Arihant Superstructures Limited (506194) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Arihant Superstructures Limited Q4 FY '22 Earnings Conference Call hosted by Dolat Capital Market Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jain from Dolat Capital. Thank you. And over to you, sir.

Thanks, operator. Good afternoon, everyone. On behalf of Dolat Capital, I would like to thank the management of Arihant Superstructures for giving us the opportunity to host their 4Q FY '22 earnings call. We have with us today Mr. Ashok Chhajer, Chairman and MD; Mr. Parth Chhajer, Promoter; Mr. Abhishek Shukla, Chief Strategy Officer; and Mr. Deepak Lohia, CFO. Over to the management for the opening remarks.

Thank you, Mr. Rahul. Good afternoon, ladies and gentlemen, and thank you for taking the time out for joining Arihant Superstructures' conference call to discuss the FY 2022 results. I would like to take you all through operational highlights for FY 2022, followed by financial highlights of the year before handing over to Mr. Parth Chhajer. The financial year 2022 was a landmark year for us on various accounts, with successful launches, new project commencements and new business development. 5 Anaika and Amisha, which were launched during this financial year, are already sold over 50%. We had a new tower to launch at Project Arihant Aspire in Panvel in February '22 where we sold 311 units out of 494 launched units. That is around 63%. Financial year 2022 started with a robust volume growth, and it continued throughout the year. For the fourth quarter, we achieved sales booking of 674 units, aggregating to about INR 340 crores in value terms. With this, the FY 2022 sales bookings stand at 1,628 units and 13.8 lakh square feet area. In value terms, sales grew by 74% to reach INR 764 crores. With engineering expense going strong, the collections too improved significantly in the financial year by 45% to reach INR 416 crores from INR 287 crores in the earlier year. The growth also came with improved pricing of INR 5,500 per square feet in FY '22 as compared to INR 4,600 per square feet. That is a growth of about 20%. About 10% of this growth would be attributable to higher realizations and the balance would be due to changing project mix. Coming to the financials. The total revenue for FY 2022 stood at INR 332.5 crores as against INR 272.3 crores in FY 2021. That is a year-on-year growth of 22.1%. EBITDA in FY '22 touched INR 71.3 crores as compared to INR 50.2 crores in FY '21, which is a Y-o-Y growth of 42.1%. With this, the EBITDA margins also expanded by 301 basis points to 21.4% in FY '22 from 18.4% in FY '21. The profit after tax for the current financial year saw a huge enhancement by 163% to INR 41.4 crores in FY '22 as compared to INR 15.7 crores in FY '21. PAT margins too increased significantly to 12.44% in FY '22 as against 5.78% in the earlier period. This translates into a staggering growth of 270% in EPS to INR 10.02 for financial year '22. Return on equity has also crossed 20% as against 11% in FY '21. For Q4 ended March 31, 2022, the total revenue, EBITDA and PAT stand at INR 71.3 crores, INR 17.2 crores and INR 9.9 crores, respectively. Please note that these figures are not directly comfortable Y-o-Y as there was an effect of monetization of surplus land at Jodhpur in Q4 FY '21. Going forward, we see the company to be in a never-before position where we have entered into a virtuous cycle of sales, engineering spends and collections. We have also identified a few projects for acquisitions, which we intend to close in the first quarter post due diligence. The financial closure for the sale is achieved through raising of funds from ICICI Venture's India Real Estate Investment Fund. We believe that this will help company to significantly expand the project portfolio and new avenues of growth. With this, now I will hand over the call to Mr. Parth Chhajer.

Thank you, Abhishek. Good afternoon, ladies and gentlemen. We are seeing newer micro markets contribute to the real estate landscape in the past 12 months. Post pandemic, we have seen increasing demand in extended suburban areas across the affordable housing segment, especially in the price range of below INR 35 lakhs for a 1 bedroom, hall, kitchen and below 50 lakh for a 2 bedroom, hall, kitchen apartment. The high cost of living, densities and remote working abilities, coupled with cost benefits suggest that the jobs are moving to places near to where people live. Our growth remained strong during the year withstanding all challenges, validating resilience of our business model. During Q4 FY '22, growth of revenue and profitability is lower compared to the same period last year, primarily due to the land sale. However, we were able to enhance our margins despite the prevailing input cost challenges. In addition, we had factored in unforeseen circumstances in our internal projects working, like aggressive input cost growth, and have taken a price size of up to 10% across projects to protect our margins. During the year we received approvals for 2 mega projects, Arihant Aakarshan at Taloja on a 10-acre parcel, and [ Arihant Aradya ] at [ Kalyan Extension ] on a 7-acre parcel which have a combined revenue potential of INR 1,100 crores. Both projects shall be qualifying for Section 80-IBA, resulting in income tax exemption. Sales program for the financial year is lined up with 4 mega launches, approximately 600 units at Arihant Aakarshan in Q1, 400 units at Arihant Aradya in Kalyan in the Q2, 370-odd units in a new tower in the existing Arihant Aspire project at Panvel in Q3 and 500 units in new projects in Q4. Along with the mega launches, we shall be focusing with small programs on the other projects which have few new revised approvals upcoming as well, wherein Arihant Aloki at Karjat, we'll be looking at 250-odd units in Q2 FY '23, 125 units at Arihant Arshiya in Khopoli in Q2, 200 units at Arihant Anmol in Badlapur in Q3, 200 units at Arihant Amisha in Q3 at Taloja MIDC. So we're looking at adding a total of 2,600 odd units in the total new inventory in FY '23 to the existing 2,600-odd unsold units. So this would constitute to around 25 lakh square feet of new areas, having a revenue potential of INR 1,200 crores. For the sales guidance, we would be looking at a 50% CAGR to the numbers achieved in FY '22. Our sales team strength stands at 156 members today and is increasing every month, along with other departments totaling to 371 today. Now I will hand over the call to Mr. Ashok Chhajer, Chairman and Managing Director, Arihant Superstructures Limited.

Good morning, participants, and welcome to the Q4 con call, annual con call for the financial year ending 2022. And as narrated by Abhishek and Parth, the company has made up their targets, et cetera, on the start of the year, and almost at every vertical, every threshold, we have surpassed whatever was envisaged earlier. And going forward also, it looks in the same similar fashion. There's a little confusion on the outcomes, which is by some algorithms on the market portfolios that is that on Q4-to-Q4 comparison, which as Abhishek told that when we compare Q4 to Q4, the last year Q4 had a sale of a land at Jodhpur, which was where we did not see any visibility for more than 10 years. And that is why that around INR 24 crore of sales and value was from the land. And with respect to it, something around INR 5 crores to INR 6 crores of profit was from the books of -- from the book value due to that sale. And then compared Q4 of past year to this year, if we talk about excluding this land sale, we find in terms of our operational sales, this Q4 has been more better than last Q4. And as annual records [ approxly ] tells and what we have seen is that we have done -- that the company has come good in terms of EPS, in terms of revenue growth. So our revenue growth of 74% in terms of units booked and 91% in terms of value of the sales for, that is FY '21 and FY '22, the sales are almost 91% up in terms of value. That means we have doubled up the sales. And the 900-plus flat sale of year ended FY '21 result that in the balance sheet and the total income and EBITDAs and et cetera, where we could see that the EPS could grow up to 10% also. And what we see is that being into a percentage completion method, the future balance sheets can be judged very easily. And if it was 950, which has shown up these numbers, what we see ahead is that 1,628 units of sales, by and large tells that there could be -- there would be a growth in the same -- there would be revenue growth on these lines. With addition to it, there would be the new launches which would add up very largely. The revenue recognition also of the unsold unit -- so revenue recognition also has changed out largely. And the net debt position, as the balance sheet tells, today stands out at INR 285 crores out of which INR 146 crores is where is secured and where the repayment starts to the company in the year '23 and INR 153 crores happens to be from the promoter's debt. And the debt-to-equity ratio also has lowered down from 1.7 to 1.4 at group level. And when we talked about the attributable debt, it has dropped 1 from 1.3 to 1.02. So we see a significant change in terms of dropping debt-to-equity ratio. And with all these numbers, we find out that there would be a great year ahead. Key business development plan is also at a rigorous space for which the fund collection, which was through different channels desired at the last financial year and which could not come, in lieu of it we engaged up with ICICI, and that utilization would give up multiple folds of revenues and incomes for the coming projects. When it comes to number of project leveraged, today it has 2 projects which are leveraged, 3 projects which are leveraged out of 14 projects as on date today, whereas it was 2 projects out of the 14 projects as on 31 March 2022. So we go with the same policy of not mortgaging or not having charge on all the projects and have larger cash flows free with the company in their hands so that the mobility of the funds for the expansion of the business is at ease. I throw the forum open for Q&A. Guests, you are invited to have a discussion as well as questions on the earnings call of Arihant Superstructures Limited.

[Operator Instructions] The first question is from the line of [ Vimal Panchal from Vimal Panchal and Associates ].

Congratulations for the excellent results. Sir, my question, in opening remarks you said from your [indiscernible] ICICI Venture. So can you say about the key highlights of that understanding with the ICICI Venture? Only 1 question.

It is a fund of around INR 45 crores we raised from ICICI Venture, which would be an free float fund where the projects taken would not have been charged by the lender and the new projects which are being taken could be completely free cash flows without any escrow account mechanism with the company. So that gives us a lot of flexibility. And in terms of growth as well as in terms of free cash flows. And we see that the projects which have been identified as told in the last con call also are fast-moving products. And we would cope up with the pace of real estate, which is ongoing.

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

Sir, my question regarding the 2 projects, like Arihant Aakarshan and Arihant Aradya, what is the cost for the land and planned cost and per square feet as well as what is the cost of construction? Like what kind of bookings you are expecting in those projects? These are my first question.

Well, the cost of land for both the lands accumulated in the books is around INR 75 crores, and the revenues would be to a tune of INR 1,100 crores. And so the marketable sales value happens to be something around a bandwidth of INR 4,750 to INR 5,000 a square feet. And when compared to this range, where the land cost works out to be INR 150, INR 200 a square feet for the amount spent on the land. And with the construction cost of around INR 2,000 to INR 2,100 per square feet, we see that there is good alpha in the projects. And both being, approval being taken before 31st March 2022, which was late date for taking any approval under the category of affordable housing qualifying for no tax on incomes, we see that in the next 4 to 5 years, 5 years, we will be completing the project and it will yield surprising numbers.

My next question regarding that INR 45 crores from [indiscernible], like the interest offered is 16.43%, is it reasonable?

The quality and the type of money are always different where -- and accordingly, the cost is there. The company will be able to make up in spite of this cost more margins because of its flexibility of not having charge [indiscernible] on the new projects which are going to be purchased from this -- and for the information of the participants in the real estate sector, there are 3 to 4 type of funds. One is in pure construction finance where the money has to be utilized only for construction and which we -- which is the lowest cost of fund where we already have a facility with HDFC at around 11% after the rate increase in -- by the repo rate. And then comes out to be in one level up where there's a part construction and part take out money for the project or for the general corporate purpose, which goes to a literal higher bandwidth. And thereon goes to and one level up where the funds are utilized for the new project sales, which is nowadays called as platform deals. And above that is what we have engaged with where in platform deal, all the -- where in the platform deal the projects which are undertaken are mortgaged or the cash flows are with the lender. The fourth level is where the funds which are being taken from -- the lands which would be purchased from these funds will not have any [indiscernible]. So it justifies it.

Okay, sir. Got it. Sir, my next question, sir, I think interest rates, like how you are experiencing demand right now?

Well the news is just a fresh in the last week. And you cannot tell that within a day the reactions have come because real estate have an -- it takes time to respond to any such financial or larger decisions by the government. And in spite of when we see about the Indian Inc. appraisals happening, it has -- it is above the inflation level largely when it comes to metro cities like Mumbai or Delhi. And the appraisals have been in the range of 7.5%, 10% to 15%, 20% also. So the 0.5% of increase in our home loans doesn't make a person disqualified from his eligibility to buy loan on the contrary with going trend, we will be able to buy more.

Okay, sir. My last question regarding the raw material prices. Like referring that operational highlight, like [indiscernible] mentioned in projects like -- that cost of increase INR 300 per square feet. But however, the company increased INR 500 per square feet in sales. It is like this trend will continue?

Well, the prices now have gone stabilized and some of the commodities are on a correction of the raw material prices. So these sales prices once touched does not get reversed out when it comes to real estate. So going forward, when the prices would lower down from any marginal would increase the profitability of the real estate sellers of the products. And when we come to ourselves Arihant, we can see it from the increase in the margins and the per square feet of average sale price both indicates that this thing has been very well taken care of.

Okay, sir, got it. Sir, what kind of price hikes you are expecting in upcoming quarters?

We don't intend to do a speculation, and we always have believed into that we are into an industry, which is into a factory model of sales. And though we have all the product lines ranging from INR 20 lakhs up to INR 3 crore, still the objective is that we always sell fast and do not increase the prices largely because this gives us the working capital at ease and at an advanced stage. And as we see that out of all the projects, even only one project is just mortgaged and the rest are all free, that tells that we are working. The projects have been managed by the company without any working capital, and that has been the key strength of the company to [indiscernible] one do the construction, complete the projects without the working capital requirement, A. And B, acquire and purchase the projects at a lower land cost so that the feasibility of the project does not get referred to any large extent due to any reverse trend of cycles or increase in raw material cost.

[Operator Instructions] The next question is from the line of Chetan Phalke from Alpha Invesco.

Sir, what would your estimated interest outgo for financial year '23? And if you can just elaborate a little on our balance sheet or debt reduction plans going forward given the positive cycle that we are looking at?

See, in terms of cash flows, cash outs around INR 25 crores would be what would be required for interest outflow on cash to management, cash flow statements because measure of the interest of the unsecured are accumulated to the account and hence cash flow is not there, so it has an impact on capitalization, amortization and profit and loss. But when it comes to cash flow management, the free cash flows and as well as collections, INR 25 crores is what we think that will be the outgoing for the interest for this financial year.

Okay. Okay. And any comment on the deduction plans going forward?

I think we will try that after this additional borrowings we would be able to come nearby to the last year's debt as it is. So we see that the INR 45 crore of debt taken from one lender to try to repay to the other lender, and we may be just nearing or equating to the financial year ending 2022 numbers or it would be an addition of around 5% to 7%. And for your additional information, there is no interest out pay to ICICI for this financial year. So that is what we call about that. There's a lot of flexibility from the lender.

Okay. Okay. Got it. Got it. Sir, what would be your estimated presales for the year FY '23 and how many units we are targeting to deliver?

The purchase and the targets which have been approved by the Board and which has been rated to the respective department is that the sales would be looked for -- targeted to something around 3,000 flat sales in this financial year. And that would mean around about INR 1,800 crores sale, something less than INR 1,800 crores sales. We can keep a bandwidth of INR 1,650 crores to INR 1,800 crores depending upon how much Vashi project starts off earlier as that ticket size is of INR 2.5 crores, INR 3 crores.

Okay. Okay. So by Vashi mean Arihant Advika, right?

Advika, yes, yes. So that may be a surprising number. And I may also be surprised by these numbers of 1,600 crores, INR 1,700 crores. Our team is geared up, and they are well out on to the field that we'll do the best. When it comes to the sales today, when it comes to the sales today, the sales of real estate are generally driven by the institutional channel partners, which is called as institutional brokers. And the largest and the biggest of them starting from PropTiger to PropertyPistol, et cetera, all are engaged with annual contracting plan, AOP, which we call as annual operating plan as a contract being signed between the company and the channel partners. So this tells the commitment from each of them when they commit that they would individually some would do around INR 150 crores from thereof in the true financial year, something we'll do INR 200 crores. So when it comes to 12 to 15 of them working and even half of them achieving the target, it would mean that INR 1,800 crores is not a magic figure.

Okay. Okay. Got it. So what would be your cash collection for the year '23, estimated number, ballpark, what are you expecting?

We see around INR 700 crore rupees of cash collections.

Okay. Okay. And what's the status for Arihant Advika as we speak as in we are planning to go for land [indiscernible] during this quarter next quarter.

Launch it was already done. So it is -- the product is already launched. It is there for offering of sales since last 1 year. Good that we did not sell largely because that has protected the cost of inflation of raw materials which has come. And yes, once this demolition all is completed, and the site is handed over to the engineering section, which would be something around on the Q2 of this year and in the quarter 2, the work should commence. And thereon, we will take up exercise of pushing up the sales and again increasing the visibility to the homebuyers. And so we come across around 5 of the mega launches are scheduled for this financial year and around 6 of small launches are scheduled for this financial year. So there are total 11 project launches, which would be coming up in phase-wise manner in this financial year. So there is an inventory of 5,500 flats on the shelf, which you call where the management has given the flats for sale to the sales department. And they are targeting that. Out of INR 5,500, they will be able to do 3,000.

Okay. Okay. Sir, and how many homes were delivered during this financial year FY '22?

FY '22, around 400, 450 because some of the occupancies -- we take benchmark as occupancy certificate received as home delivered and we OC for some of the projects which was targeted in the last financial year have gone just last week. So this financial year it looks like around 1,200 [indiscernible] position will be given.

Okay. And FY '22, it was close to 400, 450, somewhere in that range?

Something like this.

Okay. Okay. So, sir, I was just looking at a few slides in our presentation, so that sales, we have a revenue potential of close to INR 7,000 crores from our ongoing and future projects. So these future projects of INR 4,600 crores. Can we expect all these projects will be launched over the next -- within next 3 years? Or it will take some time.

Of course. No, it should not take even that much time. It is targeted to be -- already all approvals are received for these future projects. And they are scheduled for launches this year itself.

Okay. And in your view, how fast we can do a presale of, let's say, this INR 7,000 crores inventory? Can that happen over the next 4 years, 5 years, ball park, any time frame in your -- as per your understanding?

3 years collectively.

Okay, within 3 years.

Collectively 3 years we should be able to achieve it.

Okay. So within 3 years our cumulative presales should be around INR 7,000 crores?

Yes.

Okay, okay. And the…

Something, something. It may be a little lesser than that, but it could be something between INR 6,000 crores to INR 7,000 crores.

Okay. And over and above this INR 7,000 crores, do we have any other excess land parcels and how much that can contribute or any comments on that?

No, whatever new would be purchased, that would be added on. But [indiscernible] the land prices of -- at -- which is worth of around INR 100 crores plus has not reached the stage of design board, which would come up. So when we talk about balance sheet, it is something around 1 or small parcel, 1 or 2 parcels of land, which is about INR 100 crores, which are unutilized, as the numbers have not been shown.

Okay. Okay. Just one last question, sir. Any comments or outlook on the dividend policy going forward?

The company today is into a very expansion mode, hence the request to shareholders that more the money lies with the company, it would be able to reach greater hikes. And hence, this year there was no dividend declaration as Board decided. For the next financial year, we'll leave it up to the board to decide how to do it.

Okay. Okay. So just one last question, if I can squeeze it in. So how much of this INR 7,000 crores of presales that we expected over the next 3 years, 4 years, how much of this INR 7,000 crores will yield into, let's say, our EBT or EBITDA, ballpark any number for the listed entity?

We would move within CAGR as this would be a forward-looking statement. And hence, we see that the CAGR, which is look forward, which should be something around 50% for this financial year. The next year it should be around 33% or 40%. And the third preceding year should be around 30%. We don't know that we will be able to do a 50% CAGR Y-o-Y, but I'm confident that we will be doing it up in this space. And with the company growing in size and CAGR of 30% also is restricted.

The next question is from the line of [ Vikas from Health Eq Services Private Limited ].

One of the slides is there is a [ Project Bella ] is there which is a 1 BHK office and 2 BHK office is there, sir. And sir, after he COVID, this kind of the project this feasibility is there in the market, sir?

I think when we talk about feasibility, yes, our estimate and contract division has very well taken care of the cost. And vis-a-vis the marketing division has put up the correct sales price, which would have earnings. And when we compare to the projects in and around, we found it out that we are -- though we are selling at same or maybe in 2% to 3% higher than the adjoining market. But due to the design and the uniqueness of the product design, which was one of its own kind of having an in-built office spot inside the house, the sales which have confirmed and been turned out is already giving the confirmation of response of 311 units by the year ended March 22 in 2 months of launch, that is February and March. And in April also, the same music is continuing, and there is sales ongoing in sustenance also in this project.

Okay. So we are confident enough to solve out all this INR 490 crore units as well?

We are launching up one more tower in the Q2 of this financial year. So this project has 8 towers, 3 of them are already launched, and out of which 2 are almost 70% of -- 65% to 70% of completion in terms of value terms of engineering done. And we see that we would be able to do a -- there is a demand, pent up demand for the new phase of -- new tower of another 400 flats to be launched up in Q2.

The next question is from the line of [ Ankit Bajaj from SDCA Finance Limited ].

My first question is how many of your projects have, existing projects have received OC this year?

For the projects on sale or for the projects which are already 100% sold, 100% completed.

The projects that are on sale.

Project that are on sales are to tune of around 6 of them where the OCs have been received and which are -- which we can categorize as ready for position.

Okay. And how has been the collection this year compared to the previous year?

This year the collection was around INR 416 crores. And as in the flat price given, the collection has increased by 45% on year-on-year growth. So it was INR 287 crores last year, and we have done INR 417 crores of collection this year.

Okay. And any new land that were purchased this year?

Here, we did open Kalyan extension land purchase where we have received the permission. So that is to a tune of 7 acres and 9 lakh square feet, that is Arihant Aradya.

Okay. Maybe your purchase price, sir?

That was INR 22 crores.

INR 22 crores?

Yes.

INR 22 crores or INR 72 crores you say, sir?

INR 22 crores of…

No, did you say INR 22 crores or INR 72 crores?

INR 22 crores, INR 22 crores, INR 22 crores.

The next question is from the line of Ronald Siyoni from Sharekhan.

Sir, I wanted to know the construction outflow which will be expected in FY '23 as we are seeing around INR 700 crores of cash collection, what will be the construction outflow during FY '23?

INR 400 crores.

INR 400 crores. So then still you would be left up with a lot of money, right? INR 700 crores, INR 400 crores, then another sales and marketing cost and also interest, still there would be around INR 100 crores -- more than INR 100 crore cash available for FY '23, right?

Yes, it looks so. That would be the deployment for the engineering section utilization further with the new projects also.

Okay. Okay. And there has been somewhat changes frequently each quarter with respect to previous quarters or years in terms of a sales figure or tens of million square foot. So what kind of adjustments is being done? Does this get added into the next quarter or something of such sort?

No. We follow a method that on each quarter basis, wherever the payments have been received are taken as sales booked and we net off whatever numbers we give, we gave net of numbers after cancellations which would have happened. So when we see a revision of sales number, it means that we are showing you net of numbers, final confirmed sales which are there on the books where there is no -- where all the calculation has been accounted for. So that is why this change of behavior would be there on every quarter-to-quarter. There would be new sales which should be added on and there would be a deduction of cancellation. So by and large, at our company level, generally, there is an cancellation of around 10%, 15%.

Okay, 10% to 15%. And during the quarter we have seen the rise in inventory being booked and which has led to strong gross margin expansion. So has that been one-off or something that has increased the inventory during the quarter?

The engineering which takes place, when we talk about inventory on the balance sheet, it is the work in progress. And the inventories into 2 [indiscernible] and is the [ Blue IP ] inventory and the other would be the [ Ready Position ] inventory. The Blue IP inventory when it is increased, that means engineering has taken substantial speed. And for the unsold portions where the revenue recognition does not extract figure out of this Blue IP, the rest are -- the rest numbers are towards work in progress, towards unsold inventory. So the time a flat gets sold or the -- that is the time when the Blue IP again gets decreased. And that is the reason what we see as the Blue IP.

The P&L, which it shows, the changes in inventory, that flow would go up or go [indiscernible] it just says that the construction spend has increased, which has not been sold. Is it right?

We'll get back to you on these numbers from the CFO. I'll note down your number and name…

I'll get in touch with the CFO.

Ronald, okay, fine. Yes, surely, yes.

And the last one is the effective tax rate, how do you look at it, even the tax rate is also increasing. So from FY '23, what should we assume as effective tax rate?

Effective tax rate to whom?

In the P&L for FY '23.

The effective tax rate is -- the tax rate is same exactly what is there for all the companies. So our effective tax rate for the holding company is 25% plus surcharge.

Okay. Because it shows around 15-odd percent, 15% to 16%, which we have during in FY '21 and FY '22.

That happens because of the 80-IB, Section 80-IB income tax projects where [indiscernible] is only there where it is not [indiscernible] of the company where -- which contributed to the largest number of this financial year on standalone basis also, which was INR 25 crores out of INR 41 crores. So that margins due to that 80-IB project, that margins, the effective tax rate got reduced from 25% to 15%.

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

Congratulations on a fantastic year. Sir, my question is that we have a very ambitious launch plan. So what's the internal target for sale as per the launch? Like do you hope to sale like 20% of the units in the first year or things like that?

Yes, that is the plan that we target to do up, and sale above 20%. Some of the projects really performs very far well, like Arihant thus far in the month of February, March, gave a sale of almost 65%, 70%. So the wish list is always that we sell around 50%, but we are happy with 20% because that covers up the requirement of working capital.

I see. And sir, how is your experience with Advika because if I'm not wrong, then I think this is one of the most premium projects that the company will do. So have the experience been very different? Have the brands been received well?

Well, the company has done such projects earlier also, as we told that we always take projects with respect to population metrics. And this [indiscernible] into the richer class or the high-income group, which is around 5% of the company's total portfolio. And rest forms to the -- into 27%, 25% into middle income group and the 65% into affordable housing. The company has been doing such projects earlier also. The market as well the buyers are confident about ourselves executing such kind of projects as it has done earlier. And the mockup flat, sample flats, everything are ready, we show flats where the customer can identify what he's going to get and how the finishes would be.

Okay. And have we had to hire some, let's say, hire trade talent for expansion of the company in the recent past?

We are increasing the strength of employees across all these sections. But if it comes to a particular project like Vashi, we already have a good team flows of sales for the project in place.

Okay, superb. Sir, can I ask a couple of more things?

Yes.

So one is, if you guys have any thoughts on the market cap of the company, it's around INR 600 crores. And if you compare it to the pipeline, it's very small. So any -- do you have any thoughts on that?

I'll leave it up to the market to do the price discovery of the equities, which the companies have 10 EPS. And going forward, there would be [indiscernible] to it also. And we accept the price of the market cap, which has been discovered by the shareholders. Offhandedly, other than the shareholders when it comes to discounted cash flows, DCFs, the numbers are almost 2x to what those spreadsheets and Excel sheets tell. But the reality is the markets and we see that a company of this strength in terms of all the verticals right from managing the finances to execution and procurement of new projects, this would be valued very good in the coming years.

Okay, sir, superb. Just one last request, if I may. All the bigger real estate companies provide a cash flow statement as for the quarter, so that would give a lot of transparency to us investors. So if you could please start doing that.

In the investor presentation, which would be there uploaded on the exchanges in the next days, the revenue and cash flows with economic interest are -- would be there -- would already be there in the investor presentations from this quarter itself.

Would that be something like a detailed cash flow statement so we can follow land purchase cash outflow or things like that?

That would be elaborated one. For that, I would wish my team to get in connection with you and explain the details, especially that -- it is not an -- one simple line of statement. So all the data, it can be provided to you.

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

One thing I wanted to understand, sir, when we take up a project, what is the kind of IRRs we are generating on projects? And maybe you can give us an example, like you had said this land we bought for INR 75 crores, and the sales can be INR 700 crores. So what will be the cash flows? And what will be the IRRs?

We look at an IRR of around 30% on a year-on-year basis, which [indiscernible] 30% to 35%, in reality it boils down to the bandwidth of 24% to 30% when all these uncertainties or certainty, all the factors come into place in reality. So whenever we take a project, we eye of this type of the IRR.

Okay. So what is the main factor, sir, which pulls down the IRRs? It's the delay in sales and collections and cancellations?

It's sometimes -- there are many factors like sales, engineering, finance cost, the time duration, cycles, the timing of the gap between the [indiscernible] payments and the collections, et cetera, et cetera. So generally, it should never be taken into account very correctly. We should always eye for something [indiscernible] so that we end up into right figure.

So is 20% a more fair number as shareholders we should expect, sir?

20% from?

IRRs on any project.

Yes. It would be more than that. ROE would be to the extent of 24%.

Okay. Got that. Got that. And sir, like, can you please explain how do we do the sales through the channel partners? Like how much are they paid? Are they paid around 5% of sales values?

We start from 3%. And the few of them achieve the annual operating plant where they receive 5%. And cost to the company is on an average of 4%.

Okay. Got that. And which are the biggest ones, sir, these Anarock and [ Square Foot ], Square Yards and all these guys are also working with us?

They worked with us, but the larger numbers are from many other ICDs also.

Okay. You said, I think, PropTiger…

We don't give -- yes, so we don't give sole selling, our mandate to one company. And where the mandating company takes up and target of accumulation of all the brokers and channel partners. We ourselves have our own in-house team where a call [indiscernible] all the channel partners are -- start working in no time for the company. And they are directly connected to the company rather than through any selling machine.

Understood. Understood. And, sir, one more question, like where would our rank in Mumbai MMR region be in terms of sales, any idea on that, like we would be in the top 5, top 10 companies?

Top 5.

In terms of our presales.

In terms of presales, unit-wise, yes.

No, in terms of value-wise.

Value-wise in MMR region, yes.

Top 5?

Top 5.

Okay. But there would be lot of other real estate players, Godrej, Oberoi, Mahindra would be larger than us, right? We would be in the top 10 for sure?

In Navi Mumbai, they are -- they don't hold any position.

I'm saying all over Mumbai, including Mumbai.

No, no, no, Mumbai, when it -- it cannot be compared and it should not be compared. I will request you not to compare on that basis because the ticket size of and per flat sale in Mumbai is around INR 5 crores, INR 10 crores plus also. So when it comes to unit-wise, yes, we may be on top 5. When it comes to value-wise, it may be in a bandwidth of even around 20 because we sell our products which are largely in to INR 50 lakhs up, INR 50 lakhs affordable housing. So we don't have large ticket size projects in quantities.

Right. Got that. In fact, sir, I was thinking if our numbers -- yes, go ahead, sir.

That is why when it comes to analyzing we defend ourselves saying that the only cash collections or cash flows should not be the only measure for our standard template for evaluating and real estate company because when we talk about [indiscernible] and the loveliest thing about real estate is about affordable housing, which everybody likes. And on the other hand, when we talk about comparing cash flows with -- from INR 50 lakhs to companies with INR 5 crore of flat sales, it will never match. So P&L happens to be the -- the PAT happens to be a major factor also. And the investment return happens to be the major factor, and the capital deployed or the net per deployed. So we had a net worth of around INR 160 crores, INR 163 crores collectively with subsidiaries in the last financial year, which today is around INR 212 crores -- INR 203 crores. So that is what the growth is that, from INR 163 crore of deployed -- INR 163 crore of net worth in hand, that is what the company has, and capital has and rest forming out to be the funds borrowed and et cetera. But the capital growth when we talk about, it is like that we have done sales of INR 4.7 crores to the net worth. We have done collections to 2x crores. That means if we had INR 163 crores, and we did a collection of INR 415 crores, I mean, 2.5x net worth collections we have done. So that is around 5 months we will do one cycle of rotation. And with the net worth when compared for the revenues also, which is at INR 332 crores, that means from INR 163 crores, INR 332 crores of revenue means [Foreign Language] we are doing one rotation within 6 months, which is 2x. So INR 163 crores plus INR 163 crores, something around INR 332 crores. And the PAT margins from the net worth, that is the capital which the company has of its own, it is 25% of the net worth where the PAT came out to be INR 41 crores -- INR 41.22 crores, so we compare like this also sometimes.

I understand that. It's in fact extremely impressive reason even at a ROE level. So in fact, sir, in that context only I'm asking, in fact next year if we do INR 1,500 crores, will we be in top 10, including Mumbai?

I don't know how the other companies are doing because real estate is doing so good, everybody is ambitious and many have super growth plans like ourselves also. We would like to see that we are a step ahead of them. But all companies are good. Many companies have been great strength in terms of acquisition of market share, et cetera. And it would be then outcome only after the year ended.

Got it. Makes sense. And sir, can you explain this why have we taken this loan at such a high rate when we are getting construction funding at 11%. I mean all the construction funding we can get is not sufficient to meet our needs, is it? Beyond our net worth?

A, when it comes to a Arihant Superstructures Limited, our company, only 1 project out of the 14 are where construction finance is availed for -- that is Arihant Aspire from HDFC at the rate of 11% per annum today and bandwidth of 10.5% to 11%. And so 13%…

So, sir, this loan we can't extent, sir, for future projects, they will not be willing to give at -- in today's market at the same rate, more if we ask them?

[Foreign Language]

Got that. Okay. So can't we use like our own net worth…

[indiscernible]

Okay, I got that. So can't we use our own net worth for land acquisition and more construction funding for other projects?

Everything is deployed. It's free flow in the bank. [Foreign Language] 200 crores is already sitting in the books and the balance sheets with the assets on the side.

Okay. Got that. And for this land acquisition, we had to pay the 16% kind of level, is it? So, we can't get to 12%, 13%, 14%?

We would like to. For your information. For the market's information, we take out money or the land acquisition funding money where even the free float is where there is a complete flexibility. If one checks out into the market, the cost of fund today for [indiscernible] funds to anybody is to an extent of 20% to -- from 20% to 24%. So the platform deals or the equity partners which we -- equity fund structured deals which happened is from a bandwidth of 20% to 24% per annum and company getting it at 18% -- at 16.45% is a very good rate.

Okay. Got it. But sir, even after paying 20% people are still making money?

Many of the Mumbai projects, it's a need of the hour for a particular period of time. And so I think that must be a business model for it, and it has been working all these years. That is why when we talk about that listed companies, if they have equity in hand, your -- the ratios and the sizes and the numbers, everything changes. So when it comes to debt versus equity, the company can raise funds to equity is more preferable because it would give more benefits to the shareholders in terms of percentages, ratios and values.

Right. I understand. In fact, sir, for our scale of operations, our net worth and our market cap is pretty small, so are we also like in some ways, do we need to strengthen our brand at the corporate level?

Brand in terms of the sector where we are operating is already at the most preferred and most highest level. So the -- brand as a [ recognition ] it is topping the charts. And yes, though very aggressive, the company and its model of business, we are not very much -- we avoid taking very high risk. And that is why there is an organic growth to the company. So when we talk about how did this company grow, it was around INR 40 crores of capital around year 2012 and thereon until now without any raising of capital we have reached a size of INR 200 crores of net worth plus all these years, and that would have been paid to a tune of around INR 350 crores. So it can be told that from INR 40 crores, the company earned INR 200 crores plus INR 350 crores, INR 550 crores. So from INR 40 crores in 10 years, INR 550 crore of earnings could be done.

What is the INR 350 crores, sir?

[Foreign Language]

Got it. No, sir, in fact, I think at the consumer level our brand must be really strong. I'm saying more at a corporate level, is there a requirement? Like do we feel that -- and is there any way to do anything about that either, like make some very marquee projects, like in Mumbai a lot of builders have done some really marquee projects and like [ Beaumont ], or Oberoi Sky Heights which have really helped uplift their brand at the corporate level also, I'm saying.

See, by doing a project of this style only makes up in corporate brand, is not what we believe into it. But yes, the relationship and the visibility can be increased in terms of corporate level for the company because it is into an affordable housing segment and its strength is in affordable housing. And we will still like to live in this place for another 5 years.

The next question is from the line of Chetan Phalke from Alpha Invesco.

Sir, just one last question. Since we're going to spend close to INR 400 crores on our engineering this year and going forward our spend will be more than that, can you throw some light on our engineering capabilities or our in-house structural team? Is it completely in-house or we are outsourcing our engineering to the APC -- EPC players, like capacity or others, or are we thinking in that direction?

Going forward, we do not engage with the larger EPC contracts construction companies. We also don't do in-house by employing labor and wages. We do in semi contractual basis where subcontracts have been given on a particular assignment, that is an electrician is given an electrical contract, a plumber is given a plumbing contract, and civil works is given a civil contract, the finishing tiling works are given their respective contracts. So this helps out in terms of reducing the cost of construction. And that is what all efficiency is all about. And it helps out to even have -- it helps out to have larger control on the level cycles. And if you buy it from our own when we talk materials, larger material like steel, cement, et cetera, being bought. So economy of scale happens, helps out to even buy material at lesser cost. Also, when we talk about branding, in my life I always believed that the vendors are the best brand ambassador of a company because they are on the taking side rather than the giving side. So when we are directly in contract with the material supplying agencies or these vendors and the relationship between them, which has continued since last 2.5 decades, helps out to build the brand ambassador.

Okay. So instead of dealing with one large EPC player, we are dealing with multiple vendors, especially in their own respective thing. And that's how it will continue going forward.

Yes, or else you are paying for [indiscernible] subject that is the EPC contracts also subcontracts to the same guy, and they charge up an 18% of profit on the services being taken and given to the specialized contractor. So finally the works are done by specialized contractors.

Ladies and gentlemen, this was the last question [indiscernible] over to management for closing comments.

Thank you very much, everyone, for taking the time out and attending this conference call. It was an enlightening and enriching session with such a good number and good quality of discussions that we have had. Thank you very much.

Thank you. On behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.