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

Ladies and gentlemen, good day, and welcome to the Prestige Estates Projects Limited Q4 FY '21 Investors 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. Samar Sarda from Axis Capital Limited. Thank you, and over to you, sir.

Yes. Thank you, Ayesha. Good afternoon, everybody. From the management of Prestige Estates Projects, we have Mr. Irfan Razack, Chairman and Managing Director; Mr. Venkat Narayana, Chief Executive Officer; Mr. Sarma; Mr. Amit Mor; and [ Dilip ]. Over to you, Mr. Razack, for the initial comments. Thank you.

Thank you so much. Thank you so much, everyone, for joining in the call. Yes, it's one more quarter gone by. You all would have seen financials, the results that have been posted and everything else. The only gratifying part was that compared to the previous quarter, even the March quarter also, the sales figures were very robust, very good, which I was always talking about in spite of the COVID signs coming up. And fortunately, we could see that quarter 2 and we had some good traction. And that helped us to clock in some good sales. Yet this current quarter, April to June, we have been in lockdown. And I think this whole quarter is a lockdown quarter. We'll see what happens at the end of June and see what -- how to evaluate things. But I am quite positive that there is demand and demand will continue. It's only a question of how we adapt and adopt and continue with life. But there is a pent up demand still. As far as the various assets that we are working with, whether it's office or retail or hospitality, each one has its own pain point. Office is currently still paying us rent and we got almost 97%, 98% collection. And people who have signed up all the inventories are continuing to pay rent. Whereas in retail, the same pain point after lockdown, again, there will be the issue of not trading and hence, rental abatement and rental discounting, all are held. And hospitality is still in a lockdown mode, but it will all rebound, it will rebound in a big way. But looking at our results, you would have noticed also that the Blackstone deal first Phase is fructified, the second Phase still to fructify. Debt levels have come down drastically, and they'll come down further with the conclusion of the second Phase. And then, of course, we are continuing to build more. We are continuing to build different assets, newer assets. There will be requirement of capital. And then as and when the requirement comes, we'll have to do a mixture of debt and equity as we go along. But the entire scenario is pretty good. And one more thing that you will all notice if you analyze, there is a lot of consolidation that has been going on. The stronger are getting stronger. And of course, those who are the players are now trying to find people who can -- who they can sort of collaborate with and work with to get their projects done. It's the way and I think that's the way it's going to be in the next few years. And I believe this is a huge opportunity for players who have been doing things professionally. And we will have to see how things pan out. Again, the disclaimer is, like I kept saying even the previous 2 quarters, depends on how things pan out, how health situation is. And hopefully, now with vaccination, with most of the population having the opportunity to get vaccinated by August or September, I think everybody should have their second dose, and things should get back on track. Until then, we have to be careful, we have to be measured and we have to take care. And the first thing is take care of the -- our health, our people's health, the staff's health, their families, and then rest the of it just will follow. We have to do a mix and match of both. And we at Prestige have been doing that. We also held a vaccination drive to see all our employees, not 99%, but 100%, whoever are eligible or vaccinated, who are kept safe. And I think that's the way that's going to be as we go along. With these opening remarks, I hand over to Venkat, and we'll be more than happy for question and answer.

Good afternoon. Thank you, sir. Good afternoon, everyone. Thank you for joining the post results Conference Call of Prestige Estates. We hope you're all safe, your families are safe and healthy. I know these have been testing times. Let me give you a quick recap of our performance during the Q4 and FY '21. And later on, we will have open forum for the Q&A. So during the Q4, we had in terms of operations, INR 1,850 crores of new sales, up 53% year-on-year. We sold 2.76 million square feet of area. And collections were highest during the quarter at INR 1,767 crore, up by 32% year-on-year. We launched 2 projects, one is a commercial project, other is a residential product development, overall 4.74 million square foot during the quarter. Year as a whole if you look at in terms of operations, there is this -- recorded highest sales ever in our operations, our existence at INR 5,460 crores in spite of the challenging times as all of you are aware, the economy has been going through the uncertainty. INR 5,460 crores of overall sales have come at area of 8.16 million square foot at INR 6,700 a square foot of average selling price. Collections were pretty much in line with the sales at INR 5,075 crores. And we had, overall for a year as a whole, launches of 11.85 million square feet launches across various cities. That is Bangalore, Goa, Hyderabad and Chennai. Major projects that have contributed for sales are new launches that is Tranquil in Hyderabad, Waterford in Bangalore and the ongoing projects, and mostly the completed projects. Of INR 5,460 crores of new sales, INR 2,521 crores of sales have come from completed inventory and INR 1,659 crores have come from recent launches. And the remaining INR 1,279 crores have come from ongoing projects. That is the sales mix and contribution. Moving on to the financial results. For the quarter, we had significant revenue of INR 2,360 crores with EBITDA of INR 642 crores and PAT of INR 1,350 crores. This PAT also includes the PAT from the Blackstone transaction that we concluded. The profit attributable to that PAT is INR 1,175 crores. Year as a whole if we look at, overall revenue is INR 7,501 crores, EBITDA of INR 2,209 crores and PAT of INR 1,552 crores. PAT is at 20.69%, EBITDA is at around 30%. As Chairman said in the opening remarks with the transaction, as we've been saying, are final. Our overall net debt has fallen from around INR 8,464 crores to INR 1,314 crores, down by 84%. Our debt equity is at 0.19. And the other few aspects that we want to highlight is change in the key management positions. Mr. V.V.B.S. Sarma, who has been associated with the company and group companies in various forms, he's been with the organization for over 29 years. He has been CFO of the company for the last 4 years. He retires from the position. And effective 8 June, Mr. Amit Mor will be Chief Financial Officer of the company. He has over 16 years of experience. He's been with Prestige Group for around 7 years. With this brief, we'd like to open the forum for question and answer. And there are a few other aspects which we'll cover while answering the question and answer in terms of the projects that account for revenue recognition. And also the next launch pipeline that we have across various cities, I think we'll cover it while answering questions now. Thank you.

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

Yes. My first question, sir, on this Phase 1 of the transaction, the Blackstone being completed. Just a few clarifications. In our presentation, we have said in our property management, we'll still have INR 520 crores of revenue per annum. So this is after the deal? Or in Phase 2, this will go out to Blackstone? Just wanted some clarification on that.

Property management remains with us. Yes. The entity remains with us. The assets, once we complete the Phase 2 as well, the maintenance of assets, Blackstone can take an independent call. They may engage us to manage the property or they may engage somebody else to manage the property.

Just to add, it's only the assets which have been sold to Blackstone. They have an option to manage it themselves or to engage us. But the rest of the property management business, which has a fairly large top line, that still continues to remain with us. And the bottom line as well as the top line remains with the company. There's no change to that effect.

Okay. So just to clarify, if Blackstone want to do it on their own, they would have to purchase the business from you in that regard, right? Is that understanding correct?

They needn't purchase the business from me. They can also engage some third-party maintenance agency. That is only for those 2 assets which they bought. Those 2 assets is the office assets that you are referring to. Anyway, mall management, that since they've taken over almost all the malls, except one, and the last one also will go as we hold only 15% of that equity. Mall management which doesn't come into property management, that's a separate entity. That they have taken over and that all revenues and management will go with them, it will rest with them. And then they have their own teams to take care of it. They will even taken over my teams also.

Okay. Sir, and another follow-up on this is now we have said around INR 350 crores of exit rental income by March '22. So again, this does not assume any incremental assets becoming operational during the year. Is that correct?

That includes one asset in Hyderabad, which just got completed, that's getting leased. That is the Prestige Phoenix. And rent commencement which has not happened in one of our large properties, which has just started, there we have already leased. And the lease rent commencement dates are in July and August. And some portion of rent from Mysore Central, these 3.

Okay. Sir, okay. And sir, just the last follow-up on this. So then you could just share what is the total capital WIP in the office and rental assets? And what is our CapEx guidance for next year on that? That's it from my side. I'll come back in the queue later.

Sure. So overall, with respect to ongoing office and ongoing retail, what we have spent so far is INR 1,200 crores. And balance to spend is around INR 3,000 crores. That is over a period of next 3 to 4 years.

This is the office and retail combined, is that correct?

This is office and retail combined. And we have some JV partners in some of the office spaces. If you look at only Prestige share, we have to spend around INR 2,456 crores. That is the spend over a period 3 to 4 years. Yes.

Okay. Fine. And just a last question, if I can squeeze in. Sir, so since you've not published a segmental data, could you just share the revenue and EBITDA for the Hospitality segment for the year?

Yes. So we will share that separately. One of the reasons why we could not give -- lot of them also called separately and ask is now that we have monetized some of the assets in the capital employed, the assets are not there, okay? We have to remove the asset as of March. But whereas the income is there in the financials for 11 months. So when we do segment, without the capital employed, with the asset being there, the income if we take, the numbers will be skewed. You wouldn't be able to understand and those are not comparable numbers. Therefore, we have not given and will -- but will continue to give the next quarter onwards. As far as hospitality is concerned, what is that you want to know in the hospitality specifically?

Sir, on like-for-like basically, what would be the top line and EBITDA for the overall business you have done for the year? That's a broader number.

So hospitality has been most affected as Chairman was telling in the opening remarks. We had overall income of INR 102 crores and the depreciation of INR 146 crores. I'm giving you broad numbers. Depreciation of -- irrespective of whether we do business or not, the depreciation happens, so INR 146 crores. And we had PAT of negative INR ˆ crores, interest of INR 83 crores. So broad top number.

INR 90 crores is including interest.

Yes. Yes. PAT of INR 90 crores, negative.

INR 90 crores is including depreciation, including interest.

The next question is from the line of Parikshit Kandpal from HDFC Security.

Sir, congratulations on a good set of numbers. So my first question is on the Mumbai project launches and time lines. We have the Mulund Project, [indiscernible]. If you can just highlight the time lines for your residential and the commercial projects. That's my first question.

Parikshit, give me a moment. As far as the Mumbai projects are concerned, Prestige Jasdan Classic, that's the project at Byculla. So we should be able to launch during -- we got almost all approach in this, we will be able to launch during Q2 of this fiscal. As far as Prestige Cosmos is concerned, the later part later of Q2 or maximum by Q3 we'll be able to launch. BKC Phase 1, that is Prestige 101 and Prestige Liberty towers are concerned, following the designs, we have logged for the approval. As soon as we get the approval, we will be able to start those projects most likely by Q3. As far as the Jijamata Nagar project is concerned, I think that will be taken up only in the next fiscal year.

Okay. So just on the [indiscernible] that you highlighted for the Mulund Project in excess of 15,000, we see the market is currently at 12,000 starting realization in the market?

Yes. Yes, I agree with you. As far as this project is concerned, this is all inclusive pricing over a period of project life. It's also starting at where the market is, but this is all inclusive and over a period of project life, average.

But as a strategy, so how are you going to position this project because I think this is your first very big launch in Mumbai metro market, especially in Mulund, which seems to be little oversupplied market currently not ready and under construction inventory. How are you positioning this project? And what kind of salesman do you see in the field -- in the production field? Can you just give some lines on that, so that I can get a better sense on how successful this one is?

The positioning matters, that is, we need to have a product differentiation. Given our execution capability and scale, we'll be able to quickly because time lines matter. The kind of quality with which we deliver projects matter. We are taking all this into consideration and designing the project. Maybe in a month or 2, we'll be able to give you more details on this. We are -- we know all for -- the fact that it's a price-sensitive market and ticket price needs to be attractive. And the project also -- products also offering us different from what does it bring to that market. So considering all this, we design the project. Definitely, we believe that at the price point at which we are going to launch and given the efficiency that we're going to have in the project, it will definitely have traction.

Okay. So just one last question on the commercial piece in Mumbai, specifically Mumbai being a likely speculative market, we have seen developments and leases are more backended and even exceed the completion period. So if you can just highlight, have you entered into any specific talks or correction?

Parikshit. I couldn't hear you, Parikshit. Last one, commercial, you're saying something?

Yes. So on the commercial piece in Mumbai, just wanted your views typically on the -- currently the design space, so have you started talking to some of the tenants? Have you started initiating dialogues with them for some kind of tariff at these levels because typically what we have seen in Mumbai is that commercial market is literally speculative and the leasing happen more towards the completion, even actually beyond the completion time lines, yes we are seeing some of the A-grade offices. But then...

We hear what you are saying. But as I said, we are just freezing the design. Now to start talking to tenants, I think first we need to take off, we need to start the work, show some progress on ground. And that may be appropriate. And we have frozen the design to know what we are building this. One thing is if you look at the locations at which we are building, I think those are the key locations, those are the landmarks. Therefore, given the kind of products that we are designing and given the location, we believe that investment is attraction for that. Leasing bit I think will be started only after we begin the construction.

Maybe at least a couple of years away from that at some point? Or like in one year or so? So how do you see that?

Once we start the work, I think we'll have a frozen design, we would start engaging. But as far as BKC is concerned, there've been specifically inquiring.

The next question is from the line of Saurabh from JPMorgan.

Sir, 2 questions. Sir, one is between Q4 -- third quarter and fourth quarter, we have a INR 7,100 crore debt reduction, right? So -- and the Blackstone money would have been how much? INR 8,100 crores, right? So just reconcile the net debt between Q3 and Q4?

Let me open that for you. Just give me a moment, Saurabh. Q3 was INR 8,400 crore. And Q4 is INR 1,314 crore. So this entire mall portfolio, no debt. [indiscernible] to look at between 2 of them, we had around INR 3,300 crores worth of debt. That debt is not coming in. And we did repay some loans out of the proceeds. And we have cash balance just now.

So basically, so we have INR 7,100 crore debt reduction and the EV of the portfolio sold to Blackstone is what, INR 8,100 crores, right, in Phase 1?

Go to the next question, Saurabh. I'll just forward the details and give it to you.

Okay. The second is once the Phase 2 is completed, I mean, what should be your stable state debt? And the rent, obviously, you've given. But the balance sheet, that should be how much?

Phase 2 is then we should have a surplus of INR 1,000 crores.

But then you'll also invest in other assets. So I'm just wondering how much debt you would want to carry on -- I mean, once you're done with your investment. So it should be because you don't know...

No, no. You then have to ask me once Phase 2 is done, where will the debt be. There will not be any debt. Net debt would be negative of around INR 1,000 crore. Now if you ask me over a period of time, going ahead, how will the debt movement be. That is linked to the commercial projects that we are doing because we have commercial and retail projects that we are constructing. But having said that, I don't think even if we were to build and complete there, our debt equity ratio will move anywhere beyond 0.5 of net worth in the next 3 to 4 years.

So Venkat, that's the -- I mean, so your CapEx, you guided to about INR 2,500 crores over 3 years. So that's maybe call it INR 900 crores a year. Your -- I mean your free cash flow from this residential business itself will be -- if you're doing INR 5,000 crores sales, let's say, property management will be INR 600 crores, INR 700 crores. So the point is if ever -- I mean, that debt buildup doesn't tie up with what you are guiding to. So that's what I'm wondering at. Are you building more land...

Debt buildup will not tally.

So 0.7 -- 0.5 debt equity would mean INR 3,000 crores of debt roughly on INR 7,000 crores net worth. So I mean -- so given that you have negative net debt after the transaction, so I was just wondering -- because even if you do INR 900 crores of CapEx, your internal accruals on the residential side will be good enough to kind of support most of it.

This is a peak that I'm seeing. I'm just giving the guidance figure. It will never cross it. I'm not saying we necessarily need to borrow so much. So we have positive cash flows coming from development fee business.

Okay. Maybe I'll take this offline. Sir, the second one for Mr. Razack. Sir, I mean, if you look at your portfolio, you have a business that your -- I mean, where the cycle is positive, which is residential business. If you look at your EBITDA margins, you are lower than the peer growth. If you look at any of your Bangalore peer group or even some of the national ones. And this is where traction is positive. So won't you want divert capital away from commercial where the cycle is negative, where obviously, we are seeing what's happening, the vacancies and then kind of invest back in the resi piece and kind of make your margins catch up to the 25%, 30% mark, which most of your peers who tend to operate at? Or would you be happy operating at this 15%, 16% kind of level?

See, you can look at things in that way always. See, no today, if I did a deal with Blackstone, it's an effort that has been kind of the assets which have been created over the last 15 years. Similarly, we have to do a mix and match of both. While we are definitely focusing on our residential business, which is now slated for growth, like if you see my sales figure this year, it's INR 5,500 crores, which is the highest ever we've done in the company, this is likely to go up much, much more. While we are doing what we are doing, that's like a baseline. We also need to create assets. And we have to create meaningful, solid assets, which, in the long term, which will pay the company multifold in a period of, say, 5 to 10 years. Creating the assets will take 3 to 5 years. And then seeing that these assets mature will take another 2 to 3 years. So in the next 5 to 10 years, like Venkat has already done a chart for 2026, 5 years, we have said 28 -- INR 2,830 crores, that is INR 28,302 million is what is our projected rental. Now it's not that we are going to not have demand. I'm not sure, I'm super sure that the demand for office, for retail and also for hospitality will continue. Yes, we will do our mix and match. We'll do a hybrid. We'll get some PEs, we'll get some also equity into this. It's not that all the money is going to be debt or all the money is going to be equity. It's going be a mix and match. But since we have done this, we have experienced it, and I believe it should create good quality assets in great locations, you cannot go wrong. And now we are also concentrating mostly in the Tier 1 and in the large cities. So these cities in India are very, very relevant, whether it's a Mumbai, whether it's a Pune, whether it's a Hyderabad, Bangalore, of course, is the leader of the pack in office. So this will happen. Retail will happen. And there's nothing for us to feel fearful about. We just can't do one segment of the business, say, only residential because that's giving me more margins. Yes, it will give me margins. But then we see, if you have A plus B plus C, one will support the other. Now this is how we've grown the business, and I think that is going to be the strategy. We'll have to keep adjusting and amending ourselves as we go along, keeping whatever the headwinds that are there or the tailwinds that we face as we go along. But there has to be a vision, and the vision is very clear. And also the margins will serve to add to what Chairman said, it also depends upon which projects are coming for revenue recognition in every quarter. We do have margins as we move forward. Whatever we have launched just now, if you look, there are healthy EBITDA margins, I think we're definitely able to move towards the 25%, 30% margin. And that's another to add -- another thing what we have decided is, very clearly, we are not going to do business anymore for the sake of doing business. Only if it makes commercial sense, only if we feel that there is a good upside, only if the margins are being supported, we are looking at projects and we're then putting our hand in. Wherever there is not enough margin, wherever -- see, we've already created the brand. We do not want to again try to do the difficult way. We want to do it where there is money and where there is enough of margins and we want to take it to that level. And today, we are in that position, and we can be choosy.

So your target EBITDA margins, sir, on the residential part will be that 25% plus mark that Venkat alluded to?

Yes. Segment-wise, we have not given. But residential market margins are there because the rent has not come in. That has had impact. To answer your first question, Saurabh, with respect to net reduction and the Blackstone transaction value. Due to impact of Phase 1, debt reduction of INR 5,600 crores have taken place, and cash of INR 2,500 crores has come in.

So INR 8,100 crores has come in, right? And your debt reduction is only INR 7,100 crores. So INR 1,000 crores is the reconciliation is what I was looking at?

Yes, that is accounting related. So okay, let me tell you the commercial number, exact number. If you look at enterprise value of Phase 1 of the transaction, it's INR 7,470 crores. Equity value is INR 2,500 crores. Debt is around -- debt reduction is around INR 4,944 crores. This is exact. But there is accounting impact also.

Okay. I'll take this offline.

So if there is something that is coming in for consolidation, the moment JV partner comes in, it goes with JV accounting. So it won't come any longer for consolidation.

The next question is from the line of Biplab Debbarma from Antique Stockbroking.

Sir, my first question is on the BKC 1 and Turf View projects. Sir, the visible number seems to have changed. So is there any reason or the [indiscernible] is still little bit [indiscernible]? Is that the reason that our leasable numbers keep on changing? Just wanted to know what would be the BKC 1 and Turf View total leasable area and why does it keep on changing?

Whatever we have mentioned now given, are the leasable areas. We're in planning and designing stage. So therefore, we are looking at what effects it can be -- maybe with -- the difference probably is referring to Slide #25 in the last quarter, Slide #18, 2.34 million was total developable area. What we have mentioned now is a total leasable area. So that it will be easy for you to apply rent per square foot on this area. That's the difference.

And sir, in the BKC 1, what -- out of 3.6 million, this is BKC 1 and 2, what would be the BKC 1 that -- where you have a partnership with DB Realty? What would be the leasable area in that? 3.6 million you have given 2 projects together.

Yes. Phase 1 is around 1.8 million. The Phase 2 is also same, same as that. There are 2 phases.

And my second question is, sir, I know that you have a partner who is -- who'd borne the premium and would have -- will take the responsibility of getting better. But just trying to understand in terms of what kind of premium needs to be paid for this 1.8 million square feet in the BKC 1 and 1.8 million square feet for Turf View for each project? What kind of -- just trying to understand about the quantum of this premium to be paid by a partner?

Turf View is around INR 500-odd crores.

INR 500-odd crores each?

That is if they are paying by December.

Yes.

Each project?

Each project is INR 60 crores if paid by December. And around INR 500 crores if you don't take the advantage of this premium? Am I correct, sir?

Yes. INR 350 crores each for Turf View and BKC.

Okay, okay. And that's if you paid before December?

If they pay that before December.

The next question is from the line of Puneet from HSBC.

Yes. My first question is on the balance sheet front. When I look at the assets held for sale, that's about INR 1,458 crores, while the liabilities associated with assets held for sale is actually INR 2,676 crore. I couldn't read that. I thought incrementally, the value of assets should be higher because Phase 2 is expected to generate net cash for you?

No, no, there are 2 assets, Exora and Forum. Sorry. The 2 assets, that is, Exora and Forum Koramangala. Both have been moved to assets for sale. They are right now under demerger. That's the reason why numbers are removed.

Sorry, but this is asset for sale amounting to INR 1,458 crores, right?

Yes, yes.

But the liabilities associated is a higher number of INR 2,676 crores?

I couldn't hear you. Sorry.

The liability associated with these projects is INR 2,676 crores. So that's a higher number than the -- is it more book value thing or as we revalue the asset portfolio?

Yes, yes. So this liability side -- what Blackstone has failed -- these have failed. And the demerger, they need to move out. They have brought in money in the form of OCD. That's what is accounted as a liability. What is gone in the asset side is the assets went for sale. So once the demerger process is complete next quarter, if you look at that, the effect will be given.

Okay. My second question is, while your debt has now considerably come down, the borrowing cost is still 9.8%. Where do you see -- is it likely to go down post that?

No. So the borrowing cost for rental yielding assets was lower. That is what was bringing down the average cost of debt. Now our debt is primarily in the form of NCDs and project-related debt here and there, our construction finance for that matter. Therefore, you find it a little higher. I think there is a room to bring it down at least by 0.75% to 1%. We'll work towards that.

Okay. Understood. The third is in Jijamata Nagar there are now 2 parts. One is for sale component, and it is a residential and the office also. How much is for each?

So we've taken right now, see that, as I said, we have not got into drawing board yet to design this project. Right now, we have assumed that it will be 50-50.

Okay. And for Mulund and Jasdan Classic, what is the construction cost you expect?

Here we are phrasing the specification now as we speak. That's the reason why the cost numbers have not been given. The same slide will bring in the cost also by the next quarter. But if you want to know the range, maybe around INR 4,000 to INR 5,000 per square foot for Mulund and around INR 7,000 -- INR 6,000 to INR 7,000 per square foot for Jasdan.

The next question is from the line of Abhinav Sinha from Jefferies.

Sir Venkat, can you please guide us a bit on next year's sales and launches?

No, we did very well without giving guidance so far. We thought that's working for us. We'll follow the same trend. Having said that, there's a lot of uncertainty in the market. So therefore, we don't know which city is going to open up when and how the sentiments are going to be. So we said, we'll stay away from giving guidance. Having said that, we have over 15 million square feet of launches that are coming up as we speak. And all of them are in the various stages of approval. We have Smart City, the largest project in Bangalore that's coming up for launch. We have Highline in Chennai. We have Bougainvillea Gardens in Noida. We have Jasdan Classic in Mumbai. We've got a few other projects in Bangalore. So we will look at launching around 12 million to 15 million square foot of projects, we believe. And if you can get the same kind of response that we have got in this fiscal for the new launches, we do have little bit of completed inventory. Combination, looking at crossing this year numbers. And we touched INR 6,000 crores of presales. It is more because we're adding 2 new markets. That's Mumbai launches and [ Chennai ] launches. That's the outlook that we would like to share. Maybe once things settle down and there is a certainty to everything, we'll see whether we can give some way forward guidance next quarter.

Sir, can you also comment on, say, how the demand has been in the second half of the year in terms of segments? And are you sort of raising the mixture of higher ticket housing, which seems to be doing better?

We don't want to get too excited. Actually, what will be relevant in our context with the earning capacity of our people, it will always be the basic income housing that will be evergreen, which will not give us scale. Maybe give us a little lesser margins. But then again, as we say, we are picking up projects where we're able to maximize our margins. You know that the construction cost is also going up since the input costs like steel and cement are up. We are working on it to see that how we can sort of, optimize our costs, see that our selling price are reasonably good for the company, at the same time, very attractive to the customer. The mid-income will always do well. The larger houses, it's a blip. Now whoever wanted to buy larger houses, are buying, have bought. But it's not going to be a permanent. So we need to have a proper product mix. And without getting very excited, I believe 10% to 15% would come from the larger houses. But the maximum sales would come from the mass housing and mid-income housing. While we protect our margins, we can get our volumes also. So it has to be a balancing act. Can't be only that, only this, it has to be a mix and match of several things.

Okay. And sir, finally, if you can tell me on your -- initially, you commented on the impact of second wave a bit. But just to get more granularity, where are we in terms of, say, the labor count now? How soon do you see the city site offices opening up for sales, et cetera?

That's actually a very relevant question. The good news is even during lockdown, government allowed us, especially across all cities, the government allowed us to continue with construction. They call that in situ site. But since most of our sites are now large, we could fortunately continue with our construction. That way, I do not think that any of our projects will get unduly delayed or delayed at all. So that's a positive. But we had about labor count between 70% to 80%. And as we go along, we believe that it will open. Now as far as the sales offices are concerned, we definitely tried the new technologies, virtual, walk through, virtual meetings. But then ultimately, when somebody is investing large sums of money, their life savings, they also like to have the touch and feel, see the product itself. Now in spite of everything, I think the whole of April and May and even now part of June, it is locked down, our sales teams have done well. But I can't hope to touch the numbers that I touched in December quarter and in the April -- March quarter. But it will be the same story. Like last year, April to June was a problem. Then we actually bounced back very quickly, very well. There will be a similar story that's going to happen. And actually, this year, April to June, I believe, will be far better than what we did in the first quarter last year. And the good part is we've got some very large projects lined up where the approvals have come. The locations are superb. And not only in -- apart from Bangalore, we've got Prestige City, we've got Mumbai, we've got Hyderabad, we've got Chennai. All these are all getting all lined up for launch. So there is going to be a lot of activity, lot of traction. And one thing is -- a positive thing is if a product, a good product, good location, at a good price is available from our brand, I think we can actually take advantage of the past good deed that we've done, the karma we've done, we are sure to get far, far better business this year. Venkat has been conservative. It's always good to be conservative and deliver more rather than being too optimistic and then deliver less, and that's the way to go.

The next question is from the line of [ Deepanshu Jain ] from [ HEM Securities ].

First of all, congrats for a good set of numbers. Just one question. Can you throw some light on the Phase 2 [indiscernible]?

Phase 2 of transaction is where we've got one retail asset and a few commercial assets. The total enterprise value of the Phase 2 is around INR 1,600 crores. It has got INR 600 crores of debt and INR 1,000-plus crores of equity value, which is underway. We'll try and complete it maybe in 1 month or 2. We would have probably by now brought it to a logical end, but unfortunately, given the lockdown and Mumbai being shut, after that Bangalore being shut, it is taking a little time. But we'll conclude the transaction in the given time.

In fact, though, our teams are working, we are also handicapped for want of the professionals coming into the job and doing it and government offices being locked up. So hopefully, we've set a deadline, we'll meet the deadline and see how we can finish it. I believe mid-July should be the date.

Next question is from the line of Prem Khurana from Anand Rathi.

Sir, 2 questions. So first was eventually, when I look at the balance sheet now after the Phase 1 of sale transaction with Blackstone, we're sitting on almost around INR 2,400 crores of cash, and there will be another around INR 2,000-odd crores. And after second transaction, you would be eventually a net cash company. So I understand, I mean, historically, you've been focused on JD because, I mean, you want to maintain some capital allocation -- I mean, you're focused on capital allocation. Now given the fact that we have this kind of cash available, would that make you change the way you approach portfolio augmentation or new land additions? Could there be a situation wherein you try to benefit out of the current distress situation and for the timing go a little slow on JDs and look at more lucrative outright transactions?

We will look at -- I mean, JD, JV, outright is more of what suits a particular transaction. Sometimes, it's also preference of the landowners who are bringing the land. So what is important is we have presence across various cities, and we continue doing business and offer the products which are relevant for those markets. Whether it should be a JD, JV or, as you are saying, there is distress in the market, we should buy outright, I think we will make use of all these options to grow the company to the next level. I mean, it's not that if it works only as JD, we will do the transaction. We will make use of cash to buy where it makes sense and to have partner wherever we think -- see, partnerships are sometimes also -- when you're entering new markets, when you are doing large projects, there is land issues, we would like to have a landowner along with us so that we mitigate our risk, not just being a cash light model. So the reason for doing joint development is that to have a landowner along with you so that all problems can be resolved, especially if you know some of them in the beginning or they're entering the new markets. So we look at all 3 options to grow.

Sure. And second was eventually on -- so when we spoke the last time, I think you've given us a guidance of almost INR 12,000-odd crores in way of CapEx by FY '26, and you wanted scale to almost around INR 3,000-odd crores piece rental potential by FY '26. So that plan still holds, right? I mean, the INR 2,400 crore piece of CapEx that you spoke about is only for the current set of projects, and you would keep on launching new projects, which is where CapEx number would keep on changing, right? And I mean, if that is the case, what could be the peak CapEx in any single year? I mean, after we've launched these BKC projects in Jijamata and some of these other projects that you are targeting?

All those are counted in INR 3,000 crores of overall rental income by 2026 and the CapEx number that you have quoted are also correct. In fact, we have done redesigning, it is -- our share comes to around INR 10,000 crores to get there. That will be bridged by making use of internal accruals, surplus that we have from developmental business. And so wherever is required we have to borrow, we will also borrow within that portfolio.

Sure. And what could be the peak CapEx? So for this year, I mean, we're looking at around INR 900 crores to INR 1,000 crores because there's INR 2,400 crores that we need to spend over the next 3 years. Once we start launching these new projects, what could be the peak CapEx in any single year?

No. If you're talking about -- by the time, these projects are ready by 2026, if you are looking at overall, we would be at maybe around 0.45 to 0.5 debt to equity.

Sure. And just one last from my end. I mean, in Turf View, we were supposed to make some payments. I mean, I think, INR 500 crores was the total amount that we were supposed to pay and we paid around INR 100-odd crores. So what is time line for the balance payment? And how about Jijamata? There, again, you were supposed to make some payments towards security deposit or refundable deposits. When are we likely going to make these payments? And how about Mulund? Are the payments made already there as well?

So let me look at first Turf View. Turf View, there are CPs that need to be complied with to be fulfilled by the landowner. He is doing those. Some of them have been fulfilled, some of them are underway. I think by end of Q2, we should be able to do all of that. So therefore, the payment will be due from our side to make on Turf account, maybe by Q3, okay? And next one that you asked, Jijamata Nagar. As I mentioned earlier while answering to a different question, this payment -- there are a lot of CPs that need to be fulfilled in that project as well. And outflows will start maybe by last quarter of this fiscal or maybe by next fiscal on Jijamata Nagar. As far as Mulund is concerned, this quarter is when we need to make a payment.

Sure. And the media report suggest we need to pay around INR 275 crores. Is that the number?

INR 370 crores.

The next question is from the line of Rishabh Parekh from Sunidhi Securities.

Congratulations on a great set of numbers. Just 2 questions from my side. One is, in the earlier call, you had mentioned that FY '22 exit rental run rate should be about INR 500 crores. And in the presentation, you've mentioned that FY '22 exit rental run rate from operating assets will be about INR 350 crores. So are we to understand there will be some new launches which will take us close to INR 500 crores? It won't be INR 500 crores now, obviously, because of the first quarter being under complete lockdown and no new launches, but just wanted to get your sense.

So what you said is right. Some of the project completions are being pushed to -- delayed by 3, 4 months and pushed to next fiscal. So projects like Prestige Tech Pacifica and Prestige [indiscernible], there is one more, Pacific Park IV that we are doing. These 2 are 1 million square foot each, will be ready in the next fiscal. Those centers will start coming and hitting our books in FY '23. So that's the difference.

Okay. Okay. Understood. My second question would be around -- you mentioned that you've redesigned your commercial CapEx strategy and you were expected to spend a Prestige's share of about INR 10,000 crores to reach INR 2,800 crores of revenue over the next 5 years, out of which 50% -- your peak debt to equity ratio will be INR 3,500 crores. So are we to understand that the balance INR 6,500 crores is the internal accruals that you are expecting from the residential piece over the next 5 to 6 years?

Right. It is partly correct. Also, you should consider that our net worth also will go up. So when I say at that point in time, right now, the net worth is INR 7,500 crores, by which time, probably it could be INR 9,000 crores.

Okay. So I think that will range between about INR 4,000 crores to INR 4,500 crores. Is that...

Yes, between INR 4,000 crores to INR 5,000 crores is what -- yes.

INR 4,000 crores to INR 5,000 crores. Okay. Okay. And the balance will be internal accruals which we get from our development business and some part of the rent that will also start coming?

Correct. Absolutely.

The next question is from the line of Girish Choudhary from Spark Capital Advisors.

Couple of questions. Firstly, on the pricing side. Were you able to take any price hikes across your inventory over the last 4 to 5 months, given the demand recovery and the sales which you posted? And incrementally, how do you see this? Because we are seeing inventory levels in the market declining as the new projects are lagging the pace of demand recovery. So do you sense any opportunity to take more price hikes in the future? And sir, your comments on this?

[Operator Instructions] We have the management reconnected. Sir, you can go ahead please.

I've had a question on the pricing on the real estate side. So were you able to take any price hikes over the last 5, 6 months, given the demand recovery we have seen. And incrementally, how do you see this? The reason is that we have seen the inventory levels in the market declining, launches lagging the demand, overall demand recovery. So how do you see the pricing scenario in the medium term?

No. See, there's no such thing as increasing the price for the sake of increasing the price. It's all a cost-plus business now and then plus the regular margins. So it -- and also how much a customer can take in the market situation. I think it's -- a steady northward growth is there because, honestly, all input costs have gone up. The only thing that probably -- even the land cost also has not been where it was. So automatically -- and then we see main thing is even the taxation, 18% is GST without input credit. Earlier, we used to get that. Even that's become cost. So the customer has to keep paying that little extra all the time. And we have to make sure that while we're doing what we are doing, we are also protecting our margins.

Okay. But any meaningful price hikes you took across your inventory in the recent past?

It's a gradual thing. See, it's not that I can...

Falcon City...

Falcon City, we've closed out. We have sold out Falcon City. Now things like we've got some inventory in properties like Prestige Golfshire. Obviously -- in fact, yesterday, even the auditors remarked, the cost in the books is pretty reasonable, but then the selling price has gone up. So there's a huge upside there. All that -- because of the method of accounting, the standards of accounting which have changed, I have to hand over possession of each unit. As and when I do that, I start getting -- booking that revenue. And there is a big margin sitting there. And that will get fructified as we go along. Even this COVID has helped us. Everybody has realized that they need fresh and good air, and most of the high net worth individuals are buying, and most of this project is almost getting sold out. Only question is, it's the handover process that needs to get done. Some people ask for some changes, some refurbishment if they're required to be done. All that takes a little time, but then it will hit the books very soon, and you'll see substantial, huge margin over there because the products like that can never be created. So this keeps going on. It's an ongoing thing. But I don't see prices just going up through the roof just like that for the sake of increasing the price.

Got it. Second question is that if I see your upcoming project list, you have a very large integrated township planned in Sarjapur, the Prestige Smart City, which is around 13 million square feet of development in one location. So just if you can give us details on where are we on this project in terms of the launches and also the product mix. And in the initial phase, how much is planned to launch?

Now see, I can't give the entire marketing strategy. Only thing that I can tell you is, the good news is that the plans are now fully approved. The stamp plans because of lockdowns haven't yet come to our hand, it should come to our hand in the next week or so. And with this, we can apply for RERA. Then the teams are working on different strategies, how to monetize. That will be a huge number-mover, but then we'll have to do a planned launch. So we'll have to see how we can monetize as we go along. And testing the response, we'll decide how to do it like we did Prestige Lakeside Habitat, 3,500 homes, 272 villas. All -- everything is sold, 3,500 out of 3,500 apartments are sold in the similar area. All sold out. As we went along, we kept on increasing prices and the company got fairly decent margins. Similarly, even out of 271 villas, we have now just got 7 or 8 residual villas to be sold. So that's the type of confidence that we have. Like Venkat mentioned, Falcon City, even that is also fully sold, except for some 7 or 8 units. So we have that confidence. We are sure that when we launch it, there will be demand, there will be a good thing. Only time will tell. But strategy-wise, I don't want to spell out everything, but we are working on it. There is a definitely positive strategy to launch these projects.

To add to what Chairman mentioned about the increase in the prices, there will always be difference in the launch price and the project when it is completed -- nearing completion. Falcon City, if you look at, we launched at INR 5,500. Now we are selling at INR 8,000. There is inherent that increase in the pricing as and when the project is nearing completion. So if you're referring to that price increase, it's always there in every project. I'm answering to earlier question.

Okay. Just on the Sarjapur follow-up, but will it be fair to assume that this will be launched sometime in FY '22?

Yes, yes, it will be launched in next quarter.

The next question is from the line of Kunal Lakhan from CLSA.

Mr. Razack, you mentioned that April to June quarter will be far better than last year's same quarter. And considering the unlocking may happen a lot faster this year due to the vaccination and also like contribution from new -- high-value markets such as Mumbai starting to come through from this year. So is it fair to assume that sales could be significantly higher than INR 5,500 crores that we clocked in last year? Another part of the question is basically, moving beyond FY '22, do you see -- what kind of sales target we have for the next 3 to 5 years, considering the resurgence in the residential cycle, new launches and new markets that we plan to enter? Similar to the target that you have given for your rental portfolio, what kind of targets do you have for your sales for the next 3 to 5 years?

Directionally, if you look at -- given the fact that we are adding new markets to our business and also launching projects in various markets that we are already present, you should look at a trend of INR 8,000 crores to INR 10,000 crores of presales.

Over a period of?

Next 3 years. That's the direction in which we want to head. You're asking me trend, right, Kunal?

Correct. Correct.

If you look at presales, from INR 5,500 crores, we want to break this number with the new markets being added to the business, around INR 8,000 crores to INR 10,000 crores of presales.

Sure. Sure. And for FY '22, it will be significantly higher than INR 5,500 crores?

It should be.

The next question is from the line of Atul Tiwari from Citigroup.

Yes, sir. Sir, for your Mumbai project, these high ones, so apart from bearing the construction cost, there is no other expense to your account, right? I mean no -- and whatever you will pay to your partner. So all the approval, FAR is on the partner's account, right?

Yes. Yes. I think we've clarified this earlier also. Yes.

That is with respect to Prestige 101 BKC and that is with respect to Prestige Liberty Towers, that is, Turf View. As far as the residential projects are concerned, it will be different.

Okay. So there, you will obviously be getting. So...

Like, for example, Mulund project, we will bear fully because that's our project. Likewise Jasdan Classic.

Okay. And for these 2 projects, the 101 BKC and Liberty Towers, how much you have paid to your partners as of now? And how much needs to be paid subject to all cities doing that?

INR 325 crores for the BKC and INR 500 crores for Turf is what we have agreed to pay. In BKC, INR 325 crores is a nonrefundable deposit. In Turf, INR 500 crores is a refundable deposit. Out of these 2, we have already paid close to INR 450-odd crores.

Thank you. Last question. I would now like to hand the conference over to the management for closing comments.

Thank you, once again, to all for a very, very active and participative question, very insightful questions. I'm glad that you would have got a fair idea of what we are doing at the company. I think not only the top management, the entire team is always working hard to see they create value for their shareholders and for the company. And that will be the trend going forward as we go along also. And it's been a very interesting conversation. Venkat, your closing remarks, please.

Thank you, everyone. Thanks for taking time out to be on our conference call. Please feel free to write to us if you need any further information, clarifications, et cetera. Thank you for your support. In spite of these challenging times and uncertainties, we continue to grow. As Chairman said, the teams are focused and committed. We look to expand to the new market. We have projects lined up there. And next 3 years is going to be crucial for us with the capital unlocking that we have done with monetizing rental portfolio. We've been -- people have been concerned about rising debt levels, and now those have fallen to insignificant numbers. We'll be conscious of how to grow this company without adding debt. And we look forward to your continued support. Thank you very much. Please take care and be safe.