Ashiana Housing Limited (523716) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to the Q3 FY '22 Earnings Call of Ashiana Housing Limited. Please note that this webinar is being recorded and the transcript of the webinar will be made available in a week's time from the call. The results and the investor presentation have been made to you, and it is also available on the stock exchange. In case anyone does not have a copy of the same, please do write to us and we'll be happy to send it over to you. Before we begin, I would like to remind you that our discussion today might contain forward-looking statements. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinion only as of this date of the presentation. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. To take us through the results of this quarter and answer your questions, we have today with us Mr. Varun Gupta, Whole Time Director of the company; and Mr. Vikash Dugar, CFO. Mr. Vikash will make his opening remarks, and then we'll move over to the Q&A. [Operator Instructions] With that said, I'll hand over the floor to Mr. Vikash Dugar. Over to you, sir.

Good afternoon, everyone. Hope you all are safe and in sound health. Thank you for joining us to discuss performance of the third quarter of FY '22 of Ashiana Housing. I extend a warm welcome to all of you. Area booked recorded in Q3 FY '22 was 4.21 lakhs square foot as compared to 3.57 lakhs square foot in Q3 FY '21 and 4.51 lakhs square foot in Q2 FY '22. In Q3, there were healthy bookings from Anmol Phase 2 Gurgaon, which was launched in Q3; and Shubham Phase 4, Chennai. We handed over 2.13 lakhs square foot in Q3 FY '20, out of which 1.2 lakhs square foot was delivered in partnerships. This was against a delivery of 3.94 laves square foot in Q3 FY '21, out of which 2.14 lakhs square foot was delivered in partnerships. Revenue recognized from completed projects in Q3 FY '22 was INR 30.90 crores versus INR 62.42 crores in Q3 FY '21. Total comprehensive income in Q3 FY '22 was negative at INR 3.28 crore vis-a-vis positive INR 13.26 crores in Q3 FY '21. Total comprehensive income was negative INR 6.36 crores in Q2 FY '22. Pretax operating cash flow modified and before any land payment was positive at INR 29.22 crores Q3 FY '22 versus positive at INR 28.1 crores in Q2 FY '22. Equivalent area constructed was at 3.73 lakhs square foot in Q3 FY '22 versus 4.50 lakhs square foot in the previous quarter and the same was 3.54 laves square foot in Q3 FY '21. There has been delay in some projects due to pandemic and rains. The expected completion dates have been revised accordingly and shared in the presentation. On this note, I would like to conclude my remarks. We will now be happy to discuss any questions or suggestions that you may have.

Thank you. [Operator Instructions] We'll just wait for a moment and then we'll begin the question and answers. First question is from Himanshu Upadhyay from Oaktree Capital.

Hello. Am I audible now?

Yes.

Okay. Yes. So this first question is to Varun, okay. See, Varun, we are seeing price raise in various micro markets across the country, okay. But how fast or slow is the price appreciation in senior living? So is it a one-to-one correlation with our normal housing? Or it generally takes more time? Any idea you can give on that? And as it is a bigger proportion of our sales in future when we have more projects on senior living in Chennai and all those markets. So just some idea that would be helpful.

Himanshu, so I would say that they're not completely linked and following in any manner whatsoever. That -- not following each other in a regular basis or something whereby you could say senior living prices are following the regular housing. In fact, if you would see over the last -- you see, over the last 5, 6 years, we have had a challenge raising regular housing prices across our markets, but both in Ashiana Nirmay, Bhiwadi and Ashiana Shubham Chennai. We have been able to increase prices and quite substantially, particularly in Chennai. So I would say they're not as linked together because, again, I think the price -- housing price is driven by supply and senior living hasn't that much supply right now to have driven prices downwards in that particular kind of product, whereas regular housings had a problem of excess supply across markets. So they're not linked together much, in my opinion in terms of cycles. Obviously, prices are linked like in a particular micro market, regular apartment prices are high, senior living prices would also be high. But cyclically, I would say they are not as intrinsically linked I should think.

So one just corollary to it is so the upside would also be slowly in a steady -- much more steadier than the regular housing or regular may -- for us might be increasing at a faster rate in future or in the near future looking at the things?

Yes. But senior living, we are already enjoying very good margins. So I'm not particularly concerned about pricing.

Okay. Second question was if we continue to see the improvement in real estate, okay. We have taken 7 land parcels. I'm not including Bhiwadi and Kolkata, which have been historical and all that stuff and we have next phases to be launched. But with the current pipeline of product, what we have, do you think we can achieve a sales of 2.5 million and 3 million square feet in next, let's say, FY '23-'24? And what type of launches do we require? So it means we want to reach 2.5 million square feet, the existing product, we have only 1 million square feet of inventory, okay. So 4.1 minus 3.1. So how are you looking at it? And how confident are we that we have the product now ready to launch and reach those targets in FY '23 or FY '24 whenever we...

So get to that number that you're talking about, Himanshu, we will need these projects -- new projects to get launched. It is new phases of existing projects wouldn't be enough. And therefore, I will use -- and I will also refer to the Kolkata project, we do not launch. Kolkata is in a different zone. But outside of that, the Bhiwadi project also needs to be launched to get to that run rate. In terms of my opinion, we -- to get to about 2.5 million, 3 million square foot, we have enough product now, projects in all micro markets, except for Jaipur. Jaipur will need to sign up, I think, 2 more projects over and above what we have to get to that run rate. We are in the process of dialogue there. But just land prices have run up a little bit higher than preferred and just a little concerned about margins there, therefore. So we are looking for transactions where we are able to maintain the margins that we are looking for in Jaipur. And that's the context there. Outside of that, I think we have enough land pipe and project pipe. We just need to get them approved and then launched.

Two last questions, sir, 2 last questions, okay. Are the 7 land parcels, which we are for development, I am again not including Bhiwadi and Kolkata. What is the time line for those project launches? How many of them can be in FY '23? And how many will go to FY '24?

I will include Bhiwadi in this now, Himanshu, because from a launch perspective, it does not make a difference whether we got this now or we got this historically. Kolkata, we don't have any line of sight, so I will stop talking about Kolkata for now. But out of those 8 projects, including Bhiwadi, I'm hoping to launch everything by FY '24 for sure. Of 8, our opinion is if we get 6 in FY '22-'23, we'll be good.

Okay, okay. And one last thing. See, Jamshedpur is one of our very, very strong positioned market, okay. What type of premium or IRR profitability you were able to get in that market versus, let's say, Jaipur market? And how different can the 2 markets be?

It's difficult to compare. Both markets, we enjoy good premiums. Both markets, we enjoy good returns. But the Jaipur market is far larger. So in an absolute term, it's a far more important market than Jamshedpur itself. But both those markets are such where capital requirements are lower, margins are higher. The capital requirements are lower because more JVs are up on offer. More JVs are up on offer because we enjoy a good brand equity and because you also enjoy a brand -- good brand equity, we're able to charge premium pricing. The intent is to get all our markets and get in that zone in the markets we are in. So like Chennai is becoming an interesting play from a senior living perspective, where we can see margin expansion and brand premium coming in play.

We have the next question from Vivek Chaturvedi. Request you to name your institution if applicable. Yes, you can go ahead.

Am I audible?

Yes.

Varun, just a slightly broad picture question since I am an investor over the last year, and this is my first one. Just wanted to understand in terms of looking at the whole company from a CEO and a promoter perspective, what do you generally target as a kind of the return on capital that the company employs? I mean because the accounting in all construction companies and real estate companies is a little difficult to understand compared to the other sectors. How do you internally look at and how do you benchmark your segment terms of return on capital, IRR combined across different projects?

So we are looking at a return on equity post tax of 15% at the corporate level. That's what we are gunning for. It's become the golden number internally also to focus on instead of top line metrics or volume metrics or margin metrics. I think we are going to drive the business from this perspective. To internally track whether we are on the right path to reported 15% ROE numbers, we have an internal operating metric and basis where we track whether we are on the right path to get there. I think that's what we are looking for right now. And we have put that thing together -- or Vikash just put that thing together with his team -- within the finance team over the last 2, 2.5 years. And that's what we're targeting.

Okay. And what would you say would be your cost of capital? I mean, both debt and equity put together. It would be in the ballpark range of, what, about 12%, 13%?

Okay. So Vivek, I have no way to really gauge cost of equity or we don't really gauge cost of equity within the company so I'll be hard to comment on that. Vikash, would you like to take the question on the cost of debt capital that we have today?

Yes. So the cost of debt capital has progressively over a period of, I would say, 3, 4 years it has gradually come down. We are doing project-level funding at around 9% to 10%, somewhere in the vicinity of that. And even the larger-ticket loans that we have done over the years are in at 10% kind of. So 10% roughly, I would say, would be the cost of debt that we are covering at right now. It used to be 12%, 13% a couple of years back, even including the construction funding but that we have managed to bring it down over the years.

And how do you look at debt/equity from -- I mean, do you look at it from an individual perspective? Or do you have an individual project debt-equity ratio in mind as well as the overall corporate level?

No, we look at that overall corporate level and we are quite low on debt. I mean our borrowing strategy also is countercyclical in the sense that during upcycle, we prefer to pay off the debt; and during down cycle, we leverage as and when required. And gradually, we are -- with the concept of this computing returns and looking at returns at a project and location level, we are trying to raise funding wherever required at the project level. But then we look at debt-equity ratio only at an overall corporate level.

Vikash, I would just like to add that from an ideal perspective, we wouldn't want any debt, whereby all construction is financed through customer receivable. That's the intent.

Yes. So the construction funding is more like a bridge funding as and when required in a large project just to add to our overall financing arrangement. But then structurally, we prefer to raise -- we prefer working capital funding coming through customer advances primarily, yes.

And Just one last question with regards to, say, the coming financial FY '23, how much growth in terms of area booked or area constructed are we looking at in FY '23 across projects?

Those internal bookings are presently going on. I can't share any number at this juncture. We don't really give guidances also. Varun, would you like to add?

Yes. Exactly, Vikash, yes. I'm going to say we haven't worked those buffers internally and out. And where we are -- again, Vivek, I think -- and internally, the larger focus has been what do we need to do to get to 15% ROE. Whether it's increasing margins, increasing construction, increasing sales, we look at whatever needs to be done from that perspective now. So -- but we haven't worked those numbers internally yet.

So would you be able to share that with the investors in the next call or...

We typically don't give guidance on that number. We'll come back to you if we have a sense of it maybe in the next. I think what we will give a good sense of, though, is the amount of area we look to deliver in the next financial year. That we will give our better sense.

Thank you. Before we move to the next question, I'll just take a question from the chat board. So the Devanshu writes, "There's been more than one instance of misappropriation of funds, one recently and one a few years ago. Can the management explain why this happened the second time and what it is doing to avoid such mishaps going ahead?"

I will take up what happened. Vikash, you can take up what we are looking to do. I think -- so the first -- the one that happened 5 years ago was significantly smaller figure in size, significantly smaller. It wasn't as -- and that process, what we saw as a gap, we plugged in that particular process and we moved ahead. And there were in one location, and in general, processes were fixed. But with decentralized processes in one particular location, I think processes were not followed. And overall, a little bit more laxity came in during the pandemic to make things move a little faster in that. And our processes and systems just didn't keep up with the size of the company over the last 5, 6 years. I think with number of cities, number of locations and us scaling back towards a larger size of revenues over the last 3 years, that did not happen. I think we are taking steps to resolve that this does not happen. Vikash, you would, too, like to share some of those things, please?

Yes. Sure. So one thing that we are doing is that we are implementing a new ERP. It's called Farvision, it's a well-known ERP in the real estate sector. So that initiative presently has got kickstarted. We are -- the next few months, we are targeting a go-live date. So that is as a project is going on in full swing. And apart from that, we also in a period of time have realized that with the growing complexities, growing requirements in our business the way we have grown over the years, the kind of business controls that we need, we have decided to appoint one centralized big internal audit firm could guide us and handled us in terms of further strengthening our internal controls. So Grant Thornton has been appointed. That again is in public domain, we have shared that as an outcome of the last Board meeting. So these are the 2 important initiatives. And apart from that routine kind of changes, wherever required, in terms of division of responsibilities, the standard internal controllable practices, SOPs, wherever they're required to be strengthened in our governance processes, that we are taking care of and which was. Those are the initiatives here.

Thank you. We have the next question from line of V.P. Rajesh from Banyan Capital.

My first question is regarding Milakpur. So if you can, one, comment on what has changed there that now you are thinking of developing that land?

V.P., we are not -- first, hello. And we are not looking to develop Milakpur. Milakpur remains in litigation with the government and the acquisition proceedings, which have been challenged. The land that was Ashiana Town Gamma.

I see. Okay.

Yes, that's been replanned as Ashiana [ Advi ] as a full senior living project and we will be developing that and launching that. I think, Ashiana, there may be the tag end of selling of what we had and this is where we see a larger sort of player for the company now in Bhiwadi on senior living.

Okay. And then Ashiana Town still has some inventory value. You think that will get exhausted?

I wish I knew. We were going quickly last quarter. We can slow down. I'm hoping in the next 18 to 24 months, we're able to get there. Like as I said, in a return on equity perspective, that has come in and that is drilled down to the branches. One other thing is to ensure that capital is divested, which are not producing the returns at commensurate to the capital employed and completed stock JV does not. So in releasing capital from Ashiana Town is a very important step there. I think it was going well and then it got stuck a little bit. I think we are trying new things to resolve that. I'm hopeful that in the next 24 months, we should be out of that.

Okay. And if I'm correct then, aside from this Gamma land, there is no other land that you have in Bhiwadi aside from Milakpur, which is in litigation. But there's nothing else which is -- which can be developed over the next 2, 3 years?

There's nothing else. Yes.

No. We have. The Ashiana Tarang project continues. Ashiana Tarang has a lot of room for development. So I think that will continue as a regular housing. I think we'll have close to 1 million square foot in Ashiana Tarang left to development.

I see. Okay. And then all the land that you have purchased this year, by the way, congratulations on that. It looks good that you have built up your land inventory. Have you used IFC facility or you have done [ JDs ]? Or how -- if you could just comment on that, what has been the mix around the capital utilized for these acquisitions?

So we have used IFC facility. So I'll walk through. So we have done the 3 projects in joint development revenue share arrangements, one in Jamshedpur, one in Jaipur and one in Pune. So they have very little capital requirements as such compared to an acquisition. We have done 1 project in Gurgaon, which is with IFC financing a large part of the acquisition cost and some bank debt through ICICI Bank as well. They could finance some of the statutory levies that was getting reimbursed. And the last bit is the 1 project in Chennai, which we have purchased completely through our funds right now. There were some regulatory issues for IFC to deploy funds in that. I think by April end, for sure, but we are hoping earlier, we should get IFC share of the capital there and refinance out some of the equity that we have put in through that perspective. And therefore, IFC will finance that as well. That's the Mahindra World City purchasing.

Right, right.

And one we have purchased with Arihant group jointly. So overall, there is -- capital has not been concentrated in a particular project and we have 100% chance. It's been spread a little bit.

No. That's good, that's good. And in terms of the market, you talked about Chennai becoming a stronghold. Jaipur obviously doing well for us. What's the prognosis on Pune and Gurgaon markets?

So let me take up Gurgaon first. Gurgaon, I think one thing has happened. I think that we had a brand in NCR that we could leverage in general from Bhiwadi. The Sohna project has also done well now in terms of sales and getting as a brand. It's not making margins or profits, but over the last, let's say, 12 to 15 months sales have picked up and brand has been improved. I think the second project in Gurgaon, Ashiana Amarah will be a very good project from a returns perspective for us, from a brand perspective for us. It's a great -- we had a lot of time to do a great design. We have done a fabulous design on the project. It's large sized. So I have [indiscernible] that we're doing well in Gurgaon, very well. In Pune, it will still be a lot of legwork, the first project, in regular housing and we have to establish our brand. But I think we will learn from the finishing in Gurgaon and do better.

Your voice is breaking.

And then we'll be able to...

Yes. Varun, can't hear you very clearly.

Because it's a distinct product. I said in senior living, I would expect in Pune also that the brand building will be swifter, like it has happened in Chennai, as compared to the time it took in Gurgaon for regular housing just because the space is not so competitive and we have a distinct project. And I think we'll be able to leverage Lavasa a little bit in terms of database and people knowing us for senior living there. Even though Lavasa is a project has not done well, and I think that's more to do with this Lavasa City's issue, which hopefully will also get resolved. But our projects and our customers who are living there are happy. So I think senior living would be an easier place to create a brand and margins in Pune as well.

So between the 2 cities, have you sort of got the sense which one will be a better market for us in the long term? Or is it TBD?

It is like -- I think it is TBD. My view is that Gurgaon for regular housing and Chennai for senior living will definitely be good markets for us in the future. I don't see a challenge of that. But Pune regular housing is more of a TBD calling.

Okay. Understood. And then on the ROE question, when do you see yourself hitting that number? Is it fiscal year '23 or '24?

Well, so fiscal year '23, in my opinion, we will hit 15% ROE on a reported basis. The question is whether it will sustain. I think that's the larger -- that's what we're asking. If not -- if it's not repeating in '24, will it sustain after that '25, '26, '27? I think that sustainability question will get answered on an operating basis at '23 as well. So financial year '23 is key for us on both perspectives. One, on a reported basis, we have a lot of deliveries coming up. So hitting reported profits and getting to 15% ROE on a reported basis. and getting to -- getting the operating numbers in that reported ROE of 15% start becoming sustainable going forward. I think it's an important year.

And what about the economic profit, are you already there?

No. We are not there yet. So '23 would be also important basis to get there. So when I said operating, that's what I was saying.

Okay, okay. I see. And then just last question. If I look at your land inventory and if I take Milakpur and Kolkata out, you have about 7 million developed area potential with you. So when do you -- over what period do you think this will all get exhausted?

We have a 6-year view for all of this and the future projects inventory. So we have about 7 plus 4, 11 million square foot, plus some 1 million to sell here as well. So I'm hoping that in 6 years, we should exhaust all of this and add more projects and exhaust them partly going forward.

We have the next question from Rohith Potti. Please go ahead.

So I have just 1 question. I mean so with the upcycle coming, we are looking to scale up to the extent possible. I was just curious given the approach to building that we have in the sense it's more of a full stack model rather than outsource model than most other developers use, how do you -- I mean how do you see the internal capabilities scaling up in terms of the construction capability and selling capability, et cetera? Do you see a little bit of -- so let's say, I mean, for us to go from, let's say, 2 million to 5 million, do you see us being able to control as much of the process as we do right now? Or do you see part of it being outsourced going forward?

With construction, I don't see a challenge as you scale up. I don't see construction as a challenge in scaling up. Sales capabilities we'll have to build. So we have decided to work with channel partners in Gurgaon and Pune. It is one of those aspects of building capabilities in some markets. So will we need to build these kind of capabilities in Jaipur for senior living, no. But in Gurgaon and Pune, we'll have to build those capabilities as we scale up from a sales perspective.

Yes. I remember that in Anmol, we started out using channel partners for the first time. So how has that experience been in terms of customer expectations versus how the channel partners sold, et cetera. So are you guys happy? And is that going to be an important part of the sales channel in Gurgaon even after we establish the brand?

Yes. I think, Rohith, in Gurgaon and Pune, channel partners are going to be an important part of the sales channel even after brand is established. I think the market is very difficult for a consumer to navigate because of the sheer number -- volume of projects that are there and he lands up at a channel partner's doors nonetheless. That said, we have evolved into a model where we control the sales process to a large extent because our in-house sales team, the entire customer facilitation on site is done by our sales team. So therefore, we haven't had an issue of -- a material issue of customer expectations being different from what we are delivering or promising. I think I have a...

I can't hear you, Varun. I'm not sure if it's my end or at your end.

Okay. So I'll repeat it once more. I said we haven't seen any conflicts whereby we have seen that customer expectations are different from what we are delivering or what we promised to deliver, even with channel partner sales, and that's largely driven because we control the sales process at site.

We have the next question from Apurva Shah.

Yes. Am I audible?

Yes.

Yes. Sir, was just trying to understand from a future's perspective, the input costs, the margin pressures, I think there were some margin pressures. And going forward, how do you see that playing out in terms of your ability to increase or pass on price increases across projects. If you could throw some light on that? And how will it affect the pricing of -- and how is the on-ground in terms of some developers have reported when price increases have been taken and there has been little to no impact on sales volumes we saw. So how do you see that situation evolving?

So for us also, Apurva, we have been able to pass increased prices. If you see our quarterly prices, quarterly average sales prices has crossed INR 4,000 for the first time. A little bit of that has to do with mix with Anmol contributing a bit of it. But we've also increased sale prices across the board and those sales prices..

From a future's perspective, as in going forward, actually. Sorry, yes.

Yes. So I would expect that sale price increases are there. My view has been that it's -- real estate is in a bull cycle for a long period of time, and we should be able to increase sales prices. So in existing land, I think construction input costs increases should more than be covered and margins should expand in the future with sales prices. That's my particular view. Where the challenge is that land prices have also moved up in a few markets capturing that future outlook in place also. And that becomes a little bit of a challenge. So that concern is there a new project that will pick up, will we be able to find margins and value?

So as of now, I mean, I know it's difficult to crystal ball gaze, but 6 months down the line how do you see that situation evolving? I mean or what kind of price increases would suffice if land prices move on from here or you don't get them at favorable prices? And do you see land prices moving up materially from, say, 1 year...

So in Jaipur, the current land prices are factoring at 10% sales price higher than.

Okay, okay. So that should suffice. I mean, with price increases itself, right?

It should, it should. Hopefully, it should. But construction input costs can go also up, right? Then that becomes a risk. So we don't want to lock in a land price today generating with a lower margin in place because then you need a sales price increase to cover the land cost.

Plus the input cost.

That does not happen in construction -- and input costs don't happen then it becomes a problem, right? So construction input costs have gone up already. I'm not talking about what is factored in today. But if construction could go up further in the next 6 months, that will become a further challenge, right? So -- and I don't know how that will land -- how that will play out in the next 6 months.

We have the next question from Rohit Balakrishnan.

Yes. Am I audible?

Yes, you are audible, Rohit.

Yes. So I just wanted to understand a couple of things. So in terms of -- so as you alluded to the previous answer in terms of your view of the cycle being in a positive trend. So I wanted to understand 2 things. In terms of our gross profit per square feet, how does -- how do you think that -- I mean, gross margin, how do you think they will sort of trend in the next couple of years or beyond that? And the second question related to this is that cost structure below gross margin. So if I look at employee cost or selling costs, I think our costs prior to even COVID has hovered around INR 1,900 crores. So if we were to, say, increase our volume by 80% from our previous peak of 2 million square feet, how will these costs trend, which are either fixed or semi-variable in nature. So if you can just talk a bit about that.

Vikash, we want to give your view? We haven't firmed our views internally. Vikash, you can share your views and I share mine as well.

Yes. I think, see, one thing is very clear that as the sales go up, obviously, the fixed cost will grow. But that certainly won't be in proportion to the growth in sales for sure because as we add up more projects and the locations become deeper in terms of our presence, we add more manpower, more resources. Obviously, the overheads will grow, but certainly, they won't grow in the same proportion as sales. Now having said that, one thing which even Varun did mention in terms of capability building in terms of manpower, beyond the point, we might have to add more manpower if required. So that would be one cost, which can go up. But apart from that, I don't see any cost significantly going up as we scale up gradually. So selling cost, again, that also will depend the kind of cities we are presenting. For example, in case of Pune and Gurgaon, we have got into a model wherein we have engaged channel partners that will be altogether a different proposition. So these are certain aspects that we are kind of looking at as far as planning our costs in next few years is concerned.

So currently, what is the fixed cost that we have in the system? I mean, in absolute terms.

So I mean, other than sales and marketing, which also, to great extent, depends on the kind of sales that we clock year-on-year, overheads would be somewhere in the vicinity of, I would say, I think INR 65 crores to INR 75 crores, roughly.

I would say, Vikash, more in the line of INR 65 crores including finance costs that is there. Including finance cost, depreciation, everything put together, we'll be closer to INR 65 crores as of now.

INR 65 crores to INR 75 crores, yes.

Yes, yes. And Rohit, just to add to what Vikash was saying. Let's exclude SG&A for now, selling expenses and general and administrative. One thing that is happening, as we go this growth, our expectations will be coming -- it will come from going deeper into the market instead of opening new markets. Therefore, the addition to fixed cost would be lower than the proportion -- it will not be in proportion to the increase in sales volumes. I think sales volume will increase at a faster rate than increase in fixed cost on a -- sort of on a percentage of sale value basis. Okay? I think that's one piece of it. The second piece of it where I would come from is on the sales and marketing cost. So one thing that happens. One, we currently said, as we have moved to channel partners, some of the cost is getting variabilized or higher. But as brand is getting built in certain cities and we go deeper for every unit of sale, the per-unit selling costs should come down. And therefore, again, the sales cost should not increase in the same proportion. I would give an example is Chennai. Chennai in the beginning, our selling cost was about 8 percentage points of sale value and it's come down less than 4%, okay? Is it sustainable at the current levels of close to 2%, 2.5% where we are in Chennai? No. But will it start increasing beyond 4%? I think not. Similarly, in Gurgaon in Sohna, absolute selling cost has come down whereby even though sales volume have increased and percentage selling costs have come down significantly in Sohna over the last 12 to 14 months and the new Gurgaon project we would expect that to come down. The only place where selling cost, I think, might start creating a little bit of a challenge is Pune because that will be a completely new market for us. But outside of that, I don't see a challenge also on the sales and marketing costs over the next 3 to 4 years.

Got it. And if you could answer on the gross profit -- I mean, gross margins.

Sure. Okay. So I'll tell you where we are right now. So the historical projects, gross margins are what they are. Some projects we enjoy very good margins like Ashiana Nirmay on the gross level. Some projects are very tough on the gross margin like Ashiana Anmol and Sohna. And wherever the older projects are hovering around a gross profit margin of about 25% to 27%, somewhere here or there on an average basis. Our thumb rule generally has been 30%. Here, what happened, land cost was expensive. Sales price came down, construction costs were either same or went up and we had a margin squeeze at the GP level. Any project that we have signed up in 2021. So this excludes Ashiana Malhar in Pune, which was also signed up in 2017 first bit. Outside of that, whatever projects we have signed up in 2021, we have done very good on the land price side and we should enjoy 30% gross margins on an average basis, there for sure, if not more. And so that's that. I would expect -- on a general basis though now, gross profit margins for whatever we sell now in the future, GP margin should be better than what they were historically because sales prices on an overall basis, I think, has increased more than cost right now. Costs have gone up, but share prices have gone up more than that accordingly. And coming back to the point that the rest is -- the new project that we'll take up that we're going to sign up right now, we are figuring out how to ensure that we don't have to compromise on margins, given land prices have gone up there to take up a project. And we are looking for pockets -- what I call pocket of value whereby Ashiana is able to make a project work, which other developers are not so excited about. That's -- those are the things we are looking for. So future projects, as when we take them up, we'll give a better sense of the commentary on the gross profit margins.

And I think also with the concentration and higher senior living there also, we enjoy substantial -- significant pricing power. I think there also should be margin friendly.

I agree on that.

Sure, sure. That's very helpful. The other question that I have, I mean, I think you -- I joined the [indiscernible] sorry if this is already answered, I actually got in between your answers. So I just wanted to clarify this thing that you are now saying that in FY '23 on a reported basis, you will be 15% ROE. Is that what you said?

I'm hoping that we'll get there. We haven't crunched the numbers fully, Rohit, but the thing is a lot of the deliveries are getting bunched up in the ITR, right? So deliveries are good as we think. I think we should be able to hit 15%.

So Rohit, in our presentation, we share our scheduled delivery dates. In fact, we share a set of dates. One, of course, is RERA and we keep some kind of headroom for any kind of contingency. So we give our internal time lines also, which will give us a sense as to what exactly is lined up for deliveries in a particular year. So you can get a fair sense out of that.

Okay. So basically, right now, our network is around INR 50-odd crores. So we are looking at around INR 120 crores, INR 130 crores on a reported PAT basis. I mean, I'm just doing broad numbers if you were saying 15%. So I mean and then both backwards [indiscernible] costs.

So I don't think we'll hit that kind of PAT numbers exactly, Rohit, but we are also going to do our workings in that. But I hope that we'll get 15% ROE next year. So -- but we are about [ 2 weeks ] from doing internal projections there.

Sure, sure. So my other question was, sir, I mean in terms of -- I mean, FY '23, obviously, in a sense here, we're always backward looking in our business. So just wanting to understand, I mean, from a key sales point of view, next year or the year after, how are we looking at our previous peak was 2 million. I mean, in the past, we have alluded we want to definitely cross that and probably reach a very -- that number should be a sustainable number and reach a new peak. So I mean, possible to do 3 million-odd square feet at, say, 2 years out. Is that something, which is very audacious number?

Rohit, it is possible. I think somebody else had asked. I think launching the projects we have signed up in this financial year and before that is going to be key to get there. I think if we do that, I think that number is definitely possible.

Rohit, significant launches are planned in FY '23. So the key to achieve that kind of number will heavily hinge on timely launches. So the likes of Ashiana Amarah in Gurgaon, the projects in Pune that we are looking forward to launch. So that should actually help us a lot.

We have the next question from Himanshu Upadhyay.

Am I audible?

Yes, Himanshu. Please go ahead.

Yes. So my question was with so much of completions happening in FY '23, what type of free cash flow do you expect? And what is the constructions pending to complete the undergoing projects? Can you just elaborate on that.

Himanshu, let me -- the free cash flow, a lot of the cash flow is already front-loaded for a lot of these projects, right? We have received a lot of cash and we have seen, even though we have had reported losses this year, free cash flows have been positive. They were significantly more positive also last year as well. We had great cash flows both those years, and they helped us deploy into more land and growth. So cash flows have been definitely been positive. So I think reported earnings will have nothing to do with our cash flows in that way because of our operating cycle being so long. So I think the cash flow has been very good and steady that they have been reported on a quarter-on-quarter basis. The remaining construction cost, that needs to be incurred. I don't have an exact number on my plate, but I believe we'll have about 18-odd lakhs square foot left to construct on equivalent basis for the amount of area that's under development is what I remember.

Yes, around 17 lakhs. Around 17 lakhs, yes.

Okay. So that 17, I would expect about -- anywhere between INR 300 crores to INR 320-odd crores that we might need to spend on this. We are averaging at about INR 1,800 a square foot of construction costs probably at this point of time given the mix of -- type of construction that we have.

Himanshu, just to share one piece of number that we put in our presentation as well. If you look at the ongoing projects, whatever booking we have done, we have locked in. There is approximately INR 370 crores, INR 380 crores that we are yet to recover on that front. I'm talking only about the booked units. And similarly, on the ongoing projects, whatever balance construction is to be done, that is around INR 310 crores to INR 320 crores. So from a cash flow comfort perspective, you can compare the 2 numbers. We very comfortably cover the construction required to be done through the already locked-in cash flows. I'm not at all including the bookings for the balance part. So that's how the numbers have stacked up as far as cash flows are concerned just to give a sense.

That was the last question for the call. I would now like to hand it over to the management for closing comments.

Vikash, would you like to take closing remarks, please?

We would like to thank all of you for being on this webinar and so patient with all the questions and answers. If you were unable to take any questions, please feel free to write to us directly or reach out to us directly. And with that, we would like to conclude the call. A lot of the materials we have spoken about is posted on our website, and you can also e-mail your queries for any further clarification. Thank you once again for taking the time to join us on this call. Thank you.

Thank you, everyone.