Puravankara Limited (PURVA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Puravankara Limited Q2 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kuldeep Chawla, Chief Financial Officer from Puravankara Limited. Thank you, and over to you, sir.

Thank you, ma'am. A very good evening, and a very warm welcome to all of you. May I also take the opportunity to wish all of you and your families a very happy and prosperous Diwali. My name is Kuldeep Chawla. I'm the Chief Financial Officer of Puravankara Limited. We hope you and your family are safe and well during this pandemic. Thank you for taking the time and joining us on the Q2 FY '21 earnings call for the quarter and the half year ended September 30, 2020. The presentation and financial results for the quarter and the half year ended September 30, 2020, have been uploaded on the stock exchange. I will start with a short update on the business and how we have been navigating the current scenario and give you some idea of our view of the outlook for the coming quarters. Following that, my colleagues and I would be delighted to answer any questions that you may have. COVID-19 has had a major impact on economies and businesses at large, with the majority of the impact during the first quarter of the fiscal year. Since the government has ended the lockdown, economic activities have started to recover and businesses were turning towards normalcy. Q2 FY '21 has seen us increase our sales momentum beyond what we saw during the launches of projects in both brands during the lockdown. Strong sustenance sales across both brands as well as in our ready-to-move inventory helped convert demand into sales, which recorded a level of 0.85 -- 0.84 million square feet or 12% higher than Q2 FY '20. This growth is aided by early investments in technology and more streamlined systems and processes. Sustenance sales, on the other hand, jumped 71% in volume terms across ongoing projects in both brands despite some concerns from various participants in the market that new project developments are going to take longer to sell due to the COVID pandemic. Furthermore, several homebuyers have been wanting larger homes, better amenities and projects that are well designed. This is helping both our brands. In addition, our gated plotted project launched earlier in Q1 also continued to see strong sales as customers appreciated the premium offering and the need for extra space. Being well positioned to capitalize on the sale of ready-to-move inventory, we have steadily reduced our inventory by over 51% in the last 1 year to move our ready-to-move inventory to below 1 million square feet or 0.82 million square feet at the end of September. We are targeting a near 0 inventory over the next 9 odd months. All this is giving us the confidence to roll out new launches. Nine new projects, 5 premium ones under Puravankara and 4 affordable housing under the Provident brand, are planned to be launched over the next couple of quarters. On a half yearly basis, we've surpassed last year's performance with sales of 1.53 million square feet during H1 FY '21 as against 1.51 million square feet in H1 FY '20. Our sales bookings aggregated almost INR 900 crores in this half year, about the same level as last year. And we're excited about this since it came on the back of a weak Q1 and no new launches in the current quarter ended September 20. In our view, therefore, the tide has turned, clearly indicating the return of buying activity. On the execution side, the workforce has returned in good numbers. And with adequate materials and other resources, activity has also resumed across our cycles. Combined with the proactive people measures, we are well positioned to accelerate construction activity as the effect of the pandemic subsides. Coming to the detailed financial performance for the quarter and half year. First, for the quarter, consolidated revenues were up 15% quarter-on-quarter for the year at INR 220 crores. EBITDA was INR 81 crore, up by 19% quarter-on-quarter, implying a margin of about 37%. While the reported accounting loss after tax was INR 10 crores, importantly, the gross operating surplus had an impressive sequential growth of 178% at INR 101 crores for the quarter. We continue to generate operating surpluses after interest and taxes, which grew 1.5x sequentially. Next, for the half year ended September 30, 2020. Our consolidated revenues were INR 400 crore -- INR 411 crores, EBITDA was INR 147 crores and the margin, 36%. Again, operating surpluses stood at INR 138 crores for the half year. On an overall basis, we saw several homebuyers looking for larger homes, better amenities and projects that are well designed, driving consumers to consider Puravankara and Provident, both well known to offer these features. The company continues to comfortably meet all its obligations to its various stakeholders. We have continued to be cash-positive on a gross operating surplus basis for the last 10 quarters running and on a net operating basis for the last 6 quarters running. In summary, we remain focused on our efforts on business continuity. Our digital transformation efforts continue as well. It is important to continue to adapt. Our entire organization has adapted well to the new normal. We see digital catalysts such as supporting work from home or taking cost reduction driving these new initiatives. One of the biggest dynamic changes is how customers are also getting more conversant using the digital technologies. Channel partners as well as our teams have adapted very well to these new approaches. As a result, customer engagement is at a different level now. This is also leading to a lot more efficiency in both our costs as well as our return on investment. To boost the demand for residential real estate for sale of residential units up to INR 2 crores, last evening, a new provision was announced whereby the price variation is allowed up to 20% beyond -- below the circle rate, double the erstwhile provision of 10%. As such, while none of our projects are in this range, this measure will not only reduce some difficulties faced by both homebuyers and developers, it would also help in clearing unsold inventory in the market. More importantly, we believe that under the current regulatory and market scenario, there exists an opportunity for well established, well entrenched, disciplined, regulated real estate players to expand and gain market share. The Puravankara group, with its strong execution capabilities, its customer centricity and its trusted brand, is geared to capture this opportunity. We remain confident that our geographically diversified and customer-centric business with its growing digital footprint, combined with our focus on quality and timely delivery, would help us establish ourselves as a much stronger and more resilient organization. With this, we open the floor to questions.

[Operator Instructions]

Here is a suggestion. Since there are few people on the call and it's Diwali time, we're happy to kind of take this one-on-one offline. And our e-mail IDs and contact coordinates are available. We are happy to set up one-on-one calls to answer one or more questions as the participants might prefer.

[Operator Instructions] The first question is from the line of [ Vinay Makhija ], an individual investor.

Sir, can you explain a little more in detail how the differential of 20% as versus 10% would be helpful and which -- I mean the projects that -- where it would be beneficial as a developer.

Okay. Sure. Ashish here. So basically, if you had an apartment that you had -- that the guideline value, and your selling price was INR 1 crore, earlier, if you sold that apartment below 10%, which means if you sold that apartment at INR 89 lakhs, right, the INR 10 lakhs would have been taxed as an income for the developer and the buyer. If you sold it at INR 91 lakhs, which is within the 10%, you were okay. So for example, if your selling price -- if your guideline value in that location -- I mean your project is INR 1 crore, for whatever reason you sold the apartment at INR 91 lakhs, no problem. For whatever reason you sell the apartment below 10% -- beyond 10% discount, which is INR 89 lakhs, entire INR 11 lakhs would have been taxed as an income to the buyers [indiscernible] developer. Now what they did yesterday was they have increased that threshold to 20%. So in the same example, if you sell it at INR 80 lakhs, you're okay, right? But if you sell it at INR 79 lakhs, then the INR 20 lakhs differential, which is the guideline value of INR 1 crore, you're selling it at INR 21 lakhs discount, so INR 20 lakhs -- INR 21 lakhs have been taxed as an income in the hands of the builder and the customer [indiscernible] tax.

No, customer has to pay stamp duty...

Stamp duty on 1 -- that's what...

Pardon, pardon?

So this is the example. Now what they said yesterday was apartment up to 2 crores value can sell at a discount of INR 20 lakhs -- 20%, sorry, 20% discount, and within that 20%, there would be no sort of tax incidence on that 20% amount.

Okay. Okay. Okay. I got that point of yours. And I mean -- so this is the differential between the circle rate and the final price, right?

Correct.

Which of our projects would be -- would fall into this purview where there is...

None of our projects. Because most projects, especially in other cities, they have been quite aggressive, and they've been matching circle rates to the actual selling price, and we also have not been giving much discounts. So we don't have any project where the circle rate is INR 1 crore and we are selling it at INR 79 lakhs or even INR 89 lakhs for that matter.

[Operator Instructions] The next question is from the line of [ Abhijit Kumar ] from [ Share Giants ].

First of all, I congratulate the management of the company for posting such an excellent result in spite of COVID issues. So my question is sir, first question is regarding your sales. So I'm very happy to see [indiscernible] jump despite your sales over Q1 figures. So sir, if you can give us some guidance, like, how the things normalized. And we can now see a fast track recovery from there? What is the outlook for the same, sir?

So I think one -- the first response is that we are also positively surprised. I think the demand has come back much faster than we thought it would. So right from opening, which is a city like Bangalore, which got shut on 24th of March and reopened on May 4, right. So April was pretty much a washout. But in spite of that, I think from the time we've opened, we've seen strong demand come. And I understand and believe that this is experienced only by a few of the strong brands. So there is polarization of demand that's happening. There is consolidation that's happening. And we have seen -- the happy point is that we are seeing this sales across -- ready to move it across under construction and also new launches. So I believe that in light of the number of launches coming down, in light of the interest rates being at the lowest, in light of COVID where I believe that based on our interactions with prospective buyers, that certain sense of comfort in owning their own homes, the sense of security even as an asset class today, right? So I think all these things come together, and we have seen that the top 4, 5 brands have done exceptionally well. I strongly believe that this will continue for some time at least.

Sir, my other question is on the land purchase cost. So if we compare to last year, we see that there is a large variation. Even in Q1, it was INR 64 crores. In the last year, it was only INR 6.65 crores. And in the current year, it's around INR 78 crores. So what is the reason for such wide variations as for the modeling point of view? How should we look at the land purchase cost versus the revenue so as to project some kind of profitability for the company? And what is the company outlook going forward on, like, purchases, like -- whether they would like to do outright land purchases or try to avoid that, sir?

Okay. So I think going forward, one is we have a strong pipeline of launches already lined up, which is close to 10 million square feet, which is there in our corporate presentation. So having said that, I think land being our raw material, we need to constantly be in the market and evaluate opportunities that come by. Most of the transactions that we have secured in the recent past, most of them have been on joint developments, and that will be the strategy going forward. Having said that, there are certain old transactions where we have given certain advances. And as and when they mature in terms of certain CPs that the landlords have, they have to clear up the title or they have to do the conversions, et cetera, and we've already given advances. So as and when they mature, those transactions, having already committed to them, we have to close. But going forward, yes, I think there'll be a higher percentage of joint development over outright.

[Operator Instructions] The next question is from the line of [ Karan Singh ] from AB Capital.

I have a few questions. First one is if you could please explain how has the progression been on the construction activity front. And are there any labor issues on the ground? And also, if you could explain if there are any wage hikes or cost increases, et cetera.

Yes. So I think there are 2 parts to construction: one is the raw material and the second one is labor. As far as raw materials are concerned, there is no issue whatsoever in terms of availability, in terms of supply chain. I think that has normalized, which is good. In terms of labor, we have now touched almost, I think, 69 -- 70% -- a little more now, 75%, I would say, of labor has come back. And I guess in the next 1 or 2 months, we should be back to 100% of the labor strength of people. In terms of wages and increases in labor costs, there has been no increase.

Just to follow up on that, any expectation of increases in the upcoming quarters once we get to 100% level of activity and...

No, no, no. So basically, having the 75%, it is basically the laborers all coming back. Moving from 75% of the labor strength required to 100% will not result in an -- it's the same labor contractors. They are in the process of mobilizing more laborers. They are coming in transport, logistics, et cetera. So even when we reach 100%, we don't foresee it. If there was any increase in cost, we would have seen that 2, 3 months ago itself when we were inching up from 30% to 40% to 50% to 60%. If there was any demand for increase in wages, it would have been brought up at that point of time. Now having reached almost 75% of the required strength, there hasn't been any demand for any increase in wages. So I don't believe that there should be any request for that from 25 -- from 75% to 100%.

Understood. Understood. That's helpful. My next question is around the collection front. So how has the collection been in the last 3 months? And any challenges that we have seen, any customers who have faced issues or any cancellations that we have seen?

As far as cancellations is concerned, no -- there's no issue. We've not seen any cancellations. In terms of customer installment payments, yes, customers had requested in the month of May, June, July, August, similar to what RBI had announced, 6-month moratorium. Customers were taking advantage of that and had requested. We have seen that -- from this quarter -- from last quarter, we have almost come close to double in terms of collections, and they're just improving by the month. In another month or so, they will be back to normal.

Month-on-month, we are seeing 10% to 15% growth in collections, month-on-month, in the last 3, 4 months running. So there is a significant jump. And mind you, all this is without any new launches and stuff like that.

Right, right. So that's great, sir. That's great.

Importantly also, just to mention, you may have noticed it, ready-to-move inventory sales are also good. So that visibility of near-term collections is also there.

Okay. Okay. That's helpful, sir. My next question is on the operational front. Our operational surplus has been consistently good. By when can we expect to see that flow into cash, PAT and earnings per share?

I think we need to look at our surplus from 2 points of view. One is that the level of activity has not yet reached in terms of labor, yet reached that billing cycle, right? So that will take a couple of quarters. But the cash flow is coming in -- when it comes in from ready inventory straightaway is going into reduction.

And I think one important point there is, if you look at our cash flow, right, that has nothing to do with your P&L because that follows Ind AS 115. So that is what will define your revenue and your PAT and then your dividend and your EPS.

The point I think we're trying to make is that consistently, we are not only able to cover our expenses, but we're also able to comfortably cover and leave a surplus after interest, loan repayment and taxes. And we've had now, on a gross basis, 10 quarters. So we don't see that changing. In fact, we see that only improving.

Right. So just on the interest part, the interest cost for H1 is close to half of the revenues. So what kind of -- I mean this is despite our ratings being solid. So can you just help clarify what kind of debt this is and why we see the costs going up for this quarter or the half year?

Just so that we are clear, the interest costs are -- cannot be compared to revenue. Our request would be, if you look at the cash flow slide, that will give you a more accurate picture. Let me put it to you. At INR 285 crore collections for the quarter, that's what you need to compare against our interest cost rather than the revenue.

Today, revenue is -- as per the accounting standard, today, revenue is a function of how many completed apartments were handed over and registered, right? That is the accounting standard. In terms of cash flow, I mean, that will define in terms of the ability to repay debt or do construction or pay interest, and which is a reflection of your launches, your collections from customers, et cetera, which is not reflective in your revenue number because of the accounting...

In other words, what we're trying to say is that interest for the quarter, for example, those INR 50 crores, INR 51 crores -- INR 52 crores, as against that, you had collection inflows on a consolidated basis of INR 285 crores. After payment of interest and taxes, et cetera, you still have a meaningful surplus. Does that answer your question?

Yes. Yes. That answers the question. I'll get back in the queue for further questions.

[Operator Instructions] The next question is from the line of [ Ashok S. ] from [ Arlon Investments ].