sir. And about your any guidance with respect to sales for FY '22 and '23, which you are targeting to get?

As showed by Parth, we have already achieved the figures of the last quarter also. And whatever the prospects are given from the presales guidelines, we have been surpassing that. And that has made a good position of the company as well as the confidence of each and every employee in the company. And everybody is in energetic mode. We hope that the results would be far more better on quarter-to-quarter going forward.

And what -- in terms of area, what kind of area you are looking at to launch during Q4 and FY '23?

Location or...

No, no, overall, in aggregate, how much area you will be looking at in terms of square feet?

Around 20 lakhs, I think would be launched up in Q4 -- around 15 lakhs would be launched in Q4, and around another 15 lakhs to 20 lakhs in Q1 of the next financial year, which are already lined up for up closing up on approvals from the authorities.

Okay. Right. And last question from my side is that are you seeing a cost of materials rising, so is it covered actually by all the price hikes taken by the company since April? Or is there anything left to be covered or the margins may be under pressure going ahead because of that?

We covered up the and in the construction cost way back on Q1 of this financial year. And that is why we see that the margins on previous year to this year has increased. So we factored out very well in advance. And going further, there would be -- it doesn't seem the industry is not looking and it doesn't seem that there would be further big rises in material cost. It has already taken up the new benchmark position.

The next question is from the line of Rishikesh Oza from RoboCapital.

Sir, my first question is how much collections amount is yet to be received?

Over to Abhishek. Abhishek, can you take this question? Abhishek, are you in?

Yes, yes, I was on mute. Sorry. Can you repeat the question?

Sir, my question is how much collection amount is yet to be received from the sold units? Yes, like previously or whatever that you have sold till date, so out of that, how much collection is yet to be received?

From the amount sold till date, we are yet to receive about INR 415 crores.

Okay. And sir, for the ongoing projects under work, or forthcoming projects that you have mentioned in the PPT, what would be the estimated sales amount and the estimated sales velocity for that?

So estimated sales amount, which is, of course, based on the current prices that we are seeing into our projects. The total value of the goods would be about INR 7,000-odd crores. And against that, the cost to complete would be about INR 4,200 crores. So overall, the operating cash flows will be in the range of INR 2,700 crores to INR 2,800 crores. And these projects are expected to be executed over next 6- to 7-year time line.

Okay. 6 to 7 years?

Yes.

Okay. And the INR 7,000 crore that you have said, this is including ongoing and forthcoming, right?

Yes, it is including ongoing and forthcoming.

Okay. Could you provide a breakup of that?

Breakup as in? Oh, between ongoing and forthcoming?

Breakup of ongoing -- yes. Yes.

So about INR 4,800 crores would be from forthcoming and balance would be from ongoing, which is about INR 2,100-odd crores.

Right. Right. Okay. And my last question, sir, if you could indicate what kind of EBITDA margins are we going to maintain then?

So EBITDA margins currently are slowly inching up. As you would see from FY '21 to FY '22, the margins are -- has risen by about 1.5% to 2-odd percent from 18.5% to 20.8% now. So we expect the margins to slowly inch forward as the -- as the market prices, the new environment, as I said in my opening remarks, the demand is quite high and the launches are still modest in nature. So the general market is expected to do a price rise of anywhere between 7% to 8%. And depending upon how the market behaves, there would be a margin expansion or at EBITDA levels.

[Operator Instructions] The next question is from the line of Balasubramaniam from Arihant Capital Markets.

Sir, I want to understand the MMR residential market. The unsold inventory is more than 3,000 million square feet in this market last 4 years. Like what kind of competition you are seeing in this market because the inventory is not much reduced in this market. The supply is continuously going on. However, the demand also like meeting on the same, how do you see the competition in going forward?

The demand to the supply still is on a higher side. And when we talk about the total inventory numbers, which are there on the cost, it takes care -- it speaks about the total size of the projects by different developers. But the phases of developers -- development, which is undertaken, are to an extent of average of 25% of the total projects in hand. So if somebody has 10 buildings, he doesn't starts in 10 building at a time, he would start up at 2 or 3 buildings. So the numbers of the total projects on hand and projects on the shelf for sale and construction is 25% to the total numbers, which we see on a data which is available for the MMR region. And seeing competition, we today also have increased our market share on year-on-year basis. So the market has been developed most, but consolidation has led to leading developers taking up better positions. So we see less competition in the coming years.

Sir, I want to understand that in land cost, like how much share accounts for in each project?

In affordable...

[ Give or take ] 32%, 35% kind of range or...

No. With Arihant and its projects which are below INR 1 crore, which you call as 90% or 92% of the project, which is affordable housing and MIG A and MIG B housing, the land cost goes to 15% of the total sales price. So we don't -- our projects or the projects in this region by any developer, the land cost is generally 15% of the total sale price.

Yes. Sir, in Central and Western suburban like this region accounted for 40% share in MMR market. How do you see further penetration in these markets?

Come again. I didn't get you.

Sir, Central and Western suburb regions, like account for 40% of shares in MMR region, like how is this Arihant going to penetrate in going forward?

In terms of value-wise, yes, the Mumbai market happens to take up the bigger pie. But in terms of square feet, it is the complete MMR only. And if my guess numbers are right, the square feet-wise MMR contributes to almost 70% of the total scarcity just compared to 30% in the Mumbai and Mumbai suburban region.

[Operator Instructions] The next question is from the line of Faisal Hawa from H. G. Hawa & Co. Go ahead, sir. Faisal Hawa, may I request you to go ahead with your question, please.

We can take the next participant.

Sir, the line from the participant dropped. [Operator Instructions] As there are no further questions, I will now hand the conference over to Mr. Kapil Yadav for closing comments.

Thank you, sir. Thank you very much. Thank you all the participants for taking out time for this call.

Thank you, everybody.

Thank you, sir. Thank you very much.

Thank you very much. On behalf of Dolat Capital Markets Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.