Arihant Superstructures Limited (506194) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Arihant Superstructures Limited Q1 FY '27 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Kunjal Agarwal from Arihant Capital Markets Limited. Thank you, and over to you, ma'am.

Thank you so much. Hello, and good morning to everyone. On behalf of Arihant Capital Markets Limited, I thank you all for joining the quarter 1 FY '27 Earnings Conference Call of Arihant Superstructures Limited. Today from the management, we have with us Mr. Ashok Chhajer, Chairman and Managing Director; and Mr. Udit Kasera, Chief Financial Officer of our company. So without any further delay, I will hand over the call to management for the opening remarks.

So good morning, everybody, and thank you for joining the earnings call. I will take you through some of the industry updates followed by operational highlights. So we see that the premium segment is looking forward for an uprise going forward also given the net worth of individuals being increased. And when it comes to the larger premium segment, it is bandwidth between below INR 5 crores, which is seeing still a good traction. We have already seen in the sector that things about INR 10 crores, INR 15 crores, INR 25 crores INR 30 crores in the city of Mumbai are facing up and a little slowdown. But when it comes to anything which is below INR 5 crores is what is very much keen on spend by individuals. We have seen that the rising household incomes, evolving the business aspirations and growing confidence in the long-term ownership has been the driving theme. And over the last 6 months, overall market has started normalizing. Hence, the speed of the sales have been mediocre and not too much high in spite -- this has been the effect due to the geopolitical tensions, crude oil movements, the foreign currency movement and also have been impacted by the real estate ventures and projects coming up in larger sizes. Sector scalability is still increasing overall, which also shows up that implementation is the core key. And that is where there is a shortage of man resources at skill development right from the workers at the labor [ laboratory ] site as well as the monitoring engineering team as well as the salespeople. And that becomes a key factor, and it may see that many of the projects would have been struggling to cope up with these factors to see that there is a complete closure of the project nicely. Though in our case, I would be telling you about the number of project completions happened up in the last quarter and earlier also. Coming to the -- now coming to the MMR and Mumbai 3.0 market, which is the key market, which is still showing up great positive signs in terms of price rises, in terms of traction and sales, everything. And over the last 3 years, the Navi Mumbai's market in MMR region has increased from 12% to 17%. That means areas like Thane and Kalyan are getting in heat or getting losing their market share and Navi Mumbai is getting their market share due to the international airport and -- [indiscernible] and new infrastructure developments coming around as well as the data centers and job creations by the GCCs happening up due to the participants in this region. Moving to the operational highlights of our strategy. We will continue to exhibit structural resilience as we enter the new fiscal year. Though we have faced increased inputs due to the labor shortages as well as the geopolitical reasons, but we have revised it out with the balance inventory to us and seeing that our balance sheets will not be hit due to it. During the quarter, the company achieved sales booking of 221 units, which is equivalent to 2.31 lakh square feet, and that is up by 15% on area in terms of area amounting to INR 173 crores and again, value-wise an increase of 15% -- this demonstrates that underlying market demand across our core territories. Our average selling price per square feet has also remained same at INR 7,500 per square feet as in the last quarter of Q1 for this first quarter of Q1 FY '26 [ Q1 FY '27 ]. The average price unit which has been sold also has been stood at INR 78 lakhs per unit. We remain focused on gradually improving our average selling price due to the premium products contributing to the total sales revenue. Going forward also, it would largely increase up in a major fashion. With the completion of the project, which we tell that the business operations are getting completed. We received occupancy certificate for Arihant 5 Anaika, Arihant 6 Anaika, Arihant Anant, Arihant Aaradhya Phase 1, and that means that around 1,495 units have been completed and ready for offering of the position in the coming quarters and the days. And that tells that the operations are smooth and clear. The collections also for the quarter stood at INR 161 crores, registered a yearly growth of 28%. Our GDP has increased -- GDV has increased gross development value has increased from INR 6,000 crores to INR 14,000 crores in last 5 years without any significant fund raise. That is the only fund raise was INR 36 crores of preferentials. And in spite of that, with the borrowings increasing, the GDV has increased to a larger size, which would contribute in a big way to the company's financials in the coming days. And as a short-term evaluation, all what we purchased out very much in time, the lands of World Villas and Town Villas and business development in Thane as well as in Shilphata that already has seen an uprise of land prices going to almost 3x. That tells that the investments were very well right in time. And the scalability could be done due to those strategic decisions in spite of not fearing to increase the debt to the company because the debt -- increase in debt versus to the GDV and the financials has a great alpha in the coming days. And we are happy to share that ASL is already transacting and emerging as a diversified developer rather than only pure residential, our investments in annuity assets is closing down for the second hotel also with Sunday at near Imagicaa. The earlier one which has been concluded is the 5-star hotel at World Villas. The greatest point for this would be that the land prices for this has been to an extent of contribution of INR 25 crores, INR 27 crores for World Villas and for the ITC hotel and around INR 7 crores to INR 8 crores as contribution towards the second hotel, though it were captive because the lands are already done in the kitty of the company. And the similar product with the same room rent when it is there in the city, the land prices or the input cost for developing these hospitality sector goes to almost 5x. So here is the edge that these hotels would do better and with the occupancy rate in and around still picking up to 70% to 75% with the additions at both the locations, we see that the hospitality in the 3 to 4 years would pro up more better in terms of leisure destinations and MICE events and wedding destinations. So all the strategic initiatives, we wanted to hold pricing rather than chasing volumes at the expense of margin. We plan to deliver 2,500 units by the end of financial year 2027. We are confident that we will continue to gain market share basis on our superiority of product and investment in strengthening our brand. Now I request Udit Ji to give the financial performance.

Good morning, everyone. I will brief you about the financial performance of the quarter under review. The consolidated operating revenue for Q1 FY '27 stood at INR 132 crores, reflecting an increase of 9% Y-o-Y from INR 121 crores. The EBITDA stood at INR 28 crores and the EBITDA margin stood at 21%. The PAT for the quarter stood at INR 10 crores with a PAT margin of 7.4%. On the balance sheet, our net debt as on 30th June stands at INR 818 crores and the net worth stands at INR 460 crores. We remain focused and confident on reducing our debt next year onwards as some of our residential projects have started nearing completion. And these reductions will be partially offset by new loans, which are being taken for building the annuity assets. With all these updates now, we are happy to take questions from the audience.

[Operator Instructions] The first question is from the line of Aditya Banerjee an individual investor.

My first question is that the industry is seeing strong volume growth. How much of the current growth are you comfortable [indiscernible]? And what are the uderlying demand indicators we are monitoring to assess sustainbility.

What we see for the next 4 quarters, we see the similar behavior as we have seen it in the past quarters as this is the phase where internally the projects are shaping up at the initial spaces. And hence, in spite of mixed views and the views of the real estate sector across the industry, we feel that at our level, we'll be able to achieve a little higher than the past year numbers. And very, very exponential growth in terms of numbers will not be able to witness in this financial year, but it would not even deteriorate. And we have been able to manage and maintain our indirect expenses also in the tune of the same lines.

Okay. Understood. Sir, my second question is that as cost efficiency initiatives in the past, so could you quantify how much of the cost savings have already been captured? And what further cost per tonne reduction is realistically achievable over the next 12 to 24 months?

The cost reduction is not possible as we are able to manage of our HR cost similar to the last year's cost. The construction expenditures already is on a rise due to the geopolitical features. But given the inventory in hand, we are able to see that those increase in cost of the total project versus to the inventory in hand can be equalized or can be neutral also. And hence, there won't be any impact on the balance sheets of the company per se. As you already have seen that today also it is a mix bag of projects which are new projects which have higher EBITDA as well as old projects which has lower EBITDA. So that is why the next 3 to 4 quarters when the older projects would phase out till that time, the average numbers would be on the similar line.

Okay. And the next question is that given presales of INR 1,731 million versus reported revenue of INR 1,316 million, what is the expected time line for converting the current presales into the recognized revenue?

See, the general behavior that for an ongoing project, we are into percentage completion method. Hence, all the presales which happen, it takes around 90 days on an average for them to get into the mode of revenue recognition. So we can put up a cycle of 90 days as an average for every presales happening to contribute to the revenue. So that is the time taken by an individual in terms of owners' contribution agreement, registration, NOCs and et cetera.

Okay. Sir, I have only one last question that given the current environment, are you seeing attractive opportunities for new acquisitions or are higher land and construction costs making you more selective?

Going forward for this financial year, we don't have any program for new capital investments for the business development as there is a good handsome size of projects in hand when it is INR 14,000 crores. And given the scalability possible at our end, it still is a cycle of 6 to 7 years to complete of this INR 14,000 crores. Hence any development which would be asset-light, maybe what we would look into it. But largely, we will focus on implementation of this project and not any new acquisition of the businesses or new projects.

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

[indiscernible]

The next question is from the line of Shilpa from SS Investments.

[indiscernible]. No problem. We'll try to do it. Please come.

So as per your presentation, it shows that currently 41% of the project mix comprises of luxury. So in the next 2 years, where can we expect this number to reach?

We still will have a mixed bag of it. And going forward, we can say that we would aspire to have 40%, 45% as premium segment and around 30%, 35% as middle income group segment and 20% as affordable housing. So we'll not leave affordable housing. We'll still continue to do it.

Okay. Understood. So my next question is, are there any plans to diversify the geographic presence because dependence on a single region may create a risk for the business?

No. As when we talk about single region, though it is MMR and Mumbai 3.0 is already a very large envelope. It is double the size of the city of Mumbai for the sake of new geographical diversification with new cities, there is no plans for it in that way. We are able to consume and utilize our capital and resources in this area and with the more secure, safe and better prospects for the projects that we have taken.

Okay. And what are the factors that are differentiating MMR from other key markets like NCR, Bangalore and Pune?

Well, today also Mumbai happens to be the core center where the state of Maharashtra is spending the highest in terms of bringing up job creations. And hence, the demand is robust. There is supply also, there is competition, but then that tells that this is a core market. And when we compare it to Pune or Bangalore, it is like the Mumbai 3.0 just started off and has yet not achieved its saturation peak in terms -- whereas the city of Pune and Bangalore already have reached to -- or NCR has reached to their peak of saturations in terms of supply, demand.

Okay, sir. Got it. Sir, the next question is, how do you see delivery -- the delivery cycle moving here onwards?

Well, from start to completion, today, average project takes around 4 years of time in reality and practicality. Some of them may be at 3 years, some of them are at 5 years, depending upon the size of the project. Good thing is that we are -- and the core focus would be that we do not pile up with any ready stock inventory and keep on selling all our stocks in time.

Okay. And last question from my side is like the average realization was INR 7,769 per square feet in FY '26 versus INR 6,080 in FY '25. So where can we see this number moving in the next 2 to 3 years? And what would be the factors that would be driving our average realization?

Given the whole portfolio with us in our size, if any new addition is firstly of premium segment, then the rate of average would increase or else it will be something around 10% addition to the current ones with the given mix of products which we are operating today.

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

I wanted to understand in the last 5 years EBITDA margin has moved in the range of 21% to 23%. What would be the trajectory going forward? Where would you expect it to go? Given these changes that are happening in the business, I think you have a hospitality segment as well. So where do you see it moving?

Both the businesses have to be evaluated separately because both have different pattern of understanding. Given the real estate sector of cell [ sale ] product of residentials and construction cell [ sale ], the EBITDA margins would gradually move up around up to 30%, 35% and something around 30%, 35% would be the EBITDA margins once Town Villas and the Villa projects contribute largely.