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

Ladies and gentlemen, good day, and welcome to the Prestige Estates Project Limited Q2 FY '24 Investor Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that the conference is being recorded. I now hand the conference over to Mr. Samar Sarda. Thank you, and over to you, sir.

Thanks, Akshay, and welcome, everybody. As always, we have the senior management from Prestige Estates Projects. Mr. Irfan Razack, the Chairman and Managing Director; Mr. Venkat Narayana, the CEO; and Amit Mor, CFO. Before I hand over the call to the management for the initial comments, let me congratulate the entire team of Prestige for a good H1 FY '24 and achieving more than INR 111 billion of presales. With this good note, over to the management for their initial comments.

Venkat will give the opening remarks.

Good afternoon, everyone. Thank you for joining the post-results conference call of Prestige Estates. Thanks for attending. Quickly let me take you through the operational highlights for the quarter. We had one of the best quarters this fiscal Q2. The overall sales for the quarter were over INR 7,000 crores. Collections are at INR 2,600 crores, and we sold 6.84 million square foot of area, up by 50%. Overall, we sold 3,659 units, that's almost 40 units a day, and with the highest average realization per square foot of INR 10,369 a square foot. With this, our H1 sales are at little over INR 11,000 crores -- INR 11,077 crores. If you look at overall FY '23, we have done INR 13,000 crores. So in the half of -- first half of the year, we've come closer to what did in the full year last year. Collections are at [ 5,364 ]. We sold close to 10.5 million square foot of area and 5,935 units average realizations again over INR 10,000 per square foot. We had launched during this fiscal, mainly all -- almost all everything that we have launched in the residential projects. H1 saw 16.1 million square foot of launches overall. Majority of them are being in Q2, which is Park Grove, Prestige Serenity Shores and 2 projects in Hyderabad. In the beginning of this fiscal, we had launched the Prestige Lavender Fields. I would like to place on record that all the projects that we have launched have received exceptional response. And therefore, helping us to clock the numbers. In terms of completion, in the first half of this year, we have completed 8.11 million square foot of area, residentially is 7 million and commercial projects are around 1.2 million. In terms of financial performance, overall, for the first half of the year, we have clocked total revenue of INR 5,222 crores. As you know, the revenue recognition is on a completed basis. This is directly linked to what projects get completed in next quarter. And also if there is any completed inventory that gets sold during the quarter. EBITDA of 2,424 with a PAT of 1,227. We did have some exceptional items during this quarter that contributed to the income by virtue of consolidating our stake in the Prestige BKC and Prestige Turf -- the project at Worli, the Prestige Turf what we call it. There are some gains in terms of accounting. Therefore, that is treated as an exceptional item for the quarter. Moving ahead, we have a robust pipeline of launches -- couple of projects in Bombay in terms of Prestige Ocean Towers at Marine Lines and Prestige Nautilus at Worli. We have Prestige Pallava Gardens at Chennai coming up for launch. We are launching one of the biggest projects in Hyderabad in the form of Prestige City, Hyderabad, tomorrow. And we also have other development plans in Hyderabad in the form of Kings County. So we've got robust pipeline for launches for the rest half of this year as well. And we look forward to continued response from the customers. Overall, if you look at it in terms of construction spend in addition to the operational financial highlights that we have mentioned, we spent on construction INR 1,726 crores this quarter. Overall, first half of the year, we have spent INR 3,500 crores of money on construction, in that INR 2,400 crores is for residential and the remaining is split between commercial, retail and hospitality projects. During the quarter, we also had a high amount of spend on land acquisitions close to INR 847 crores overall. In that major acquisition is the land that we had bid and acquired in Hyderabad, at Budvel INR 600 crores and some other payments that we have made for the land in Goa and one in Delhi and Prestige Falcon City, the next phase of the development. With this brief, we would like to open the forum for questions and answers.

[Operator Instructions] The first question is from the line of Puneet Gulati from HSBC.

Congratulations on great presales here. My first question is with respect to the residential debt, which is INR 5,000 crores odd. Can you comment upon what does this debt really relate to? And then how do you see the trajectory of this debt, given that you're recording such startling sales and collections as well? How should one see this moving in a year down the line?

The point that you mentioned is valid, debt that has gone up. But with the kind of opportunities that are available and the traction that we have for our launches, we need to increase our portfolio of upcoming projects as well as the -- securing the land bank. It does take 6 months to 1 year to get ready this land and make them into projects and get ready for the launches. Therefore, a substantial amount of investments have been made into the acquisitions. If you look at our upcoming residential portfolio, it is almost around 63 million square foot spread across 24 projects. Points here to note is that size and scale of each project also has gone up significantly. Across 5, 6 projects, we made a lot of investments. And once we launch, we'll be able to get back that money, and we'll be able to churn that capital in acquiring land for the next phase of launches. What is important is because we are moving from operating at INR 5,000 crores of presales to INR 15,000 crores of presale number, the land bank that we need to have has significantly gone up. So this is a transition phase. Therefore, you would see a lot of deployment in terms of capital towards land and also slight increase in the cost of debt because most of the borrowing that has been made is made for the acquisitions. Between Prestige Nautilus in Mumbai, Prestige Ocean Towers in Mumbai and Prestige City in Hyderabad, Prestige recently acquired Budvel and Raintree boulevard and Kings County. These 6, 7 projects would have deployed close to INR 4,200-odd crores of capital. And I'm happy to share that except for the Budvel, almost all the projects are in different stages of approval. As and when we launch, we'll be able to get back this capital, either repay debt with that money or use that for recycling and doing more acquisitions.

Okay. Understood. That's very clear, sir. How much of this [ INR 7,000 crores ] is towards land and how much would be just working capital stuck in various stages of projects?

No. As I told only towards these 6 projects is around INR 4,250-odd crores.

Land or working capital?

Land. Only land.

Okay. [indiscernible] is piling up. Understood. And do you see a trajectory for it to go down? Or you think since you're on a massive growth spree, it might go up along with your presales number?

Two aspects to note. One is, we need to constantly have a land bank. Once we launched this project, we'll back money. If you are able to get the same traction, ideally, we should deploy it towards further acquisitions so that we can maintain the momentum of sales currently that we have. Second is we also have got a little over INR 20,000 crores of unrecognized revenue. As and when these projects get complete and come for revenue recognition, debt equity anyway would fall because these are the projects under construction and not yet come for revenue recognition, whereas debt is absolute number.

Understood. Very clear. Secondly, if you can also share the number for debt, which is outside the balance sheet? What should that number be?

So we are close to INR 2,200 crores in JV majorly comprising in Lakeshore Drive close to INR 400 crores; Bamboo INR 1,350 crores; Tech Park IV INR 250 crores; and Thomsun INR 300 crores.

Thomsun is a mall in -- Forum Thomsun, which we just inaugurated last quarter, and now it's running. That's one of the important milestones for the last quarter. We had a JV partner there. So therefore, it's not coming for consolidation. Likewise, the Prestige Tech Park IV and the Prestige Lakeshore Drive, in both the projects, we have a Blackstone as a partner. In these 2 projects, put together, there is an INR 650-odd crores of debt, again doesn't come for consolidation. Likewise, the AeroCity, the hotel that we are building, which is large, we have a JV partner, and whatever the debt that we have INR 1,000-plus crores is not coming for consolidation, overall around INR 2,300 crores.

And that's your share or the total JV share?

It's the total....

Our share would be half of it INR 1,150 crores.

That's very clear. And just lastly, if I may, any progress you can talk about on your potential launch in Noida or any other new markets that you're now exploring?

Primarily, the market that we are looking at now which we're not present in terms of residential projects, although we're doing hotel and office is NCR region. As you know, we had signed JV in Noida Sector 150 and we have designed the project. We have marketing office ready for Prestige Bougainvillea Gardens. And because there are some issues with the allotment process to the erstwhile developer, the sanctions are getting delayed. So it's a 2.2 million square foot of projects. Now that there is a committee that is being set up to look into and clear the approval, we are hoping that we should be able to launch that in Q4 of this year. And in addition to that, in Gurgaon, we have seen a couple of land parcels that are in a diligent stage. We have right now confidentiality clauses, so therefore, not in a position to give much of details. By the time next quarter conference call comes, we'll definitely have 2, 3 more projects in pipeline between Delhi and Gurgaon.

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

Congrats on a very strong first half. First is on Bangalore while probably in first half, we would have already clocked INR 8,000 crores to INR 9,000 crores of presales, what is going to be the strategy in second half because most of the launches that you highlighted are in rest of -- I mean, non-Bangalore markets and considering we have already reached the scale there, would we constrained ourselves in terms of launching any major projects in Bangalore for second half and focus on non-Bangalore markets? And probably launch more projects in FY '25? Or how is the strategy there?

Now we have several projects in all the cities that we are operating in, including Bangalore, which are now getting ready for launch. Yes, your observation that Bangalore has given the maximum in the first half. This is, of course, we are Bangalore-centric, so obviously, we will be very strong in Bangalore. Having said that, now, just tomorrow, we have a huge launch in Hyderabad, which is a 10 million square feet project, which is called the Prestige City Hyderabad which again the traction has been good. We just got the RERA. I think we'll be opening that for sale from tomorrow onwards. So the results will be seen in the -- in this current quarter. Similarly, we've got like Venkat already mentioned in his opening remarks, we've got the Ocean Tower in Mumbai. That also is [Technical Difficulty] waiting for the RERA number. Hopefully, we should get that in the next week or so. And also, we have got a big approval pending in Chennai. Apart from that, we have Goa and like you also talked about NCR, yes, there's 1 stillborn project in NCR, where we are hoping the approvals will come. And in Bangalore, of course, there are several projects that are there. including there is a big development, which, of course, that will happen in the last quarter of the year, which is the Raintree Park. So there's plenty of things happening. And yes, I can't launch a huge project like how we did in Bangalore, the Park Grove every quarter. There will be some impact. We have done all our math and we are very confident to see that we reach that 20,000 mark which we guided. And that will come from different cities, different sources, and I don't see any anxiety in that. Of course, we will not -- I don't think -- I don't know, let's see. We did INR 7,000 crores in this quarter whether we equal that or we fall short of it is there. But overall, INR 9,000 crores in the next 2 quarters is what we have planned for which will [Foreign Language] happen.

Sure. Got it, clear. And larger projects like Southern Star, Raintree Park -- Raintree Park you already mentioned and Falcon City Phase II would be next year launch, right, I mean the...

That will happen in the last quarter, but the Southern Star and other things will definitely happen in the following year, it won't happen this year. Also the Falcon City Phase II. These are all under planning and approval, which will take its own time. But we are pretty confident that whatever we have in the other cities, the other cities definitely will chip in and give us the necessary numbers.

Got it. Got it. And just wanted to understand your strategy about Park Grove considering we launched that whole project altogether. Given a very strong demand and pricing environment, why not choose to launch it phase by phase and get that pricing traction as well. So what was your thoughts behind that?

See, we've got required pricing. Of course, we have some inventory still in Park Grove. Having said that, I believe when there is momentum and there is interest and there is demand, we should definitely try and see that we cash in on that demand. And now we've also awarded the contract to L&T, the entire contract is finalized for the civil work. And they are also going to build it in one single phase. It's how -- it's an outlook. It depends. Like we did Prestige City in Sarjapur, we thought that we are building it over 10, 12 years. But when things happening are good, we said, why not do the whole thing and just this morning I was there, we are going to complete that almost at the same time, about 7,000 flats. So then that gives the team that much courage. The customer gets the courage that, yes, Prestige launched this and now are delivering it in time or maybe before time. And we move on because that also frees up the space for us to do more. I mean, again, if you try to phase the entire process, that entire site becomes a construction site all the time, every time. There will be labor movement, logistics, there's a lot of human interaction that goes on, customer dissatisfaction. This way, you can show the whole picture and complete it and then -- it's a hindsight. I mean we believe in just taking up things, control it and move on. Like even in Mumbai, we're doing a Prestige City in Mulund. We are doing the entire Bellanza all at one time and Siesta we did the topping up last week in Mumbai, we had a topping up ceremony, the entire 55 floors has been completed. It's now only finishing. Now there's one more component in the Prestige City Mulund, which is the Forest Hills, which will be launched either in the first -- last quarter or the first quarter next year.

Very interesting to hear on that. Just lastly...

An outlook. There is no sense in -- there's a holding cost, there's an interest cost and the market can change. So when the things are happening, why not do it?

Absolutely, I agree. Just last question on collections. So the efficiency or collections to sales ratio has dropped down to 50%. Obviously, it's understandable given the sudden scale up. But in the second half, what's your outlook on collections? This INR 5,500-odd crores can go up to INR 12,000 cores, INR 13,000 crores in second -- I mean, overall, for full year, it can go to INR 12,000 crores, INR 13,000 crores or it would be...?

It easily should go to around INR 12,000 crores. And last year, we did INR 10,000 crores. And this year, it should easily go up to INR 12,000 crores. It's again, a form of a function of sales, getting the agreements done. And I'm happy to say that Park Grove, we launched, we sold but they had an agreement mela. In just 3 days' time, my people were able to issue 1,000 agreements. So that's the type of scale-up we have. There's no lack of sort of focus on this. And customers came very happy, got the agreement signed, handed over. So we preempt all this, so there is a sort of a huge traction on this. It is just not the booking, it has to go to the next step and to the next step.

[Operator Instructions] The next question is from the line of Kushagra from Old Bridge Asset Management.

And congrats on the solid numbers. Just a few questions. One, on your debt side. So if I remember on your Investor Day, you sort of mentioned that residential cash flows will take care of significant part of commercial CapEx; to some extent, yes. But it looks like that a lot of cash is getting deployed back for going higher in the residential because you're setting new benchmarks every year, right? So to fund that INR 3,000 crores every year for commercial CapEx, you need or you have to rely on external debt. I'm Just trying to get a sense on -- like do you think there will be higher debt intake versus what you thought initially because your residential business is growing very well and investments are required in that? And do you still sort of stick to that INR 11,500 crores of net debt as peak levels? Or you will see some upside to that level over the medium term?

We'll maintain that. For residential business, we really do not require debt. It's only a temporary phase where we'll have to -- there's an opportunity to buy some land. We have to buy the land and then churn that into a project, and we've been doing that successfully at top speed like Venkat really said that the only project that we have not churned so far, which will take at least 6 to 8 months is the Budvel land, which we bought recently, which is INR 600 crores. But the rest of it there is a churn, the money is -- there's a huge amount of cash that has gone in, which will come back. Where I need debt is only for my CapEx, which is office, retail as well as hospitality. And I still say this time and again that residential business, you have no need or necessity to have debt. Unless, of course, again, you are using that cash flow for buying something else. But there have to be some hard stop. And I believe that we've actually scaled ourselves quite big. And of course, there's a lot of money that has gone into Mumbai also, which at some point of time will be churned back.

Sure. No, what I meant was residential, I totally understand you don't need debt. But there is a INR 15,000 crores of investments which you will need in commercial...

It's very muted.

Is this better?

Yes, please go ahead.

So basically, what I was trying to understand is residential does not need debt that I totally understand. What I meant was because your residential need investments to sort of maintain the benchmarks, the commercial CapEx, which is to the tune of INR 15,000 crores spread out over 4 or 5 years, that may need some amount of debt. So what you -- I mean, you initially guided that residential will take care of commercial CapEx also. But now do you think the debt intake will be much higher versus what you anticipated. That was my question, actually.

No, I think residential surpluses will definitely take care partly for the commercial and the others. We have to fund that. I mean there has to be a mix of equity and debt even for that. So I don't see any problem there. In fact, we're getting a lot of positive cash flows from all sides. And with type of launches that are happening and the success that is coming in the launches, we have to be cash positive, not cash negative.

Got it. Sure. That's helpful. The second question is some questions on your project. So -- if you can give some color how much of Mulund out of the total launch you have sold or yet to be sold now and similar numbers for Jasdan and Daffodils as well?

Yes. I mean, see, Mulund is like 75% to 80% sold what we've launched. And Jasdan is just 1 single project, everything we've launched. Of course, some floors we still have to get the CC; some floors, wooden tiles. But then out of a total number of units, we've actually sold more than 50%.

And last is just on your clarification on your Bangalore project launches. So you said because you had a very heavy first half in Bangalore, the launches may not be as steep in second half. But just wanted to understand in the presentation, you have mentioned FY '24 against all the upcoming Bangalore projects. I'm just trying to get a sense what exactly do you mean by that. And majority of the launches for that 26 million square feet is going to happen when?

Yes. Now the upcoming Glenbrook, in fact, I just got the RERA number today. Then we have County Dale which is almost approved, then we've got the other one that will come in FY '24 is Raintree Park, Pine Forest, Somerville and these will definitely come and Camden. These -- and Kings County and the Sunset Park, all will come in FY '24. What will not come in FY '24 is Southern Star, Park Ridge, Falcon City Phase II and the Green Moor. This will come in FY '25. So that's why they have given a total of projects that are upcoming. But out of this half of them will come in FY '24 and the other half will come in FY '25. Like if you look at the Southern Star, it's a fairly large project, it's 7.77 million square feet, and it's ready but they have written '24, but actually, it should go to '25.

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

My first question is on -- as an organization, how we have scaled up in terms of like manpower or technology. Considering like a few years back, we were clocking probably 1/3 of what we are clocking today on an annualized basis in terms of presales, so I just wanted to understand how we have aligned our business and in terms of managing this scale?

No, it's a dynamic thing. It will keep changing. 100% as and when there is a need, we keep scaling up on manpower and everything else. And I believe that it's only everything will fall in place. There shouldn't be any problem. We have enough people. We have people who have been here with the company for quite a long time. And we also do get new competencies. So it's a good mix and younger and older mix also helps.

Sure. A related question on that would be like say, if you look at -- including us, there are least 3 other guys who are clocking like more than INR 14,000 crores, INR 15,000 crores of presales on an annual basis. So industry as a whole has also scaled up. So do you see any challenges on the execution side? Predominantly on the contractual side, not enough contractual bandwidth to manage the scale. How do you see that?

No, no, that's an excellent question. Obviously, when we sell something, we also need somebody to produce it, build it for us. Fortunately, we've got some good relationships with some big contractors -- contracting companies and they are more than happy to do work for us. So it's like a lot of things are -- it's like a partnership that happens with the contracting company and that is helping us to do things more confidently. We've got 2 or 3 plus, we also do have an in-house contracting firm also, which churns around INR 500 crores worth of products every year. But then that is not enough, but that's why we've got the external agency, which also helps us.

So no issue there in terms of like bandwidth or...

As of today, there is no issue on the bandwidth, and if required, we will also look at many others. As of today, we are -- whatever we've sort of narrowed down on 2, 3 big partnerships where we do this and then we're just moving from project to project.

Sure. Sure. My second question was on Slide 12, right, you've given out the segment-wise financials. Your EBITDA margin for resi is still at about 20%. How should we look at this number going ahead, especially over the next 3 to 5 years, considering the sales that we are clocking today?

Yes. I mean the thing is we are preselling and then building later. So that we have to protect the margins, and we have to make sure things are done correctly. Venkat also wants to add something. He's trying to tell something.

It also depends upon what projects came for revenue recognition. This time majority of the revenue recognition has happened from one of our old projects in Cochin called Hillside Gateway, was then came for revenue recognition which had a lesser margin. Therefore, you see lesser margins. Now the healthy mix of Mumbai and good margins in Bangalore, I think it will be reasonable to expect between 25% to 30% of EBITDA margin.

Sure, sure. And lastly, on our BKC project 101-2, what's the status there in terms of approvals and start of construction?

I think the approvals are there, they've been paying the premiums and already we finished the excavation and the L&T is the contractor, they've already started pouring concrete. The first floor happened last week. Of course, you know what's happening in Mumbai, NCR, there's been a lot of issues on pollution and everything else. So we are trying to be very compliant and make sure that everything falls in place. And we don't be -- we'll not be in any problem of noncompliance. We also have to be sensitive towards the environment.

And just wanted to get your thoughts on the -- when would we start to -- or rather like start leasing these projects, both the BKC projects as well as the Worli project.

Leasing generally happens only when the property gets sort of ready or almost ready. There is interest shown in both BKC as well as Turf from certain occupiers. But if I try to lease something today, obviously, I'll get a much sort of a slightly discounted rent. But once the product is ready, the rent will be that much more higher. So we are not in any anxiety. I believe the type of product that we are trying to produce in both Mahalakshmi as well as in BKC, there should be no dearth of occupiers. Yes, it will give a huge boost to the confidence that in case there's some large occupier that comes in. But I think the team is working even on that. But I don't see any anxiety on that aspect of it.

As there are no further questions. I would now like to hand the conference over to management for closing comments.

Thank you for your very, very active participation and insightful questions. It's been a good quarter for us. Hopefully [Foreign Language], we will do many more better quarters as we go along. And we wish the entire -- all the participants, a very, very happy Diwali and a peaceful festival and may this festival bring you peace and harmony in all your lives. Thank you so much.

Thank you, everyone. Thanks for your time, and wishing all of you a very happy Diwali. God bless all. Thank you.

Thank you. On behalf of Axis Capital Limited that concludes this conference. Thank you for joining us, and you may now disconnect your lines.