Brigade Enterprises Limited (532929) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '24 Earnings Conference Call of Brigade Enterprises Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. M. R. Jaishankar, Executive Chairman of the company. Thank you, and over to you, sir.

Thank you. Good afternoon, ladies and gentlemen. Welcome you all to the Brigade Enterprises Q2 FY '24 earnings call. I'm joined by our Managing Director, Ms. Pavitra Shankar; Joint Managing Director, Ms. Nirupa Shankar; our Executive Directors, Amar Mysore; Roshin Mathew; Mr. Pradyumna Krishna Kumar; and senior management team, Mr. Atul Goyal, CFO; and Mr. Om Prakash, Company Secretary. I'm happy to share the following highlights. We've been focused on business development, given the strong demand on the residential sector that we believe will sustain for the medium term at least. During Q2, we added approximately 42 acres of land across Bangalore, Hyderabad and Chennai. It is a development potential of 7 million square feet and the gross development value of INR 7,700 crores. We are working towards launching these projects as quickly as possible given the strong market demand. In the next 4 quarters, we expect to launch almost 13 million square feet. Out of this 11 million square feet will be residential with a gross development value of INR 11,000 crores. Moving to our operational highlights of last quarter, I'm happy to report that all our businesses contributed significantly to the growth of the company in Q2 of FY '24. With a robust pipeline of launches in Bangalore, Hyderabad and Chennai, the future continues to look promising, and we are confident that we will sustain the momentum. Coming to the residential sector, the residential outlook remains strong with new sales of 1.66 million square feet and collections of INR 992 crores, which were our best ever figures for the second quarter of the year. This is a 14% growth in sales over the performance of the previous quarter and 19% in collection. The new registration platform launched earlier this year in Karnataka in June has also stabilized and is helping with faster execution of registration. We have shown good registrations this quarter despite increased guidance value. Quarter 2 also witnessed the 16th edition of our annual sales event called Brigade Showcase, and it underscores the strong demand from the market despite price increases and higher interest rates than a year ago. We are advancing launches wherever possible and taking up prices across the entire portfolio. We have 11 million square feet launches planned for the residential sector in the next 4 quarters, of which 6.5 million square feet launches is planned before the end of this financial year. Under the Brigade Plus brand in addition to home interiors, we have also launched rentals and resale services for our residential customers, which is seeing positive responses, especially across projects getting handed over. As regards to the office SBU, Brigade has leased 3 lakh square feet in the quarter, recording a 5x quarter-on-quarter growth with 90% of the demand led by technology, engineering and manufacturing companies. September and October 2023 saw an increase in tenant inquiries, and it is also indicative of the occupiers improved sentiment. There is an increased momentum in leasing inquiries, and we have an active pipeline of 0.5 million square feet of office space in Bangalore and Chennai. As regards retail SBU, during quarter 2 financial year '24, there was a 15% growth in consolidated mall retail sales consumption as compared to Q2 of the previous FY '23 across the mall retail SBU. Consumption growth for Q2 FY '24 had a 7% growth over Q1 FY '24 for the -- on consolidated basis for all our malls. Our multiplex was a star -- multiplex operators have had a star performing category across all 3 malls that yielded a 60% growth consumption year-on-year. This led to a ripple effect of 23% year-on-year growth in F&B consumption as well across all our malls. There are 2 new family entertainment centers, additions in our large destination and neighborhood malls contributed a significant consumption growth in this category by more than 90% year-on-year. Almost 62,000 square feet of area comprising of 18 new brands -- new brands ranging from [ CDAT ], supermarket and fashion lifestyle are under various stages of fit-out. Coming to the hospitality sector. In Q2 of FY '24, the hospitality SBU has continued to show growth. We have seen overall improvements in various aspects of our performance with both the revenue and profit surpassing the numbers of Q2 of FY '23. Revenues have increased by 17% and ARRs have demonstrated a 9% increase and occupancy has risen by 7% over Q2 of FY '23. We are witnessing increasing growth in our primary revenue streams, particularly in F&B revenues, which includes a steep rise in corporate and social banquet banked events. Furthermore, the number of domestic air passengers growing nearly 23% year-on-year bodes well for the room demand, which is visible in the rising occupancies and ARR. Additionally, there is an increase in travel from international corporate clients and partners. This brings me to the end of our operational highlights. Atul Goyal, our CFO, will now take you through the financial highlights. Thank you all.

Thank you, and good afternoon. On behalf of the company, we welcome you to the earnings call of Q2 FY 2024. While Chairman has already shared the operational highlights, I'll be sharing key financial highlights for the quarter. During the quarter, we had project closure of Brigade Utopia, Serene and Brigade Deccan and healthy registrations, which helped us to achieve real estate revenue of INR 103 crores. Good sales and collection in residential segment has helped us stay with zero debt in the residential segment. As per the company financials of Q2, all verticals of the company continued to do a steady performance in Q2 FY '24. The Real Estate segment clocked a turnover of INR 1,063 crores, whereas the same for Q2 FY '23 stood at INR 632 crores. EBITDA stood at INR 155 crores, which is a growth of 85% over Q2 FY '23. The leasing segment clocked a turnover of INR 231 crores, whereas the same for Q2 FY '23 stood at INR 192 crores. EBITDA stood at INR 170 crores, 74% of leasing revenue. The Hospitality segment clocked a turnover of INR 114 crores, an increase of 25% from the same quarter last financial year with EBITDA of INR 40 crores. EBITDA margin stood at 35% in Q2 FY '24. The consolidated revenue for Q2 FY '24 stood at INR 1,408 crores as against INR 912 crores and Q2 FY '23 with an EBITDA of INR 366 crores. EBITDA margin stood at 26%. Consolidated PAT after minority interest for Q1 FY '24 -- Q2 FY '24 is INR 134 crores. Total collections in Q2 FY '24 stood at INR 1,439 crores. Cash flow from operating activities stood at INR 452 crores during Q2 FY '24. Coming to debt position, we continue to have adequate liquidity and undrawn credit lines from the financial institutions. Our average cost of debt has been contained at 8.72%, an increase of 107 bps though the repo rate has increased by 250 bps. Gross debt of the entity stood at INR 4,097 crores. The cash and cash equivalent was INR 1,570 crores as on 30th September '23. Consequently, the company's net debt outstanding was INR 2,527 crores, out of which BEL's share was INR 1,592 crores. Almost 77% of the debt pertains to the commercial portion, which is cut by rental income. Debt equity ratio stood at 0.63 as on September '23. I now hand over to the moderator for questions. Thanks.

[Operator Instructions] The first question is from the line of Adhidev Chattopadhyay from ICICI Securities.

The first question is on the launches for the second half. If I heard correctly, the quantum is around 6.5 million square feet, right? And does this include the Chennai project, the luxury one, on Mount Road? And where are we on the approval for, that is the first question.

Thank you, Adhidev. It includes Chennai. We have received 80%-plus approval. It is in the final stage of the balance of 20% approval and RERA approval. As soon as that is done, we hope to -- we are fairly confident of launching in Q4.

Launch number is correct, at 6.5 million is what we're aiming to launch in the financial year, next 2 quarters, assuming all the approvals are on track and come through.

Okay. And the indicative GDV would be INR 6,000 crores plus, right, for these launches, around INR 10,000 average...

[ INR 8,500 ], yes, approximately.

Yes, okay. Second question is on the land payments. So we have paid everything by September for Hyderabad? Or is there something pending, of course, in September as well?

We are fully paid.

Okay. So the outstanding land payment is after fully paying for the Hyderabad land, right? Whatever is reflecting as payable for land as of September.

Correct, correct.

Okay. Sir, and just last question on the -- this Twin Towers project. So what is the leasing status? And when do we see the rental start to flow in over there? Yes, that is my final question.

Yes. So the leasing is still in all RFP stages, et cetera. There is a likelihood -- the project -- the total project completion also will be in Q1 of FY '25 project completion, it's in nearing the completion stages. And there is a likelihood part of it, we may also sell -- sell part of the thing. And part of it -- one block it has got 2 blocks -- 1 block, we may sell also. It is under various, I would say, strategic discussions.

Okay. So only after that, you would like to commence the leasing for the second tower, right? Is my understanding correct regarding to strategy.

Yes, you can probably say so.

The next question is from the line of Rakesh Wadhwani from Monarch AIF.

Hi, am I audible?

Yes, sir.

Sir, I have one question related to residential business segment. This got -- like if I look at the realization over a period of last 18 to 20 quarters.

Hello, you are not very...

Sir, is it better?

Mr. Wadhwani, sorry to interrupt. Mr. Wadhwani, can you use handset mode while speaking and not the speaker phone?

Sure, sure. Is this better?

Sir, slightly better.

Okay. So sir, when I look at the residential business segment, we have received -- we have done the highest realization of INR 7,500 crores approximately. But when I look at the gross margin segment for the residential, it is still very low, 23% to 24%. Any reason for that? Because in the past, you were doing gross margin of 28% to 29%.

Yes. Gross margin continues to be at that level. It's only there because of the NDS adjustments for the landowners, where there is a JDA, you have to recognize the revenue of 5%. That's why the percentage has come down. So as and when the JDA project, which will get recognized, this problem is there. But it's a NDS thing. Otherwise, as a project perspective, we are still continuing with the same margins.

Okay. And the EBITDA will be for the project level 23% to 25%, is that correct understanding?

Yes, yes, sure. It will be.

Sir, regarding the Chennai project -- that Chennai residential project that we are going to launch in the coming 2 quarters, that project GDV INR 6,500 crores. And we will be launching the project in phases?

No. I want to clarify, only that project GDV is not that much. It was part of that overall number that I mentioned. So totally 6.5 million that we're planning to launch in the second half, the GDV of that will be INR 6,500 crores. This is one of the projects that we will be launching in the H2.

Okay. One last question from my side. So we have around INR 750 crores payment towards the land payment that are about to -- that are due in the coming quarters. So are we looking to fund that through the internal accrual or we will be going for the debt for the residential segment?

So Atul will clarify, CFO, but on that I must say, even pertaining to the previous question of Adhidev, we said for the Chennai -- for the Hyderabad auction property, I said, we are fully paid. Yes, we are fully paid. But about INR 227 crores was paid in the first week of October. So as on 30th September results, it may show -- it may be indicated as to be paid, but it is paid in the first week, which is also one month ahead of schedule.

Yes, as far as land payments are concerned, yes, we have internal accruals right now. And of course, we have loan eligibility also of around INR 1,600 crores. So we'll see as to how we have to do the cash flow, and we'll pay it as per that. And of course, residential sales is doing very, very well and cash flow is getting generated from them. So it will depend as to how much cash is available, but definitely it will be from accruals and some part from the loan.

[Operator Instructions] The next question is from the line of Pritesh Sheth from Motilal Oswal.

Congrats on good numbers despite the absence of any major launches. First, just on the project additions that we did this quarter, I think you mentioned in the initial part of commentary, but I somehow missed out. Can you probably just mention how much was the project addition this quarter and the GDV? And if you can help us understand where we have added these projects? Especially I'm seeing commercial, there is 3 million square feet of additional land that we have tied up, so just your comments on that.

Yes. So just to repeat, we said we added 42 acres which has a developable area of around 7.7 million square feet. The GDV for that will be around INR 7,600 crores. Predominantly, the land that we've added is in Chennai and in Hyderabad. Hyderabad, of course, as everyone knows, the Neopolis project, which was -- we won through the auction, that is a big part of it. We've also acquired -- the rest of it was in Chennai in 2 different properties.

And this includes commercial as well. So both the properties in Chennai were commercial? Because I see 3 million square feet of addition in the Commercial segment piece.

So of that, about 2 million square feet is in Hyderabad and the balance will be in Bangalore and Chennai.

Okay. So the first commercial project in Hyderabad as well? Okay. Great. Second, in terms of your Brigade Tech Gardens where we have now 600,000 square feet roughly vacant in terms of leasing. And I last heard that there was one tenant, which was there, who is ready to take full tower. So just take us on overall how the leasing pipeline looks in Brigade Tech Gardens. Can we assume that it would be leased out within this quarter itself?

Yes. So -- Nirupa here. So yes, we have about 585,000 square feet left in Brigade Tech Gardens. The idea is to obviously lease it out within this fiscal year. This coming quarter, in Q3, we're targeting to lease at least 50% of that. The client that you mentioned, nothing has been given in writing, so unable to comment on that. But orally, there is discussion for the full tower, but there could be a hard option element. So we just have to see how that will go.

Sure, sure. That sounds good. And lastly, usually, the collections breakup you provide between residential and commercial, if you can help me with that number for this quarter.

Yes, sure. Collections for Residential for Q2 is INR 992 crores. Commercial sales is INR 37 crores. Commercial lease is INR 163 crores. Retail is INR 54 crores. Hospitality is INR 136 crores, and facility management is around INR 57 crores, total INR 1,439 crores.

The next question is from the line of Parvez Qazi from Nuvama Group.

Congratulations for a good set of numbers. So my first question is on the business development front. Over the last 1 year or so, we clearly have stepped up our activity. Where do things stand now? Are we okay? Do you want to take a kind of pause in the near to medium term? Or are we still looking for more land purchase?

See it is -- it's always, we are on the lookout for the right opportunities. It is not acquiring something for the sake of acquiring. It is based on opportunities, and we try our best to acquire at the right price at the right location.

Secondly, in terms of pricing, you mentioned that we have taken prices upwards. So on a like-to-like basis, what would have been the kind of price to, let's say, compared to same period last year?

Yes. So it is 9% from the last quarter. I'd say -- just give me 1 second -- it is probably around 15% from the last year.

That's a pretty healthy price effect that we have seen. And lastly, just a couple of data points. What would have been the contribution from launches this quarter, I mean the projects that we launched this quarter to presales?

Yes. So in this quarter, some new launches, we have done around 35% by area and around 30% by revenue. But if you look at the full H1, that would come closer to around 40%. So someone had mentioned earlier that we've not done any launches, we actually did launch 1.3 million square feet in the first half. Both of those were in Bangalore.

The next question is from the line of Adhidev Chattopadhyay from ICICI Securities.

First is on the hospitality -- now the current -- from October onwards, obviously, we know that overall demand is good. Could you give us idea on the room rates and overall RevPAR basis, how much we will be trending so far on a year-on-year basis, considering the high base of last year? And I meant as a broad range, not exact number.

The last line was not okay.

We can't hear you.

Yes, I'm saying -- I'm asking for the broad range, not a specific number.

Okay, broad range.

So I think Q3 is generally a very healthy quarter. So I think we can expect some increase in the ARR, but I would say the portfolio is anyway trending around 70% plus occupancy. And I think occupancies will be maybe around the same. We can look at perhaps a slight increase in ARR. And for the whole year, I think the way Q2 and the H1 has happened, I think we can look at approximately doubling that up for the full year for the EBITDA -- in terms of EBITDA.

So doubling you mean year-on-year, the overall EBITDA for the hotel business? Or...

[ What are your ] H1 numbers are. We can look at approximately doubling that for the full year is what I'm saying.

Okay, okay. Fine, fine. So that is the expectation, okay. Sir, second question is, on the last call, I think we alluded on a longer-term goal of getting to a 10 million square feet of, I think, aspiration, volumes annually. So where are we in the journey? And have you reviewed like what you need to do to get there? And how does the current land availability stack up?

Yes, definitely, the goal is to reach 10 million square feet per annum sale as early as possible. I think we are in the right direction. We have tied up a sufficient number of projects, and we'll be tying up a few more in this quarter and next. I think sooner than later we should reach within -- on the next 2 financial years, if not earlier.

Next 2 -- do you mean by FY '26, right?

FY '27.

'27. Okay, FY '27? Okay. Fine, fine. Okay. That sounds good.

The next question is from the line of Akul Broachwala from Avendus Capital.

Just -- can you just spell out from our existing land parcels at Bangalore, what could be the potential development area that can be possible from whatever other vacant land parcels that we have?

Hi, this is Pradyumna here. So from Bangalore, we have about 33 million square feet as -- from the existing land bank.

Got it. And like in the past we've spelled out that our endeavor is to maintain market share of 10% on new launches. So can one assume that going forward, on an annual basis, at least 5 million to 6 million square feet is what you would aspire to launch in Bangalore market going forward as well?

Yes, that would be the case.

Right. Got it. And how do you expect pricing to move? Like you've already mentioned that in terms of gross development value that the pricing is definitely going to be higher than what we've anticipated in the past. So do you expect this to probably sustain over the medium term? Or do you still believe that we still have enough room to upgrade our launches in terms of higher categories, or what's the exact strategy out here?

See, the general market has moved up due to various factors, land costs, construction costs, improved margins, it's a factor of all these aspects. And whether we'll continue to increase the prices in this fashion depends on the market conditions and what the market is willing to bear. Based on the overall trend, I think the demand-supply scenario plays a huge role in the pricing, and I think it is based on that. But there will be price increases year-on-year to take care of the inflation and more.

The next question is from the line of Prasanth Gopal from Spark Asia Impact Managers.

So does the Q2 or H1 numbers include any plotted development? And if so, can you give the residential realization if plotted development?

So in Q2 and H1, we don't have any plotted area that was sold. We're expecting that to come in, hopefully, in the next couple of quarters, so we can launch that.

And what would be the realizations there in plotted?

So I mean, like we were talking about pricing, increase and so on. It's a fairly dynamic environment. So I think at the time of launch, we will have to see what the pricing is at that point. We've been seeing the movement approximately 5,500 or so. This is for that specific location.

[Operator Instructions] The next question is from the line of Pritesh Sheth from Motilal Oswal.

Just one question, after the acquisitions that we have done recently, what would be the GDV pipeline in Chennai and Hyderabad. If you can split it up, that's good or in total if you can mention that's also would be great. So what's the GDV pipeline that we have right now in Chennai and Hyderabad cumulatively?

In the entire land bank? Or this is just for the...

Yes. No, entire land bank.

Just one moment. In Hyderabad, it's about -- you can say we're close to INR 3,000 crores -- INR 3,000 Hyderabad because we also have 2 million square feet of commercial, which we will be retaining. And the residential -- from residential sales, we expect about INR 3,000 crores when the project is launched. And in the Chennai market, it will be...

Yes. So totally, we're looking at about, from our land bank, about INR 20,000 crores between these 2 markets so...

Awesome. Okay. So basically now in the next couple of years, at least these markets should contribute roughly INR 2,500 crores, INR 3,000 crores to our presales once these projects come up for launches, right?

Yes, quite possibly. Yes.

The next question is from the line of Parvez Qazi from Nuvama Group.

As far as our hospitality portfolio is concerned, we have one under construction project in Mysore. Beyond that, what is our thought process regarding this portfolio, especially on the scale-up side and something similar on the retail side as well.

So basically, for Hospitality and Retail, I'll start with Hospitality first. We are looking to have some hotels in our larger mixed-use developments and township, because we find that it enhances the overall value of the project and the residential component as well. So most of our mixed-use development will have some hospitality components. And I think in the presentation it is mentioned that we've recently purchased a property on ECR in Chennai, so that will be -- sorry, on lease. And that will be our resort property -- beachfront resort property in Chennai. In terms of retail, again, like I said, for large mixed-use launch -- going back to hospitality, there is a [ play field ] in Brigade Valencia. There's also a [ play field ] that we will be doing near the Bangalore International Airport. And then there'll be the Marriott in the World Trade Center, Chennai project. So about 45 rooms will be in the SEZ area and another 60-odd or so will be in the service department category as part of the larger WTC township. In terms of retail, again, we will be adding retail components to the larger mixed-use projects that we have. So for instance, in Neopolis -- in the Neopolis site, we will be adding a retail component as well.

So I mean, compared to, let's say, 1,500 kind of keys that we have in our portfolio, do we have some target that what will be our, let's say, aspiration 3 or 5 years down the line in terms of number of keys?

See I think for the way the hotel division has been doing and the entire hospitality sector has been doing. Again, we are looking at opportunistic areas where we can develop our hospitality projects. Based on how the market is looking, we do have -- we think we can add another 1,300-odd keys or so. So the existing portfolio has about 1,474 keys. We have -- we think there's a good opportunity to add another 1,300 keys there.

Sure. And one question for Atul, sir. Sir, what was the contribution from BTG and WTC rentals this quarter?

Yes, sure. The rental for Tech Garden was -- this quarter was INR 74 crores and in PIPL it was INR 392 crores.

I'm sorry, I asked for WTC Chennai, this quarter.

Only WTC Chennai should be in the range of INR 60 crores to INR 62 crores.

[Operator Instructions] As there are no further questions, I now hand the conference over to Ms. Pavitra Shankar, Managing Director, for closing comments.

Good afternoon, everyone. Before we close, we just wanted to share a few other highlights. Our Brigade Foundation, the not-for-profit trust of the Brigade Group signed an MOU with the Department of Archaeology, Museums and Heritage to renovate the renowned Venkatappa Art Gallery in Bangalore, a way to significantly contribute to enhancing the existing rich history of art and culture in Karnataka. In celebration of 2 decades of unwavering commitment, the Brigade Foundation held 2 events. SprintFest, Run, Walkathon and Flash@Brigade, a mega carnival hosted at the 3 Brigade schools. This was to raise funds and awareness of the education and health of underprivileged children. Our PropTech Accelerator, Brigade REAP, alongside RealtyNXT, organized a PropTech Mixer, a first of its kind in India, bringing together VCs and PropTech founders. Nirupa Shankar represented the Brigade REAP and the Brigade Group at PropTech Connect in London in early September. PropTech Connect is Europe's largest PropTech event that brings together 3,000-plus global real estate leaders, startups and professionals. Brigade received an award for World Trade Center Chennai, Best Commercial Project of the Year at the FICCI RESA Awards 2023. Brigade was also recognized as one of India's top builders and one of India's top challengers at the CW Architect and -- at the Construction World Architect and Builders Award 2023. The Indian Music Experience Museum recently organized Jackfruit 2023 in partnership with Bhoomija Trust with Shubha Mudgal-ji curated this year's edition and featured an exciting lineup of workups and performances held by the phenomenal young practitioners and stalwarts from different genres of music. With that, we now wrap up our Q2 FY '24 analyst call. Thank you all for taking the time to hear from us today. Wishing everyone and your families a happy Diwali.

Thank you all, and wishing everyone a happy Diwali and season's greetings.

Thank you members of the management team. Ladies and gentlemen, on behalf of Brigade Enterprises Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.