Puravankara Limited (PURVA) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Q3 FY '21 results call of Puravankara Limited hosted by Emkay Global Financial Services. We have with us today, Mr. Ashish Puravankara, Managing Director; Mr. Vishnu Moorthi, Senior Vice President, Risks and Control; Mr. Abhisek Kapoor, Chief Operating Officer; and Mr. Neeraj Gautam, Vice President, Finance. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Amar Kedia from Emkay Global. Thank you, and over to you, sir.

Good evening, everyone. I would like to welcome the management and thank them for this opportunity. I shall now hand over the call to the management, Mr. Neeraj Gautam, Vice President, Finance, for the opening remarks. Over to you, sir.

Thank you, Amar. Good evening, and warm welcome to all of you. Thank you for joining us for Puravankara Limited's Third Quarter Financial Year 2021 Conference Call. My name is Neeraj Gautam. I am Vice President, Finance of Puravankara Limited. The quarter's presentation and financial results ended December 31, 2020, has been uploaded on the Stock Exchange. I am start with a brief update on the business and highlights of the quarter. Following that, my colleagues and I would be delighted to answer any questions you may have and take suggestions you would like to give us. We noticed a turnaround in sentiment towards real estate sector across India during this quarter. Economic activities seem to be coming on track. And the effects of COVID appear to be receding. The rollout of vaccine gives further hope for the betterment of the economy and the real estate sector. The worst of the pandemic is now behind us. The improvement of economic activities, combined with increased desire to purchase home ownership due to pandemic, leaves us optimistic over the years ahead for the residential real estate sector. Home loans at effective interest rate has further contributed to the momentum. The Government of India has delivered a growth-oriented budget for 2021, with the thrust on infrastructure sector, which will also benefit the real estate sector. Extension of benefits for affordable housing for developers and customers by 1 year shows the intent of the government for development of the real estate sector. Coming to operational performance. The signs of recovery, which became visible through Q2 FY '21, further picked up momentum. During the last quarter, we have received a booking of 0.91 million square feet, up by 41% Y-o-Y. One -- on a year-to-date basis, we have achieved sales of 2.42 million square feet, up by 13% Y-o-Y, despite a much weaker Q1 FY '21, indicating the strong rebound in the sector. Sales value during Q3 FY '21 jumped by 42% to INR 570 crores compared to INR 402 crores in the previous year. On a year-to-date basis, sales revenue increased by 9% year-on-year to INR 1,449 crores compared to INR 1,334 crores during the previous year. Coming to retail financial performance for the quarter and 9 months of the year. For the quarter, consolidated revenue was INR 304 crores compared to INR 220 crores in the previous quarter, implying a quarter-on-quarter growth of 38%. EBITDA for the quarter was INR 116 crores compared to INR 81 crores, up by 44% on a quarter-on-quarter basis. EBITDA margin improved by 100 basis points on a quarter-on-quarter basis to 38.1%. We posted a profit after tax for the quarter of INR 12.75 crores during the quarter compared to a loss of INR 10 crores in the previous quarter. We continued to generate operating surplus after interest and taxes. Operating surplus for the quarter was INR 122 crores. Q3 FY '21 has been a remarkable improvement in collection. Customer collections for the period was INR 335 crores compared to INR 241 crores in the previous quarter, a growth of 47%. We have reached to a collection level at a pre-COVID period. Next, for the 9 months ended December 31, 2020, our consolidated revenue was INR 714 crores, and EBITDA was INR 263 crores, again, operating cost was INR 181 crores for the 9 months. On the overall basis, we saw an increase in interest on all homebuyers looking for larger home, better amenities and projects that are well-designed to driving consumers to consider Puravankara and Provident, both well-known for -- to offer these features. The company continues to meet all its obligation to its various stakeholders comfortably. On the financial front, we are well capitalized and remain optimistic about the coming quarters. Moving to our launch strategy. We continue to remain committed to our plans and currently have 8 projects that spread over 8.7 million square feet across premium and affordable housing categories. Out of the 8 projects, 4 are under Puravankara brand and 4 are under Provident brand. During the quarter, we entered into partnership with IFC. IFC is a member of World Bank Group, the IFC Emerging Asia Fund, EAF, wherein they invest USD 76 million in special purpose vehicles set up by Puravankara Group. Out of this, we have already received an investment of USD 41 million during the quarter for our 2 affordable housing projects, 1 at Bangalore and 1 at Kochi. We will use remaining funds for developing affordable housing projects under brand Provident. We are fully poised to capture the apparent recovery in the real estate sector by offering diverse, high-quality options catering to real estate sector by segment. With this, we open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of [ Natasha Arora ] from KVS Financial Services.

Congratulations on a good set of numbers. I just wanted to know if -- I mean if you can give some color on how the recovery has been in various segments. If you can talk about how are we looking at the commercial side. And how has the recovery been in residential on both affordable and the luxury part?

Sure. So on the residential bit, I think the recovery has been greater than what we expected. This quarter, we have done 0.91 million square foot as against the previous quarter, which was 0.65. We've seen traction both in -- under our Provident brand, which is the premium affordable, as well as the Puravankara. This quarter, if you see, I think Puravankara contribution has been a lot more than Provident. That is mainly because most projects in Provident in terms of sales, the number of choices have come down. So now we are lining up new launches for it. So I think the residential recovery across both the brands across cities like Bangalore, Chennai and Pune have done well. The commercial bit, as of now, we have only 4 projects under development. The ones that we've already completed, leased out, rent collections have been strong. There's no issue so far.

All right. And if you can talk about the construction activities, are we facing any kind of labor issues on ground? And are you experiencing any kind of cost increases?

As of now, there is no issue in terms of labor. We are almost back to, I would say, 85%, 90% of pre-COVID strength. My view is that in the next month or so, we should be back to 100%, if not more, to play -- to basically catch up on the time lost. As far as cost increases, I think there were slight cost increases on account of commodities. But I think this is very temporary in nature, and I think these prices should stabilize, specifically in terms of steel estimates, not so much on the labor front.

Okay. Sir, and there was a news article published of some land transaction that happened around with Godrej. So can you give some more insight on that?

Right now, we are sort of in an exclusivity nondisclosure period, so won't be able to divulge any information on that transaction yet.

[Operator Instructions] The next question is from the line of [ Ankush Balani ] from AB Capital Advisers.

Sir, actually, I just want to understand how has been the recovery in the real estate market. And how is the situation considered to be pre-COVID levels now?

Sure. So in terms of sales, I think the recovery has been very good. Like we mentioned earlier, this past quarter, we have done 0.91 million square foot as against 0.65 million square foot the previous quarter. This is all from sustainable under construction projects. There has been no launches in this quarter. In that sense, I think it's been a great recovery. In terms of collections, we are back to almost 90%, 95% of pre-COVID. In the next month or so, even collections should streamline. Again, like I mentioned earlier, within the site activity, we are back to 85%, 90%. It's a matter of another month or so where we should be back to 100%, if not a higher percentage basically for catch-up.

Okay, sir. And is this -- do you think this trend of some people actually having more interest in the real estate currently cyclic or -- cyclic and temporary in nature? Or do you think this would continue and grow much more higher in the future periods?

We are confident that this demand will continue for various reasons. I think one is a lot of the fence sitters who were wondering if ownership is the way to go through this pandemic have understood the value of and the security of owning their own home. Secondly, the consolidation in the industry, launches, active developers and launches, because of consolidation, has come down. So we're seeing a huge polarization that's happening towards the stronger brands were showing execution at site, coupled with interest rates being at the lowest. So we strongly believe that we should see strong demand over the next year or so, minimum.

Okay, sir. And just one more thing. Is this -- the growth that you are -- the Puravankara is currently having is apart from the demand from the customers? Is it any other activities that they are doing -- that you are doing, like more increased promotion activities or discounting the surcharges? Any sort of things you are doing?

So on the discounting bit, no significant discounts. In fact, I would say no discounts. In fact, November, we increased prices. Jan end, we, again, increased prices. November was almost 3% to 5% increase in prices, depending on the stage of the project. So therefore, no discounts. In terms of marketing activities, in fact, our spends have come down -- costs have come down because we're more on digital, vis-à-vis -- which is giving us a better result. It's helping us even, in fact, in terms of efficiency. So cost of marketing has, in fact, come down, whereas the productivity and output has gone up.

Okay, sir. And what will the advertisement and marketing cost expense as a percent of revenue for 9 months?

That is closer to, I think, on a consolidated level, should be in the range of about 3.6%.

Okay, sir. And what kind of percent do you expect to maintain considering the situation normalizes?

So we -- so typically, if you go back into the previous years, again, I think it's more from the choice of media that was being used for launches in advertising, which was more press, newspapers and [ holdings ], we used to end up in the range of, I think most companies would end up in the range of 5% to 6%. We had targeted 4% for this year, which now, like I said, we're at 3.6%. We hope to maintain this number going forward.

Okay. Sir, just one last thing. You said that the collections had been very good this quarter and would increase further. So any bad debt that you have faced this or last quarter, payment from the customers?

No. So this -- so I think the point is if you've seen the collections go up is basically customers now coming forward and getting their delayed payments back online. We did face a request from customers in the month of, what do I say, June, July, August, where they had requested for moratorium extensions and this delay by 1, 2 months, but now that's not happening. So I think all payments are coming back online. But one correction, there is absolutely nothing, no concept of bad debt for us. At the end of the day, if there is a default in terms of payments, we will try our best to get that sale back online. Worst case, we cancel that unit and we resell it. So there's no issue of bad debt.

[Operator Instructions] The next question is from the line of Vaibhav Kacholia from VK Capital.

My first question was, sir, what kind of sales growth do we see in Bangalore as a market for the next year, let's say, for calendar 2021 or for FY '22 in terms of unit sales of apartments for the entire city, maybe?

So I think there -- even though we have RERA and RERA collect some data here and there, I think we are still a very fragmented market. [ ITCs ] have made an attempt at collating some numbers. But I think every [ ITC ] gives a very different number. But if I have to average those numbers out, Bangalore used to be a city that used to, on an average, sell anywhere between, if I combine and take an average of all the [ ITCs ], I think anywhere between 75,000 to about 80,000 units annually. Here, I think the market share of the top 5, 7 brands out of this would be in the range of maybe 20,000, 25,000 units at max. These are including launches, right? Today, even if that market has come down to about 65,000 units, what we have experienced now is that the branded players have seen their market shares go up on account of consolidation and account of construction stopping with the Tier 2, Tier 3 developers, et cetera. So we're seeing that huge polarization of sales that's happening. So I strongly believe that once we used to sell 20,000, 25,000 units, but I think our market share will start hitting 30,000, 35,000 amongst the top 7, 10 developers.

Fantastic. Got that. So my question was the 65,000 this year or last year or whatever, so where do we see it going forward over the next 1 or 2 years?

In terms of demand, I think we should easily see a 10% rise. Again, I say that more so from Bangalore as a city, we are seeing the rate of organization that's happening. Software, what we've been hearing and what's in the press, I think companies are now back to hiring, which will, end of the day, result in a demand for housing. So I think 10% should be a reasonable number to expect.

Right. Right. We don't see, like Mumbai, we are seeing much higher growth like January numbers are also very strong. So Bangalore like 20%, 30%, 40% as yet is not visible, right?

No, no, see Bombay now, what numbers? Are you talking of registrations? Are you talking about...

Registrations.

Registration, see, I think you can't track by registration specifically. Even our government has a temporary plan to say to register within the next 3 months, you get -- you pay some 50% discount in stamp duty. You've seen a lot of fence sitters there jump in to take advantage of that reduced stamp duty, which is only temporary. I'm talking more of a genuine -- how many transactions, not registrations per day, but how many transactions and what is going to be the annual demand in the city. I don't think even Bombay will be growing at that in terms of a total demand year-on-year.

Just to add that more and more consolidation will happen towards branded players. So you will see much higher percentage of market share coming in, and this is why you might be seeing hyperactivity in the branded players in Mumbai and the same applies in Bangalore. So as Ashish said, the total market share for the top branded developers is going up. And that's where you see a lot of demand consolidating.

Right. I wanted to know, sir, like is there any chance like Bangalore can hit like 1 lakh units over the next 2, 3, 4 years, or very unlikely as of now?

I think very likely. I think very likely.

Okay. But we said like 10% growth we are seeing? So 65,000 will become 70,000-something, right?

Correct. So I think we should -- if you say, over the next 3 to 4 years, I think the number can touch 1 lakh.

Okay. Got that. 1 lakh. My second question was, sir, is there something which we can do to expedite the speed at which we launch projects, like, for example, Chembur, we've taken that land long back, and our competitors have also taken lands at similar times and launched their projects and sold their projects much quicker. So is the management thinking of doing something to increase the speed of launches from acquisition? Because otherwise that leads to a lot of money getting stuck at interest payments.

You are right. So I think that is also going to be one of our focus points. I think Chembur, that delay has only helped us in terms of, I think getting this benefit of the reduced premium charges that has come in has benefited us. So to that extent, I think we were protected. But I think your point is well taken, and our focus is to ensure that we turn around projects within 6 months of acquisition.

Right. Okay. And sir, what kind of launches are we planning in this quarter, Jan, Feb, March and maybe the next quarter?

So we have a total launch pipeline over the next, I think, 10 to 12 months. We have listed that out in detail project-wise on Page #14 of our ICP. It's a total of 8 projects, totaling about 8.66 million square feet.

Right. I was asking specifically for this quarter and next quarter, maybe?

Sorry?

I was asking for this quarter and next quarter, maybe, Jan, Feb, March and...

We listed out the quarters as well on the -- between -- right, you'll see the quarters also. We have written and indicated quarter of the launch.

[Operator Instructions] The next question is from the line of [ Sima Agrawal ] from G. K. Advisors.

Sir, I just wanted to check on the pricing side. Since you are seeing an increase in sales, are we giving any discounts? Or can you throw some light on the pricing trends currently in the market that you see?

So we have not given any discounts. In fact, like I mentioned earlier, November, we took the prices up 3% to 5%, depending on the product and the stage of construction. We believe that this -- the total demand that we are seeing is more on account of consolidation and polarization that's been experienced by the top brands, who are showing execution at site. Number of launches also in the city had come down. So to that extent, we are seeing this demand rise. But it's definitely not upon account of any discounts.

Okay. Sir, on the commercial side, I just wanted to check, like you see a lot of corporates now returning or canceling office spaces. With that, do we see a change in our strategy on that front?

Right now, I think it's a little too early to comment. I think various companies are making statements of work-from-home, et cetera. Will that last? We are -- I think we believe that end of the day, people need to come to work. You need collaboration. You need to -- but the design of working spaces may change from desks to more collaborative spaces. But even if you work from home, I think -- and companies provide flexibilities, I think the demand will not come down more than maybe 10%, 15% over the next 3 to 4 years. And our projects specifically are all CBD city center properties. These are not large, 2 million, 3 million SEZ or campuses on the outskirts of the city. So considering that we have limited supply in the CBD, I think we should be okay.

Yes. And sir, one last question on the collections. Like last 2 quarters, it is very happy to see the improvement in collections. But can you throw some light on that? How do you see the trend on that front?

So we believe that, as you've seen it already, our collection numbers have improved. We are getting to pre-COVID levels already. And with the new launches that are planned, our view is that we will continue to see that traction. We have collected INR 355 crores for the quarter, which is obviously much higher than the previous quarter wherein we collected about INR 245 crores. So we are seeing that growth on a constant basis. And we -- I mean we believe that this will continue.

[Operator Instructions] The next question is from the line of [ Rajesh Kumar ] from [ Taco Securities ].

And congratulations for the excellent set of results. Sir, I wanted to ask you on a general strategy question. Like we have seen that the Provident projects were the focus area for the group. And given people's need for more space driven by work from home, so how do you see this panning? Also will your new launch pipeline will be more tilted towards your lower housing, while we, in the recent presentation, saw that it's evenly distributed among Puravankara and Provident?

So while the number of projects are evenly distributed, if you see the square footage of the projects that are being launched, Provident is about 7 million square foot of the 8.6 million square foot that we are planning to launch. So therefore, Provident continues to be our area of focus, and we will continue to launch larger projects there.

Yes, of course. Sir, my next question was on the financials. Sir, I wanted to understand what is your plan for the debt reduction for the -- in this quarter or in FY '22?

For this quarter, if you look at, we have reduced debt by INR 221 crores. And next financial year, we have a scheduled repayment of another INR 475 crores. So we'll be reducing debt next year by not less than INR 450 crores despite some additional drawdown for CF, but it will be kind of range of INR 2,300 crore, INR 2,400 crore debt.

And sir, just in a kind of a guidance, like what kind of debt numbers you are looking at like debt-to-EBITDA ratio or debt-to-equity ratio, which you would like to expect to maintain in the next 2, 3 years?

We do not specifically give guidance for debt equity ratio. However, our target, our endeavor would be maintain to a debt-to-equity ratio of 1 over the next 2 to 3 years.

Sir, my another question is on land purchase cost. So we have seen that there are wide variations in the land purchase cost, which is making a bit difficult to like calculate what should be the profit of each quarter. Because like we'll see like in this quarter, like we had like in Q2, you had a INR 70 crore cost. While this quarter, we had INR 191 crore. While in the previous year, it was only INR 7 crores. So because of this wide fluctuations, it becomes difficult to project what kind of profits will come. So if you can throw any kind of a guidance like while rather in the quarterly basis or annual basis, how should we look into it? And what kind of like -- so that we can project what models?

See, if you look at -- I'm assuming you're asking questions from the profit and loss account of Puravankara Limited, right?

Yes, sir. Yes, sir. Because like you're like -- because certainly because of the fluctuations in lot -- in your land cost, so it hits the P&L. So it has become difficult to like make projection of the P&L on quarter-to-quarter basis.

If you look at our P&L, P&L has been prepared on the basis of Ind AS 115. And besides, if you look at this quarter, Q3, as against INR 190 crore land cost, there is a reduction of inventory by INR 200 crores. You see because minus INR 200 crores figure. What essentially happens in Ind AS accounting, I'm only matching the cost of sales. My top line reflects the units for which a revenue recognized and my cost reflects only the cost for those units. Land -- the land, which number, which referring the P&L is merely a representation of the kind of money we spend for acquiring land in a particular quarter.

Okay, sir. Sir, and what is the company outlook going forward on the purchases? And will we be looking for outright purchase? Or do you try to avoid that?

So the target for us is to continue to look at both options where we see value. We are looking at acquisition and ownership of land, which obviously gives us very, very strong margins. At the same time, we have an asset-light model which is in place, wherein we are looking at JVs, and they continue to be also our expansion plan in some of the markets. So we continue to have a robust pipeline of projects coming our way. And in the current market, we are quite optimistic about acquiring new assets.

[Operator Instructions] The next question is from the line of [ Monica Arora ] from Share Giants Wealth Advisors.

My question is related to the raw material cost. We have seen that the raw material cost of like steel and cement has been rising. So how you see these prices going forward? And how these will -- are they going to impact your margins? So how you will going to manage that?

One is I don't believe that this increase in commodity prices will last for long. I think they're temporary and we've seen that through cycles. Every 2, 3 years, you see these prices misbehave, but then I think in a matter of a couple of months, they all come back to whatever sustainable levels. Having said that, you know what we have done. So one of the reasons that we took prices up in November, like I mentioned earlier, 3% to 5% across projects, depending on the location and the state of construction, was to mitigate any -- or to protect the margins rather from these commodity increases. Again, Jan end, we did another small price increase across projects to create that necessary buffer if required against these commodity price fluctuations.