Prestige Estates Projects Limited (PRESTIGE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Prestige Estate Projects Limited Q3 FY '21 earnings conference call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aditya Bagul from Axis Capital Limited. Thank you, and over to you, sir.

Thank you, Faizan. Good afternoon, ladies and gentlemen, and a warm welcome to the Prestige Estate Projects 3Q Conference Call. Before we begin, I just wanted to congratulate Mr. Razack and the entire management team for a spectacular Q3 performance and wish them all the best for the forthcoming quarters. We have the senior management here from Prestige Estates, Mr. Irfan Razack, Chairman and Managing Director; Mr. Venkat Narayana, Chief Executive Officer; and Mr. V. Sarma, Chief Financial Officer. Without taking too much time, let me hand over the floor to Mr. Razack for his opening remarks. Post which, we'll open the floor for Q&A. Thank you, and over to you, sir.

Thank you. Glad to be on the call. We also have Noaman here with us in this call, and he's also listening in, and he will give his inputs as we go along. It's been a good quarter, like we said. I think all in all, we have recorded some of the highest sales that we've done ever in a quarter, that's INR 2,000-plus crores. And somebody keeps asking what's the momentum in this quarter because we're already 1.5 months into the new quarter. I think the momentum is similar, but we need that little bit of an extra push to exceed what we've done in this quarter. So we are working on it. And hopefully, if we get a couple of RERA approvals, we should be able to get that also through because in the current quarter that's gone by, what added up to the city was INR 400-odd crores of sales from Hyderabad because Hyderabad was the new launch. And similarly, I think we are looking at 1 or 2 bigger launches just now. So the key is getting the RERA number and launching something in the month of March or in the Feb. So we are waiting and watching. Let's see. We'll -- of course, we don't wait. We always make -- try to make things happen, and we'll try and make it happen for the current quarter also. And I'd like Venkat to supplement with whatever else he has to say.

Thank you, sir. Greetings to everyone on the call, and thank you for joining us. We hope you and your families are safe and healthy. Let me give you a quick recap of our performance during the Q3 and the 9 months ended December '20, which were healthy and in line with our expectations. We started this fiscal with lot of uncertainty and there was a lot of volatility, and we did not know the way forward. But having said that, as we moved ahead, the Q3 turned out to be the best quarter that we had ever seen in terms of presales, as Chairman said. We have clocked a little over INR 2,000 crores of new sales. The presales for the quarter stood at INR 2,026 crores. These sales have come from completed projects, just-launched projects and also ongoing projects, a healthy mix. Predominantly, the share of completed projects has increased in these presales. Therefore, the cash flows also are upfront and healthy. So INR 2,026 crores of new sales have come from 2.98 million square feet of area with average realizations of INR 6,790 per square foot. We did launch 2 new projects during the quarter. One is Prestige Tranquil in Hyderabad, which met with a very good response. We have INR 435 crores of [indiscernible] in the project. And Prestige Windsor Park, towards the end of the quarter almost, which also met with a good response. So overall, we had 3.15 million square feet of launches during the Q3. The collections are also good. Collections were at INR 1,430 crores. And if you look at 9 months as a whole, the total collections were at INR 3,307 crores, which are at par with pre-COVID levels and comparative basis. The overall sales for the 9 months are INR 3,610 crores coming from 5 million square feet at average realization of INR 6,682. What I want to point out and want you to notice is that these sales are not out of any offerings of reduced prices rather. We did have a marketing event called KEYS which was our marketing event which also met with a great response. These sales are driven by the event of KEYS and also the good response to the launch projects. Overall, in this fiscal, we had 5 launches, 7.11 million square feet, Prestige Tranquil, Hyderabad; Prestige Windsor Park, Chennai; Prestige Primrose Hills, Bengaluru, Kanakapura Road; Prestige Waterford; and Prestige Ocean Crest at Goa. So operationally, this is how the quarter has been. And coming to the financial highlights, on consolidated basis during the quarter, the total revenues stood at INR 1,928 crores and EBITDA of INR 528 crores with 27.39% margin. And PAT at INR 87.8 crores. So overall, for 9 months ended, the total revenue is INR 5,141 crores, EBITDA at 30%, INR 1,566 crores and PAT of INR 201 crores. So the revenue recognition for this quarter has come predominantly from Prestige Song of the South, Prestige Lakeside Habitat, Prestige Falcon City and various other projects. These 3 are top contributors. As of 9 months ended FY '21, our total net debt stood at INR 8,464 crores and total debt equity ratio is at 1.47x. As Chairman said in the opening remarks, we do have a lot of launches that are lined up in various geographies. And we are very confident that this calendar year is going to be good. And the momentum that we had from Q3, we will be able to continue and sustain -- work towards sustaining those numbers. To name a few, we have the largest integrated township that is coming up for launch in Sarjapur Road, Prestige Smart City, which will have plots, apartments, villas, office space and retail. We have Prestige Bougainvillea Gardens coming up in Noida, Sector 150, large residential development. We have Prestige Jasdan Classic in Mumbai that's going to be launched in the next quarter. And Prestige Park Drive plotted development and Green Gables and many more in offerings. So these are something which we can confirm that is going to be launched in 4 to 5 months from now. So that's how things are currently at the organization. Looking at the segments that we have presently, residential has been doing extremely well. Lot of traffic demand has been turning towards trusted, organized developers. So therefore, Prestige Estates, all the projects have got great response. Conversions have been good. Office, we're getting rentals over all the lease spaces. You have the updates of how the office has been happening. In retail, we are seeing the traction back, footfalls are increasing, the revenues are growing. So therefore, the malls should be back. In the next 6 months' time, I think they should stabilize fully. Hospitality, because of the travel restrictions, etc., it is taking a little longer than expected to start. And we believe that it will take 12 months to 15 months at least from now to stabilize and come back to pre-COVID levels. So this is the summary of business as well as financial performance of the company. With this brief, I request you to open the forum for question and answers. Thank you.

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

Sir, I noticed that your net debt has reduced by a couple of hundred crores quarter-on-quarter. Sir, could you just give us the cash flow breakup, broadly your collections and construction spend?

Sure. The collections, cash flow -- so the overall collections, anyway we have said -- told you, for the quarter ended INR 1,430 crores of profit collections in that gross collections. The spend has been towards construction, INR 702 crores overall. In that, residential and commercial projects meant for sale -- developmental projects rather is INR 510 crores. CapEx commercial is INR 104 crores. Retail is INR 51 crores. And hospitality, INR 35 crores. That's how the spend has been, INR 702 crores. And in addition, we have spent towards land, TDR INR 110 crores, refundable deposits for projects -- new projects at INR 75 crores and stake purchases buyback around INR 115 crores. Overall, INR 300 crores towards land, refundable deposit and share purchases. So that's how the breakup is for the quarter.

Okay. Sir, going forward, I know, obviously, excluding the Blackstone transaction, whenever that happens, what is -- how do you see the trajectory of your debt over the next couple of years in the residential segment, if it's more important, yes, yes.

Residential segment are generally overall as an obligatory.

Sir, whatever you'd like to share, it's fine.

Okay. So immediately, if we have to say, we are -- this transaction with the Blackstone is a work in progress. We've made a lot of progress, and we have got almost all the approvals statutory that are required, the NOC that we need to obtain from the lenders and the documentation is in progress. Once the transaction is done, if you look at the value of the transaction, which is around INR 9,600-odd crores, and the net debt, which is being INR 8,464 crores will be net debt negative. That's how we can be once the transaction is done because along with the assets that we are selling, substantial amount of debt is also going out of books. Going forward, yes, endeavor is to ensure that developmental business, as far as possible, remains debt free. And CapEx is a cycle that we need to go through, office as well as retail. We need to spend money, build those assets, lease, and then subsequently, either now tap public markets in a form of REIT for that or do exit through part or full private sales or hold those assets. So that will be the strategy. So therefore, there would be some reliance on debt to build those assets, but developmental business, we would like to keep debt free, and the CapEx will continue. I mean if we're able to find a model where we are borrowing money at 8%, 9% and we're able to create the assets, which can give yields of 14% to 15% and upwards, so we will do that. But having said that, we are very conscious of the fact that we don't want to take the debt high. Once it reaches, for the transaction, the minimum level, we'll try and keep it not more than, at any given point in time, 0.5x from current 1.47x. I'm giving you 4 to 6 quarters ahead guidance.

Okay. Around 0.5x. And sir, just a final question, you shared about the residential launch pipeline. So could you tell us which are the major projects that will start CapEx this year across Mumbai, Delhi and Bangalore and other cities?

So there are quite a few ongoing projects as such which will be nearing completion where we need to spend some money. Let me come to office portfolio. So Prestige Beta, which is now named as Lake Shore Drive, Prestige Lake Shore Drive, that will be the one project where we will be starting work soon. So therefore, there will be construction spend. Prestige Sky Tech in Hyderabad , which is ongoing right now where we'll have spend. Prestige Waterfront is the other project in Hebbal that will have spend. And mostly in a quarter's time, BKC in Mumbai, before.

The next question is from the line of Swagato Ghosh from Franklin Templeton.

Sir, I just want to understand that on the office side, what are you seeing on the ground currently? Has there been any churn on the tenant side because you have heard some other landlords that there have been small, small early exits giving up of our lease spaces, like small spaces, earlier than contract expiry. Are you seeing anything of that sort in your assets?

Actually, these are mixed signals that we get. A lot of new deals also are happening. There's a lot of new RFPs that have been floated and these are large takeup of spaces that the requirement has come for. There are some smaller companies, COVID or no COVID, probably, if they hadn't done well, they would have got termination either way. So those are very few -- not -- and very few and far between, those are smaller in number. But all the big companies, they are still there. See, now it's almost a year since people have gone to office, they're still paying us rents, and they continue to pay us the rents as per the contract. Now it's imperative that people start moving back to office because also it's been now proved that the best productivity comes from going to office. It's only a matter of time that will happen. And it's our -- question is, is the offtake of office going to reduce in the future? Will there be demand? And my answer is, there will be demand, and there will be more offtake as we go along. Currently, it's in a sort of a flux, it's a stalemate. I think, give it a 6 months' period, the demand will be back in its full gusto, and people will start going back to the office also. So I don't think the demand can go anywhere because more and more work is coming to the country. And with this more work coming into the country, even if there's a hybrid model of working, maybe, say, 20% from WFH, 80% from office, I still believe that office is still relevant and still there will be demand for it. And if you're doing a good quality product in a good location, I don't see why the take-up will not happen.

Okay. So in other words, like-to-like occupancy for you, now versus 12 months back, is it similar, higher, lower?

Yes. I mean, we don't have too many vacant spaces, if you're asking me that. Maybe the same 95% occupancy levels are there, which continue to be there. The 3%, 5% will keep -- the churn will keep happening. And I think that is the way to go. I don't think we can always expect a 100-plus percent occupancy. And there's another model that is coming up soon is the co-working spaces also because larger companies or smaller companies who would want to experiment and who want to do start-ups, they will now be trying to more and more see how they can work with the co-working spaces rather than invest money on CapEx and other stuff. But this is a wait-and-watch thing that we need to do. But all in all, office space requirements has not gone anywhere. It will remain, and it will continue to remain.

Okay. And sir, the Blackstone deal valuation, is that set in stone? Or is that somehow contingent upon the occupancy levels, which we will see the next...

No, there's no variable. Even if it goes up, we don't get the benefit. If it goes down, we don't lose anything. But I think there's enough on the table for Blackstone also for them to see that this deal goes through. Either way -- see one thing is, this just started off. I think we are doing pretty well on that. And I believe there's neither reduction nor is there an increase in the listing. It's a fixed price at what we have done, and I don't see any doubts on this.

Okay. That's helpful. And sir, one other clarification. In your presentation, if I see the upcoming projects, if I compare this quarter's number versus what there was last quarter, the volume has gone up by only 0.6 million square feet from 19.5 to 20.1, but the value has gone up a lot. So -- and hence, the realization -- implied realization is up from 5,600 to 8,000. So I'm trying to understand whether there is a revaluation of the entire stock? Or have we added some very, very high realization projects? What is happening there?

You're talking about residential?

No, the residential...

You're talking about the 29 million of TDA?

No, no, residential.

No, no, sir. The upcoming projects, sir, residential.

Upcoming projects, residential, right?

Yes.

Because there are 2 buckets. One is upcoming projects, residential, we have added a new project, Jeejamata Nagar in Mumbai. Of course, the value is high. So therefore, the numbers are more.

No, sir, but the overall value has gone up from INR 10,800 crores last quarter to INR 16,000 crores, estimated sale value.

Right, if you see, the new projects that we have added, Jeejamata Nagar is a large project, which is 2.49 million square feet, Prestige share overall 5 million square feet. See, from earlier quarter to now, there are 2 projects, which is Prestige Tranquil and Prestige Windsor Park, which were under planning products, have moved to under construction now. And one new project, Jeejamata Nagar got added, which, of course, comparable full basis, a high-value number.

[Operator Instructions] The next question is from the line of Girish Choudhary from Spark Capital Advisors.

Firstly, great presales momentum. So credit to the team. My question is on the collections and the booking value. So as discussed earlier, the collections for the year have been very strong at INR 3,300 crores, which is tracking in line with the booking value of around INR 3,600 crores. So to understand this better, it will be great if you could give the breakup of the booking value between completed projects and the ongoing or the newly launched projects.

The booking value, I have percentages which I can tell you.

Yes, yes, sure. Yes, that will be...

Of the new sales, 30% have come from completed projects and around 40% have come from -- 39% to be precise from new launches. The balance has come from ongoing projects.

Sure. Sure. Second question is on the Hyderabad market, and we have also been reading reports, various reports that the market is really doing good. And this was reflected in your performance also, where you had posted close to INR 400 crores from the new project launch. So 2 things on this. One is, how much you have sold from the launch which you have done, the Prestige Tranquil, which is 2.24 million square feet? And the second related question is that if you could provide the inventory apart from this market -- apart from this project in the Hyderabad market?

Yes. See, right now, Prestige Tranquil we have launched, and I think we've almost done 40% to 50% sale, and the balance also will go on. We do have one more project, which is under completion, which is Prestige High Fields, which should get completed fully in all respects with one last block, which we have not opened for sale, which we'll open now. That's again the inventory. Apart from that, we are also -- another new project is under approval, which is a similar size of Prestige Tranquil, which should get approved in the month of March, and we could come to the market in either end March or April. And apart from that, we are definitely pursuing various options in that market. We have tied up something in Banjara Hills. We signed the MOU, the JVA is under progress. That's going to be very prime, very good location. We'll have a great demand. Even the planning process is on, so we could get back in the first or second quarter of next year. So there's a lot of work that is happening, and there's enough balance of stock that will keep coming. So inventory, they will not get died off. And there'll be a steady inventory. We do not want to overtrade. At the same time, we want to see that there's enough supply and flow of stock that comes in to take advantage of the situation on ground.

Sure, sir. Lastly, if you can just give update on the 2 Mumbai projects, the Worli and the Mahalaxmi in terms of the launch time lines? And also what is left to be done for it to launch?

Yes. Yes. See now both are commercial office projects. More or less, everything is in place. In fact, Turf View, that is, we call it the Liberty Towers, that's Mahalaxmi. Those are, even we have done groundbreaking, and L&T has been awarded the contract for doing the rehab. And it will be one of the finest office towers built in Mumbai. So also BKC, there, again, we have cleaned up, the land fully, and we are ready to break ground and start work even there. So I think in the first quarter of next year, both these projects will be moving very well, and we have to set time lines for completion. And we are also in the process of tying up the financing and funding also. More or less, these 2 projects are going to take off, and both these 2 projects put together will be 6 million square feet. And there will be a Phase 2 also, which will come in BKC.

Yes. I was also referring to the residential projects in Mumbai, the Jasdan Classic and...

Residential, we've got Byculla, that is Prestige Jasdan Classic. We have not launched it. We've got all the approvals. In fact, L&T has been again awarded the contract. The signing is almost done. L&T has already got on to the site. What we are trying to do there is, just get a bit out of the ground since the new player in Mumbai residential market, we wanted the confidence of the buyers there. So I said, let the buildings start showing up. And at that time, we plan to register for RERA and start marketing. We've not even done any test marketing. It's just 0.5 million square feet or less than 0.5 million square feet. Ultimately, I think once we have the correct momentum, we should be able to sell it off. I don't see any reason why it shouldn't happen. But then even that, I think we'll target maybe the first quarter of next year to sell it.

[Operator Instructions] The next question is from the line of Abhinav Sinha from Jefferies.

Sir, congrats on great sales numbers that you have. Sir, couple of questions there. So one, was there any commercial component this quarter or likely to be soon, any sort of commercial monetization? So that's one. And secondly, on the same slide where you put up the inventories, I think Slide #12, the premium inventory is now completely exhausted. So any thoughts on if you're going to replenish this soon?

Yes. As far as commercial project monetization on unlocking the value, as I explained earlier, there are 4 completed projects and 4 under construction projects, which are part of Blackstone deal. So therefore, there is a monetization that is happening anyway. And if you are talking about specifically, if there is strata sale projects have been done, no new launches in the last quarter. So once the private equity transaction is complete, automatically the monetization will happen, the office projects. And sorry, what was your second question, Abhinav?

The premium and luxury inventory now seems to be exhausted.

Yes, overall, if you look at premium and luxury, inventory is coming down. So there is no plan to launch any new projects in that just now. Whatever we are launching are mostly mid-income and affordable housing projects.

[Operator Instructions] The next question is from the line of Biplab Debbarma from Antique Stockbroking.

I have 2 questions. First question is on the completed projects that you have sold. 30% of the new sales is from completed projects. So just what would be the median ticket size of those projects? And was there any increase in prices during the third quarter, especially in the completed inventory? And was there any relaxed payment structures in those sales? Yes, this was my first question, sir.

Was there any relaxed payment structure?

No, no, the thing is, it's a dynamic thing. I can't just answer it off just like that off hand. There'll always be a pick and choose depending on which location, which product, what type of segment we are catering to. But we -- obviously, we have to have an eye also on the bottom line. So we periodically slowly correct the prices upwards. Whatever prices we quote to customers is only the base price, and there is always a plus-plus on the floor rise, on the location of the apartment and also extra for car park and other stuff. So ultimately, it's a mix and match of many things. And there will be certain times also certain products if we want to see that the momentum picks up, give some sort of a relaxation on payment, but that doesn't come for free. That gets added up to the overall value. So ultimately, the company doesn't lose, but only thing is the customer is able to get a good property at a -- and buy a house, and at the same time, it's a win-win for both.

To add to what Chairman sir said is our marketing event KEYS helped definitely. And second is because a lot of people are staying at home right now and there is a desire to buy ready-to-move in completed inventory because so that they can immediately take possession and start living there.

Okay. Sir, my second question is on BKC projects. So last quarter presentation, it was 2.16 million square feet, now BKC and BKC II. And that is also BKC project, it has increased from 2.16 to 3.44. And there is a new BKC II, that is 3.36. So overall, some, say, 6.8 million square feet. Sir, has the area increased on the same location? And -- or you have acquired new projects in the BKC?

It's the same project. Only thing is the FSI, the Maharashtra government keeps changing the FSI. And another thing is the cost of FSI, the cost of premiums to be paid, all that is to the account of the landowner. And initially, probably we would have taken a lower number. And then since it was available to us as per the amendment to the rules, we have planned for the higher FSI. But all the costs of getting the approval and the premiums to be paid is only landowner's account.

So now, sir, in simple language, in whatever spaces we launched, simple language, it is 2.16 million square feet has increased to 6.8 million square feet in the same location?

No, no, no. So there is a BKC I and BKC II, there are 2 projects, okay? So one is Phase 1 and other is abutting property. Now If you look at overall area, yes, 3.44 is one and 3.36 is the other.

3.44 is the new project. It's additional FSI.

[Operator Instructions] The next question is from the line of Sameer Baisiwala from Morgan Stanley.

Sir, for these Bombay projects, Jeejamata, BKC, do you have to see any upfront payment? Or is it just a part of revenue or the share?

No. So as far as the BKC goes, Sameer, we have bought stake from [ Island ] asset and Trinity and [indiscernible], these are the 2 private equity guys who had 50% stake in the project. And we bought the stake, therefore, we become the owners of BKC. Now what we need to incur from our point of view for the project is the construction cost for this development. Other than that, there are no upfront payments to be made as far as the BKC I project is concerned. As far as BKC II project is concerned, it's still in the process of getting some approvals, cleaning up and all of that. We will have some outflows, but that is over the period of next 12 months, maybe to the extent of INR 200 crores to INR 250 crores, BKC II is concerned. As far as the BKC I is concerned, it's only construction, finance cost that we need to incur. And secondly, Jeejamata Nagar since you have mentioned, Jeejamata Nagar is a very large project, and it will take some time for us to clean up and to get everything in order. So overall over a period of next 18 to 24 months, there could be outflow of INR 200 crores to INR 250 crores on this project. This is only the construction cost, what I mentioned.

Okay. This is very helpful. And Jeejamata is a [ slum ] we have chosen?

Sorry? Yes.

Yes. Okay. And at what stage is it right now? How much has been cleared?

Where?

In Jeejamata.

BKC I fully cleared, and we are just waiting for the approvals to come. It's all cleaned up, it's diagonally opposite to NSC. So you can also see the site. The road is also widened. Once as soon as we get the approval, we'll start the work. That will be hopefully next quarter itself. Now BKC II, the process has begun. Yes, it is 20%, 25% done, and the remaining will be done over a period of next 2 quarters. That's how we are sequencing also. Jeejamata Nagar, we have just not started yet.

All right, sir. Okay. But you have -- 70% consent and everything is in place, is it?

Yes, yes, yes. All those norms will be met. The process will begin, and then we'll get going.

Okay. Got it. Sir, second question is on Bangalore market. Your assessment of how things stand in terms of inventory and demand, that will be great.

How do things stand with respect to demand and inventory?