Arvind SmartSpaces Limited (ARVSMART) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '24 Earnings Conference Call of Arvind SmartSpaces Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Sharma from Adfactors PR. Thank you, and over to you.

Thank you. Good afternoon, everyone, and thank you for joining us on the Q4 and FY '24 Results Conference Call of Arvind SmartSpaces Limited. We have with us today on the call, Mr. Kamal Singal Managing Director and CEO; Mr. Avinash Suresh, Chief Operating Officer; Mr. Prakash Makwana, Company Secretary; [ Mr. Divyang Kansara ], Head Finance; and Mr. Vikram Rajput, Head, Investor Relations. Please note that a copy of the disclosures is available on the Investors section of the website of Arvind SmartSpaces Limited as well as on the stock exchanges. Please do note that anything said on this call that reflects the outlook towards the future, which would be construed as a forward-looking statement must be reviewed in conjunction with the risk that the company possesses. I would like to now hand over the call to Mr. Kamal Singal for his opening remarks. Over to you, sir.

Thank you. Thanks a lot, and very good afternoon to everybody. Thank you for joining us today to discuss operating and financial performance of Arvind SmartSpaces for the quarter ended 31st March '24. The Indian economy has continued to show remarkable resilience and its performance has had a profound impact on its real estate sector. As we look back at the year which concluded and envisage about the future, the landscape of Indian real estate sector appears to be both promising and dynamic. The trajectory that the sector has embarked upon over the last few years, set the stage for unprecedented growth and transformation. With each passing year, the prospects of real estate sector in India from [indiscernible] guided by shifting demographics, technical technological advancements and policy interventions. Preferences have evolved across all segments from affordable housing to luxury properties, MIG and upper MIG now encompasses smart home sustainability and community-centric designs, reflecting a shift towards integrated lifestyles. What provides optimism about the organized real estate companies consistently outperforming, the unorganized is the vast sector waiting to be converted. Around 80% of India's real estate sector continues to be unorganized as more homebuyers seek to buy into gated, integrated complexes as opposed to stand-alone homes built by unorganized players, we see the share of organized sectors in Indian real estate sector growing faster. The noteworthy improvement in our FY '24 performance is due to this widening opportunity for real estate -- organized real estate players and more importantly, ASL's ability to capitalize on this transforming sectorial reality. We are pleased to share that FY '24 has been a landmark year for the company with milestones achieved across bookings, collections and business development. The company has recorded the highest ever annual A booking of INR 1,107 crores, a growth of 38% year-on-year. Then Arvind continues to be received strongly by the homebuyers across new micro markets. Our new launches, including Uplands 2.0 and 3.0, Forest Trails, Arvind Orchards, and Rhythm of Life contributed to around 70% of our booking value for the year. Our Bangalore business remains very strong, with booking value of INR 420 crores, contributing to 38% of the total annual bookings. From a quarterly perspective, we had booking of INR 323 crores, a growth of 32% year-on-year. We launched Arvind Orchards in Bangalore in Q4 where we sold entire release inventory for a sales value of around INR 163 crores within 7 hours of its launch. Further, we launched Rhythm of Life at Laxmanpura in Ahmedabad towards end of Q4 where we achieved a sale of INR 70 crores within Q4, which was 75% of the launch in this. Over the years, ASL has deepened its competence and insights into horizontal property development niche. The company is being recognized amongst the thought leaders in urban life quality. It is being respected for developing designed to inspire homes. It is being recognized for its capacity to create a market and then occupy the largest share there in. ASL constructed world-class club houses first within its property developments, creating attraction -- very significant attraction for the homebuyers. The result is that every single of our properties has enjoyed a post launch momentum and traction that has only grown. This has helped us generate progressively better realizations. Additionally, the result of this positioning is that our customers have become our biggest market agents. In FY '24, 22% of our overall bookings came from reference. FY '24 marked an orbital change in our business development efforts, and we acquired new projects with an estimated top line of INR 4,150 crores against a total of INR 930 crores that we achieved in the financial year '23. We have added 4 new projects in Ahmedabad and one each in Bangalore and Surat. We look forward to sustaining this momentum in coming years as well as to some extent, rebuild towards the development of apartment projects. I would like to mention here that while all the launches during the year were largely horizontals, the deliveries were majorly in vertical high-rise apartments. So historically, we have done at both horizontal and vertical real estate and will maintain an equilibrium between the same going forward. Financial year '24 collections are at INR 876 crores, a growth of 46% year-on-year. We are the highest ever -- which are the highest ever in the company's history. Quarterly collections were robust at INR 215 crores, which has shown a growth of 14% for the quarter. This performance is a result of efficient execution of the virtuous process of sales, registrations, construction and delivery. Now moving on from operational updates to the financial highlights. FY '24, we reported a revenue of INR 341 crores, up 33% year-on-year basis. EBITDA grew at 57% to INR 85.5 crores. PAT for the year '24 grew 62% to INR 41.6 crores. In Q4, we reported a revenue of around INR 117 crores, up 27%. EBITDA grew by 38% at INR 28.6 crores and PAT grew by 67% to INR 15.5 crores. Our balance sheet position remains very strong despite expanding operations. Net debt stood at negative INR 41 crores as on 31 March '24, from a debt net position of negative INR 30 crores as on March '23. A crucial parameter in real estate reflecting the underlying business performance quite well is operating cash flows, strong collections and profitability resulted in a net operating cash flow of INR 458 crores for the financial year '24 and INR 98 crores for the quarter 4. We estimate an unrealized operating cash flows exceeding INR 2,563 crores coming from the current pipeline of projects. As a company, the focus always remains on shareholder value creation. We are happy to inform that the Board of Directors have recommended a final dividend of INR 2.5 per equity share and a special dividend of INR 1 per equity share, totaling a dividend of INR 3.5 per share of a face value of INR 10 each. This marks consecutive years of dividend distribution for the company. To conclude, with an all-time low inventory overhang and a decadal high average pricing growth, demand optimism in the residential market is likely to continue in the medium term. At Arvind SmartSpaces, the virtuous cycle, the sustainability of growth is derived from the fact that outperformance during the last financial year was not a result of a temporary arbitrage. It was the result of a systematic maturing of operations and business. The complement of processes, systems, protocols, priorities, now represent a base that we will -- that will be scaled up within the prudential financial disciple. We also believe that should any outsized opportunities emerge, we'll be equipped to leverage the under-borrowed nature of our balance sheet. In view of this, we are optimistic of sustaining our momentum of raising our game should the reality warrants. We are set to further deepen our presence in Gujarat, Bengaluru and the market of Maharashtra. With this, I'll ask the moderator to kindly open the floor for questions and answers.

[Operator Instructions] We'll take a first question from the line of Dhananjay Mishra from Sunidhi Securities.

Congratulations on very strong operating performance and strong bookings and collection ever. So my question is with respect to last year, we had 4 launches. So how many launches you are seeing in this year in terms of our upcoming launches? Or in terms of BDs, we had done very well in FY '24. So what is BDs your target? And thirdly, on HDFC Platform 2, we have only 3 projects. So what is the total investment till now? And this year what is your target on HDFC Platform 2?

Yes. So 2, 3 questions, really. First one is in terms of how many projects we're anticipating to launch during the year? The answer would be that, yes, last year, we had 4 and we should be doing anything like 7 to 8 project launch this year. It could exceed this number as well, but 6 to 8 is the minimum we are looking at launch, which includes phases, new phases of the existing projects and all new projects that we have in our pipeline. The second question was related to HDFC platform. Yes, I mean, there, we have deployed around INR 300 crores of money. In fact, a couple of projects have already been executed and being paid for -- paid back to HDFC as a fund. The total opportunity that we had in the beginning of the year was around INR 900 crores, and although with only INR 300 crores have been deployed. We had 2 targets when we started the year. It was about adding INR 4,000 crores to INR 5,000 crores worth of projects, which we did actually. Now while doing so, 3 things happen simultaneously. One is that we end up consuming INR 300 crores from the HDFC platform. The other is a very, very strong internal accruals, which we saw in excess of INR 400 crores have been generated and broadly that entire amount has gone into execution of newer projects. So in any case, we ended up deploying around INR 700 crores in new projects, including the HDFC platform already. And on top of that, we had a very heavy mix of JD that came our way and these are very interesting projects, large projects, long-term value creating projects where the margins are good and the capital deployment is pretty lean to that extent. So on one hand, we could achieve our target of creating the pipeline. And on the other hand, the cost of capital has been kept at very low levels, and we underutilized the HDFC platform to that extent. Idea is to exhaust the platform this year. And obviously, this money which has been spared should get deployed in this coming year.

Okay. Okay. So the INR 700 crores remaining maybe because we had a good internal accruals, so we have gone our own and not many projects have been launched in this HDFC platform. So this year, we may target to deploy all that, right? And what is our presales target for this year?

Target for BD?

BD as well as presales target for FY '25?

So as a generic this thing, we know that in almost all our calls, we communicate and target to grow by 30% to 35% in all the major operating parameters -- maybe it is top line, EBITDA, et cetera, et cetera. And that should hold true for BD as well. So we've achieved INR 1,100-plus crores worth of fresh sales this year, and we should grow 30%, 35% this year as well. We achieved more than INR 4,000 crores of projects, a new pipeline in this year, and that should also see something similar in terms of growth for the current year.

And lastly, the more accretion will happen in vertical side? Or I mean, as you said that we want to maintain a balance, so...

So end of the day, it's about having projects which make sense both on the top line, bottom line, return on equity, return on time, return on effort, return on bandwidth, et cetera, et cetera. So as we are open to both the categories, it has so happened that horizontal is a little heavy for the last couple of years. But having said, we are equally focusing on vertical as well. As we speak, there are a couple of very, very interesting options being evaluated and finalized. So you will see a good amount of vertical projects getting into the portfolio very soon. So it will be -- I mean, the target is to keep a balance, and you'll see that balance coming back in the coming quarters.

We'll take our next question from the line of [ Pranav Manohar ] from RoboCapital.

First of all, congratulations for the good set of numbers. My question is, so on a reported basis, what will be our revenue and EBITDA margins for '25-'26, if you could provide any figures?

So we don't give any specific guidance on the financial numbers. From [ MIS ] point of view, fresh sales, et cetera, can be understood from the growth that you are targeting per se, which will be 30%, 35%, I mean, in general sense. But I mean in that sense, we don't really give any guidance for the P&L and the financial numbers.

Okay. So 30%, 35% is applied to basically all the major metrics, right? Is that right?

Yes, so we've been -- that's how the track record has been that's our effort, and that's what will strive to continue to do, yes, for sure.

Right. And this is for -- this is reported basis, right?

I mean operating and reporting both, yes.

We'll take our next question from the line of [ Ritwik Sheth ] from One Up Financial.

Congratulations on a great FY '24. So a few questions from my end. Firstly, sir, one of the projects, Arvind Fruits of Life. You've mentioned in the presentation that we had acquired it and turned it around and given the exit to HDFC Platform 2. Just wanted to understand on these projects. I believe this is the first project that we have already returned the capital to both via the HDFC Platform 2. So just wanted to understand what kind of IRRs did both the partners make on this? And, yes, on that, mainly on the IRR, if you can give us some color, that would be helpful.

So I mean, Ritwik as you very rightly said, we gave exit from Platform 2, this is the first exit, although just before that, we gave HDFC exit from the first platform itself where we did some very large projects with the name margin statements, while the project still continues to grow and sell and give us very positive cash flows, HDFC platform has exited from there as well. So all in all, between Platform 1 and 2, we are now given exit to 2 projects out of the 3 that we've taken up in a away from these 2 platforms. IRR is specific information that we don't intend to share that is not still there in the domain, public domain. And hence, it will still remain like that. But having said that, they have made decent money. Obviously, they have achieved their intended and kind of expected IRRs. And with this wet money, with the kind of arbitrage that a developer should have expected, we made disproportionate money on the share that we contributed when it came to investing in the projects. So all in all, it is -- it has achieved and more than achieved all its intended objectives, but to specify IRRs specifically something which is confidential between the partners and hence, it can't be shared.

Sure. Sir, where I was coming from one of the reasons was the OCF to presale for Arvind Smart is about 40% in FY '24. And if we look at other peers who are majorly into vertical high-rise are anywhere from 20% to 30%. So we are significantly above that figure. So would you attribute that higher OCF to presales because of the horizontal plotting, would that be a fair understanding? And the IRRs in these would be far higher than the residential because the time taken to turn these projects around is significantly lower? So I just wanted to -- I was coming from that angle. So wanted your thoughts on that.

Sure. Ritwik, you hit the nail on the head. I mean this is as you mentioned where their horizontal projects the way they have operated in the last few quarters, they are higher [ IRR ] to show direction, and they also generate cash flows in absolute sales a little faster than the vertical ones, in fact, significantly faster than the vertical ones, firstly, the lead time to launch itself is comparatively lesser. And then the payment terms as per that they are front loaded or either getting back loaded, which is the case for the vertical. So to that extent, yes, the cash flows have been boosted because of significant component of their being of horizontals. But having said that, 40% of cash flows are extraordinary. They are quite high. And of course, this is a result of what we launch, how we launch, how fast we launch and how fast we collect it, et cetera, et cetera. And within a given period, what was the ratio for horizontal vis-a-vis overall product mix? While it is great and we will achieve something which is extraordinary in that sense, it might not be the same on an average basis for, say, 3 to 4 years put together. And hence, a little first thing going here and things remaining more like a 25% thereabouts as free cash flow more like a steady-state situation, and that should how it should be countered. But yes, last year has been absolutely exceptional and great for us in terms of cash flow vis-a-vis...

Right. Got it. Okay. Sir, so -- and you mentioned that we'll have a balance of vertical versus horizontal. So would it be fair to assume that 25%, 30% would be vertical and balance would be horizontal? That would be a good mix?

Yes. I mean, eventually in the long term, maybe I mean, might even be 50-50. And in the medium term, it might vary anything between 1/3 to 50% and balance from this thing. So within a range of 33% to 50% vertical, the balance would change, could be.

Okay. Got it. Got it. Sure. And sir, 1 more question is on business development. You mentioned that 30%, 35% growth. So that translates close to INR 5,000 crores. So what would be the deployment for this INR 5,000 crores of projects to be acquired in FY '25?

So I mean, it can be looked into -- from many angles, so to say, what is available to be invested is around INR 600 crores in the platform itself out of INR 900 crores -- INR 300 crores, so yet to be deployed. We are sitting on a INR 50 crore odd positive cash, and we're hoping that will also generate to INR 300 crores of free cash again this year. I mean just going by the average that you're talking about right now. So almost INR 1,000 crores between HDFC, internal accruals, and a little bit of debt that will start hedging this year even if it is as low as INR 150 crores, INR 200 crores, INR 300 crores. So we are talking about something like INR 1,000 crores to INR 1,200 crores getting deployed through these 3 courses. And that should give -- comfortably give us a top line of something which is 30%, 35% than what we achieved in the last year.

Okay. And would it be -- just 1 last question. Would it be fair to assume that launches in the current year could be close to INR 1,800 crores to INR 2,000 crores depending on the approval and thereabouts?

Yes. I mean, broadly, the number you're saying is in the range of variability that we also would have in the mind, yes.

We'll take a next question from the line of Ronald Siyoni from Sharekhan Limited.

Congratulations on a great set of numbers. Sir, on the BD pipeline, we have been a little bit slow during quarter 4 and yet we are talking about INR 5,000 crores in FY '25, and we were also looking for a deal in Mumbai. If you can hop upon what kind of deals we are getting? And whether any Mumbai deal is likely in the near term at least during H1 FY '25?

Yes. So I mean, as we said, we added a little more than INR 4,000 crores last year. And as we speak, as I mentioned in the beginning remarks, we're sitting on some very interesting projects in terms of pipeline being created, very decent progress already done on those 3 to 4 projects that we're talking about. They are still not announced because we still think that we'll cross the last hurdle of making sure that even the diligence side of it is all clear. But as we speak, the pipeline is very, very healthy. And we are very confident that a growth of around 30%, which makes overall pipeline to be more like INR 5,000 crores, INR 5,500 crores to be added this year should be absolutely achievable and enough and more funds are available. Of course, it all depends upon what is the component of JD, et cetera, which remains the amount of money which might be required to be invested. But having said that, even a conservative estimate of what will come our way in the form of JDs and outright, the money is more than enough, so we are all set. Mumbai, yes, we have been a little conservative on a lot of projects and a lot of options are being evaluated. We keep coming close to acquiring 1 or 2 projects every now and then -- and -- but I mean, it has not reached the finality, so to say. But we are very confident that within this quarter or next quarter, we should be able to acquire 1 -- at least 1 or 2 large projects within the market of Pune and Mumbai put together.

Okay. Great. And -- on the debt side also, like INR 300 crores to INR 400 crores what we were expecting to raise during this year. So this will be towards the fag end it depends on the BD acquisitions we will be doing?

So naturally, any debt is a function of BD, and it's also a function of how we prioritize our cash outflows till the time, obviously, we have internal approvals and surplus is already available. We'll absorb them first in the BD. Then comes the debt from the banks because that's cheaper, effectively cheaper, and then comes the platform. So in this priority, we'll obviously consume these sources. And obviously, it will be spread over the entire year. It's not going to be happening in 1 or 2 quarters. All these deployments we spend INR 1,000 crores, INR 1,200 crores that we're talking about some pricing these 3 things will be spread over all the 4 quarters.

And lastly, on the Surat project, like will it be launched during quarter 3 or Q4? And whether it would be in phases? I believe INR 1,110 crores would be the project size. So have you chalked out any plans with respect to the phases and exactly when it will be launched?

Surat is a large project. Of course, such large projects are normally done in 2 or 3 phases. On the size of phase, phases can change and this can be -- this is a little variable depending on what kind of response we get. So that's how it's going to be. We'll be launching 30 to 40 [indiscernible] in first go and then see how the market goes and what kind of peaking, if it all needs to be done in the product, et cetera. To that extent, we always remain flexible, but we would have detailed any flexibility to be incorporated into the product mix on a very handy basis. And we can see we normally do it on a run time so that if the sales momentum is there, peaking should not become intense and it should be a seamless kind of sequence, et cetera. So all that is being done. Our idea is to launch it more towards end of quarter 2, which might spill over into quarter 3, early quarter 3, and that's how the plan is.

We'll take the next question from the line of [ Chaitanya Shah ] from Silverline Capital.

So my question is regarding the business development that you did this year and that you guided for next year. Now if you see there's a quantum jump in the business development, I think FY '23 was close to INR 1,000 crores, and this year was close to INR 4,000 crores. So shouldn't the launches also see such a quantum jump because you are anyways guiding for another INR 4,000 crore, INR 5,000 crores of business development for FY '25? So I just wanted to understand how you see the launches going in the next 2 to 3 years.