Puravankara Limited (PURVA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Puravankara Limited Q3 FY '23 Earnings Conference Call hosted by Axis Capital Limited. [Operator Instructions] I now hand the conference over to Mr. Samar Sarda from Axis Capital. Thank you, and over to you, sir.

Yes. Thanks, Nirab. Good evening, everybody, and welcome again for the quarterly conference call of Puravankara Limited. From the senior management, we are led by Mr. Abhishek Kapoor, the CEO; Neeraj; and Mr. Vishnu Moorthi. Gentlemen, congratulations on yet another good quarter on presales, and I hand it over to you for your initial comments.

Good evening, and welcome once again to Puravankara Limited earnings call for the third quarter. My name is Neeraj Gautam and serve as Executive Vice President of Finance at Puravankara Limited. I would like to thank you for joining us today. As a leading real estate company, we are proud to report our financial results for the last quarter and 9-month period, and we look forward to sharing our outlook and key initiatives with you, the result of quarter ending December 31, 2022, along with a comprehensive presentation have already been uploaded to the stock exchanges for your review. During this call, I will provide a summary of the key highlights of the quarter and 9-month's period. And my colleagues and I will be available to answer any questions you may have. It is many, we welcome any feedback or suggestion you may have. We are glad to report that company has made a strong start to the current fiscal year, and we are maintaining this momentum throughout this quarter. We are thrilled to announce that we have achieved a record high sales for the third quarter and for the first 9 months of this fiscal year, highlighting our strong brand presence in our markets. We believe and hope that we are at the peak of mortgage interest rate cycle, amidst uncertainty high interest and inflation in the western part of the world, our economy has some resilience and the latest fiscal budgets and monetary policy provide a stable outlook for our economy and growth. We see sustained strong demand, particularly for Grade A developers, that government's focus on infrastructure investment and housing for all, the budget is commendable. The steep hike in outlay for the PM Awas Yojana by 66% to INR 79,000 crores will give the much needed fillip to the affordable housing sector, an estimated growth rate of over 6% for the Indian economy for next fiscal year is likely to support the current momentum of sales in the real estate sector. Moving to the operational performance of the company during the quarter FY 2023 during the third quarter of FY 2023, collections from operations amounted to INR 742 crores, an increase of 87% compared to the same period in the previous fiscal year when collections were INR 397 crores. On a 9-month basis, collections for FY 2023 reached to INR 1,959 crores, a 78% increase compared to the same period in the previous fiscal year when collections were INR 1,100 crores. Concurrently, operating outflows also increased by approximately 78%, reflecting increased spending on project development to ensure timely and efficient completion. Coming to our debt management. Our prudent launch strategy has resulted in a decreasing debt per square foot on construction area, demonstrating efficient capital utilization. Over the last 4 years, debt per square feet, I would put an emphasis here, debt per square feet has decreased by approximately 49%, despite incurring additional debt of approximately INR 100 crores for land erection, our net debt has declined to INR 2,135 crores as on December 31, 2022. Coming -- moving to our quarterly sales performance. We are happy to report that we achieved the highest ever sales for third quarter of FY 2023, with a total of INR 796 crores, a 20% increase compared to INR 666 crores in the same quarter of the previous year. We sold 749 units, covering an area of 1.02 million square feet during the quarter, a 3% increase from the 690 units covering 0.99 million square feet sold in the same quarter of the previous year. Our sales were primarily driven by ongoing projects with over 90% of our sales booking coming from these projects during the quarter. Moving to our financial performance for the quarter. Financial results in the third quarter of the financial year 2023. Our consolidated revenue was INR 410 crores, which represents a 67% increase from INR 246 crores, in the same period the previous year. Our EBITDA for the quarter was INR 128 crores with an EBITDA margin of 31%. This is a significant increase of 51% compared to INR 85 crores in the same quarter last year. Our net profit after tax was INR 21 crore in Q3 FY '23, a significant increase of 12x compared to INR 2 crores in the same period a year ago. Coming to 9 months performance. In terms of sales, the company recorded its highest ever 9-month sales of INR 2,100 crores, a 33% increase compared to INR 1,576 crores during the same period the previous year. This was achieved by selling 2,078 units with a total area of 2.79 million square feet, which was 20% higher than 1,616 units sold in 2.32 million square feet for the previous year. Most sales came from ongoing projects. During the 9-month period, the collections from operations was INR 1,959 crores, a 78% increase from INR 1,100 crores in the previous year. Coming to the consolidated revenue for 9 months. During the 9-month period, company's consolidated revenue was INR 961 crores. The EBITDA for the same period was INR 325 crores, resulting to an EBITDA margin of 34%. Additionally, the profit for after tax for the 9-month period stood at INR 35 crores. Debt reduction and surplus cash flow reflects company's debt and financial stability. There has been a steady decrease in debt per square foot of the under construction area. So casing -- effective use of capital. Over the past 4 years, this debt per square feet has been reduced by approximately 49%. Additionally, even though repo rate has risen by 225 basis points in the [ 10-month ], the cost of debt has gone slight, only slightly increased in our case. As on December 31, 2022, the balance receivables from sold units in all launched projects was INR 2,643 crores covering more than 75% of our remaining costs for under construction projects, which was estimated to be INR 3,517 crores when combined with unsold receivables of INR 5,641 crores from the launch projects, the company is projected to have a surplus of operating cash flow of INR 4,767 crores, which is a favorable in comparison to current net debt of INR 2,135 crores. Furthermore, the company also had unopened inventory in existing projects with an estimated surplus of INR 2,007 crores. On business development side, the company has successfully acquired approximately 100 acres of land in Chennai in the quarter for a planned product development project. The project is expected to be launched in the next 6 months, and there are several other opportunities being considered for acquisition in the South and West. In general, the Indian real estate market is demonstrating robust growth and resurgence with the new facilities arising due to sustained market conditions. The Indian economy is displaying a stability, robustness, and we have a positive outlook on it. Our attention on our new projects, we will persist in expanding our operations while preserving a sound financial position. Our focus is on implementing environmentally, socially and government's responsible practices and delivering value for our stakeholders through openness, creativity, the strong management and brand recognition. We are optimistic about our continued improvement in the long run and our capability to offer reliable [indiscernible] cost-effective profitable and responsible growth. That concludes my statement. Thank you for all attending the conference call. Now we are open to answering your questions you may have. Thank you.

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

So my first question is what is the revenue guidance for next around 5 years down the line?

We don't give guidance typically as a process. But as you are seeing the trend, typically, I mean, from last year to this year, if you look at our numbers, this year, we already had INR 2,100 crores of presales, right? Now these free sales keep accumulating. And as delivery happens, they get converted into our revenue recognition and therefore, into our -- in terms of accounting, showing us revenue numbers. So as I said, currently, in this year itself, we have launched about 4 million square foot already. We are adding another 2 million square foot. The numbers that were shared by Neeraj a little while back. And in fact, if you look at our total revenue guidance in terms of the projects that have already been launched and will get launched. -- is to the extent of total value is total value that we are looking at in terms of adding in terms of 6 million square foot that we have looked at for the launch. And next question -- That's the surplus itself. Sorry, just the surplus itself, total top line will be about INR 4,500 crores other than what is already under construction and the revenues that have to be collected from the under construction projects. So if you just look at the top line that we will add with 6.28 million is INR 4,500 crores. So you can estimate that these projects will get completed between 3 to 4 years. Then we are adding -- we have given a launch pipeline of another 16 million square foot. That will again add a revenue potential. So potentially, you can calculate what kind of numbers we will be achieving on an annualized basis.

Yes. So that would give me the answer for the guidance, I guess. So on the guidance, but what would be the targeted debt levels and the debt equity ratio, if you can shed some light on that?

So our target is to continue to maintain debt equity level of under 1%. And as we have seen on a per square foot basis, we have brought down our debt numbers from about INR 2,500 a square foot to INR 1,291 a square foot, that's shared on Slide #30. Of course, given the fact that while we have reduced the net debt from INR 2,144 crores to, last quarter. INR 2,135 crores last quarter, we have also acquired land. So on an overall basis, if you look at it, the debt has gone down in the last quarter by about INR 10 crores. So it's a constant process in our business. That is something that works for us at a certain optimum level. So we are bringing those efficiencies in our cost of capital and at the same time, ensuring that the growth doesn't get compromised. So while the debt per square foot number will continue to decrease. And as I said, we are launching another 2 million in this quarter. We are launching another total of $16 million before the March of next quarter. I mean you can look at the per square foot debt coming down, and therefore, that adds a lot of value. And going forward, naturally, with its own tendency, the residential debt will continue to come down.

Okay. My next question is on the Mumbai market. So how was the response? And how do you see the Mumbai market, current and future potential?

I'm sorry?

The Mumbai market?

So Mumbai market, we have a team that we have a dedicated team that we have built for the Mumbai market. And we are looking at new acquisitions. Multiple proposals are under acquisition discussion. And we are looking at redeploying a lot of capital in that market between Mumbai and Pune. So as we go ahead over the next 2 to 3 years' time frame, you will see a clear shift in our acquisitions and therefore, over a period of time in our launches. So our goal is to increase. And over the next 3 to 5 years' time frame go up to 30% to 40% of our presales coming from that market.

Okay. I would say. And last question, if I can add is, can you shed some light on the commercial projects? And what would be the commercial-residential mix in the years to come?

So our overall, from a group's point of view, I'll just give you a broad guideline of how we look at our revenues or presales number coming from. About 35% of our business will come from Puravankara, 35% will come from Providence. Of course, the square footage in Providence will be higher because per-square foot realization will be lower compared to Puravankara. About 20% of our business will continue to come from clouded development and about 10% will come from commercial. Having said that, obviously, commercial, there will be a [ lease and hold ] strategy other than one project that we have right now, which we're looking at [ started ] selling. So as we go along, that number will increase.

The next question is from the line of Mihir Desai from Desai Investments.

Sir, my first question would be around EBITDA margins. So if you can give some color on how the EBITDA margins and PAT margins are going to be or what is your expectations for each project or I must say, product mix?

See, if you look at our current debt is at 34% for the quarter -- for the quarter. And typically, in our Puravankara [ Providence ], we earn an EBITDA margin of 30% to 32%. In Provident projects, we earn an EBITDA margin of 22% to 25%. And a plotted project, we earn EBITDA margin of 35% to 40%. -- that's broadly EBITDA margin for our different products. As far as PAT is concerned, PAT is a function of multiple things. It's all -- as you know, the real estate account revenue recognition and profit reporting is based on accounting [indiscernible] 115. PAT will be the function of the kind of operating expenses we are incurring in a quarter sales and marketing overhead vis-à-vis, the kind of units and number of units we are delivering in a particular quarter and recognizing with the [indiscernible], I hope that clarifies my answer. [indiscernible].

Yes, sir. one another inventory [Technical difficulty].what is the ready to move...

Mihir, sorry to interrupt you but we are losing your audio. Request to come in a better reception area, please.

Yes. Is it better now?

It's still the same.

Okay. Hello?

Yes, please go ahead.

Yes. So sir, if you can also give an indication on how much is our ready-to-move inventory left from our newly launched projects?

If you look at our slides in our investor presentation, Slide #14 and Slide 34 and 35 are ready to move in inventories very less, is 0.29 million square feet left and our inventory from ready and we have an inventory from ongoing projects as we say on 31st December 2020 was 6.9 million square feet.

Okay. Okay. So sir, supply shouldn't be a constraint for us, right?

Of course, not. And what it meant is inventory left only 0.29 million square feet mean is over the last 2 and 2.5 years, we have completely sold our ready-to-move-in inventory. And right now, our launch inventory is already 6.9 million square feet, which is a good decent inventory. Besides this, as Abhishek mentioned some time back, this financial year itself, we are adding another 2.5 million square feet by launching new projects in the Q4. Besides that, our launch pipeline is on Slide #20, which gives information that 16 million square feet we are targeting to launch in the next 12-month period from now. And hence, there will be no [ depth ] of supply at a different product segment from Puravankara, Provident and product development.

Sir, and lastly, on cash flows. Sir, can you give us some projections of cash flows for, say, 2, 3 years down the line?

If you look at our Slide #25, which gives a kind of trend that what kind of cash flow we are generating quarter-on-quarter basis on a 9-month basis or year-on-year basis, we have been generating post-operating surplus for the last few years by now. If you look at 9 months period, we -- our cash flow from operations has grown by 78%. And trend is very visible. Every quarter we are surpassing substantially previous quarters of collections. Now what kind of cash flow we can generate, is the trend you can see by spending on my construction and development cash flow is coming [indiscernible] besides that, if you look at our Slide #27 in our presentation, that gives a kind of estimate the potential of cash flow, which our business can generate in next financial year in coming to 3 years.

The next question is from the line of Ronald from Sharekhan Limited.

So my first question was on this new business development. So can you elaborate what kind of developable area would be there for this Chennai project? And how much money has been spent on this project and how it was funded?

So it is 100 acres. Total deployment in the project is about INR 200 crores. We are looking at generating a little over 3 million square foot of development area. And the total development potential will be about INR 750 crores.

Okay. Great. Great. And you also highlighted that it will be launched in the next 6 months. So has the management been looking for business development, which can be launched at a much faster pace, say, within 6 months? Or is this kind of a gap in [ timelines ] you have set for yourself that new business development should come to the launch pipeline within 6 months or, say, within 9 months' period?

You're absolutely right. So one clear business development parameter, which we look at before deploying any capital is that the project should be launched within 6 to 9 months from the date of deployment. So all our new acquisitions in Provident, Puravankara or Purva Land are focused on ensuring that we have visibility on the sanctions, which is in a shorter period of time so that we can take the project to market. And in terms of the acquisition strategy, we are looking at both land, joint development, both the opportunities, both in terms of greenfield and brownfield projects, which are coming our way. So on both asset-light and capital deployment side, acquisition side, we are looking at it. So yes, that's the broad structure.

The related question would be, sir, you have generated strong cash flows and our debt levels are comfortable. So have you put a number to the cash flows that X amount of these cash flows will be used in business development and business percentage should go in construction. So what kind of money you would spend per annum, say, as a percentage of cash flows of which you want to project it?

So if you just simply look at the last 9 months number, where we generated an operating inflows of about INR 2,000 crores, the total operating -- total land payments made were about INR 200 crores. We see this kind of trend continuing in terms of our acquisition strategy. We'll continue to deploy money into new acquisitions, other than, of course, operations and some capital goes towards direct reduction, et cetera. But we'll continue to deploy this kind of money.

There is no fixed percentage. However, as Abhishek mentioned, the business development is also important. At the same time, we -- our cash flow and our outflow -- operating outflow presented on Slide #25 gives in a detail that what kind of focus we have on completing the construction of our ongoing projects and deploying our collections towards constructing and competing our projects. Hope that clarifies your question.

The line for the participant dropped. We move to the next participant. Next question is from the line of [ Srinath Gandhi ] from [ RF Fincap ].

Number want to understand how are the Mumbai project from the diversification perspective how are Mumbai projects performing? And what are the growth plans for Mumbai as a -- western as a micro market in terms of new launch plans?

So we have launched 2 projects in Mumbai, 1 under the brand Puravankara in Chembur called Clermont and another one in Shilphata, Dombivli called Palm Vista. For our expansion plans, we are looking at multiple strategies. We are looking at outright as well as JDA structures and society redevelopment. So we are -- we have a robust pipeline of projects in all 3 areas and depending on the kind of margin and the kind of transactions because we are very much focused on ensuring that we have profitable business and keeping in mind our strengths. We are looking at all 3 categories of projects, which is JDA, outright and society redevelopment. Each has its own advantage and we will go with what kind of feasibility we see in the pipeline. And we will see this deployment happening over the next 18 to 24 months.

Next question is from the line of [ Anushka Katri ] from Value Investments.

Congratulations on a very good set of numbers. Sir, I had a couple of questions. So we are seeing interest rates rising, have you noticed a decrease in say traffic to the site, any particular trends that you've noticed? And say, if the rate was to rise further, at what point do you think it will start affecting our demand?

So I think 2 things. If you look at our sales, almost 80% of our sales, over 80% of our sales are in the sub INR 2 crore bracket. -- right? And you can see that and refer to Slide #14, and he'll give you a breakup of the geography and the average ticket value of our units. So in terms of increasing interest rates for now, to answer your question, we haven't seen any decrease in demand because of increasing interest rates. As you can see that in the numbers. Also, we believe that we are now in the tapering off cycle of the increasing interest rates. I mean the last increase is at 25 bps. We are hopeful and positive that there may be no further increases from RBI. Having said that, the impact of this increase, which is happening on the repo rate and the EMIs -- if you look at and you do the numbers, the math stacks up in a way where increments of salaries and income on an annualized basis versus increase in EMI easily gives enough headroom for customers to continue to buy. And the other factor, which is very interesting, which we have seen is that the consumers are now very, very aware that over a buying cycle, which lasts almost 15 years to 20 years, though average repayment now has come down between 11 to 15 years for loans, bank loans. Consumers have become really, really sharp in knowing how they want to manage their cash flows and how they want to repay their loan because there's a lot of flexibility today available with banks in terms of the product itself. So on an overall basis, our view at this point in time is, even if there is an impact, it will be marginal. And for now, we are not seeing any real change on the ground.

And besides this, for our Provident customers by the break given income tax limit government has announced the increase in taxable limit for -- in this budget. That will also leave some more money in the hands of our customers, and that will enable them to set [ off ] any increase any EMI because of the increased interest rates.

Sure. That's very helpful. So another thing, do you have any new locations for integrated development like in Delhi-NCR or any others?

From a geography point of view, we are very focused on South and West. Our goal or general focus is on 5 markets, which is Chennai, Bangalore, Hyderabad, Mumbai and Pune. The rest of the markets, we will continue to deploy more opportunistically. As far as North is concerned, that plan is always on the anvil, but we haven't really moved in that direction at this point in time. Our clear focus is to go deeper in the markets we are present in. And of course, right now, really big focus is on the west. So we want to scale up the West business as we speak.

Sure, sir. Got it. Okay. Sir, just one more, if I could please. Sir, what is the outlook for JDA with regard to, say, new project acquisitions over the next 1 or 2 years? And do you think the field is becoming more competitive from our bidding perspective?

That's a healthy way of actually doing business development. It should be a healthy mix between outright transactions and joint development and, of course, redevelopment in markets like Mumbai. So we see JDA as a continuing process. There are a lot of people who deal in land, and that gives us opportunity to developers like us. But as consolidation has happened, there aren't enough developers in the market who everybody will trust. So as you may see, the consolidation has happened in consumer demand, which happened in capital, and it's also happened in land. So the number of people who are approaching the developers because there are a limited number of developers. It is much higher. So we don't see that as a challenge at all for a strong brand like ourselves.

Sure, sure. And sir, would you be able to share the total revenue breakup of [indiscernible]?

Share the detail offline.

Yes, we can share the detail offline. But yes, I think for us, the big focus is really [indiscernible],and we will continue to see growth happening there. We can share that separately.

The next question is from the line of [ Harish Shah ] from HS Capital.

Hello.

Yes, Harish. We can hear you.

Thanks for the -- yes, yes. [indiscernible].

Hello. Harish, voice is breaking.

Can you hear? Hello.

Harish, I can hear you what your voice is breaking. May I request you to come in a better reception area? Or do you join the queue, please?

[indiscernible].

The next question is from the line of Nikita Mehta from Newland.

I just had a couple of questions, very broad based. I just wanted to check with sir what are your thoughts on the current market, Mumbai market potential? And how do you see this growing further -- just your thoughts on this?

So we believe that Mumbai market is poised for continuous growth. Multiple infrastructure initiatives are currently underway, which we believe will make a huge difference to the movement of people and therefore, economic activity in Mumbai whether it is the coastal road or whether it is the Nhava Sheva Shivadi link or the new airport or the metro stations or the new flyers connecting BKC. So there is tremendous infrastructure that is going on in Mumbai. And we believe that, that will make it the livability and the quality of life will significantly improve for people in that market and it will continue to attract talent and people as the city becomes a larger and larger [ megapoly ]. So we believe there is a huge opportunity in Mumbai, and that's why we want to be there, and we think that the market is going to continue to grow.

Okay. Sir, and also, what is our breakup in terms of JV own development to development in terms of total sales? And do we see a change in this mix? Or are we going to continue with the same?

I think this information we can share offline. But it's -- on a broad stroke, I can share with you that our strategy on all 3 counts will continue. Of course, in Mumbai, we will be a lot more focused on society redevelopment.

Okay. Okay. And sir, what are the deal levels that we are looking at -- like any guidance in those terms?

In what sense would you elaborate?

[indiscernible].

Deal size you are saying?