Eldeco Housing and Industries Limited (523329) Earnings Call Transcript & Summary

So I think in the opening remarks, I said that the last set of approvals is pending, which is the environment clearance and the RERA registration. In fact, we've already applied for the RERA registration. Once the RERA registration comes, which I expect, I don't see any impediment there should be this month or next month. And within 3 or 4 weeks of that, we should be launching that project. So that is as far as the time lines go. But it is a big project with -- it's going to have plain plotter development villas, it is going to have group housing and maybe we may be starting a senior living kind of project also within the township. So it's going to be phased out over many years, but we are going to start with the villas within this financial year, and that's what it looks like. As far as the average realization goes, I think over the life of the project, it will match the realization that we are currently having in the other projects. We declare that every quarter. So it's -- that's about INR 5,000 to INR 6,000 a square foot. So the plots are going to be in that range and the group housing also probably could be higher depending on when we launch it. But as of now, one would underwrite at INR 5,000 to INR 6,000.

Okay. Okay. Sir, one more question. With few deliveries planned for second half of this year, how much growth in margins can we expect from current 16% level?

I would expect a growth in margins because I think in the earlier con calls, we did explain that why and how Imperia Phase 2 has a higher margin because Imperia Phase 1 did not have a lot of margin, a lot of amenities, which are common to both the phases are loaded on to Imperia Phase 1. So it showed a lower margin. And Imperia Phase 2, which is where we expect to start recognizing revenue in this or the next quarter, the margin will be much higher. So specifically, I don't know if we have or we declare margins for project-wise. But I think right now, this quarter, the margin -- EBITDA margin is at 25%. But next quarter, it could be as high as 35% or 40% because of Imperia 2.

The next question is from the line of Varun Gupta, an Individual Investor.

So I have a couple of questions. My first question is on the realization front. So why our realization has dropped in quarter 2 because it was close to INR 6,500 in previous quarter. In this quarter, I think the number has dropped to INR 6,000.

Yes. I invite my colleague, Rajivji, to comment. I primarily expect got to do with the mix of projects which have got recognized this quarter. In the absence of a high-end project getting recognized, I think we recognized some low realization kind of projects. Rajivji, can you comment and explain this?

So basically, we have a portfolio project which is recognized in this quarter, which had a different GP altogether. So we have very good GP in one of the projects which is recognized in the Twin Tower. But on the other side, we had another EWS Saksham, which is also recognized in this. So being weighted to these things, so our GP ratio and these things are basically impacting our weighted GP. So that's the reason for reduction in GP in the last quarter.

If I can supplement that, I don't think one can make a long-term kind of assessment that the GP -- the margin of the company are dropping. It means that this quarter, we recognized more of EWS, which is Economically Weaker Section kind of orders that we did. Next quarter, I think it will revert to normal.

How much is the ready-to-use inventory sitting in our balance sheet because we are carrying close to INR 600 crores of inventory. In the last con call also, I think some of the participants have requested. In the presentation, which is very good. Can we get some kind of visibility on the revenue also? Project-wise, which project is getting recognized? Just to get a sense of the number.

Yes. We should start recognizing Imperia 2 this quarter or the next quarter. It will be touch and go whether it will be this quarter or next, but it will start. Then the next project which starts getting recognized, big one is Latitude 27, that also, Imperia will carry us through -- it's a big project. It will carry us through for the next 3 or 4 quarters in terms of revenue recognition. Then that will be followed by Latitude 27.

Imperia will start from quarter 3.

Yes. It should either -- as I said, it should be either quarter 3 or quarter 4. Hopefully, it should be quarter 3.

In the current INR 600 crores inventory, which we are carrying, so how much is the value of the ready-to-use units? Already where the completion is received, but that is units are unsold. Can we get that number also?

Maybe what we will do is change our format and actually disclose that in our next presentation. Let us get back to you on that number after the call, maybe we'll send it to you. Abhishek can take your contact details and we'll send you that number.

What is the margin we are targeting for Trinity and Solano, at GP level?

25% to 30%.

We'll take the next question from the line of Farhaz Ahemad, an individual investor.

Just wanted to understand, if you can help me understand how this brand loyalty in Lucknow allows us for pricing premium versus other peers which are there in the market?

Very good question. If you look at the business model, it is, to a large extent, dependent on advances from customers. Basically, you buy land or rising land in the form of a JDA or you buy land and then you get the approvals and the construction process and the development process takes 3 to 4 years. During that period, people come forward and they book their housing units. Now, why would somebody book a house for a delivery, which is 4 years later and all just to see a brochure and some promises and some walkthrough animation. He does that because he has seen the company for the last 30 years and his friends have seen it or his family have done it in the past. They feel that whatever these guys promise, they actually deliver something better than that. Somebody else who does not have that kind of brand recognition or loyalty would find it relatively more difficult to attract such customers and convince them and hence, would not be able to charge a premium or would have to price his products lower in order to convert that into a booking or a commitment from the customer. With Eldeco, that discount is not there. In fact, there's a premium. That is purely a function of the kind of year we have spent in the market fulfilling our promises. The brand is everything in terms of being able to get advances from customers and to be able to charge a premium.

Just on this, what do you think would be on an average, how much premium are we charging in comparison to others, just percentage-wise, if you can just throw some light on that?

Again, a fantastic question. That premium used to be about 5% to 10%. If you remember from the year 2010 to 2020 in North India, there was a lot of cynicism towards real estate brands and a number of high-profile, what should I say, meltdowns and failures by real estate developers in North India. After the advent of RERA and after COVID, the market has really consolidated towards players who they feel are dependable and who will deliver. That has translated into a higher premium. What used to be 5% or 10% is now as much as 20% to 30%, which if you look at it is a phenomenal premium, which one gets for the same product. Not the same product. The product also tends to be a little superior, but 30% pricing premium is what we are observing in the market for a good brand. Just to clarify, that's just a qualitative assessment. I mean there is no proof of that 30% premium. It just one assesses that one gets a 20% to 30% premium because of the good stuff that our company has done in the past.

Sir, one last question. The Lucknow market has seen steady absorption and limited speculative inventory. Do you see any scope for price-led growth? Or is the volume-led expansion more sustainable?

I think it's an undersupplied market. There's a lot of demand for quality housing, but that's in the region of, say, INR 60 lakhs to INR 1.5 crores, but unfortunately, in Lucknow for many years and many quarters, supply has not been forthcoming either from us or other players in the numbers which the market demands. What has not happened is that because of the supply constraints, prices have not gone up because we feel that actually people beyond that price point, there is a very limited market of INR 2 crores, INR 3 crores, INR 4 crores. Typically, in a supply-constrained market, prices should rise, but they have not risen because actually people -- the demand is for that price point. To answer your question, going forward, I expect a huge uptick if supply gets unlocked on the absorption side, the upside is much larger than it is on the pricing side. I do not expect prices to be doubling in 2 years, but potentially absorption numbers should be doubling in 2, 3 years if the right kind of supply came in. I don't know if that answers your question.

Even if there is some, say, pricing pressure or anything which is there, we will still be having a premium in comparison to our peers as well.

That remains to be seen, but one expects that the brand attraction should still be there even in a soft market. In fact, it should be there even more. I find in my experience that premium for good brands tends to compress a little in good markets and tends to expand a little in bad markets. The importance of the brand becomes even more in a bad market or a soft market.

[Operator Instructions]. The next question is from the line of Ansh Singh from [AJ] Investments.

Sir, I just wanted to get some sense on EBITDA margins. Given the shift in project mix towards plotted development and premium mid-income housing, how should we see EBITDA margins trending over the next 12 to 18 months?

The next 12 to 18 months, our major revenue recognition is going to be coming from Imperia 2. There, the EBITDA margins are Rajivji, about 35%? What is the EBITDA margin?

Around 32%.

Yes. About 30% is what you should be looking at over the next 12 to 18 months because Imperia 2 is the main project which is going to get recognized.

Also, can you help me understand what proportion of our sales in H1 FY '26 came from premium versus mid-income segments? Also, do you expect Eldeco's land realization to exceed current portfolio average?

The second part, no. I've already answered that, that we expect Solano to be in similar lines. As far as the breakup of -- you want breakup of the sales which have happened in the first 2 quarters?

Yes.

They were largely Eldeco Hanging Gardens, which is upper mid-income kind of project. I think our average realization there is about INR 6,500 a square foot or INR 6,800 and Skywalk, which is, again, a similar -- a slightly lower price category of about INR 6,000 or INR 5,500 a square foot. In the last quarter, we launched these 2 projects and they constitute the major sales this year. I hope you have noticed that in the first 6 months of the year, we have done bookings of more than INR 300 crores, which is like in 6 months itself, we are nearing the number which we did in the entire year last year and our last year was our best ever. Our run rate is much higher than we've ever been.

The next question is from the line of Manan Patel, an individual investor.

Sir, the first question is a continuation of the previous one. You mentioned that we have done already INR 300 crores, and previous 2 years also, we were able to cross INR 300 crores in terms of area booking. Do we foresee ourselves doing INR 500-plus crores over the next 2, 3 years on a sustainable basis?

We have a lot of hopes on Solano Garden. It's the next major launch. I'm happy that INR 300 crores seems to be the new normal for the company. If you remember, we used to be at about INR 150 crores to INR 180 crores, but INR 300 crores, INR 300 crores-plus is the new normal. This year, because of Solano Garden launch comes, then we should be crossing INR 500 crores, which is a statement I already made earlier. I think that should be done. Going forward is INR 500 crores going to be the new normal. For that, we need to quickly bring some new projects towards launch stage. We have already started working on that. In our presentation, we have disclosed that we have another 35 acres of land, which is under aggregation. We want to increase that. I should be able to answer that question in the next quarter, hopefully. I would not like to make a comment that INR 500 crores is the new normal. It is definitely going to be achieved this year. In FY '27, I would like to see the existing -- the new pipeline to be closer to launch before I commit that.

Sir, from an aspirational perspective...

100%. [Foreign Language] We have more aspiration. Our aspiration and goal is much more than INR 500 crores annually on a stabilized basis. I thought your question was in the immediate quarter that I can't answer. Yes, the vision is, as I said, Lucknow is an undersupplied market. We think that this market can sustain a much larger number on a consistent basis and a sustainable basis. We are working towards that. I can't put a time line in terms of which quarter, which year, but we are going towards that.

Sir, one small bookkeeping question. Eldeco Select has -- I can see from presentation, it has been applied for CC in 2021 and INR 27 crores of area book collection is issued, but it has not been recognized from what I understand.

I think we have recognized that. Rajivji, can you come again, please?

Yes, we are recognized.

It's still there in ongoing projects and applied for CC.

Yes, we should actually move it to the completed project. I think we have not received Completion Certificate. That's why we not moved it, but in terms of recognition, we've already recognized.

[Operator Instructions]. As there are no further questions from the participants, I now hand the conference over to the management for closing comments. Thank you, and over to you, sir.

Okay. Thank you, ladies and gentlemen, and thank you for your support, and this is an important quarter for us, the current Q3, one. Hopefully, in the next call, we will come back with good news as far as the commencement of revenue recognition in Imperia 2 number one, and the launch of Solana Garden. Hopefully, we should have achieved both, and I hope that we report these 2 important updates to you next quarter. See you next time. Thank you.

Thank you, members of the management. On behalf of Eldeco Housing and Industries Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines.