Arihant Superstructures Limited (506194) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Arihant Superstructures Q2 FY '23 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, sir.

Thank you, Inba. Good afternoon, everyone. On behalf of Dolat Capital, I would like to thank the management of Arihant Superstructures Limited for giving us an opportunity to host this Q3 (sic) [ Q2 ] FY '23 earnings call. From the management team, we have with us today, Mr. Parth Chhajer, Promoter and Whole-Time Director; and Mr. Abhishek Shukla, Chief Strategy Officer. Without further delay, I would like to hand over the call to the management for opening remarks, post which we would be open for question-and-answer session. Thank you and over to you, sir.

Thank you, Mr. Kapil. Good afternoon, ladies and gentlemen, and thank you for joining Arihant Superstructures' conference call to discuss the Q2 FY 2023 results. First, I'll take you all through the key operational highlights for the quarter 2, followed by financial highlights for the quarter, and then I'll hand over the call to Mr. Parth Chhajer, Promoter and Whole-Time Director of Arihant Superstructures. On the operational front, the company has witnessed continued sales momentum, despite rising mortgage rates, pointing to the resilience of the real estate sector. In the current quarter, we have sold about 364 units, totaling 3.06 lakh square feet of area. And in terms of value, it comes out to be INR 177.4 crores. This takes the total sales for our half 1 FY '23 to 785 and 6.3 lakhs square feet with a value of INR 367 crores, which is about 10% higher than the half year in FY '22, which had sales of about INR 335 crores. The collections too grew at a steady pace at 11.7% in the first half to INR 227.9 crores from INR 204 crores in the year ago period. The collection for the quarter stood at INR 117.1 crores. On the business development front, the company has added approximately 1.7 million square feet with the GDV of INR 940 crores to the project portfolio in the current financial year. This takes our total project pipeline to 14.6 million square feet. Out of this, 4.5 million square feet of area is under construction and balance 10.1 million square feet is in the forthcoming projects pipeline. And out of the ongoing projects, which are already launched, around 58% of the area is already sold. So this gives us a good picture and revenue and collection visibility over next 2 years or so. Coming to the financial highlights, taking you through the same, the total revenue (sic) [ income] in this quarter stood at INR 120.88 crores as against INR 88.18 crores in Q2 FY '22. That is a year-on-year growth of 37%. Whereas for half 1 FY '23, the total revenue stood at INR 210.47 crores as against INR 172.7 crores. That is a year-on-year growth of 21.9%. EBITDA in Q2 stands at INR 20.19 crores as compared to INR 20.18 crores in Q2 FY '22. The PAT figures are at INR 11.75 crores in Q2 '23 as compared to INR 11.63 crores in Q2 FY 2022. We remain confident of continuing our growth trajectory while full extending support to our customer supplies and other valued stakeholders. And for the first half of FY '23, the EBITDA is at INR 39.28 crores as compared to INR 35.56 crores in the year ago period, which is a growth of about 10.5% and profit after tax grew by 12.9% in the first half to INR 22.5 crores. EBITDA margins were recorded at 18.66% and PAT margins are at 10.68% for the first half of the financial year. The global inflationary trends as well as the inflation numbers that have come out in the month of October. They have already -- they're already showing signs of easing, and which gives us confidence that the raw material prices and inflationary pressures will ease out in next quarter or 2, which would be beneficial for us on 2 fronts. Number one, it will help us improve on the margin front and the concerns about the rate hikes on the home loan side, will also kind of peak out is what we are currently looking at. So I think going forward, that should augur well for our business. And now to brief more about new launches, strategy and business outlook, I'll hand over the call to Mr. Parth Chhajer. Thank you.

Good afternoon, everyone, and welcome to the conference call for Q2 FY '23 earnings and business update. Thank you, everyone, for taking out time for this call. We are happy to see business grow despite inflation, rising costs, supply chain disruptions and higher mortgage rates. We'd like to update that the construction for our Vashi project, Arihant Advika has commenced in Q2 FY '23, and we are seeing tremendous progress in the execution of the same. We have launched approximately 140 new units in Arihant Amisha, which is located at Taloja in the second quarter and are getting a steady response. On the business development front, we have entered into asset-light venture for 12,080 square meters of land, adjoining to the existing land added in Q1 FY '23 at the Shilphata location, taking the total development size for the project to around 7 acres, translating to a development potential of around 11 lakh square feet, which will be our sale component. And this would yield us a total revenue of around INR 700 crores. Shilphata, Dombivali as you know is one of the largest markets today and higher selling markets by unit sales in the entire MMR region. And we are quite excited that we have been able to add on more area to this existing project, taking it to a better layout, bigger size and longer duration for the project. In the Q2, we had a heavy monsoon and we had quite a lot of increase in the mortgage rates, which indeed had some effect on the sales momentum as it takes some time for people to digest and consume the increase in the interest rates when they are deciding to buy [indiscernible] property. At the organization level, our human resources strength is increasing steadily, and we are geared up for the exciting times ahead. The strategy for the next 2 quarters is to launch new projects. So in Q3, we are launching Arihant Aaradhya, which will be around 440 units at Kalyan Annexe. So in this month, we'll be taking up this launch and post this, we'll be launching the Titwala project also, Arihant Aayan to approximately around 200 units in that particular project. So -- and in Q4, we are geared up for a good number of launches starting with Arihant Aspire at Panvel and then moving on to Arihant Anmol at Badlapur, Arihant Aloki at Karjat and Arihant Arshiya at Khopoli. So a good mix of affordable and mid-income group products are lined up for new launches in the coming quarters as well. And the Shilphata project, which we have just increased out to around 7 acres will be scheduled for a launch in the first quarter of the next financial year. So I'd like to throw now the floor open for questions and answers.

[Operator Instructions] We'll take the first question from the line of Balasubramanian with Arihant Capital.

Am I audible?

Yes, you're audible.

Congrats for good set of numbers. My first question, the long-term borrowings around -- its increased around INR 75 crores in H1 FY '23. So where is the fund utilized? My first question.

We had raised NCDs worth INR 45 crores in the first quarter and majority of the funds have been utilized for the new acquisition, like what we have just highlighted, we've taken around 7 acres of land on a JV model, Shilphata, we've acquired some land in Titwala also. So the fund utilization has been for taking up new projects.

Okay, sir. Sir, if I may, I missed some of the launches like you've mentioned, some of the launches will be in Q3 FY 23. So could you please date the same?

Yes. So some launches had to be pushed up due to the heavy monsoon and increase in mortgage rates on a very fast track basis. So we have now scheduled up launch for the Kalyan project. Construction has already commenced for 4 buildings, and we'll be launching it out in this quarter. We'll be launching out the Titwala project also in this quarter where we should have the approvals within the end of November and post that we can go in and do our data submissions and then start off the project for sales and construction as well.

Sir, what kind of margin improvement we may expect for next 2 quarters?

Margins, so we have kept our pricing almost similar to what it was in the first quarter. Marginally, obviously, we have a big product mix. So it always depends on the revenue that will come in to recognition for that particular quarter. But we've seen some reduction in the raw material prices in Q2 for some materials, not all of them, but steel has come down very considerably, which is a very -- which has a very large contribution to the construction. Cement has gone up in the second quarter. But more or less, the construction cost is similar to what it was in the month of May and June. Selling price is slightly increasing, I would say, by 2%, 3%, but not a major hike that we've seen across the quarter.

Okay, sir. Like few of the projects are in pipeline, so around the estimated potential around INR 1,000 crores, like what kind of execution period for these projects because everything starts from Q1 to Q4, FY '23?

Yes. So these are all projects which are of different project cycles in terms of the duration. Some projects will have a life cycle of 3 years minimum, and then some projects could have a higher life cycle of 4 to 5 years also like the Shilphata 1 is something where we're going to do a high-rise construction. So that may have a life span of at least 4, 4.5 years. Something like Arihant Aayan in Titwala or Arihant Aaradhya in Kalyan, the phases that we will be launching in this quarter will have a life cycle of 3 years maximum. Already for the Kalyan project, we are at a good stage. The claim for 2 buildings is already done, 2 buildings is almost coming up. So there, we have a good added advantage when we are going to the clients and maybe we can even finish that off in 2, 2.5 years.

Sir, we are aspired to grow 50% across all the segments right now, we are in the track like -- how we -- going forward, how much growth we can expect in that same guidance you are maintaining or is there any changes?

So we have to look at our business on a yearly basis and cannot compare it on every quarter-to-quarter basis. We still have 2 quarters left for this financial year. So we don't want to give out any fact and figures today, but we'll try to cover up as much as possible and achieve the targets that we have set out at the beginning of the financial year.

Sir, what kind of like bookings are expected in the next 2 quarters, like in terms of area?

That would be very forward-looking. I cannot exactly mention out the area and the value and the unit numbers. But we are seeing good growth. And Q3 and Q4 usually form to be better part of the financial fiscal year for real estate sector, especially in this Mumbai micro market. And I think we'll be doing -- we should be doing much better than what it was in the first half of this financial year in the coming 2 quarters.

Sir, is there any further debt rise, like what kind of maximum debt is expected in this year?

No. I think the debt increment is -- increments in the debt would not be to a larger extent for this year. We could see a reduction in the debt also actually in this financial year as well.

In future, is there any plan to raise debt in next 2 or 3 years?

Idea of -- so if there is a good opportunity, we can look at raising debt. But the idea right now is that we are having almost 17, 18 running projects where we are getting cash flows from all the projects. So the idea is to utilize those cash flows for the growth of the company majorly and obviously do the construction activities and the current business operations. For the current businesses, we would not be requiring any kind of construction finance going further. So no kind of construction debt would be raised for any kind of an opportunity, a debt on a land stage could be looked at if there's great an opportunity. But the company is at a whole group level, looking to reduce debt over the next 4 to 5 quarters.

Okay, sir. Sir, we have 13% market share in Navi Mumbai, like what kind of opportunities do we have like in terms of construction and what kind of potential sales opportunities are there in future?

So because we have the largest market share and a very widespread geographically across many locations for our projects, it obviously sets us way forward to many of our competitors when we are going out to the market. And we are looking from -- looking at going from here as well to a very, very different extent. The company is geared up. We have the right human resources. We have the opportunity because Navi Mumbai is a good growing market. Even MMR region, we have now expanded to very largely in a KDMC belt also. So Shilphata, Kalyan, Titwala, the new locations where we'll be coming up in a very big way, already we were existing in Badlapur area. So companies having the potential to grow from here, so our first target is to finish off the projects, which are midway or almost at the verge of completion, and hand those over and take up new opportunities in those particular micro markets, which are doing very well. So for us, that is -- that puts us in a better position for faster sales, faster construction, better growth.

Okay, sir. Sir, in that flat sales like private sectors or government sectors are coming more like if you could throw some light on which are the sectors people are coming from like pharma or financial services? If you could throw more light on that?

So we have not seen any pharma or BFSI companies coming into real estate. I mean I didn't get your question exactly.

Sir, like for example, like in -- like some of the people are working in pharma, some of the people been working in BFSI, like that kind of mix, I'm asking.

Okay. Yes, yes. So major of our clients, their starting salaries are around INR 30,000 a month and it could go upwards of wherever it can. Majority of them are coming from the neighborhood to the projects that we are working on. Many of them work in IT companies, some have their own small businesses. Some of them are working in the industrial zones also. So we have a wide mix. It's not like a particular category of BFSI companies or pharma companies, employees who are purchasing at our project. It's a very, very wide mix and scattered across so many locations, so many different, different geographies. So I can't point out to any particular sector or industry.

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

Am I audible?

Yes.

So a question from my side. Sir, if you can just throw some light on the transaction of selling land from one subsidiary to others. So how will it just head the company as such?

Yes. So this transaction is between Arihant Abode Limited and Arihant Vatika, where Arihant Abode Limited is the seller and Arihant Vatika is the purchaser. For ASL, as a holding company, it's neutral because ASL has the same shareholding in both the subsidiary. The reason is that, Arihant the Board already has a large project Arihant Aspire, which still has around INR 900 crores of cash outflow towards the future phases for the development of the project. And we want those cash flows to be utilized in that entity for the development of the project. And whereas Arihant Vatika today has a surplus of cash flow. And by keeping the land within the group is a better strategy as the land is at a premium location at Panvel. And it will also help us reduce the debt overall on the group level as we see over the next 4 to 5 quarters. And Arihant Abode Limited, which has the project Arihant Aspire will also get more working capital to start off the new phases, the new towers in the Aspire project. So Arihant Abode would be looking at total reduction in debt on the overall entity level to the tune of INR 100 crores, INR 110 crores, INR 115 crores over the next 4 to 5 quarters?

[Operator Instructions] We have a question from the line of [ Ketan from Ketan Kotecha & Co ].

First of all, congratulations for the great set of numbers.

Sorry to interrupt. Ketan, sir, if you're on a speaker mode, or something, can you switch to handset and speak?

Am I audible?

Yes.

First of all, congratulations for the great set of numbers. With reference to the question of earlier question, the deal, can you throw some more light on the transaction between one subsidiary to another subsidiary? I already -- I think you have explained in earlier question, can you throw more light on that?

Yes. So this transaction is for around 48,000 square meters of land, which was owned by Arihant Abode Limited, and the purchase value for Arihant Vatika is INR 69 crores, and it would be paid out in a particular schedule, which is put up on the exchanges as well. So majorly it would be a debt reduction as well as availing of working capital for Arihant Abode Limited, which is going to require a good amount of funds for the future phases also for construction of Arihant Aspire project. Currently, we have launched and are working on 3 towers and we get 5 more towers to go. So this utilization of funds would be well set off between the group itself by this transaction. And Arihant Vatika had a decent surplus of around INR 30 plus crores. So that is something which will give an opportunity to Arihant Vatika and the group Arihant at first day, our ASL group will not lose out on the opportunity for development at a very premium location at Panvel.

Okay. Okay. Great. Now I got it. It's good to see companies like Arihant 5 is taking steps to create more value for the shareholders, especially in real estate sector where traditionally is not going for [Technical Difficulty]

To add to that, Mr. Ketan, I would just like to add a little bit here. So we see this transaction as a great value unlocking opportunity for the company. Arihant Abode has been holding this land and I think the Board is undertaking this mega project of Arihant Aspire. And the visibility of development of this additional land parcel of 48,000 square meters are roughly 12 acres. As a company, as a holding company, we were seeing that to stretching out a little bit too far in the time line because, again, the Board, we are not wanting to raise further debt on that subsidiary. To unlock this challenge, this transaction would be quite useful from an ESL holding company perspective because the Arihant Vatika is always shouting for more land parcels, and this gives it a good opportunity to acquire a premium land parcel. So 2 things happen here. One is with more working capital, but less debt Arihant Abode subsidiary becomes much financially much stronger. And hence, we believe that there will be a good case for preponement of additional phases and hence additional cash flows in Arihant Abode subsidiary. And when you look at Arihant Vatika, the 48,000 square meters or 12 acres of land parcel can also be developed faster than the time line where Arihant Abode Board could develop it and without taking any considerable debt on this to develop this land parcel. So with this, we believe that both the projects, Arihant Aspire as well as the new land parcel, there could be good preponement of cash flows going forward. And this could create very good value for Arihant Superstructures. And as we have mentioned in our stock exchange update also, Arihant Superstructures could benefit a lot out of these transactions without any of the subsidiary having to compromise on its own objectives and needs.

[Operator Instructions] The next question is a follow-up from Balasubramanian from Arihant Capital.

Sir, what kind of sales volatility we are witnessing in Jodhpur projects, especially in Adita and Anchal Phase 1?

So our Jodhpur projects, I mean got a very, I would say, slow and steady response in terms of the sales in this Q2. But Q3, we have just last week got the OC for the Adita's 1 building, which is ongoing [indiscernible] So in the coming 2 quarters, we expect to see a good decent amount of sales due to the receipt of the OC also. The current stock at Jodhpur will be to the tune of around INR 60 crores between Adita and Anchal both combined together. Adita would be having anywhere close to 40-odd units and Anchal will be having an inventory of around 90, 95 units. So we expect that in the next 2 quarters, we should be doing well and should be able to reduce the ready inventory to a larger extent and then start off with the new buildings in the -- as the balance phases for the -- for both the projects.

Okay, sir. Sir, like what kind of units we are focusing to deliver in next 2 quarters?

So we might not exactly point out, but yes, we should be able to complete out Arihant Anaika Phase 4, hopefully by Q4. And sorry, Adita we just completed 1 building in this quarter. These are the 2 likely projects which are due for completions. And some projects will get pushed out to Q1 and Q2 for next financial year like Aalishan Phase 1 and there's some balance inventory also that needs to be built and completed. So that also would be sold in the next coming days, coming months, sorry.

Our next question is from [indiscernible].

First of all, congratulations for the good quarter 2 results, specifically considering monsoon impact on construction activity and comparing other real estate companies results. My question is, I recently watched in one interview of management, where it has been communicated that in coming years, company expects 30% to 40% growth in business in all terms. So are you on a track to deliver that in line?

Yes, yes. We are on track for the growth on all the verticals of the company for the next 3 to 4 years. We are seeing a company scale up to a very, very larger extent in terms of -- in all -- across all verticals, and we have the projects, we have the people to execute, deliver and complete the portfolio that is there, lying around 14.5 million square feet is the total development potential today. And we feel that we are in a good position. The market is supporting, the timing is right. The city is growing at a -- because of the good infrastructure coming in. So we have all big boxes and all the supporting factors from the government, from the market to increase and grow the company to a very different level across the next 2 to 3 years.

Our next question is from the line of Abhishek Getam from Alpha Invesco.

So question regarding the environmental [indiscernible] And because of this, have you seen any cancellations in the project?

So there is a clarification sought by the environmental department on the aspect of study of the total region of around 2 kilometers for all the lands and projects falling in that area. And being a responsible corporate and as requested by the government agencies, we have halted the construction activity till completion of the study, which could take maybe around 4 to 5 months. To clarify and notify everyone, Arihant Superstructures Limited has all the NOCs and clearances for the project such as commencement certificate, RERA certificate, environmental clearances and consent to establish from Maharashtra Pollution Control Board, which is MPCB in the favor of the project.

Okay. And any impact on booking cancellations?

So right now, we just halted the sales and once the project has started off, those bookings would be continued.

[Operator Instructions] Ladies and gentlemen, that was the last question. I now hand the floor back to Mr. Kapil Yadav from Dolat Capital for closing remarks. Over to you, sir.

Thank you, everyone. Thank you, Mr. Parth and other team members from the team. Any opening remarks, sir? Over to you, sir. Closing remarks, sorry.

Yes. So thank you, everyone, for joining the call. And if you have any queries, you can reach out to me and Abhishek, we'll be happy to clarify those offline. Thank you.

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