Puravankara Limited (PURVA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Puravankara Limited Q1 FY '23 Earnings Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Samar Sarda from Axis Capital Limited. Thank you, and over to you, Mr. Sarda.

Thanks, Nirav. Welcome again for the results call for Puravankara Limited. Thanks for taking the time out. From the management, we have Mr. Abhishek Kapoor, the ED and the CEO of the company. We also have Vishnu Moorthi, who's heading Risk and Control; and Neeraj Gautam, Executive Vice President of Finance. Can I request Neeraj to start with his initial comments, post which we can open the floor for Q&A?

Thank you, Samar. Good afternoon, everyone. Thank you for joining us at Puravankara Limited's First Quarter or FY 2023 Earnings Conference Call. My name is Neeraj Gautam. I'm the Executive Vice President Finance of Puravankara Limited. The presentation and financial results for the quarter ended June 30, 2022, have been uploaded on the stock exchanges. I presume you have all had a chance to go through the results and detailed presentation designated by us. I would like to take you all through the key highlights for the quarter. Following that, my colleagues and I will be happy to answer any questions you may have, while listening to feedback and suggestions from you. We believe real estate will continue to witness sustained growth this year and coming years for -- in our country. The latest increase in home loans, interest rate and global economic environment will have very little impact on housing demand in our country. We have started the financial year on a very good note. We are delighted to say that the company has achieved its highest ever sales in the first quarter of any financial year. And this is remarkable as it has been achieved in an interest fee environment without any new launches. We have registered the highest ever first quarter sales this quarter, reinforcing the team's dedication, backed by sound leadership and the pillars of quality, trust and customer experience that Puravankara brings to the table. The quarter sales touched INR 513 crores, riding on the favorable market sentiment and rising homeownership aspirations. The intact sales were achieved from booking of inventory on ongoing projects. The sales volume during Q1 FY '23 stood at 0.69 million square feet, up by 64% year-on-year basis. As a result, sales value during Q1 FY '23 jumped by 63% to INR 513 crores compared to INR 314 crore in the first quarter of the previous financial year. Coming to the profit and loss account for the quarter. Our consolidated revenue for Q1 FY '23 was INR 297 crores. EBITDA for the quarter was INR 139 crores, implying an EBITDA margin of 47%. During the quarter, we achieved a profit after tax of INR 35 crores, implying a PAT margin of 12%. We have continued to maintain sustainable levels of debt during the quarter. Our net debt was INR 1,889 crores. We have maintained similar debt levels for the last 1 year, ensuring that we are optimally leverage to fast track our growth while keeping our feet on the ground. As on 30 June '22, our average cost of debt was 10.69%. Coming to the cash flow management for the quarter. Our operating inflows for the quarter Q1 FY '23 was INR 667 crore, up by 16% from INR 575 crores in Q4 FY 2022. As on June 2022, the balance collection from sold units in all launched projects stood at INR 2,550 crores, the balance cost to be incurred stood at INR 2,849 crores, combined with the unsold receivables of INR 4,394 crores from launched projects, the projected operating surplus of INR 4,095 crores on the launched portfolio compares very favorably against the current outstanding net debt of INR 1,089 (sic) [ INR 1,889 ] crores. Besides this, we have also not open for sale inventory from which we have estimated surplus of INR 2,036 crores. The Indian economy is showing stability and resilience, and we are bullish on it. The government's focus on infrastructure, including airports, roads and rail networks will give impetus to the growth of -- in our country and create employment and that will result in further demand of home in our country. We are upbeat about our new launches, and we'll continue to focus on scaling our operations while maintaining a healthy balance. As a customer-centric entity, our primary focus will be to offer our customers high-quality products and seamless home buying experience. Our budget and expenses control measures have to put up with a solid position to optimized by own sentiment. We remain confident in creating sustained value for our shareholders by delivering growth and margin expansion through optimal capital utilization. With this, I conclude my remarks. Thank you for joining the conference call. Now we are open for questions that you may have. Thank you.

[Operator Instructions] The first question is from the line of Aryan Sharma from Infinity Capital.

Congratulations on the good result. My question is regarding the land parcels. You already have a good presence in South India. Are you also looking towards some more land parcels in other parts of the country or will you focus on these areas. And if yes the -- by when it will happen and what could be the size of these land parcels?

Thank you for the question. So while we have the current land bank of almost about 54 million square foot, which is spread across South and West, our growth is -- further growth, which is increased acquisition activities happening in majorly 5 markets, which is Bangalore, Chennai, Hyderabad, Mumbai and Pune. And this is -- these are the markets where we want to go deeper. For the rest of the market, it is more opportunistic because we have been in these markets, which are like Kochi, Coimbatore, Goa, Mangalore, these are markets that we have always been present in, and we look at it more opportunistically if there is -- because we have a strength and we understand the local environment, we have delivered multiple projects. So that enables us, gives us that confidence to continue in these markets, but growth will come from these markets -- the other markets. From the size of the land parcel, see, our strategy is quite clear in terms of the acquisition plan. Now that is largely spread between Puravankara Commercial, Residential, Provident and Purva Land. Purva Land typical size of transactions would be anywhere between 50 to 100 acres because that's the kind of plotted development we look at. Wherein, we need because the kind of volumes we are able to do and sales that we are able to achieve in the plotted development gives us that flexibility and comfort. As far as Provident is concerned, we look at least 1 million square foot of saleable area to start with. So if you look at my realization, a top line of at least INR 650 crores, INR 700 crores would definitely be something that will be required because that is the attention we need to pay to the project, and it should be worthwhile the time of the management. So that's the minimum size. Of course, we have done 2 million, 3 million, 6 million square foot larger projects in Provident and because it also requires a certain scale of operations to drive efficiencies being affordable housing. As far as Puravankara is concerned, again, we look at a minimum top line of, say, INR 700 crores to INR 1,000 crore and that could range in different markets from anywhere between 500,000 square foot going up to 1.5 million square foot or even larger, depending again on the location in the market. So that's a general tendency, but our -- most of our acquisition is in the sweet spot of, say, about 1 million square foot to 2.5 million square foot, which gives us a lot of comfort in visibility on financial closure of these projects within a time frame of 5 to 6 years. So that's generally the area of focus, and that's how we go about our acquisition.

Okay. Got it. So my next question is regarding the Starworth Infrastructure and Construction Limited, that is the SICL, can you throw some light on what kind of revenue we are clocking over there? And what are the margins? And also what sort of market we are targeting and the growth, say, in the next 3 to 5 years?

Right. So Starworth is an organization which we have recently done some additions in the leadership team. Let me just introduce that a little bit for you. So on the management, we've added a COO from Katerra and -- who specializes in precast. We added Satyanarayan from Tata Projects. He was ex-CEO for Tata Projects. He's handled a very large book. The business per se is really focused on 2 key areas. One is, of course, precast; and two is buildings and special projects, this is the third one. So in buildings when we say we count commercial, we count data centers, we count residential. That is the general setup. And third, of course, as I mentioned, is special projects, which is -- because it is an EPC business, and we are building the entire EPC strength over there. We already have it actually, so let me give you an example of the kind of projects that we're looking at. So for example, we are executing the Bangalore Metro stations, about 23 metro stations. We are executing Taj at the Bangalore International Airport. We have taken just recently another contract with Taj GVK. We are doing a very interesting -- 1 of the largest pores ever we have done or we are now going to do, which is in blast furnace we are doing for Jindal Steel. So special projects like Jindal Steel or Metro, et cetera. ITC is another client that we have recently added to our portfolio. So the idea is to look at Grade A clients and add -- so today, for example, a larger portion, almost 60%, 65% of the business comes from Puravankara and about 35% is outside. We want to exactly reverse it. In fact, we want 80% to 90% of the business to come from outside, and that's where the entire focus is for Starworth because we believe that there is an opportunity for a midsized player in the contracting space. Coming to your question on margins, you're typically looking at a margin of -- a net margin of somewhere between 8% to 10% for a contracting company, and that's what we work towards net of overheads. So that's the plan. From the growth point of view, last year, we did very well, but it was on a very small base that the business grew. This year, again, we are targeting an aggressive number -- a growth number...

INR 500 crore kind of turnover from that...

Yes, yes. So that's the target. Let us see how that pans out, but the billing looks good. The business is looking good. Acquisition pipeline is looking healthy. So we're quite optimistic about where we're headed with this business.

So what is the number...

This quarter, we recognized INR 89 crore revenue in that company. SICL's turnover for the quarter was INR 89 crore and profit was about INR 2 crore, net PAT that -- for the quarter. So and yearly, as Mr. Abhishek mentioned, we are targeting sort of INR 500 crore revenue from that company in this entire financial year.

Okay, okay. Thank you for the detailed answer. And lastly, coming to the order book, like we are saying the order book is more than INR 1,000 crores for quite some time now. So what is the current size and what would be the year-over-year growth in the orders?

So as we mentioned, because we just strengthened the team, and it's been in the last 4, 5 months, 6 months. In fact, the focus first has been to strengthen the systems processes, internal the organization itself and start -- speed up our current execution, which is why you're seeing the existing revenue booking. At the same time, you're looking at new acquisitions. So I think by the end of this year, I think the order book will improve with the way the pipeline is looking. We'll have to wait and watch and see where we land up with it. But our goals are quite aggressive.

[Operator Instructions] The next question is from the line of Ashutosh Mittal from Axis Capital. [Operator Instructions] Due to no response, we move on to the next participant. The next question is from the line of Nikita Gupta from LKB Securities.

I just had a couple of questions on the Purva asset management front. Just wanted to know like since you launched your first AIF fund in April, have you been able to raise some money as of now? And when do we expect to take some marked INR 750 crores assuming the greenshoe option is exercised? First on that. And how is the revenue sharing agreement going to work? Can you throw some light on that as well?

Right. Thanks, Nikita, for the question. So the answer is yes, we have been able to do the first close, which was targeted at about a little over INR 200 crores. That has already been done. Now we are in the process of additional further capital, which is also lining up, and we will hear soon about the next round of closure. The second piece is on how do we see the revenue share with the fund. So basically, the way we look at this entire structure -- the fund structure is that the fund potentially is participating in the land which is where maximum value is and the acquisitions happening from the capital from the fund. And the development is done by Puravankara. So therefore, the revenue share has to be in a manner which is targeted to achieve a mid-20s -- early to mid-20s kind of return for the investors in the fund. And of course, the process is there. There is a process of evaluation and objectives validation of -- third-party validation of the numbers so that there is complete transparency. There's an advisory board in place for the guidance. So the whole idea is to keep it objective and ensure, in fact, this is something that we believe personally that will be a significant line of capital going forward from an equity point of view, which will give us great amount of strength. So we want to really ensure that the deployment of capital is done in a manner which ensures not just the security of capital, but the return that we have -- which we have promised in the front. So we're quite optimistic with this, and we will start hearing soon about the deployment of the capital, which is already raised.

[Operator Instructions] Next question is from the line of Dikshit Mittal from LIC Mutual Fund.

Sir, my question is on new launches. So though you have maintained a pipeline of around 50 million square feet, 60 million square feet. But during this quarter, there was no new launching, particular reason for that?

No. Really, there is no reason except that we are in the final leg of -- some of them are in RERA registration, some are at the final leg of approvals. And -- so that is the only thing. There is no other reason per se. So we are pretty much on track. We are pushing hard on these launches. So I think you'll start hearing it from this quarter itself.

Okay. Because, sir, in your last presentation, you had mentioned 1 million square feet to be lost in first quarter itself. So that asking is there any approval-related delays or anything like that?

Yes. So there is a marginal delay. So -- because these were expected anyways towards the end of the first quarter, which is spilled over. So I think in the second quarter, you'll see these launches.

So sir, for full year, what is the kind of number that you're looking at in terms of new launches?

So in the next 12 months' time frame, we are looking at total, as I mentioned earlier, the target is actually by the March of this financial year to launch 16 million square foot. As I mentioned, Puravankara is about 6 million square foot, Provident is another 6 million square foot and then 4 million square foot is Purva Land.

Okay. And sir, in terms of target completion for this year, what is the target?

So this year, in fact, we have set ourselves up to deliver about 3,000 homes. And a lot of that delivery also -- so if you look at our numbers, operating cash flows have also gone up, cash outflows, which is basically our burn has gone up significantly. It's gone up by about 77%. So we are obviously really focused. So that's really picked up very well. Today, we have over 5,200 labors on our sites and it's only increasing by the day. So there is a lot of delivery planned in this year, 3,000 units minimum we should be able to achieve. That's the target we have set for ourselves. But most of it will possibly start coming from the third and the fourth quarter.

Okay. So in terms of square foot, can you give some -- any guidance?

I'm sorry, I missed that.

In terms of a million square foot, how many million square foot will be delivered or may be completed...

You can safely assume about 3 million square foot. I mean typically about 1,000 square foot average you can assume, and we should deliver about 3 million square foot this year.

Okay. But it will be back-ended, right? Because first quarter, it's only 0.1...

I mean it's all under construction because at the time when we hit the COVID and then the delays and all of that, so a lot of spillover happened and last year also, there was some extent of disruption. So I think now that is all streamlined, we should start seeing delivery in the third and fourth quarter.

Sir, lastly, what was the collection figure for the first quarter?

Total operating cash flows were...

INR 686 crores.

INR 686 crores, okay.

If you look at our presentation on Slide 15, INR 667 crore to be precise, the total operating inflow for the quarter. That includes -- to just for clarification, that includes about INR 450 crore from projects; for other businesses, about INR 100 crore; and the remaining from small other income.

Okay. And sir, lastly, what is the component of other income in your total -- that is reported in total sales INR 82 crores of other income?

So other income is -- see, in our business, other income is also related to -- these are other operating income. It's not other income from investment or interest or these -- interest or transfer charges, very small, about INR 10 crores. The rest of our income is from business operations, either from sale of the project or exit from one of the assets here and there. During the last quarter, entire income, barring INR 10 crore, is the transfer charges, interest, and those transfer charges also related to operating itself. If somebody is -- or we charge late interest fee from one of the customers, all that includes other income. During the quarter, beside the project collections, we have also collected about INR 112 crore from one of the commercial property itself.

Okay. And sir, lastly, for the full year in terms of presales, is there any targets that you are working with?

Sorry?

Sir, for the full year in terms of presales, any targets that you have in mind for FY '23?

No, we don't really give any forward-looking statements. But yes, I mean, we have given you a certain set of area and new launches, and you can compare with what we have done in the last year. Area sold was about 3.5 million square foot. And we believe that -- and INR 2,400 crores. Now if you look at our number in the first quarter itself versus the INR 300-odd crores, we are already at INR 513 crores, right? So you can do the math. But yes, it's looking good so far. And this is only from sustenance without adding new launches. So I think we'll have to wait and watch and see how the company performs. But yes, we -- internally, we have fairly aggressive targets.

Okay. Because the last 3 quarters, you are maintaining a run rate of 1 million square feet on an average. So in this quarter, we have seen additions on that front. So that's why I was asking, can we go back to 1 million square foot, 1.2 million square foot average for the -- for the full year, 4 million square foot to 5 million square foot?

See, let me answer it the other way around. Last year, in the same quarter -- see, this is normally April, May, June is our weakest quarter every year, and that's across the industry more or less, generally, unless you add new launches. But all of the sales has come from sustenance. And within sustenance, we have been able to do -- increase our square footage, and we've gone to almost 0.7 lakh square foot, which is 0.7 million square foot. So I think we see that trend only going forward with the addition of new launches going up.

The next question is from the line of Ashutosh Mittal from Axis Capital Limited.

So now that you are present in 6 big markets, what is the medium-term sales per market that you are targeting, if you can quantify the same?

So over time, let me break it down first business wise. So we're looking at about 35% of our business from Puravankara, 35% from Provident, about 20% coming from Purva Land, about 10% from Commercial. That's the general makeup of the categories we are present in and the brands. Now if you look at geography, today, a majority of our business comes from the south and a very large portion of this is coming from Bangalore. For some more time because of our land banking and because of our current availability of land, which are already in the portfolio and paid for, is from the same region, and of course, the largest portion of the south is in Bangalore, which is good news for us. Having said that, I think going forward, there is clearly a target that West is going to grow quite a bit. And while south will continue to do the square footage that it is doing and add to it, west will add disproportionate square footage because we've entered that market, and we believe that there is a huge opportunity for us over the next 5 years. So as we go around, I think in terms of value terms, if I look at 2 to 3 years' time frame, in next 3 years, we would expect sales of at least 25%, 30% from the west and then take it possibly even up to 40% to 50% at some point in time in terms of value. In terms of square footage, we will always continue to see south as being very, very dominant because values are lower compared to the -- that specifically Mumbai market.

Okay. So talking about Mumbai specifically, so you have hired senior industry resources for expansion there. So what does the BD pipeline in Mumbai look like currently, if you can put some light on it?

No, BD pipeline looks fantastic across the board, not just where it stands out. We're really, really focusing on it. A lot of term sheets, MOUs are in process right now, due diligence and documentation is being discussed. So obviously, as I mentioned, there will be a lot more value expected from the Western market. So therefore, if you will see this proportionate kind of acquisition happening from the Western market.

And there would be more of outright or JDA agreements?

A mix of both. It's a healthy mix of both. Obviously, outright purchases has its own advantage in terms of value and the margins and then JD, of course, allows you to do volumes. And it's an asset-light model, so it will be a mix of both.

Okay. And is there any specific amount that has been set aside or decided for new project tie-ups in west as well as in south, if you can quantify that number?

See, if you look at it from acquisition point of view, over the next few years, the kind of capital raise we are talking about INR 750 crores coming from the AIF itself. And then we are in discussions for multiple platforms for our residential commercial space, right? And in fact, IFC is also on board on the affordable housing side. So between all of this, we would estimate that we will be able to raise and deploy about -- our target is about anywhere between INR 2,500 crores to INR 3,000 crores over next 2 to 3 years' time frame.

Got it. And the last question from my end. So gross and net debt have been relatively stable over the period. So with number of projects and sales increasing, how will it trend over the next 18 or 24 months?

Look, I think a lot of our business, and I'm sure -- I mean you understand this, possibly even better you work across industries as well. Your overhead and multiple fixed costs get only reduced as you do the volumes, right? So it is, for us, very, very important that we have the bandwidth, we have, in fact, added the bandwidth to be able to do more and more volumes. So overall basis, I think we will definitely maintain or improve our margins as we go along and we do more number of projects and more number of launches.

And as far as debt is concerned, we maintain this kind of debt for last 1 year. However, kindly note that we are in growth phase and we have leverage to take opportunity in the market.

I think what we should look at from the debt point of view -- sorry, I missed that question maybe is that we look at it from a per square foot basis. So how much square footage do you have on the floor? And I think there is a healthy way of looking at it. And is your debt backed by project cash flows? Is it CF? What are you looking at with the debt piece? How is that debt going to help you unlock your equity, which is there in this 50 million square foot? So we look at it in that context. I think we are in a very healthy position. We've maintained the current levels. On a per square foot basis, as we go about with the launches, I think overall, you will see the reduction in the debt on per square foot. In absolute number, I think that is dependent on the quantum of business that we put out on the floor.

Our next question is from the line of Pritesh Sheth from Motilal Oswal.

Sorry, I joined a bit late. So 1 question on the cash flows. I see a reversal around -- in the investment by IFC, if you can explain what is that?

Good that you have asked this question. It's not a reversal. We have repaid IFC investment of INR 68 crore from the project collections. Rather, we have paid INR 100 crore, INR 68 crore of principal repayment to IFC. As you are aware, as we updated to the -- all the shareholders and the analyst community that IFC had invested in the 2 of our projects. In 1 project, we have repaid them about INR 100 crore during the quarter from the project receivables, and we have fully repaid them in the month of July.

Okay. And so what is the balance amount? I mean in terms of what -- how much you have paid in July additionally?

We have paid about INR 200 crore, INR 200 crores when complete exit to them from the project. They invested about INR 157 crore in that project, and we have given a full exit for INR 200 crore.

Awesome. And what was the time frame when they entered into this project and...

They entered into December 2020, the first investment, and the final investment in March 2021, and we have given full exit in July 2022.

Awesome. Great. And secondly, while we are in the last question you answered about your internal capability being increased. Firstly, I missed that slide where you generally give your details about pertain -- I mean, currently the ongoing project, what's the size? So maybe if you can add it next time, that's very helpful for us to understand how the business is scaling up. And secondly, since we have, over the last 2 years, invested a lot in terms of manpower, where the organization capabilities going ahead in the future? Like historically, we have build 20 million to 24 million square feet of ongoing projects at some point. Where do you see that increasing in future since we have invested in capabilities in the last 2 years?

So good question. I think from the way we are looking at using this leadership strength and the whole idea of the P&L structure is to really focus, and you're right on the delivery of the projects. Now if we were to look at our portfolio of total land bank that's available, which is in excess of 50 million square foot, and we are talking about 16 million square foot taking to market this year, then obviously, our expectation is that this 3 point -- say, 3 million to 3.5 million square foot should scale up minimum to 5 million to 6 million square foot over the next few years, right? But from the time I launch to the time we start delivering, there is -- the projects go under construction, but the delivery has to pick up only when the project completes, which is a life cycle, you can assume of anywhere between 3 to 4 years. So real deliveries you will start seeing in 3 to 4 years, in terms of delivery and revenue booking. But if you look at -- I think what we should really watch for is our sales numbers annually and the cash flows I think and the burn rate. If you look at these 3 numbers, and that continues to remain in the growth direction, the way we are planning, I think that should give a lot of confidence. And more or less, your overheads gets -- with this entire scale-up and strengthening that we have done, we should be able to bring in a lot of the efficiency there.

Right. I mean -- but I mean, just a follow-up on that. So the 23, 24 million square feet of ongoing projects that we have been doing that should obviously go to 30 million square feet, 35 million square feet to see continuous growth in sales numbers. Is it the right way to look at it?

What Mr. Abhishek said, I just would like to add to it. See, right now, what we have been managing over the period of time, you can see 20 million, 22 million square feet. By adding the leadership team, we also bifurcated the P&L and the businesses. Like you said, during the conversation, the PHL is another business vertical, Purva Land is another business vertical and for Puravankara is another business vertical. All put together, if you can look at the project, which is currently doing, which is ongoing, plus the launch pipeline. So everything is about to come for the overall business volume for the company. I hope I clarified the answer. If you look at the current projects under operation, plus the pipeline of our launches, this entire pipeline plus the existing project fully managed by the entire leadership team.

Yes, yes. Okay. Got it. And sorry, just a follow-up on the IFC repayment. So we have done that from our existing cash balance or we have generated enough cash flow in July and we have paid out from there? Just checking because -- so as to ensure that...

First INR 100 crore we have paid out of the project cash flows, and the remaining INR 100 crore we have paid -- we have taken a commercial paper of INR 100 crore, raised money from commercial paper and then we repaid to the IFC.

Got it. And that commercial paper, I assume, would be for a short-term 1-year, 2-year kind of...

Yes, yes, short-term, 30 days maturity period, which we are paying them in August.

Okay. So yield must be around 5%, 5.5%?

Yes.

See, this project has sold very well, and collections have been extremely robust here. So that really gives us the strength to be able to quickly pay back and negotiate a good exit.

Our next question is from the line of Niraj from White Pine Investments.

I have a question on your launch pipeline. All the launches that you are planning in future will be launched in March 2023, is that the right statement?

Will be launched by?