Arvind SmartSpaces Limited (ARVSMART) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Arvind SmartSpaces Limited discussion on financial results for the quarter and half year ended on 30th September 2021 conference call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Kamal Singal, Managing Director and CEO. Thank you, and over to you, sir.

Thank you. A very warm welcome to all of you, and thank you very much for spending time for this call. I'll just go through some of the important developments, which have happened at Arvind SmartSpaces in the last quarter and a little before that. At Arvind SmartSpaces, one of the important milestone that we achieved is that we have completed the preferential development process about INR 85 crore in favor of HDFC Capital Advisors and the promoters. If you can recollect last quarter, the Board had approved this transaction, wherein HDFC Capital has picked up in excess of 8% stake in the current company, which is SmartSpaces. So that transaction per se from all points of view has been completed during the previous quarter. And consequently, Mr. Vipul Roongta has joined the Board as a nominee director from HDFC Capital side. So extremely happy to share this information with you. And this obviously brings 2 of the largest and the greatest brands in this country together to add a lot of value to all the stakeholders. So that is as far as this important information is concerned. Coming to the market side and the business side, last quarter and even before that, maybe a couple of quarters, we've seen a very clear revival of real estate industry in the true sense. Obviously, COVID had an impact on everything that was been done. But nevertheless, the rebound has been truly widespread across markets and across segments also. We have clearly seen the impact of the revival in our numbers. From the industry standpoint, I think most of the segments and most of the cities and markets are now either very close to or they have already surpassed the levels of peak of it when it comes to cut sales and new launches. And that is quite understandable. The pent-up demand is obviously there. And more than pent-up demand, I think it's also about customers' confidence which is coming back into this segment as an investment class as well. So they see investing in real estate. They see now a very clear reason why they should be having bigger homes and now why they should be having a home at all, which is owned by them. So the overall demand and the consumer confidence is into a very, very positive trajectory. And in our understanding, the demand is organically going and it's also having an impact from COVID, where there is a positive impact in terms of people feeling the need of having houses which are a little bigger or houses that are in the outskirts, houses which are a little less densely populated, et cetera, et cetera, and that's driving the demand further. We also know that this is possibly one of the best times to buy houses. The affordability index, as everybody talks about these days is at its best, possibly at it's less historically. And interest rates are at all-time low. So there are a lot of funds which are available and funding a house is quite an option. The cost of owning a house in terms of EMIs and percentage of income that we'll need to share for the segment which is relevant to a consumer looks very attractive. And the difference between the rental that one needs to pay and the EMI that one has to pay after having contributing to the initial investment in a house to be owned has narrowed significantly and hence, it makes a lot of sense for consumers and customers to buy houses rather than rent houses and hence, demand for new houses is kind of going into a very, very positive -- into a very positive direction, so to say. So all in all, it's a very, very positive outlook that we feel. And with the structuring and formalization of the economy and our segment per se of the branded and the organized players are seeing double benefits. One, the demand is up; two, there is a clear preference of real estate as an investment class, et cetera. But at the same time, there is a clear trend of consolidation, which are now happening. We all anticipate that to happen in some time or some time back, but I think it's happening at this point in time. We can feel the difference there. People are clearly preferring to buy houses from players who have a credibility and legacy, et cetera. And also because of regulatory requirements and nuances getting added into the business per se, it makes much more sense for the landlords to rather involve a developer who has capability and system and processes in place to do the business rather than everybody trying to do a real estate on their own. And hence, we see this kind of a consolidation where the smaller developers possibly are already kind of exiting and bigger and more organized and formalized players are becoming more entrenched and more kind of bigger in the sense of volumes, et cetera. So that's a great trend as far as Arvind SmartSpaces is concerned. We have also got some of the important milestones achieved in terms of our cash flow in the last couple of quarters. They've been extremely strong which has resulted into our debt levels committing down to an additionally low levels, which basically means that -- I mean, when they save interest and they save costs, et cetera, that's one part of it. But the important -- more important point here is that they also give us now a headroom to raise debt, fresh debt. Now that we are entering into the next orbit of our investment and national cycle has to restart. In fact, it has already restarted in one or other sense already for us. But what it means is that we have a lot of scope now to bump in money from all the 3 possible sources, internal approvals have been very strong in the last couple of quarters. We'll share some information on that. At the same time, our equity inclusion has happened recently from promoters and HDFC Capital et cetera, and a little more capital is [indiscernible] within in the next couple of quarters, et cetera. Along with that, there is a significant headwind to raise equity -- I mean, debt, for example. So all these 3 sources make us believe that we have enough and more kind of fuel to take the investment cycle to the next level, and we've already started working around this. And we expect that a lot of activity should happen on that in the coming quarters. And we've just about kickstarted this growth kind of momentum in the last few months post-COVID. Coming specifically to the numbers. Just to take you through some of those positive things first. Fresh sales have gone up by 64% for the quarter at INR 293 crores, which is -- sorry, this is for the first half. And for the quarter, it has gone up by 17% at INR 184 crores. Similarly, collections have gone up very drastically, growth of 218% year-on-year for the first half at INR 280 crores. And for the quarter, we stand 140% up at INR 161 crores. Unrecognized revenues are at INR 955 crores as on 30th September against a number of INR 562 crores last year same time. In terms of financial numbers, revenues are up 31% year-on-year for the first half at INR 52 crores, and there's a decline of 14% year-on-year for the quarter at INR 25.7 crores. PAT is up by INR 8 crores to INR 5.2 crores as compared to last year for the first half. And there is a 37% growth on a very small base, obviously, of around INR 2.7 crores for the current quarter. So that's broadly the snapshot of revenue selection, et cetera. We definitely are still lagging behind in terms of recognizing revenue in books of account. And that's why we keep seeing these peaks and troughs into our reported numbers in the formal sort of books of accounts. But nevertheless, the trend on fresh sales and bookings and investment, et cetera, is very, very encouraging. The company did a very, very strong footing. The performance, operational performance, the sales performance, et cetera, is highly encouraging in the last couple of quarters. We have seen a very strong collection, very strong fresh booking. And hence, we feel that this is a perfect time to get into the next orbit of investment and creating pipeline, which we are working around. And we very recently kind of we started our investment cycle as I just said before. So that's pretty much from my side. Maybe we can now take questions, if you have any.

[Operator Instructions]. First question is from the line of Rishikesh Oza from RoboCapital.

Sir, my question is our high growth sales, they have dipped in this quarter. So if you could please comment on that.

Sure. So last quarter, if you're comparing this with that, it was a launch. I mean after the launch, the momentum is very strong in our understanding, and we are selling fairly well there in any case. But obviously, as compared to [Technical Difficulty] the stabilization period is supposed to be a little moderate, and that's what is happening. But otherwise, it's very, very encouraging. There's quite a few -- I mean there's quite a heavy traffic in terms of footfall and interest there and they're selling very healthy. In the Phase 2 of Highgrove, which is called Chirping Woods, essentially, it's the same project. There also, the numbers could be actually read by clubbing these 2 as 1 location, et cetera. We opened the next phase also of the same project. So all in all, it's pretty strong, and it's doing very well for us.

Okay. So sir -- because last year, around 500,000 square feet you used to sell per quarter on average. And this quarter, it is like around 28,000, 30,000 square feet. So when do you think it will bounce back again?

For Highgrove?

Yes, yes. Highgrove.

So as I said, launch period always is supposed to be extremely different from a stabilized phase. And that's what is happening. This quarter, Highgrove and Chirping Woods put together, possibly sold around INR 13 crores. And we target to sell around INR 5 crores to INR 10 crores a month in any case. So INR 20 crores, INR 25 crores is a steady-state sales, which is very healthy. INR 100 crore -- INR 80 crores to INR 100 crores sales in one project at one location in an endeavor market is supposed to be fairly decent. So averaging around INR 15 crores, INR 20 crores should happen and it should continue to happen going forward. Obviously, it is one of the -- or it's supposed to be leading a little low as compared to what the launch numbers were. Launch were extremely successful. It was very, very -- it's got a very, very high traction. And one of the -- possibly one of the most successful ones for us. But now we're in steady-state phase, where the numbers are still very healthy, and we expect the momentum and continue I'd say.

[Operator Instructions] Next question is from the line of Shantanu Mantri from Think Investments.

Congrats for a very strong fresh sales and booking number. My question -- I have 2 questions. The first question is I wanted some details on the cash flows for the quarter. So we know your collections are at INR 161 crores. I wanted to know some details on the cash outflows for the quarter. So the construction cost, the overhead outflow and the finance cost.

I'll request Ankit, our CFO [Technical Difficulty].

So to answer your question, we do not give very specific details on quarter-wise outflow. But for your good analysis and comparison now we have started giving you project -- at a summary level, operating cash flow. So we have presented this operating cash flow for a June quarter on September 28 as a part of corporate strategy presentation, which is there on our website, you can go through that. And now we have refreshed this for September. So the data you can derive as a quarter 2 number instead of giving very specific number. And besides that, we -- as we discussed and we promised in the last conference call, that we will be giving more details in terms of cash outflow and all because this is the format we have chosen. And now we will be presenting this format every quarter in terms of what is the estimated operating cash flow from the business, which has been launched and which is yet to be launched.

So I'll suggest you go through the refreshed presentation, which is already uploaded Yes, it is already uploaded. It will have a fair amount of data on operation -- operating cash at project level, et cetera. I think most of the queries should be answered there. But as a broad -- as a very broad conclusion, we can see the collection is what we know. The debt levels have gone down quite recently during the period and it has gone down by around INR 50 crores. So this INR 50 crore pretty much was the surplus after covering from -- covering for our overhead design and construction expenses and everything else that one was supposed to be spending. And in fact, a little bit of that money also went towards acquisition of new projects. So after covering for all these INR 50 crore net reduction in debt has come. So that's a net summary of this, but the presentation should give you a little more detail about how things have moved at the project level on operating cash.

Sure, sure. Sir, my second question is now on a broader level. I see we have around INR 955 crores of unrecognized revenue and another INR 2,900 crores of inventory, which will come -- which includes both our launched and to be launched projects. And this I'm seeing will happen over the next 3 years. So we have around a total sales of INR 3,900 crores. And if I just do a rough calculation around INR 1,100 crores, INR 1,200 crores of EBITDA. So -- and that's also shown in your presentation that INR 1,278 crores of estimated operating cash flow. So my question here was on timing. So I see most of these projects are going to get completed in 2024. So if you could give us some picture on division of these cash flows for the next 3 years in your estimate, that would be really helpful.

So in the presentation, if you see one of the slides, which is called project details and in the segment B, which basically refers ongoing projects [Technical Difficulty] how much is operating cash et cetera is on ongoing projects. And also, this sheet tells you by when the project is expected to be completed. So this will give you a fair idea and a basis to do the numbers in calculation to essentially arrive at an [NPVs] that's the idea that you are trying to achieve with these 2 sheets put together. Now I think it's important to just collect these 2 things, and you should get the number analysis, getting possibly all the detail from this.

We don't provide [ D&I ] forecast.

But year-wise forecast at this point of time, we don't provide. I mean, we are currently focusing on execution and also focusing on what we have immediately on our hands. So we just want to be a little conservative about forecasting times in future. But I think there's enough and more data for a real estate expert to decipher and calculate what kind of a number can be expected from these coming 2, 3 years.

Understood. Sir, one last question, this INR 1,278 crores of estimated operating cash flow, this is our share, right? Because on a few projects, we have 55% revenue share, 45%. So that's adjusted for that or it's on the overall project level?

That is absolutely just for everything. This is net of all expenditures. And this is only for doing projects and projects which are already acquired and in the process of launching. This does not include the current investment plan that the company has because I mean, we are almost reaching a 0 debt level or we've already reached a 0 debt level at this point in time. And we've got fresh sales et cetera, et cetera. So we're not even counting our remaining investments which are being planned in the next couple of months, 3, 4 months' time from now. So this is only about this as it exists today without counting for any investments, and this is obviously only our share, and nothing else.

[Operator Instructions] Next question is from the line of Rithvik Sheth from One-Up Financial.

Sir, congratulations on a great set of results for the half and the quarter as well. Sir, I have a few questions. Firstly, can you throw some light and some broad comments on the potential of the HDFC investment that they have done at the company level. And our -- in the last few years, you have mentioned that our aspiration is to reach INR 1,000 crores. So with this investment, it looks more achievable. And already, we are about INR 500 crores. So can you throw some light on that? And what -- and you mentioned that we are looking to change our orbit. So yes, some broader comments on that.

Yes. So if you see partnership is a very strategic one. And it opens quite a few revenues and competitive advantages for us. Together, we can build a much stronger case for the stakeholders, consumers and other stakeholders as well. And just see we started with a platform-level partnership where we invested in a platform where -- I mean -- and specific projects were to be taken together and the profits were to be shared. But this partnership quickly grew into a much bigger one where they ultimately found value in investing into the company itself. This is one of those rarest of rare occasions as far as the HDFC Group is concerned, for them to have a direct equity stake in a real estate company. I think this is their only second one in a long period of time that they have done like this. So that's a great satisfaction. It enhances the company to file and it enhances the credibility at -- on one side. But at the same time, their nominee director, their MD and CEO joining the Board of Arvind SmartSpaces adds a very different dimension to what all we could think of and what all the direction that we can take. I mean, HDFC Capital is one of the largest investor in various kinds of asset classes when it comes to real estate. And their experience in not only identifying markets, their trends and their structuring capabilities, their capabilities to think through the funding side of it on the market side of it, et cetera, this is enormous. And Mr. Vipul directly coming into the Board and spending time with us, I think that in itself is a huge advantage. And we are -- and I think just mentioned, INR 1,000 crore obviously, we are targeting the short term. But INR 500 crores before that was an even more important milestone we achieved last year. And now we have just about entered into the growth phase post-pandemic. Pandemic, we definitely took a halt in terms of investing and taking up new projects and naturally so with a very conscious mind. I mean we had money and we were continuously reducing debt at a pace which was very fast, and we are almost debt free now. But at the same time, we knew that investments have to continue. The moment we've seen this opportunity in the pandemic clouds, so to say, very thinned out. We are into a very aggressive mode of recognition now and HDFC being there makes us much more comfortable about acquiring and getting into next orbit as you say. So all in all, this is supposed to be a major boost to us. we have now enough and more fuel to invest, and that's the task going forward in the next 3 to 4 months. Internal approvals have given us money. Equity infusion has given us money and there is a very, very significant headroom to these -- to debt. Even if you were to remain very conservative on our debt, still there is a significant headroom. So all put together, we are planning to have a major investment cycle in the next couple of months, 3 months time from now onwards.

Right, right. And sir, on the new acquisition that we have done in Sarjapur, I believe it's a JV as per your presentation. So when do we expect it to get approvals and launch? Will it be this year? Or it will be in FY '23?

I think it should be more like the first quarter of next financial. I mean a month here and there, if you're very lucky, maybe we can just work at the last this financial year-end. But that's too much of a precision in terms of prediction, but more like first quarter of next financial should be when we should be able to launch this.

Okay. Okay. And another project that we have the upcoming one at Devanhalli. So that's a JV project according to the presentation, but our economic interest is mentioned at 100%. So can you clarify on that?

Just one thing, give me a second. I'll just go through this. So this is that HDFC platform project that you're talking about. And in the platform, HDFC, as far as the entity level profits and these predictions are concerted, they entirely belong to us because they have contributed money through an OCD route. So that's the cost side of it. And whatever EBITDA and other projections are given there, they belong to us. So that's why at the entity level, it's a 100% owned project by the entity, which is 100% owned by us, HDFC being an OCD provider.

Okay. So basically, we'll be providing the interest to them and we'll be getting the profits or net profits out of the project?

Correct. Correct.

Right. And sir, my one more clarification on the previous participant's question, even I had a similar question on the estimated operating cash flow. So if I look at the projects that we have given on the project retail slide and if I compare it to the estimated operating cash flow, it looks like that INR 1,200 crores of estimated operating cash flow is for the total ongoing and completed projects and upcoming projects. So is that understanding right that this is for the entire and then the JV share will have to be reduced from this JV share and DM share in the respective projects?

No, you don't need to reduce that in the numbers. These numbers are net of what is supposed to be coming from there onwards, which belong to Arvind SmartSpaces only. So it's all netted off from everything that you received so far. And it's also netted off against a little that we have to pay to landlord, et cetera.

Okay. Okay. Probably I'll connect with Ankit off-line on this.

Sure, sure. You can take more information. There's a little more detail available there in the presentation. But I think if you need a little further assistance on that, you can always get in touch with the office, Ankit included. And we'll be happy to provide you clarification on this.

Sure. And just one last question on the projects pipeline that we would be exploring. So would it be possible to share what kind of projects and locations also we can go for with HDFC coming in now. Would we be -- stick -- would we stick to INR 50 crores to INR 70 crores of land parcel acquisition and build on that? Or we would go for larger projects and larger JV, JDs going forward?

So there are 2 assets to the project acquisition strategy. One is that we will be -- our remaining focused on a few things, one of them being residential as our [indiscernible] segment. So that will remain as it is broadly speaking, unless there is an adjacency or that kind of a situation where we do some small piece other than degradation. So that's one -- that remains the -- as it is. Second is the geographical focus. So we intend to significantly go deeper into the geographies that we are in, which is Bangalore and Ahmedabad primarily. And now in Pune, we've just kind of done some sort of development in Pune. We've have our feet there. And now we understand the regulatory environment better, better. So we think that it's time for us to possibly dive deeper into Mumbai outskirts of Mumbai naturally and Pune. I mean having done one of these kind of beta projects. But apart from that, we really think that going to wholly joint -- I mean too much wide will not be a great idea at this point in time. Every geography is a new geography with its own nuances. And hence, primarily, we'll focus on our existing markets, which is Ahmedabad, Bangalore and Pune, of course. And as a geographical adjacency maybe MMR, the outskirts area. It's possibly something that we'll start looking at from here onward. So going forward, you might see action in MMR and Pune apart from further level of investment that we intend to do in a very strong way in the existing markets of Bangalore and Ahmedabad.

Okay. Okay. So would it be fair to assume that on our new JV, JDA and even buying land parcels we can spend about INR 250 crores to INR 300 crores is a kind of collections which we have on an annual basis? Or yes, in that range. And then construction cost of around INR 200 to INR 300 crores from FY '23. Would that be a fair assessment?

Oh, you are saying INR 250 crores for a project or in general for the whole period, you are saying?

Yes, cumulative of a few projects acquired outright and for JV, JDA as business development and construction cost of INR 200 crores, INR 250 crores on an annual basis. So that would be INR 400 crores to INR 500 crores of about collections that we could have. So would that be a reasonable assessment? Because it's the kind of internal cash flow with the kind of leverage ratio and with HDFC coming in as well. Would this be a reasonable assumption? Or it sounds aggressive to you?

I mean there are 2 ways to look at it. One is a snapshot, which is the current snapshot in terms of where we are at this point in time. Obviously, our debt levels used to be INR 250 crores to INR 275 crores or thereabouts. And that level has to come back, determined for the regions of very strong cash flows, et cetera, and we having a halt in our investment cycle due to pandemic that money obviously has been repaid. But obviously, it has to be claimed back on a higher equity base significantly. We've added 2 years of profits and we've also added the preferential share capital. We just flow into the company. So the equity base has gone much wider. But having said that, I mean, very common sensical understanding could be that the old [ 11-plus-plus ] something is a debt headroom that we have as we speak today. So around INR 300 crores, INR 350 crores odd. And obviously, we have reserved, we have fresh equity, which has landed into our banks, which are not utilized at this point in time. So all in all, INR 450 crores, INR 500 crore of investment in the next few quarters should be fine. It should be -- I mean, it's pretty much doable and targeted, so to say. So that's the beginning point. And from there onwards, depending upon cash flows, internal accruals and how projects are launched, time line, et cetera, we should have a very healthy investment plan every year going forward.

Next question is from the line of Deepak Poddar from Sapphire Capital.

Sir, I just wanted to clarify one thing. Will it be fair to say like Ahmedabad and Bangalore together next 3 to 4 years can generate INR 4,000 crores of revenue? Will that be fair? Or -- yes.

I mean, we are at INR 500 crores sale and the reason we want to double it to a INR 1,000 crore of sale, right, on an annual basis. So in 3 to 4 years, INR 3,000 crore to INR 4,000 crore is not a problem at all. Our inventory itself is INR 3,000 crores at this point in time from the current projects. That's very much possible. This is a small piece, an it is not going too deep into these markets, it's very shallow in our understanding for those. And we're doing some 4, 5 projects in Bangalore and 4, 5 projects in Ahmedabad. But I'm sure Bangalore can easily take 3 to 4x what we are doing at this point in time in terms of volume and square feet, et cetera. and hence going deeper and to sell INR 1,000, INR 2,000 crores every year in these 2 markets should be possible. And then we are also thinking of going to MMR and Pune going forward.

Yes. So I was also talking about the revenue recognition as well because we have got about INR 1,000 crores of unrecognized revenue and inventory of about INR 2,900 crores. So that ideally will get recognized into revenue over the next 3 to 4 years, right, that entire INR 2,000 crores?

Correct. Correct. That's correct. On average, yes, some projects might span a little beyond, and some of them will actually happen much faster in next 1.5 years only. And revenue regulation should also happen like that. Apart from the normal kind of fluctuations, which one expects in terms of the times and individual projects get completed and hence, accordingly coming into books of account. But yes, on a very broad basis, 3 to 4 years is resolution should come into our books of accounting.

And generally, the projects that we are doing is in the range of 28% to 30% EBITDA margin, right, that you have maintained in the past as well.

Yes. I said it's fairly consistent for a long time, and that's how we work on our projects. And broadly speaking, 25% to 30% margin should be something that one could kind of guesstimate looking at the past trends.

[Operator Instructions] Next question is a follow-up from the line of Rithvik Sheth from One-Up Finance.

Sir, this INR 1,000 crores of sales value, can we do it by FY '24 in -- hence, like FY '22 would be about INR 450 crores, INR 500 crores or doubling in 3 years -- sorry, FY '25.

Can you be a bit louder?

I'll tell you what he said. INR 1,000 crores top line, is it possible to be achieved in the financial year '24 or 25?

We're investing...

I mean, see, I mean, we have been -- sorry. Yes. So we have been growing on an average, there will be obviously yearly fluctuations. But generally, we have been growing at around 30%. And hence, to double in 3 years should be absolutely possible. And if we are investing so heavily at this point in time, fresh launches are a very major source of fresh bookings. And that's what we are expecting to go up very significantly in the next 6 to 8 months' time. And the investment pipeline is very, very strong. So normal growth would have taken 3 years to double. That's what we have been doing for the last 8, 9 years at that rate. But because the investment cycle is changing and possibly it is stronger than what we have been doing in the past, there's a chance and reason to believe that we could achieve it earlier.

Okay. Okay. And sir, just one more clarification on the estimated operating cash flow. So if I do a back of the envelope calculation, it seems that the receivables from the sold units, along with the unsold inventory that we have and the balance cost to be incurred from the completed and ongoing projects is about INR 800 crores for the total projects that we have mentioned. So -- and INR 400 crores for the upcoming projects -- INR 400 crores to INR 450 crores for the upcoming projects, the surplus. So something is not adding up. It seems like because our estimated operating cash flow for the entire projects mentioned is about INR 1,250 crores. And we'll have to reduce that significant portion of the JV share and in projects where we have DM fees only, we'll be getting only 10%. So that will also significantly reduce.

That has been reduced.

So the column which basically read as balance cost to be incurred. From prices of whatever we have to pay to our JV, JD or DM partners. So this INR 2,300 crores will also include 90% of the money that we have to pay for the DM project, and this INR 1,278 crores will only include 10% [ DMC ] as far as we are concerned. So obviously, normally, the cost to do project construction, et cetera, can't be INR 2,300 crores from this volume. Basically, this is the land component included for the JVs, JDs and DMs, which makes this number a little higher in terms of proportion. And hence, once you take that into account, the numbers start making sense, and that's how we are left with INR 1,278 crores to be our net cash flows.

Okay. So okay. So I'll probably take it off-line with Ankit.

Sure. If you need any clarification, Ankit will be happy and we'll take and clarify this table. But as a matter of fact, you can just keep that in mind that INR 1,278 crores takes into account construction costs, overheads, selling, distribution or whatever cost that we incur, along with the land cost, including the share of partnerships. And all that is accounted for INR 2,300 crores plus construction cost et cetera and INR 1,278 crores is net of that.

Right. So gross level, once we complete all the projects that are listed here we'll -- about we'll realize this amount?

Correct. Absolutely, right.

At project level? Yes.

Correct. Correct.

Absolutely. Okay. And sir, one last question. What would be the cash tax that we would be paying?

Sorry. What will be the?

Cash tax rate for us?

So cash tax is paid based on the accounting profit. So for all the companies, it has to be paid as per the profit, which is recognized in the [ P&L ]. So if there is a dealing revenue recognition or it is on a completion method, the cash outflow comes -- cash outflow for taxation will come at that point of time.

So we pay tax when we recognize...

When we recognize. Yes, it's for the books of accounting.

To that extent, there is a delay in paying tax.

To a certain extent, what will happen is there are various structures where [ LLP ] we would have to pay tax basis in certain different other than [ India ], which is on a [ POCA ] method. So their tax is preponed to the certain extent.

So wherever the projects are happening at [ LLP level or LLP ] entity which used to be pretty prevalent practice for us. Off let, we are doing more projects directly into the company. So the tax rates are also more efficient there, a tax rate of 25%, et cetera. But also in case of company where we pay 25%, we pay taxes when we recognize, which is significantly later after the completion of the project. Till that time, it remains in WIP. And hence, practically the recent projects and the most of the recently done projects, it will be paid later based on completion. But in case of [ LLP ], there is a provision where we have to pay -- irrespective when we recognize we have to pay based on the old [ POCA ] method.

And because they also account books.

Yes, their books around -- works on [ POCA ] model. But going forward, you're right. I mean, the point here is that the tax payment generally will keep on gravitating towards the completion method. When the project gets completed, you, in one short pay as far as cash outflows are concerned tax for the project.

So it would be 25% once we recognize the revenue in our books of account?

Correct. Correct. Yes.

Next question is from the line of Shantanu Mantri from Think Investments.

Actually, the previous participant, he asked the question I wanted to ask, but I just have one clarification. So when we're talking about this INR 1,000 crores run rate, this is basically a fresh bookings for the year, right? So we are at INR 500 and we -- our short-term target is to go to INR 1,000 crores, right?

Correct. Yes.

And with the kind of investments and new launches and the HDFC partnership and all, going to an annual rate of INR 3,000 crores in the next 3 to 4 years is achievable, right?

Not INR 3,000 crores. We are at INR 500 crores and a 30% growth rate, it should take around 3 years to double it. With all these initiatives that 3 years should be -- I know sort of shortened to the extent possible, and there is a likelihood and a possible reason to believe. But INR 3,000 crores, obviously, is not going to be happening in 3 years. That's going to take time. And those are projections in time based on the growth rate, et cetera, et cetera. We have not really talked about it. But that's the guestimate one has to makes, yes.

The next question is from the line of Karthi Keyan from Suyash Advisors.

A couple of conceptual questions on the business model. As you move ahead, given the challenges involved in horizontal projects versus vertical, how should the mix evolve say, over a 3, 4-year time frame?

So there will always be early mix. I mean we're not going to be going either ways of too much. Current trend and the past trends have been a little bit of orientation going towards horizontals. And within horizontals, there are 2 very distinct segments, which operate very -- in a very different way. The plotting is one product and other is villas. Now villas are not very different from what all is required to be done in terms of expertise in selling and connecting with customers, et cetera as compared to an apartment. But plotting definitely is a very, very different animal in terms of money, in terms of commitment in terms of upfront investments in land et cetera, et cetera. So I'd rather say there are 3 segments. One is the absolute horizontal which is plotting; secondly, is the villa or a low-rise segment; and third are apartments, which high rise, say INR 10 crores, INR 20 crores, INR 25 crores, et cetera. So within these 3, I think we'll be fairly balanced. There will be a little more orientation towards the segment 1 and 2, which is plotting and villa for reasons that we have analyzed ourselves here for the company and the direction that we want to take in the next few years. But nevertheless, construction-oriented projects like a high-rise, et cetera, even if there is a little bit of a pause -- not a pause, but a little less concentration on those. But nevertheless, eventually and in the long term, they will remain a very important piece in our portfolio.

Right. So as you -- is there a pipeline for -- especially plotting that you could share? I mean, some sense of visibility, what kind of acreage would you be able to, I'll say, aggregate?

So I mean, the 2 projects that we did in the last quarter, et cetera, one is an absolute plotting product where approximately a little less than 40 acres is already acquired, and we are at a fairly advanced stage of getting the conversion, et cetera, done and we'll launch Phase 1 very soon, possibly in the first quarter of next year. And we are trying to almost double the size in terms of the land volume. So from 40 acres, maybe the idea and the opportunities to add another 40, 45, 50 acres. That becomes a very large investment into plotting. This land costs something -- somewhere around a little less than INR 2 crores a acre. So this will be a good INR 150 crores to INR 200 crores of investment in land at one place for plotting. So that -- and it's a very promising location, and we know that there are quite a few success stories around. So that's one. The second one is segment B, as we just discussed. It's going to be a very heavy villa product spending across 18 acres on Sarjapur road, and that's how we've acquired. So this gives a fairly good indication of the orientation, which is currently going on. And we are focusing on similar projects, but we're keeping an eye open for high rises also. But yes, I mean, you can assume that pretty much similar projects are expected to happen in the next few months.

Interesting. Interesting. And it doesn't bother you that the revenue can become a bit lumpy given the nature of the product? Or do you believe that there is sufficient traction in demand for being able to have a smooth run for a point of time on [ A&D ], that is.

Can you repeat your question? I mean -- yes, what exactly is the...

What I asked you was that the land development kind of projects can be somewhat lumpy indeed, sir, in terms of traction. So I'm asking you in that context between being able to sell apartments much more easily versus such projects. Does that bother you? Doesn't that bother you, both ways?

Both the products and the segments have their own nuances. There are pros and there are negatives about the products. In land-oriented products and projects, there's always a higher investment involved in buying the land for sure. But that's where your JV, JD models come into play. If you can lock large land parcels through JV, JDs, then even the upfront investment goes down. Of course, you have to share value from what you create on those agreements. But having acquired a land which is not too large, which is not too unmanageable for the balance sheet and from a micro market sizing point of view, once you acquire those projects, the investment or the contingent liability in construction goes down dramatically. To that extent in terms we are very derisked. And you can phase them out as per your wish. So if suppose -- I mean, generally speaking, you buy 100 acres, you can pretty much launch 20, sell it very, very quickly and start spending money only on 20 and keep moving ahead. That doesn't happen in construction-oriented products. I mean if you commit 3 towers, you pretty much committed INR 100 crores in construction to start with. Even if the land value is low and land is less perishable than the construction in our understanding. So in fact, risk profile goes down when you are horizontal, and it actually goes up when you are more vertical. But -- I mean, as I said, there has to be a very judicious balance in this approach. We are a little more heavy on horizontal at this point in time. The strategy has really clicked for good reasons in the last 3, 4 quarters that we saw. And that's one of the reasons we could achieve this INR 500 crore sale comparatively quickly against what we had imagined at the beginning of the year. But that's how we want to consolidate and we believe that horizontals are very important and they have to be a very healthy proportion of our old portfolio.

[Operator Instructions]

If there are no questions, maybe we can conclude?

Would you like to add any closing comments, sir?

Sure, sure. So thank you very much, all of you for sparing time and asking some very, very relevant questions. We'll be very happy to give further clarifications on anything which is left during the call. Call is a small window, but we are always there. The department is there. Ankit is there and his team will be very happy to share more information, whatever is possible from our end. The quarter has gone very strong. The year is going very strong for us. Last year was one of the major milestone that we achieved. Going forward, we see a lot of green shoots, a lot of regions to believe that we are in the right -- we're here to kind of capitalize on the right kind of environment, which exists all around us. And we are very, very positively pleased to -- I mean exploit the opportunity which faces us. Investments are the key. Project pipeline is the key. And we clearly know our priorities in terms of consolidating that. We know that we've lagged behind in the last few quarters due to pandemic on investment cycles. But that's what the target is and that's what the endeavor is from here onwards. And we are very confident and our -- the team is working around quickly building a pipeline. And hence, the focus is on creating inventory, creating opportunities and creating values to grow in terms of fresh sales. That's -- the strategy is already yielding results, and we are sure that we'll keep consolidating on what we have built so far. Thank you very much for joining us.

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