Puravankara Limited (PURVA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '22 Results Conference 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, Risk and Control; Mr. Abhisek Kapoor, Chief Executive Officer; and Mr. Neeraj Gautam, Executive Vice President, Finance. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Rahul Jain of 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. Good evening, and warm welcome to all of you. I hope all of you and your loved ones are safe and doing well. Thank you for joining us for Puravankara Limited's earnings call for the first quarter of the financial year FY 2022. My name is Neeraj Gautam, I'm [Vice President, Finance ] of Puravankara Limited. The quarter's investor presentation and financial results ended June 30, 2021, are uploaded on the stock exchanges. I will 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 suggestion you would like to give us. After a robust last financial year, we started the current quarter with lockdown in [indiscernible]. We have seen a good recovery beginning from June, and we are confident of strong sales momentum going forward. Turning to the business highlights. We have ended the quarter with a sound momentum in sales during Q1 FY 2022. Sales booking stood at 0.7 million square feet from 296 units [indiscernible] INR 313 crores. Our focus on selling ready-to-move-in inventory has brought down our ready-to-move-in stock to a 0.47 million square feet as of June 30, 2021. It's encouraging to see the improvement in price realization during the quarter, the sales variation up by 7% year-on-year to INR 7,473 per square feet compared to INR 5,768 per square feet during the corresponding quarter last year. We have completed the transaction of the [indiscernible] from one of our [indiscernible] during the quarter for INR 685 crores. We have already received INR 515 crores during the quarter. We have deployed this fund into business operations and reduction of debt. Coming to the detailed financial performance of the quarter. Consolidated revenue for Q1 FY '22 was INR 572 crores compared to INR 191 crores in the previous year's corresponding quarter, implying year-on-year growth of 184%. EBITDA for the quarter was INR 383 crores compared to INR 67 crores during the same period last year, up by around 6x on a year-on-year basis. We have achieved a profit before tax of INR 293 crores during the quarter compared to a negative CBD for INR 23 crores during the corresponding quarter of the previous year. Profit after tax for the quarter was INR 155 crores compared to a loss of INR 17 crores during the corresponding quarter of the last year. We have also opted for a new income tax rate of 22% under section 115BAA of Income Tax Act 1961 for the financial year and coming financial year. It will benefit the company for reduced income tax outflow during the current year as well as coming years. As the provision of the income tax act, we had to restate deferred tax assets [indiscernible] which resulted in a different tax discount of INR 68 crores during the quarter. There is a new tax outflow due to the restatement of deferred tax assets. And hence, the profit after tax for the quarter should be where there's no tax outflow due to the restatement of diversified assets. We maintain our focus on collection despite lockdown during first 2 months of the quarter. Operating inflow for -- operating inflow for the Q1 FY '22 stood at INR 871 crores, which is higher by 335% year-on-year compared to INR 188 crores during Q1 FY '21. Our efforts on pairing our debt levels continue. We have reduced our debt by INR 451 crores during the quarter. Our net debt-to-EBITDA ratio is improving consistently and stand at 0.9x versus 1.34x a year ago. We are delighted to inform you that ICRA has upgraded our credit rating to ICRA A- stable outlook and short-term basis A+. We have also fast-tracked our digital initiatives. We have signed with SAP to adopt their latest offering already with S/4HANA Cloud ERP and maintained IBM as an implementation partner. Our goal is to provide some [indiscernible] digital environment to our customers going forward basis through a dedicated application from online booking [indiscernible] project, tracking of consultant progress, [indiscernible] demand, view of the statement of accounts, et cetera. With this, I conclude my remarks. Thank you all for joining this conference call. We would now be happy to answer any questions, comments or suggestions you may have. Thank you.

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Parthav Jonsa from NVS Brokerage.

Congratulations on a great set of numbers. Sir, I've just got a couple of questions. Just wanted to understand that you have done some spectacular results on consolidated basis in Q1. My first question is, how do you perceive Q2, Q3, Q4 going forward for this particular financial year? And sorry, just couldn't get your explanation of the deferred tax charge, I think in missed in between. And what is the expected sales what the company is expecting in the next 3 quarters, sir?

I'll take the first half of the question, and I'll leave the tax explanation to Neeraj. On the sales -- today, but for the disruption that comes on account of lockdowns and COVID, we have seen that there's been a huge polarization of buying that happened to the top brand. Just several points of reference would be if you look at our ready-to-move-in inventory which about 2 years ago was at 2 million plus, today it sits at 0.47 million square foot. If you see our ongoing projects as well, we've seen good strong sales. If you look at -- our new launches have done well as well, right? So therefore, we believe that the current project that we have, we have a fantastic 14 million square foot of lineup of launches over the next 12 to 15 months across the Provident brand, Puravankara brand and our new vertical, which is Purva Land, which is property development. Each 3 of these verticals have launches planned in the markets of Bangalore, Chennai, Cochin, Pune, Mumbai, in these cities. And I think these are really good projects. So then I couple both, I think we should see a strong sales for this year. Again, I think the only caution is when you are physically locked down or you have weekend lockdowns, it does affect site visits, et cetera. But if there is no big surprise from COVID, I think it should be a good year.

Now for the tax part of it. If you look at our financial statement, our profit before tax for the quarter was INR 293 crores. Tax expense for the quarter was INR 139 crores, and thereby profit after tax was INR 155 crores. This INR 139 crores tax comprised of INR 68 crores of impairment of deferred tax assets. We have moved to new taxes. And earlier, our tax rate was 35%. Now we are opting for 22% tax rate plus a surcharge on sales et cetera. Effective tax rate for the current financial year as well as going -- coming financial year, it will be 25%. And hence, the difference of 9%, we have to impair the tax -- deferred taxes assets. The point is these are not definitely any tax outflow because of that. So only accounting increase of INR 68 crores. So my profit could be read with INR 154 crore plus INR 68 crores. Therefore, there will not be any tax outflow because of it.

[indiscernible] crores of profitability.

Yes.

Okay. And sir, my last question is pertaining to the debt. Right now, after quite a few number of quarters, we have 0.9 net debt to equity. Any plans or what is your internal understanding on the debt reducing over next 3 or maybe even next 1.5 years kind of time frame?

So first, I think let's appreciate the fact that I think, if I go back 2 years, we were sitting at a net debt number of in the region of INR 2,900-odd crore. Today, that number has come down significantly. We believe that as the business with a number of launches that we have, we are comfortable at a debt rate anywhere between INR 2,000 crores to INR 2,200 crores. It is something -- I don't want to get into a ratio per se, but I think that's the number I think which is very comfortable. I think we've also got a rating upgrade from ICRA, which is A- and also up to INR 3,000 crores of debt of similar -- even in the similar sort of rating. As we launch projects, I think you should see that debt number coming down. There may be a little bit of increase here and there on account of CF. The most important fact I think that one needs to appreciate is why did the debt go up over the last 3 to 4 years and why it has even come down. That's -- I think that concept needs to be understood. I think about 4, 5 years ago, we had extremely large launches, and we had opened up larger phases. We corrected that launch sort of pattern, A. B, we also changed our selling strategy, right? So we added the entire digital vertical. We added the entire channel partner vertical. So if you go back 2.5 years, 8 out of 10 projects we have shown -- we have delivered almost 60% to 70% sales done in the first 3 quarters of launch for that phase, right? Which means that we will not repeat the cycle. Wherein sentiment cycles have become shorter, we sold less, we need to borrow to build, that cycle has been corrected. If you look at the projects that we have delivered over the last year, 1.5 years, our balance ready-to-move-in inventory in the projects that we have completed now is hardly in the single-digit numbers. In the sense, 10 unsold units, 15, unlike in the past where it would be 100, 120, 150. So going forward on account of -- the reason why it increased, I don't think that will reoccur because of the change in the launch as well as selling strategy. There may be some -- a little bit of requirement maybe for CF, which is boost construction, but that will be within the comfortable limits.

Okay. And sir, my last question is, can we just perceive -- what you did in quarter 4 of last year around INR 304 crores of revenue from operations in one single quarter, can we perceive the similar kind of top line and margins over the next 3, 4, 5 quarters?

See, revenue -- please understand, what I tell people, considering the current accounting standard that we are mandated to follow, you need to actually track sales, debt movement and cash flows. Now revenue is heavily dependent on -- in a specific quarter. So I may have launched 5 projects and sold extremely well, constructing well. But if I don't have a project that's come for registration and handover in that specific quarter, that affects my revenue recognition from an optical point of view, right? So obviously, I think now with this accounting change, as a business also, there was a time the way we launched our project so that at least maybe a year or 2 down the line we ensure that just from a visibility, what do you say, point of view, we'll ensure that we have good buckets of handover of projects in every quarter, which will give you that kind of a better understanding and a hold on what kind of revenues they can deliver. But till then, because of this accounting standard, which is we are only able to recognize revenue against handover and the final sale registration of our apartments.

[Operator Instructions] We have the next question from the line of [ Mehak Verma ] from AB Advisors.

So I have 2 questions. From a general strategic perspective, we've seen that Provident project was a focus area for the group. But now given people need more space due to the work-from-home culture. Do you still see the smaller affordable segment as being the faster growth engine for us? And my second question would be around raw material costs. So with the raw material costs going up sharply, how do we plan on mitigating the impact of the same?

Can I take that one, Ashish?

Yes, please.

So on the second point, which is essentially on increased prices, if you see the details of the ICP that has been released, our prices have gone up in last 2 quarters consistently anywhere in the range of 11% to 12%. And that is pretty much taking care of all cost calculations and protecting our margins. So that takes care of the cost piece. And the second question was on the Provident -- the affordable housing. So affordable housing, Provident continues to be our focus area. So out of the 14 million square foot of planned launches, if you see, 7 million is in Provident. And we believe that while the pandemic has had an impact and work from home is definitely something people are going to look at, but that has not substantially changed people's affordability of purchase, which is -- this basically means while your interest costs have come down and that has enabled a lot of people to buy slightly larger homes, that we definitely see as a potential. So if somebody has got an appetite for [indiscernible] pushing us to buy 2 [indiscernible] buy a 2.5. Having said that, this is the largest segment of real estate market, which is available today. And we continue to believe that this segment will grow and provide opportunities for us. And this will continue to remain our growth focus and growth engine.

[Operator Instructions] We have the next question from the line of [Bela D'Souza] from JK Investment.

I just wanted to know if you could throw some light on what steps you are taking to further improve your credit rating? Any view how much our rating can improve going forward? And secondly, if you could explain your progression on construction activity. Any labor issues on the ground? Also if you can explain if there are any vague, like, cost increases?

Sure. So I think as far as the rating is concerned, as a business, we're going to push hard. We're going to give it -- the internal strategy is to give it a couple of months. As we get more launches out and unlock the capital invested there and cash flows start getting even better, we will reapproach the rating agencies for another step-up from the current A- that we received. As far as the construction is concerned, I think -- there is no -- firstly, I don't think there's any labor issue at site. But because of delays, some contractors have been approaching us, I think most developers, and asking for certain escalations on account of COVID and work stopping. I think they have incurred costs as well managing their laborers. So those sort of renegotiations should not be anything material. But those renegotiations have taken some time, but I think it's a matter of another 15, 20 days. But all sites have come back to normal. So there's no delay or there's no shortage of labor at any site.

[Operator Instructions] We have the next question from the line of [Jay Daniel] from Entropy Advisors.

Yes, sir. I'm referring to your presentation, Page #17, cash flow. Your operating inflow this year has been -- this quarter has been quite high, INR 817 crores. I mean could you give some background behind this?

That includes our collection from INR 515 crores from the strategic exit from our commercial assets, which I mentioned during the opening remarks.

So that includes the sale of the commercial assets?

Yes.

Okay. And secondly, your interest cost continues to be around INR 75 crores, which is an annualized run rate of INR 300 crores. So despite your net debt coming down, why is it so high?

Net debt came up during the quarter. Interest reflects the interest on the entire quarter. And going forward basis, going forward basis, as we have repaid between the quarter and previous quarter, it will come down, I'd say it's a downward trend.

And what would be the normal run rate for interest?

Our average interest cost is 11.78% at this point of time, which we are expecting to be reduced because after this revised ratings, we have approached all our banks and requested them to consider of revising the interest rate. Most of them have given positive response and our interest rate will come down further from here. Considering that our rate is 11.5% [indiscernible] rate at our debt level of INR 1,800 crores.

[Operator Instructions] We have the next question from the line of [Adit Kulkarni] from AB Advisors.

So my question pertains to the COVID wave. So we do understand that collections might have got a bit impacted due to the second COVID wave. But can you help how the outlook is going forward? And will it be possible for you to shed some color on the monthly trends since last 4 to 6 months was the impact of second wave of COVID?

So for the second wave of COVID, you're right, there was an impact on collections. In fact, there was an impact on sales as well because there was a lockdown in various parts of the country and it was quite severe. As we mentioned earlier, we are seeing the sales momentum pick up. With our new launches that we are planning, we believe, and the progress of projects that we are seeing now on the ground, we believe over next 2 to 3 quarters, we will see the collections go up.

Okay. Okay. I understand. And on the -- just a follow-up on the sales itself. So can you please give an outlook on sales beyond FY '22 as to how it will be? Or are there any specific targets for Puravankara?

We can't really give any forward-looking remarks in that context. But please understand there's 14 million square foot of new launches. So while we do a sustenance business, which is a normal course of business for launch projects, you will add on to that new project, and then we will find the new sustenance project. So on an overall basis, on a cumulative, it will continue to grow. And as we basically launch projects, you will see both sales and collections go up.

Okay. Okay. I understand. Okay. Okay. And my last question pertains to the residential business. So could you just quantify, for this quarter, for this Q1 quarter and for the year, the percentage breakup between the major cities as a chart is available with you?

We'll answer this question with detail off-line.

We have the next question from the line of Vaibhav from VK Capital.

Some color on this sales momentum. And since we have reduced our inventory of finished apartments, what is the trend on that? And is that helping us increase prices? And how would this trend shape up over the next 1 or 2 years? Do we expect prices to increase substantially? And if yes, by when?

So see, if you see -- and this is across markets, that's not for Puravankara, this is across the real estate market, the overall industry overhang is coming down. That is one. This effectively means that large quantum of RTM has already moved, and there is obviously under construction projects which are seeing momentum. And if you see the trend of last 2 quarters itself for Puravankara, you will see an upward trend in price. The reason for this upward trend in price is also because of consolidation. The customer is willing to pay a premium to a strong brand which has got a delivery track record and is continuing to deliver. So we believe that this price appreciation trend will continue and the economy also picks up. And so you must have heard the Prime Meter and the Finance Minister talking about pushing growth in the economy. So we believe that we are back in that momentum, which would enable the real estate industry to bring back some of the lost years. At the same time, ensure that this momentum of both sales and pricing continues. Only disclaimer to that is it may not be applicable for everybody. It probably -- due to consolidation, it will be applicable to recognized brand, organized players, where there is a trust in the brand and we have a good track record of it.

Okay. Got that. And are we seeing any indication, sir, that prospective buyers are trying to hurry up their decisions? Are they -- as they are getting the feeling that if we don't buy now, then the price may go up after 1, 2, 3 months. Something like that?

So I mean people are taking decisions. What's important is early on, if you remember, some of the conversations we've had in the past where there were a lot of [fencesitters] who were not taking decisions. I think that has stopped happening. The pent up demand is definitely there. And that's what it's come back to a -- unlike in FMCG when you lose a date where you don't -- the demand is gone for the day and for the industry. For us, the demand is saved. And that, I think, is pretty much back in the business. And we believe that the [fencesitters] are no more sitting on the front, they're taking decisions. So that's the good news. In the current environment with lower interest rates ever in this country, it is going to continue to be stable for quite some time now as per the directions from the government and RBI, we believe that this momentum will continue.

Okay. Got that. And Ashish, what was the peak of the sales for our company? Like was it 2010 or something? And when -- by when do we see that scenario coming, if at all we see something like that?

No, no. I think one is, I think any -- the peak in any year depends on the amount of volume you have under construction. I think it's a factor of how many new launches we have in that year. And obviously, the external environment in terms of sentiments in industry.

I'm asking more in terms of the momentum and sentiment and external environment, like when we used to launch projects...

Correct. Correct. So I think currently, what we've experienced ourselves in the last year, there was a huge polarization that's happening to the top 5 brands in the cities. So I think prospective buyers have realized the importance of owning their home, that asset, the sense of safety and security. So keeping that in the background, interest rate is low. If we are able to successfully launch as per our target, about 14 million square foot of projects under Puravankara, Provident and Purva Land across the 5 big cities that we have planned, all these are in the final stages of approval. I think we should have a repeat of that number.

I'll just add, last year was, in value terms, one of the highest numbers we have done as a group in residential sales. We believe that with the number of launches that we have planned, this will only continue to go up.

So this 14 million which we are looking to launch in what period, can it get sold after launch, like?

No. So 14 million is the size of the projects that we are taking to market across the brands, across big cities. Obviously, as a strategy, we will be opening up the sales in a phased manner, right, so that we don't get stuck with a larger data to build, if there is any short-term change in sentiment cycle. So they will be opened up and launched in phases. So this 14 million is the size of the entire project of -- that we're going to take to market.

Okay. So the phases which will be launched in the next 12 months would be maybe half of that or something like that?

Should be close. Yes.

Okay. Got that. And if at all sentiment picks up, Ashish, like do we see this really -- like really as we heard all builders are talking about sentiment being good, but we are not seeing like any excitement like even what you see in the stock markets or what was there in the real estate in 2010 and all those periods. So if at all that comes, you think that can happen in FY '23 or FY '24, like real good demand?

I would say FY '23 is what I would bet on. Even if you see -- now let's go before this lockdown that happened, right, [indiscernible] in lockdown, the Bangalore went into lockdown, if we look at our quarter 3 numbers, without a single launch, we had sold 0.91 million square feet. Quarter 4, without a launch, we had sold 0.99 million square feet, which is the highest we've ever done. So I think it was already getting there. But for this second wave that came and hit us and then the lockdowns that came in, right? So I'm hoping that in the mix with vaccinations increasing, I think we should sort of -- some sense of stability in terms of sentiment at least. But '23, I have no doubt. I think it should be a big bounce back here.

So like we can do even like 2 million square feet a quarter and all that kind of stuff that could be our aspiration?

That would be our aspiration subject to obviously getting our approvals in time. Sometimes what happens in mix a quarter just because some approval has gotten delayed by 1 or 2 months. But on a concept level, yes, possible.