Puravankara Limited (PURVA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day. And welcome to the Puravankara Limited Q1 FY '21 Earnings Conference Call. This call will be represented by Mr. Ashish Puravankara, Managing Director; Mr. Kuldip Chawlla, Chief Financial Officer; Mr. Vishnu Moorthi, Senior Vice President of Risk and Control; Mr. Abhishek Kapoor, Chief Operating Officer; and Mr. Neeraj Gautam, Vice President, Finance. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kuldip Chawlla. Thank you, and over to you, sir.

Thank you, operator. A very good evening and a warm welcome to all of you. My name is Kuldip Chawlla, the Chief Financial Officer of Puravankara Limited. We hope you and your family are safe and well during this pandemic. Thank you so much for taking time to be with us on this call. The investor presentation and the financial results for the quarter ended June 30, 2020 have been uploaded on the stock exchange, and we hope that you had a chance to at least glance through them. I will start with a short update on the business and how we've been navigating these unprecedented times. Following that, my colleagues and I would be delighted to answer any questions that any of you may have. The last several months have been remarkable. And that has led us to adapt and become much more agile in how we carry on our business. The economy has faced unprecedented challenges. The real estate sector has also had its share of challenges, coming on top of a long slowdown, especially in the residential segment. The country has only recently opened following the nationwide lockdown. Given the slow pace of reopening, coupled with the threat of a second wave of infections, we expect the near term to remain a little bit uncertain. However, on a medium-term basis, we believe that there are several positives for the sector. We are seeing one of the best affordability levels in the last decade, a combination of low mortgage rates and higher affordable and value-for-money project launches along with good prices. The current EMI to gross income ratio is down to around 30% from a peak of 50%. Affordability for NRI homebuyers is even better. All this, combined with other factors, will help revive housing demand cycle once the impact of COVID recedes on the economy. In addition, the accelerating tailwind of consolidation augurs well for organized, well-established and branded players such as Puravankara and Provident. Of the total launches in the year ended March '20, approximately 60% were from the top 25-odd developers in each region. The balance 40 coming -- percent coming from approximately 1,000 developers. Residential demand in the Tier 1 cities over the last couple of years seems to have been around 300,000 units despite multiple setbacks and regulatory disruptions. Coming to the quarter, we focused our efforts on business continuity and adopting newer and improved ways to do business. Our digital transformation efforts continue, and we feel it is important to adapt more than ever before. We see digital catalysts such as supporting work from home or taking cost out driving these initiatives. Our digital platforms, such as BookMyHome, have seen an excellent engagement, and we've already had 3 launches through this platform. While decision-making cycles have lengthened, the conversion rates have been much higher. One of the biggest dynamic changes is how customers are also getting more conversant using digital technologies to buy what was traditionally a very physical experience. We've had to virtually create the experience to engage with our customers, and we are very pleased on how our teams have adapted to these new approaches, but also to how customers are engaging with us. We also launched -- or relaunched our website in the quarter ended June 30 with a new interface and a lot of features and customizations and expect that to add to our digital efforts going forward. One of the new launches during this period was a plotted development under the Provident brand, Provident Woodfield. This is probably the first online launch of any project in India. Provident Housing is poised to redefine the way plots are identified, developed, sold and sustained. These plots for sale near Electronic city promise large wide boulevards with beautifully manicured landscape gardens, a plethora of amenities, a luxurious clubhouse, community infrastructure and underground concealed services planned to seamless perfection. We recognized customers want more flexibility and space, especially in the light of COVID-19, and we are pleased to report the project has seen an excellent response. Looking at project points -- projects -- plotted projects from a business point of view, we have many advantages such as quicker monetization of land, faster sales compared to apartments, better cash flow generation and a faster turnaround on investments. We already have 2 more such projects, and we'll continue to look at such opportunities. We also started sales into Puravankara projects, Purva Atmosphere in Bangalore and Purva Aspire in Pune, both of which were well received by the market. With Purva Atmosphere, we started a new World Home series, which will be ultra luxury series under the brand Puravankara. Coming to the operational performance. Q1 was relatively good when compared to the impact of the lockdown, with 536 units being sold as compared to 588 units being sold in Q4. The booking value for these 536 units in Q1 was INR 398 crores, an improvement of 5% against the sequential March quarter. Collections lagged, but are likely to pick up going forward, along with both sales and customers, sales increase and customer inflows. We continue to focus on selling our ready-to-move inventory. Ready-to-move inventory sales in Q1 FY '21 were INR 136 crores as against INR 147 crores in Q4 FY '20. We are on track to reduce our existing ready-to-move inventory to 0 over the next 12 to 15 months. We believe this bodes well for the company. Coming to the financial performance. The consolidated revenues for the quarter were INR 190.53 crores and were adversely impacted due to COVID as both customers and the authorities, both either deferred registration or were unable to complete the transaction. EBITDA was reported at INR 67.04 crores. Loss after tax was INR 16.75 crores. These losses, as we mentioned before, were due to a significant delay in registration of units across all our projects, alongside the marketing and other prelaunch expenses for the launches that were done during the period and going forward. That said, the gross operating surplus was INR 36.4 crores for the quarter. We've continued to maintain good liquidity during this period. Debt was at similar levels compared to March 2020. Our net debt-to-equity has been generally trending down or remained steady, and we will see this continuing going forward. Our net debt-to-equity stands at a similar level of 1.33 compared to March of 2020, but is lower than the 1.42x seen a year ago. We have a very prudent capital allocation strategy in place with a clear objective to release capital from existing land holdings, plotted developments and judicious investments and launches going forward. On the new launches, we had announced plans to develop almost -- to launch almost a dozen projects this year, and we are continuing with that trajectory. This would be spread across 4, 5 projects in Bangalore, 2 or 3 each in Mumbai and Pune and 1 each in Chennai and Cochin, both of which are Provident. Finally, we would like to touch upon some of the policy measures announced by the government. The housing sector is one of the most important sectors in the economy. And its importance has been further strengthened and realized with everyone wanting the comfort and safety of their own home during this pandemic. The government has announced certain measures such as extension of registration and completion date by -- under RERA by 6 months, the use of force majeure clause, special liquidity support for housing finance companies and NBFCs and support to the affordable housing segment and even the recent reduction of stamp duty by a couple of states, all of which should help spur demand as we return to more normal times. We remain confident that with our established brands, the continued trust of our customers as well as our quality, our execution capabilities, our digital and widespread geographic footprint and our launch pipeline will allow us to bounce back to normal in the next couple of quarters and emerge from this situation as a much stronger and formidable organization. With this, I'd like to hand you back to the operator.

[Operator Instructions] First question is from the line of [ Ankit Thakur ] from SKS Capital Research.

Good evening, everyone. Sir, I just wanted to ask, you talked about the affordability and the EMI to gross income ratio going down. But on the demand side, how has it been? Has it picked up? Or do you see any demand -- I mean, we are launching new things, but is there demand for the same?

So let me answer that question, and then maybe Abhishek and/or Ashish can also add in. I think, as they say, the proof of the pudding is in the eating, [ Ankit ]. During this period, we did 3 new launches across 2 cities in both our brands. Provident Woodfield sold more than 60%, 65% of the entire project. Both Aspire and Atmosphere sold 55% to 60% of what we had launched. The realizations that we received in these micro markets for all 3 projects were ahead of other developers in the region and were, in fact, in the case of Bangalore, where we have a comparable Grade A developer, we're in excess of that. So I think at the end of the day, the fact that we were able -- and 2 of these 3 projects were Puravankara projects. So the point being that the launches, a, without any physical thing completely digital, were successful; b, that we've seen very interesting responses to the manner in which both our teams are operating on a completely digital platform, and customers are engaging with us on that platform. Going forward, we expect a similar response to the launches for the rest of the year across the markets that we've identified and laid out both -- across both our brands.

So you -- so basically, I think there has been a -- you are seeing good demand or demand coming back to, let's say, normalcy or at least picking up. But on the sales side, is it all digital or -- and how our digital strategy works here?

So this is Abhishek. Hi, Ankit. So basically, what we did was, as Kuldip mentioned, we launched online booking platform called BookMyHome. And that has enabled us to do all 3 projects as e-launch. And we took the -- we've obviously been investing in the digital platform of ours for last 4 years and that had given us that leverage and advantage in the marketplace to take it to the market very quickly. What we have seen and, again, to just reiterate and give you a number, which is there, if you look at the number of March '20 and you look at June '20 number, we had sold 6.8 lakh square foot, we have sold 6.9 lakh square foot. If you look at the number of units sold, we had sold in March '20, 588; in June '20, 536. In terms of value, if you see, the sales value is INR 398 crores, and it was INR 380 crores in March '20. So what you see is that, clearly, there is a traction. Customers were happy to engage with us on digital platforms. There were -- of course, after the lockdown, it opened up, customers did visit the site. That is definitely there. And that site visit has only improved. So if we look at the whole process leading up to now, with this whole unlocking, the site visits are only increasing. But the way we had conducted ourselves and the information that was available online, we had some very, very interesting and innovative tools and methods of selling, which has been very, very exciting, honestly. When you are in constraints, innovation really matters and that, I think, the customers have recognized that, and that -- this is the result of that recognition.

I'll just add 2 or 3 quick comments to what Abhishek just said. The whole -- the journey has been how do you engage with all the stakeholders, whether it's our own people, whether it's customers, whether decision-makers, channel partners, influencers, so on and so forth and transform or replace what is essentially a physical experience to a digital experience. So whether it is transparency of information, access to information, the use of technology to inform, engage, demonstrate, convince, follow-up and use data analytics, artificial intelligence, so on and so forth, you can do a much more targeted marketing pitch and engagement that is not intrusive and does everything.

Right. But sir, just to understand it more, you said you are using different tools. So is it that during the lockdown, if I want to buy a house, do I go on your website and do I get to see a video? And is it because of that video or is it the trust of the consumers on the Puravankara brand that is there, that also kind of helps it?

I think it's a mix of both. You're right over there. The fact that Puravankara as a brand is clearly something which customers believe and have tremendous amount of faith in, and that's one reason why they engage. But the second reason, obviously, is what you said, we have virtual tours to interfaces with the RM, the information the way -- the whole experiences, the digital experiences in terms of the way we share the information and the way people endorse that information right from other customers to experts on the amenities that we have designed and the project, the way it is designed, so there are multiple marketing initiatives that enable that customer to really get the first-hand experience without really going to the site. And the fact that he can actually do it at the convenience of his house, then he doesn't have to travel all the way, I think it just adds to the whole perspective that it becomes far more efficient and easier way of booking, so -- and getting information. So both -- the answer is both.

But do you see this trend continuing post COVID as well?

Yes, absolutely. I think this digital transformation, I think, has given a completely new experience to the customers. So a lot of customers have realized that they can get a lot of information sitting at home from their convenience. And then later on, yes, there is site visits, and there is improvement in -- tremendous amount of improvement. In fact, in last couple of months, especially since they have opened up even the weekends, there's tremendous improvement on site visits. So having said that, customers do like a lot of this information on the digital platform. And thereafter, a lot of them do want to visit, a lot of NRI customers don't ever visit. And I think that this whole process has enabled them to take a lot of decisions without even visiting the site. And I think they have definitely grown to like it.

[Operator Instructions] Next question is from [ Saloni Bindra ] from [ Akash Consultancy ].

I just had a question. If you could just help me with the absolute value of the completed inventory as on the end of quarter? I think you mentioned it, but I missed it. If you could just repeat it?

The absolute value of completed inventory as of 30th of June would be in the region of approximately -- value of unsold is like 1 million square feet. It will be around 600 -- [Foreign Language] value, value -- [ $1.03 million ], yes -- around INR 600 crores, INR 600 crores as of 31st -- 30th of June 2020.

Okay. And sir, how much does Chennai and Bengaluru contribute to it?

Chennai will have a meaningful impact in that because Chennai will be approximately -- I'll just give you the exact number. Chennai should be around 1/3 of this or maybe slightly more.

No, no, no. It won't be.

Yes, yes, it will be about, easily, 0.13...

Hello? Hello?

Yes. About 35% to 40% will be in Chennai. Bangalore will have much less. But I want to give you a bit of information. Chennai, actually, across our projects, the sales have been outstanding, including during this pandemic. And actually, Chennai sales have grown at a very healthy pace over the last 3 years. The only thing that we faced a problem in Chennai with is on the registrations and, therefore, on revenue recognition because of the lockdown restrictions during this period until June, July.

Understood, sir. Sir, also if you're seeing any signs of revival due to ease in lockdown restrictions and the festive season coming, do you see like -- do you see it bringing buyers back gradually?

Sorry, do we see it bringing back?

Buyers back?

The buyers back, yes, gradually because of ease in lockdown restrictions as well as the festive season is coming up, so are you seeing any upside from that or any signs of revival in the coming months?

Yes, absolutely. So what we are seeing, there is an increased trend of leads, which has gone up, increasing trend of site visits, which has gone up and increasing interest in buying. So we are clearly seeing, as far as we are concerned in the marketplace, customers are back. And in fact, the interest rate -- the reduction of interest rate has also enabled that decision-making because they realize that they have -- this is a great time to take that buying decision. The COVID period has also -- also we have had a few insights wherein customers want to have their own homes. Their desire to have their own homes has gone up and, therefore, they are definitely looking at buying. And -- so on an overall basis, the answer is yes. But of course, I'm sure that they are evaluating the developer and investigating before they're taking that decision. But we have said, we have seen a lot of revival in terms of customer site visits and interest and the leads we are getting from the market. And in this market, in this situation, if there is a customer who is visiting the site or who's taking the decision to spend time with us is definitely a serious buyer. So in our mind, there is definitely an improving sentiment.

Next question is from [ Harshavardhan ] from KBS Investment Managers.

This is regarding one of the questions like regarding digital initiatives you were talking before with the previous participant, I need to understand some -- same point regarding cost implication. Would that be leading to cost savings going forward?

Yes, definitely. So in fact, our sales and marketing and distribution costs have come down because of these digital initiatives and people have really, really preferred that media for getting information and consumption of information. So yes, the cost has come down.

So any quantitative data you can give how much cost savings, any marginal cost savings that would be for coming financial years?

At current point in time, I can share with you that our cost of marketing has definitely come down by over 30%.

And sir, in the similar line, there has been a significant reduction in other expenses this quarter. So is this regarding because of marketing spend reduction only or any other expenses that had been paid?

So we have taken multiple initiatives during this period to conserve cash flows and reduce overheads. And yes, it has resulted into multiple savings because it gave us an opportunity and time to relook at our entire strategy and costs. And the answer is yes. And that's long term.

It is permanent in nature, right?

Yes. These are long term savings.

And what -- any other expenses that have been reduced other than -- what kind of expenses that have been reduced other than marketing? Can you name a few so that it can be attributable towards that?

There have been a reduction in multiple fixed overheads from the business point of view, right from salaries to rentals to -- so multiple travel. Travel has come down significantly. Most of our meetings are happening online. So a lot of savings, which are pretty much permanent in nature.

Let me put it this way, we've looked at the productivity of expense of every head.

Okay, sir.

Across the board, you will see rationalization and productivity of month spend.

And just what would be your monthly fixed cost in terms of expenses?

Sorry, say that again?

Monthly fixed cost? Hello?

The monthly fixed cost you're asking should be in the region of about INR 10 crores to INR 11 crores a month.

Okay sir. And sir, another question, this was regarding like there are multiple reports that -- because if that construction activity is going to remain slow for going forward also. So what kind of expectation do you have regarding the construction activity? What capacity are you working on? And is there any wage increment that you have given to the laborers or anything of that step that you have taken?

So when we -- initially, when the lockdown had happened, obviously, we have taken a lot of initiatives to take care of all the labor on the camp, on the sites, labor camps, whether it was hygiene, food because work had come to a halt and all of that. And all our contractors and laborers have appreciated the effort that the organization had put behind supporting them during that process. After the lockdown opened, in the first phase, we had a lot of reverse migration, which I think they wanted to go back home, meet their families, et cetera, et cetera. That process had brought down our manpower significantly, but we are seeing a resumption of the labor coming back to the site. And that has improved, I would say, almost 3x from the bottom. So we are now up almost 60% -- over 60% impact and every day improving. So we believe that in this month, we will get to about 70% of our labor strength. So definitely, there's improvement. But obviously, there is a lag between this improvement and actual milestones and then things to come back to normalcy. So we are on our way. But there is still some time to go, but we are definitely on our way back, both in terms of the labor strength and the milestones.

Okay, sir. That will be very good, sir. And just one more thing, sir. How is the Q2 looking for you, sir? How has been inquiries? And how has been the sales and orders look currently in the Q2 sort of out? Just maybe a little bit of guidance or outlook you can give for Q2 and financial year '21.

Yes. We -- I think we can take that off-line. We do not offer forward-looking kind of forecasts or projected numbers for the subsequent quarter or years. So what I definitely can tell you is that the number of inquiries are increasing. We're seeing good traction on -- across the board, both on ready inventory, on sustenance sales and on recently launched projects.

Next question is from Tirath Muchhala.

Sir, I wanted to ask you about the commercial business that we are trying to develop. One is that, has the pandemic changed your plan or opinion on how to develop these commercial assets? And the second was on the cost of debt that the company is incurring, does it make sense? Or are these projects commercially viable for you guys to raise booking at the same time?

Sorry.

Hello? Hello?

Sir, go ahead, you are audible.

Yes. Sorry, we lost you. Could you repeat your question again, Tirath?

Right. The second part of my question was the kind of cost of debt that we do incur, do these commercial assets -- are they still viable at this kind of cost?

I'm I audible?