Signatureglobal (India) Limited (SIGNATURE) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Signatureglobal India Limited Business Update Conference Call hosted by ICC Securities Limited. [Operator Instructions] Please note that this conference has been recorded. I now hand the conference over to Mr. Adhidev Chattopadhyay from ICC Securities Limited. And over to you, sir.

Yes. On behalf of ICICI Securities, I welcome everyone on the call today. As always, from Signatureglobal India management, we have with us Mr. Pradeep Kumar Agarwal, the Chairman and Whole Time Director; Mr. Lalit Kumar Agarwal, the Vice Chairman and Whole Time Director; Mr. Ravi Agarwal, the Managing Director; Mr. Devender Agarwal, the Joint Managing Director and Full Time Director; Mr. Rajesh Kathuria, the Chief Executive Officer; Mr. Sanjeev Kumar Sharma, the Chief Financial Officer; and Ms. Preetika Singh, the Head of Investor Relations. I now would like to hand over the call to the management to take us through the recent announcements, which we have done and go forward for the company. Over to you, sir.

Thank you. Thanks, Adhidev. Good morning, everyone. Welcome to Signature Global's investor call. RMZ and Signature Global are setting HT for transforming commercial platform in the NCR through a strategic joint venture in Gurgram. This partnership mark the beginning of institutional grade commercial ecosystem in one of India's fastest-growing business corridor. By combining Signatureglobal NCR market expertise spending land accretion, accruals and acquisition with RMZ global capability in design, development, leasing and asset management. We are creating a scalable rate form for future-ready commercial assets. This collaboration is designed to be redefined the Gurgram's skyline and build enduring commercial destination in Delhi NCR. This is a significant milestone and ARP growth January. India's commercial real estate sector is on a strong structure upcycle. The market is projected to expand from approximately $60 billion in 2025 to nearly $250 billion by 2034, reflecting robust long-term growth fundamentals. India continues to be one of the fastest-growing office market globally with annual leasing of 50 million, 60 million square fit in recent years, demand is being led by global capacity centers, IT, ITS, BFSI and multinational corporation. Total office stock has surpassed 800 million square feet with sustained additional of 3D supply across leading cities. Within this landscape, Delhi NCR remains a dominant office market and Gurgram stand out with our 100 million feet office stock, stable rental, healthy occupancy level and strong demand for global corporate. Southern periphery is emerging as the next commercial growth corridor supported by strong connectivity to Barcares, NH-48 and Gulf Coast extension load along with the ongoing infrastructure upgrades and metro expansion plans. At Sector 71, this joint venture will develop a landmark mixed-use commercial project comprising premium retail, grade office space and world-class hotel designed to meet a global standard of quality and sustainability. For Signatureglobal, this marks a strategic expansion beyond residential development into large-scale commercial real estate through an institutional partnership model. Over the year, we have delivered over 16 million square feet across multiple residential segment with a disciplined execution, governance and customer-first approach. This foundation positions us strongly enter the commercial segment with our confidence and long-term business. Together with RMZ, we aim to create a high-quality commercial platform that delivers sustainable value for our investors and stakeholders. With that, I now invite our CEO, Mr. Rajesh Kathuria, to share further detail on development. Thank you for your continued trust and support.

Good morning, everyone. Thanks for joining the call today morning. So over the years, we've always focused on the housing business. In the last 10, 11 years, we've always worked around a build-to-sell model. And we've evolved our way through in the housing business to achieve a particular sweet spot wherein we've preferred to stick to the NCR region as well as we prefer to stick to the mid-income housing market. Over a span of time, the definition of mid-income housing may have drifted a little with prices have -- of land and construction have gone up. So mid-income today stands at higher price points than what it used to be there about in the pre-pandemic era at least. But by and large, the housing business has seen very good growth. We understand that business very well, and we've created a very strong brand name positioning and very strong execution capabilities around our housing business. And for a while, we were looking at newer growth opportunities where once we get into a business, we can scale it to much larger heights. We've been good with -- in the local market with land acquisitions, approvals, execution capabilities, but there was a missing link with regard to project conceptualizing some of these large-scale heavily capitalized projects and also with regard to leasing capabilities. And that's where we were under a lot of debate internally on what's the right way to commence such a journey. So I think after a lot of deliberation, we kind of met the folks at RMZ. There was a lot of meeting of minds and synergy with our skill sets. So we decided to set up a platform with the RMZ group. I think we saw very complementary skill sets because exactly what we wanted was what we were getting in terms of this partnership. They've executed more than 70-plus million square foot of projects till date and are very actively expanding on the back of institutional capital across the country. have limited presence in NCR region, but see a huge potential right now to expand and do much more business in the NCR market. And the first choice even at their level is to look at the Gurgaon market, which can very safely be called as the CBD market for the entire NCR because bulk of grade A office spaces are sitting in Gurgaon right now. So with this broader sort of agendas taking in -- for both the groups, we decided to initiate this partnership. So if I have to talk specifically around the deal, we have 100% subsidiary called Gurugram Commercity Limited. In our investor presentation, we've detailed our land portfolio in Sector 71, which is on the southern periphery road of about 18.5 million square foot, which emerges out of some 90-plus acres of land rights stope ownership. Out of this 18.5 million square foot, we've been conservatively calling out about 7 million square foot of development within Gurugram Commerce City Limited. The actual numbers as it is kind of getting closer to design is higher than our initial estimates. But in the $7 million, which was initially guestimated as the development potential, there is a component of residential, which is about 30% of the development in this SPV and about 70% pertains to commercial assets. So that's what's permitted within this as part of the plans for this particular land parcel. So what we intend to do is to carve out the housing business into a parent entity and continue to do housing business 100% ourselves. That's a core business for the last decade. But on the commercial side, once we carve out the residential business, the commercial development, whether it is office space or retail or hotels of -- technically, okay, about we thought initially $5 million, but actually, it's going to be closer to $5.5 million is something where we are partnering with RMZ Group. So GCL from currently being a 100% subsidiary, we signed up the transaction. We have to do a certain set of -- achieve certain conditions prior to closing, which can't estimate an exact, but we are hoping that over the next 45 to 60 days, these conditions will be met. We will offer 50% stake to RMZ Group in GCL. As of today, there is land in this company, and we are at very advanced stage of approvals. But at the stage, and we intend to design it together along with the RMZ Group. They will invest roughly about INR 1,283 crores, subject to minor adjustments. But by and large, close to INR 1,280 crores for a 50% stake in this entity. These funds will primarily flow back to Signature because we've given a lot of loans into this entity right now or there are some third-party loans so they'll be squared. But by and large, once the transaction gets done, both the partners will own about 50% each in this particular SPV. And hopefully, by and large, this will be a debt-free cash-free venture as we started. There could be minor debt or cash, but by and large the intent is to keep it detain cash free. The intent is very clear. This is a starting of a long journey. We are starting with about 5.5 million square foot of development, which we intend to do together. This development will be funded through a mix of further equity infusions, which may be needed and will be done in equal proportions by both the companies. But we'll also be raising construction finance for development of these core assets. The plans are yet to be finalized, but by and large, the asset base getting created under GCL will be from a leasing purpose. The idea is to create a yield play in this business. And also the intent is to grow this entity. Since we are very strong in this region, we do keep coming across good land parcels, good opportunities. And we are quite hopeful that this is just a beginning. We can actually scale up this venture significantly over the coming 4 to 5 years. With the start of 5 million, we see an opportunity here to grow this to, let's say, $15 million to $20 million over the next 4 to 5 years in terms of its portfolio size. And once developed, it will be a significantly large business in itself. The intent is to maintain 50% stake by both the parties, neither do RMZ wants to dilute or nor do we want to dilute and both the parties are fairly confident that equity can be infused into this entity at a comfortable pace by both of us. Talking about ourselves, see we -- currently, if you look at our portfolio of just -- if you just look at part of the portfolio, which is like recently launched and forthcoming projects, which is roughly 42 million square foot, that is expected to create a GDV in excess of INR 65,000 crores. We've partly achieved some of these sales and rest are expected to be achieved over the coming, let's say, years. This leaves us with a massive operating surplus. And hence, the idea is that we deploy only a portion of it into GCL and start creating a yield portfolio alongside RMZ in this entity. I think by and large, that's the thesis, and that's the background to this trade. Just to add on, I think the residential business, which we are carving out of this entity that in itself is significant. We'll have another saleable area within that development of anywhere between 2 million to 2.5 million square foot, and that in itself has a GDP potential of about INR 5,000-odd crores. But that's kind of coming as part of this overall numbers we've shared with you as far as Investor Day. We were hoping that this deal gets closed before our previous call, we would have managed to do the entire update at one go, but the last minute signing took a week longer, and hence, we thought we'll set up another call, and that's why thanks again to all of you for joining this call today. But happy to address any questions which you have with regard to this trade or with the intent of this partnership or anything again with regard to our core business, happy to address each one of those queries.

[Operator Instructions] We have the first question from the line of Murtuza Arsiwalla from Kotak Securities.

Sir, just 2, 3 questions. One on the INR 283 crores, which is there. Can you give us a breakup on what is the fresh money that's coming into the entity, what is the stake that is being bought any breakup out there. And you put in a number of the value being -- of the entire development being close to INR 14,000 to INR 16,000 crores. Could you give some building blocks around that? What is the rental expected? What are the time lines that you are looking at in terms of completing this project, et cetera?

Sure, Murtuza . So Murtuza, the broad contours around the stake being offered and the consideration are the 3 we won this entity to have or, let's say, on the closing date, the intent is the SPV will be able to establish almost close to 3.9 million square foot of FSI and about 5.5 million square foot of tentative leasable saleable area in that SPV. We also intend to make it debt free and cash free. There are set of existing loans in this entity, there are certain payments which are supposed to be made to the revenue department, DTCP Haryana with regard to this particular development. So we are just kind of crystallizing these liabilities and achieving certain other conditions. To the extent, we have 2 clear liabilities in this entity, which is expected to be upwards of about INR 1,000 crores. We'll seek that much money in form of a primary infusion into the company. And this INR 1,000-plus crores then either goes -- a small portion of it maybe goes to DTCP or -- and bulk of that money comes back to SGIL because we've given a fair bit of loans into this SPV till now. So about INR 1,000-plus crores will be in the form of primary infusion. The balance will be in the form of secondary stake sale of investment by SGIL to RMZ both put together will add up to 50% stake being offered to RMZ. But as of today, we cannot exactly determine the quantum of liability on the closing date, and hence, that split is -- will be available once we are closer to closing. So that's on the deal contours. As far as the project development is concerned, this 5.5 million, Murtuza, will be anchored around an office space development. As of today, SPR is emerging like the mixed critical CBD like area after Cyber City in Gurgaon, I think this is a sporting maximum traction in terms of commercial developments, the upcoming infrastructure the way it has come up, whether it is very good connectivity to Gulf Coast and Gulf Coast Extension Road or to the solar road or to the actress market or to the NHA. So which kind of probably best positioned or most weekly positioned in terms of the infrastructure of the city as of today. So this will be primarily anchored around office spaces of about, let's say, 3.5 million to 4 million square foot. -- the balance area will be a split of either retail spaces, which could be in the form of a very high-end design district. The concept is being worked upon very closely by both the sites. And there'll be maybe 1 or 2 hotels in this SPV. So that's about 5.5 million square foot of development. The guestimated rental and capital value per square foot post development is in that range of INR 26,000 to INR 28,000 per square foot, engine closer to INR 30,000 a foot is what has been estimated by both the parties.

Right. But this INR 1,000 crores, has it been paid and there is a loan payable to Signatureglobal? Or this is still money payable, the DTCP approximately INR 1,000 crores?

No, no, no. This is a bulk of this is money which -- so this is like a lot of investment which we initially made to acquire the shed and to acquire the approvals. DTCP will be a smaller fraction in this entire sum. -- but effectively, Murtuza, we'll have almost like INR 1,000-plus crores post any sort of DTCP payouts or even taxes, which will clearly accrue to Signatureglobal or by and large, you could say that the net debt which is sitting at about $10 million today should come to a 0 level or maybe a negative level once we close this trade.

We have the next question from the line of Pritesh Sheth from Axis Capital.

Congrats on the transition. Just firstly on this in INR 1,000 crores. If I recollect well, I think we acquired this 93-acre pole of 93-acre at around INR 1,200-odd crores. So correct me if I am wrong, so in that sense, will we only get the opportunate payout? Or this INR 1,000 crore will completely be utilized to pay for whatever liabilities that whole 93-acre had. Second, on the retail piece, right? I mean, RM have developed the office management capabilities, but what's the intent on the retail side. Will it -- will those capabilities be jointly developed by both the companies Yes. So those are my 2 questions.

So Pritesh, the entire 71 acquisition, you happened at much, much lower values than what are being discussed right now. I don't have the exact numbers right in front of me, but yes, I think we've overall acquired -- so this 18.5 million square foot is by and large owned by us. There is a very small portion of JD's bulk of it is owned by us and the balance is in the form of collaboration. The acquisition or historical costs are much lower. This particular entity was -- within our acquisition bucket, price relatively higher, but much lower than the current values. I don't have the exact number, but I don't think we've acquired this entire 25 acres for more than, I think, INR 500-odd crores would be like a tentative acquisition value, but we've invested on top of it. We paid some amounts for getting approvals. We've held this land for a little while now. But yes, I think once this transaction consummates, we -- a lot of the money will flow directly into the -- it will be like an upside for us. So definitely, the historical cost is much lower. As far as the capability set is concerned, yes, I think office space -- office is something where RMz has massive leasing capabilities, and we'll get to leverage that capital capability. On the retail side, I think that capability at their end is being built up. They are -- they started doing a bit of retail, not like a mall format or a box format retail, but more in the form of high end retail spaces.

Got it. Just a couple of follow-ups. On the rental side, while you gave the capital value of INR 30,000 per square feet, if I ballpark calculate, it should translate to around INR 250 per square feet rental or no, I think 200-odd square feet per month as the rental assumptions that you would have made? And what would be the CapEx and the completion time lines for this?

So on the office side, I think the rental expectation 5 years hence is in the range of INR 125 to INR 130. On the retail side, of course, it is much higher. It could be INR 250 plus what we -- and time line-wise, I think it should take about 5 years from the start date to get the project completed. We -- I do not want to give a particular number, but yes, hard cost will be in the range, your and my estimate will be not very different. But since that entire design is yet to be frozen, we haven't yet come to a detailed cost budget for the development. But all of us know the range in which hard costs typically line up for projects like this.

And in 5 years, you said for the entire project, 5.5 million square feet or it will come in phases?

Mostly, see, it will be single phase driven. There could be a bit of there could be some bit of -- some towers may come earlier than later, but til plen level and from a services perspective, everything is single phase. Then we can always say on the commencement date, maybe we are starting something earlier in some other tower a little later. But yes, we'll be able to commence bulk of this development within 5 years.

We will take the next question from the line of Parvez Qazi from Nuvama Group.

So the first question is, I mean, when you said that of this INR 253-odd crore, ballot will come to the parent companies -- can we look at this transaction in a way that maybe the 80, 19-odd acres of land, which is under this SPV, RMZ has kind of valued that landed about INR 1,200 crores. Would that be a fair way to look at it?

So 50% of that is getting valued at INR 120 crores -- they're taking 50% of that.

Sure. And what would be the accounting treatment for this entity, let's say, 5 years down the line? I mean if we maintain a 50% stake in the JV, you will do it as a share of profit from the JV? Or how will it work?

I'll ask Sanjeev to answer this. I'm quite bad at accounting.

So what will happen as is that twofold accounting. One for the sale of stake on a consolidated basis, it will throw a profit vis-a-vis the book value and this INR 128 crores. And when it comes to the accounting for the consolidation, it will be an equity accounting, which will be 1 line in the balance sheet as an investment, fair valued every quarter or profit and loss adjustment every quarter, not fair valued. And 1 line in the P&L, which will be profit from this entity, just like a joint venture because no one of us will have a control -- direct control on this SPV.

Sure. And lastly, when do we expect to start construction here?

Within this calendar year itself, I think, over the next 6 to 9 months is when we intend to break out.

we have the next question from the line of Adhidev Chattopadhyay from ICIC Securities.

So just to follow up on the previous question on the accounting. So this will be primarily a joint venture and any loans or debt, right? -- will be off the books during consolidation? Is that the correct understanding here?

No, it will not be. What will happen if in future, any loan is given because the current loan will get scared off with this around INR 1,000 crores infusion. But in future, if whether we or RMZ gives any loan to this SPV, that will go as a loan line item only as if it is given to third party.

Okay. So sir, just to just to reclarify here. So the money which will be coming right now, right, net of the costs, right, for DTC and other approvals, the money will come to Signatureglobal parent, right? And any incremental CapEx, right, which the Signature and RMZ will do, you will have to infuse equity again in this SPV to do the CapEx? Or how does it work apart from the construction financial may take at the SPV level?

Yes. So Adhidev, that understanding is correct, once that an action gets closed and all money reaches whichever place it has to reach, the entity will be sitting with an approved land with the development potential we've talked about almost on a debt-free cash basis. Hence, going forward, any -- the construction will be funded through construction finance. -- and the differential will be funded in the form of equity stock loan from the 2 partners.

Okay. And just to again clarify the residential component, which you alluded to, right, which will be less. So there will be no cash flow, which will be flowing from that in needed to this entity, right? That is an independent project which will work on its own terms, right? Is that is the...

Yes. Residential business as an undertaking will be moved to our parent entity prior to this transaction.

Okay. Okay. And just a final question. So for all these things, is there any tax liability which would come to Signatureglobal at the parent level? Or if it will all get settled against the outstanding loans and whatever the interest carry which was there?

So, Adhidev, as far as tax is concerned to the portion which Signature Global India will sell, there will be a capital gain because we will be completing very soon 2 years. So it will be a long-term capital gain tax on that. But as far as INR 1,000 crores or around INR 1,000 crores is concerned, there will not be any tax outflow -- but definitely, in the books, there will be deferred tax liability equivalent to the long-term capital gain.

Okay. So the -- okay. So I understand, okay, the cash portion will be solid for the secondary sale, not the primary part, right?

Yes, you are right. Nothing will be there on the primary side. because in the tax, it will be considered as infusion of fresh equity by 1 party to the entity.

[Operator Instructions] We have the next question from the line of Sukrit PatafromiSih Penetrate Limited. I have 2 questions.

My first question to Mr. Rajat is beyond the demand guidance, how will Signature Global manager uncertainties in customer acquisition and financing, what signals will guide our approach to sustaining affordability while protecting the margin? I want to understand your point of view on this. That's the first question. I'll ask my second question after this.

No. Sorry, I didn't fully understand. This is -- this question is regarding the housing business. So how are you -- what was this question regarding or acquisitions in the commercial business?

I'm asking about how you will handle the risk in customer demand and financing, not just growth plans? And what signals will guide affordability and margins?

Sorry, I'm still not clear. I haven't understood what you really want to understand.

No worries, I'll come back to the Aarding which business you're talking.

Okay. Maybe we can talk offline on this. And what's your second question? Let's take this offline. That's okay.

As there are no further questions from the participants, I now hand the conference back to the management for closing comments. Thank you, and over to you, sir.

Yes. Thank you very much, everyone, for joining the call today. I would just want to reiterate that we are feeling fairly good as far as the performance of the housing business is concerned. We've grown that business significantly over the last couple of years. And we've reached a good situation in the business where we are now seeing strong collections. And for the coming calendar year, strong collections happening, good pace of completions going on. And sales are keeping steady. So all those 3 parameters, we're seeing good performance. And this seems like a good timing for us to enter into a new business and nothing better than partnering with a group like RMZ for one of our existing large land parcels. And what it also does is that it puts into production, a significant portion of our land stage resource. So out of this 21 million square foot of land which was coming is forthcoming, we've mapped out another 7 million square foot of -- 7-plus million square foot of utilization between commercial, office spaces and the housing business, which is now with advanced approvals will also come to a launch stage sometime in the calendar year. So it's another $7 million to $8 million, which is kind of coming into production. So it really makes our cash flow situation very robust from our medium-term perspective. So we are quite excited and enthused around this new business and do intend to scale it significantly in the coming years. Thank you very much. Thank you, members of the management. On behalf of ICC Securities Limited, that concludes this conference. Thank you all for joining us today, and you may now disconnect your lines.