Sobha Limited (SOBHA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Sobha Limited Q1 FY '21 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Adhidev Chattopadhyay from ICICI Securities Limited. Thank you, and over to you, sir.

Yes. Good evening, everyone. On behalf of ICICI Securities, I'd like to welcome everyone today to the Sobha Limited Results Call. From the management today, we have with us Mr. J.C. Sharma, the Vice Chairman and Managing Director; Mr. Subhash Bhatt, the Chief Financial Officer; Mr. Ramesh Babu, the VP, Finance; Mr. Vighneshwar Bhat, the Company Secretary and Compliance Officer; and Mr. Tejus Singh, the Head of Investor Relations and Finance. I would now like to hand over the call to the management for their opening remarks. Thank you.

Thank you, Adhidev, for hosting this conference, and good evening, ladies and gentlemen. We are pleased to connect with you today post declaration of our unaudited financial results for the first quarter ended 30th June 2020, through this con call. We have already shared the details of operational update of the company in the first week of July 2020. The investor presentation based on the financial results, adopted by the Board and approved by it, can be downloaded from the website of our company. The year 2019 was already a difficult year with low economic growth and palpable slowdown in business activity over multiple years. Our GDP growth of 4.2% in financial year 2020 was the slowest in 11 years. And in such a fragile economic environment came the COVID-19 crisis. The pandemic emerged as the biggest societal concern of our times, and everything else took a back seat. The Indian government did respond by imposing one of the strictest lockdowns globally. Barring essential activities, everything else had come to a screeching halt during this lockdown period. We are already in gradual unlocking phases across the country, and the government has also announced fiscal stimulus measures to alleviate the economic pain. However, the rising number of COVID-19 cases in the country and reimposition of lockdown in some major cities highlights the prolonged pain this pandemic will continue to inflict on lives and the livelihoods. The real estate sector has been amongst the worst affected with demand taking a severe hit on account of job losses and pay cuts. The lookdown and subsequent reverse migration of labor has severely delayed construction work leading to extended project cycles and the dent on developer profitability. While the 6-month moratorium on term loan has provided a temporary breather to home buyers and developers, stressed NBFCs and risk awareness of banks has only exacerbated the liquidity crunch for the sector. The COVID pandemic has brought the spotlight on exploring the benefits of digital platforms and has enabled the real estate industry to leverage different technologies to build an enriching experience for the customers. With the changing environment, customers keen on buying an apartment are more likely to go online to seek information, interact and even close the deal. The digital growth has acted as a savior to the industry and has helped us to tide over the liquidity challenge by ensuring new sales and collections. While home loan interest rates are all-time low, higher risk perception and consequent increase in interest spread by some banks has derailed the gains of 115 basis points repo rate cut by the RBI since March 2020. With such all-pervasive uncertainty, it is going to be a difficult period for the remainder of 2020, and recovery will hint on the time it will take to control and spread of COVID-19 infection in India. However, it is worth noting that listed and large players are set to benefit from the revival due to the brand recognition, product mix offered and adhering to quality norms and delivery time lines. Over the next few quarters, the situation will continue to remain challenging and dynamic. Developers will need to focus on timely execution and ensure that the sales volume momentum is preserved. As far as we are concerned, our focus on cost management, customer management, liquidity management and profitability management remain unwavering, and it will get reflected in our performance as we move forward. I would now request Subhash, our CFO, to communicate to you the financial performance of the company under this environment. Subhash, over to you.

Thanks, Sharmaji. Good afternoon to everyone. We started the new quarter on back of one of the best annual performances witnessed during FY '19-'20 for the company. However, the quarter that has gone by also brought unprecedented challenges so far. The impact of COVID-19 and subsequent economic slowdown has turned the environment toxic, but we have maintained our sales momentum and project execution. Our project execution capabilities and the execution on the ground is gradually returning to pre COVID levels. Sobha's focus on use of technology tools, advanced and constant use of various digital platforms has been a great growth driver for us in this difficult environment. The demand sentiments are skewed towards right product mix and pricing by reputed developers with good brand and delivery track record. With more and more companies opting for work-from-home, the inherent demand for better quality homes with the low interest rates and other benefits extended by the government, the demand is likely to sustain in the coming quarters and organized players are expected to perform better. We would be happy to inform you that the levels of inquiries from customers are now back to pre COVID levels. The demand has remained consistent in all the cities where we have operated in spite of uncertainties of the pandemic. We continue to enjoy subsequent -- sufficient liquidity from banks and financial institutions to meet all our financial obligation. With our continuous focus on sufficient cash flow management, we are able to manage our cash flow, which resulted in net operating positive cash flow for the quarter. During the quarter, the real estate revenue was impacted since not many projects came in completely -- came into the completion mode. And the new revenue recognition norms under AS 115 resulted in lesser number of deliveries being done to the customer. Contractual and manufacturing segments were also impacted during the quarter due to operations shutdown during the lockdown period. Now with the operations moving gradually towards the pre COVID levels, we expect to perform better. We expect that due to COVID, construction activities will be impacted at the site, which may result in delayed revenue recognition. However, this is only an accounting aspect in the near term. In the long run, once the revenues of the project is recognized upon completion, this reverse trend would get neutralized. On the inventory front, we have an unsold inventory of 15.28 million, which is considered adequate in the given market scenario. As on 30th of June 2020, we have delivered overall 109.74 million square feet of developable area, which is one of the highest in our sector. As of 30th June 2020, we have unsold completed inventory of 0.47 million square feet, valued at INR 2.56 billion, which is one of the lowest by the industry standard and also shows our capability to sell inventory before the project gets completed. We achieved 56% sale on the area which is released for sale in ongoing projects. The committed receivables from these sold units stand at INR 31.85 billion as of 30th June 2020 and provides a coverage of 78% of the balance cost to be spent for the ongoing projects offered for sale. Our residential launch plan of 14.36 million square feet and 0.39 million commercial projects is under various stages of approval, and we remain committed on the same we launched during the coming quarters. With this backdrop, we summarize the company's performance for quarter 1 FY '20-'21 as below. The financial highlights. Total income was reported at INR 3.59 billion, with the real estate revenue at INR 2.23 billion, and contracts and manufacturing revenue at INR 1.27 billion. EBITDA margins were 30% and at absolute level, INR 1.09 billion. The PBT was at INR 0.05 billion and PAT at INR 0.07 billion. The debt-to-equity ratio as on 30th June 2020 stood at 1.24, with the cost of borrowing coming down during the quarter and standing at 9.64% as of 30th of June. On the cash flow side, the total cash inflows during this quarter was INR 5.47 billion, real estate cash inflow stood at INR 3.36 billion, and the contracts and the manufacturing inflow stood at INR 2.11 billion. This helped us in generating a net operating positive cash flow of INR 0.93 billion. Coming to the operations side. As communicated during the first week of July 2020, we have sold 0.65 million square feet during the first quarter of this year, valued at INR 4.87 billion, with Sobha's share in the sales coming in at INR 3.93 billion. We have achieved a total price realization of INR 7,498 per square feet, which is higher as compared to Q1 of last year. We are committed to launch 14.36 million square feet of new housing projects in Bengaluru, Gurgaon, Delhi, Chennai, Hosur, Thrissur, GIFT City, Hyderabad and Trivandrum, and 0.39 million square feet of commercial projects in Bangalore during the coming quarter. We have strong presence in the residential real estate market and a contract-based business vertical, with very limited exposure to commercial or rental projects. Coming to the contract and the manufacturing vertical, the contractual vertical continues to contribute to a great extent to our overall business. During the quarter, this vertical has contributed 36% of the total revenue, and as of date, we have completed projects to the tune of 51 million square feet since our inception. Currently, ongoing contract projects aggregate to 9.48 million square feet under various stages of construction, and our order book stands at INR 23.66 billion as of 30th June 2020. This gives good visibility into our operational capabilities and the trust shown by our customers. I would request the conference to be now open for questions.

[Operator Instructions] The first question is from the line of Puneet Gulati from HSBC.

Good job on the sales front, but can you give some comment on potential cancellations that you indicated last time? And how have you treated them in your projected cash flow statement?

Sharmaji, I will answer it?

Yes, sure, go ahead.

Yes. So Puneet, last quarter, when we showed the potential cancellation, we showed it as a separate line item in our projected cash flow. We have dropped that now from the total sales that we had reported till 31st of March 2020, and the current sales are now taken as ongoing sales, and we have just gone ahead and computed as if the potential cancellations are no longer there. Since those have been taken off from the sales numbers and added to the stock levels for all practical purposes.

Okay. So probable cancellations are now assumed to be actual cancellations, sir?

Yes, that's what we have done. We have opened up all those cancellations for sales to our sales team.

Okay. Okay. Okay. Great. And second on this -- the same slide, you mentioned Sobha's share of salable area, which was 17.34 ongoing. That seems to have come down from 17.94 in the previous quarter. Why would that happen? I mean, is it something that you shelved as well as...

Yes, yes. One project in Chennai has got shelved. Chennai, we have shelved the project, which is Sholinganallur project, Sobha Palacia. There were some concerns about the landowner being unable to pay the stamp duty on the total transaction that we had done. So the registrations were not happening. When we tried to go and register the agreements -- in Chennai, you have to register the agreement at the time of the booking itself. When we tried to register the customer agreement, the registrar insisted on stamp duty being paid by the landowner not only on our land but on some 200 acres of the total amalgamation that we had done in various entities that he had, which is completely unpractical for him right now. So we have -- it was not a big sale number anyway. So we have shelved the whole project, and that's it.

Okay. My other question is to do with your balance sheet where you've reported investment property worth INR 3.4 billion. Till last quarter, it was INR 1.8 billion of property and INR 2.3 billion of capital work in progress, which should have totaled up to INR 4 billion, now it's about INR 3.5 billion. Is there any change there as well?

So basically, I think we have moved -- capitalized these for SOBHA 1 Mall, the one which is on the -- in Bangalore.

So -- and there is no work in progress anymore now?

No, no, no. No new work in progress is pending right now.

Yes. And then the total should have been INR 4 billion, which is now INR 3.4 billion. So is there some -- is INR 0.5 billion depreciation that you've charged?

No, no, no, not depreciation. That mall was partly in our books and partly there is an investor with 29% in it. So that transaction would have got recorded.

Okay. Okay. Okay. So last question is on the EBITDA margin where you had reported 30% EBITDA margin. So can you give some color on -- although I know it's not really fair because it's a different numerator, but still it's substantially better EBITDA margin. What is behind that?

Basically, if you look at the SEBI results, you will see the breakup of the expenditure there. We see almost INR 30 crores saving on employee benefit cost, which has completely moved into the EBITDA level. These are fixed costs. And we thank the senior executive directors who are on the Board who didn't take salary during April, May and June, totally for this quarter. And the other employees of Sobha did take a cut and a few of the project site people were on furlough, so salaries were not processed for them. So that's what's the saving of INR 30 crores that has helped us in getting to this better EBITDA margin for the quarter.

Okay. Okay. And everything, I presume, has gone back to normal from Q2 or not yet?

Q2 onwards, yes, it is not fully back to normal, but a good amount of people have started joining back. So as we speak -- just a minute, I'll tell you the number of people that are there on board right now.

About 3,100 permanent [ employees ] are working for the company, about 600 employees, we are still keeping them under furlough.

Yes.

The next question is from the line of Abhinav Sinha from Jefferies.

Just a couple of questions. So first on -- if you can tell us where is the -- what is the status of labor force? And where are we on construction right now?

Okay. Abhinav, the labors have started returning back. That's the good news. When they come, they need to be kept in our biggest market, Bangalore, for 14 days under quarantine and then they are being allowed to work. Right now, the strength, which was about 30%, 35% in the last quarter when we resumed the operations, it has gone back to about 60% now. We still believe that, yes, it will take a few months more for the normalcy to come back and the labor force to start working in a manner they were working at the time of the pre COVID sort of thing. But this no longer remains a cause of worry as things stand today.

And so you are confident that we will be at 100% in a few months now? Is that it correct? I mean that is...

Yes.

Okay. And sir, is there any inflation in the wage, labor or anything like that, that you would have seen?

Yes, yes, yes. See, bringing them back, keeping them under quarantine and paying little bit more than what we used to pay as an incentive to work only for us because they are in demand at this point of time, these people. So that kind of a thing is there. But still, in the overall scheme of things, it's not that significant, which will move the needle from a cost point of view.

Okay. So from, say, a contracting or execution perspective, we would end up losing 6 months in the year. Is that still a reasonable estimate? Or if it's gone up a bit now?

To come back to the normalcy, I think the next quarter will be considered as the real quarter. Even in this quarter also, we have been impacted in Pune, we have been impacted in Gurgaon, we have been impacted in Chennai, we have been impacted in Bangalore. Sundays have not been working days. The 1-week lockdown was there in Pune, more than 1-week lockdown was there. So all such things will be there. But at the end of the day, what will matter according to our understanding is, a, that you need to keep selling with which we are doing. And we believe that [Foreign Language] that momentum should continue. The overall profitability of the company's project should not get impacted, which hopefully should not get impacted. See, from the compliance point of view of whether the projects will get delayed or whether we will get into some kind of legal issues, we will not get into that kind of an issue. Fourth, the most important thing, the liquidity management part, whether the banks are supporting, whether the customers who have been buying homes, whether they're entering into the agreement and are paying their dues or not, this seems to be working out perfectly fine. Those who are buying the apartments, they are making the payments also. The banks are also willing to lend the money and the interest cost keeps coming down. So you are in a scenario right now where as I have spoken in my opening remarks, the challenges remain. We should not just ignore the challenges, which is getting reflected in the production, which is getting reflected in the buildings. But at the same time, the core sales numbers and the core liquidity and the margins, right, they remain reasonably protected. And hopefully, quarter-on-quarter, our performance should be reflecting the same thing.

The next question is from the line of Kunal Lakhan from CLSA.

Sharmaji, if you can give some color on how the monthly sales momentum has picked up since May, June and in July and August now so far? Since you mentioned that inquiries are back to pre COVID levels, just wanted to get some sense on in terms of where are we in terms of sales and conversion?

See, Kunal, actually, the momentum on the inquiries front, it is quite encouraging. The constraint is that the closure part because people would like to visit the site, we have created that virtual tour also of some of our projects. And people are liking it also spending time on that as well. But somewhere -- the closure part is yet to come back to that pre COVID level normalcy. Moment that happens, in my view, the current inquiries are reasonably encouraging enough to declare that the normalcy more or less is there as far as the larger players are concerned. So we believe that this quarter's performance on the sales front should be better because 1.5 months was badly impacted in the last quarter. However, in the Bangalore market, which happens to be the core market, last month got impacted 4 Sundays we lost and 1 week we lost because of the shutdown. But fortunately, the Kerala market has done very well. Fortunately, the Gurgaon market has done very well. So overall, we still believe that this quarter should be better than the last quarter. And the Bangalore sales also in the month of August should be better than the month of July. But the July sale of Bangalore was on the lower side than the June sale.

Sure. That's helpful. But would it be safe to assume that we'll be back to that 3, 3.5 lakh square feet kind of sales run rate on a monthly basis for maybe August and September?

See, 10 days are gone. We are working towards that only, but let us see, okay? Cannot be 100% sure on that.

Correct. My second question is on the cash flow front. So we had a positive cash flow this quarter. And I mean, there was no interest payment as such because of the moratorium, also like there were -- the land-related payments were quite muted or rather like -- mainly in this quarter. But on a sustainable basis, we see these numbers coming through. And where do you see your cash flows in the subsequent quarters, especially once the moratorium ends going ahead?

But -- we believe that the next focus of the company after these new sales is on the cash flow management only. And on that front, we are working very hard. And we believe that we are reasonably clear and confident that this year, we should be in a position to bring down our overall debt exposure. That's the statement we are making. To what an extent we should be able to do, we do not know, we are not giving any kind of a guideline, but committed to bring it down. And when we are bringing it down, we are also committed that projects also continue to get completed the way we are contractually obligated to complete them. So this is what we will be doing. And as things stand today, we are on the right track.

That's very helpful, Sharmaji. My last question is on the margin side. Subhash, you mentioned in -- for the earlier question that the margin expansion has primarily been because of reduction in employee costs and overhead. But if you look at the P&L, the decline in the employee cost and the fixed overhead is actually lesser than the decline in the revenues. So -- and what I see is like the impact is more so on account of like improvement in the gross margin. So is there some change in the project mix, which was recognized in this quarter versus previous quarter?

See, Kunal, project mix is there, but that is not something which is related to the quarter. It all depends on what handover has happened. Most of the handovers that happened during the current quarter in the real estate are our own projects. So that is Silicon Oasis, Dream Acres, okay? So that has certainly helped in having a better margin in that sense. But that is not what is driving the improvement in EBITDA from 20% to 30%. The 10% increase is mainly driven by savings in expenditure.

No -- so again, like if you look at, say, Y-o-Y, right, revenues have declined by like maybe 60%, 60% plus, but my employee cost and other expenses actually declined by maybe about 50%, 55%. So I mean it's just -- I mean, had it been on account of these 2 line items, then probably a decline in those line items should have been higher than the decline in the revenues.

Kunal, it's mathematical. So we can -- I can explain to you better offline.

No, I'll take it offline. I'll take it offline.

Yes, but it is clearly the decline in expenditure, which has helped us to achieve this, okay, going from 20-plus to close to 30.

The next question is from the line of Swagato Ghosh from Franklin Templeton.

Sir, on the cancellations that we recorded last quarter, I had a couple of clarification. So the 1.93 million square feet, which went back into stock, can the original buyers still come back and pay the rest to the amount and actually have ownership? Or are they totally out of the picture?

Not exactly out of the picture. If the sales guys are able to revive the person, that means the persons who when we called up said we are not interested in continuing, we would want to cancel and get back our booking amount that we have paid. If the guy is interested, certainly, he can fill up the form again and he can rebook. We're not precluding them from doing it. But we have informed them officially that we have undertaken cancellation of their bookings because they have not continued with their payment terms.

Fair. But has any of that happened in the last quarter?

Probably during this quarter, about 5 or 6 have got revived.

5 or 6 units?

Yes, 5 or 6 units.

Okay. Okay. And sir, when we sell any of these units to a new customer, the money collected has to be given back to the old buyer?

Once the collection crosses the old buyer's amount, yes, we are paying that back. So the collection that you see here is net of those refunds.

Okay. That is net of the refund. Okay. Okay. So sir, like what was the like number of units to new buyers from these canceled sales this quarter, ballpark number?

Yes. Swagato, we are not disclosing that right now because we have taken the whole thing as adding to our stock for -- available for our sales team.

Got it. Fair, sir. And next question is, sir, on the current quarter sales, if you can just give some color in terms of percentage of sales to NRI. You give a 12 months rolling number, but specifically for the current quarter, if you can give like similar numbers, percentage NRI, percentage self-funded, et cetera?

We have not been sharing that, Swagato, because it's difficult to do it on a quarter-to-quarter basis. And it will skew and it will unnecessarily lead to questions which are not relevant. When you look at it on a rolling basis, it's the right way to look at. That's why we disclose that.

Okay. Okay. But sir, just a directional guidance on the 12-month rolling number that we have, like NRI is only 6%, was it significantly higher in the June quarter? That is what I want to understand.

No, I think it will be in the same range because the problems that were there, which were faced by NRIs in Middle East have not changed.

Okay. Okay. And one last clarification, if I may. Similarly to the last question that gross margin, I'm not going below gross margin, but gross margin itself was much higher compared to last few quarters. So is there some -- you mentioned sales from your own projects, but I'm also trying to understand if there's any accounting thing, which we should actually...

No, not accounting thing, okay, just the fact that you had sales happening mostly from our own units, where the land margin also comes into your P&L, whereas when it is a JD, the land margin goes to the landowner.

Right. But if it's a JD, the land margin -- sorry, whatever goes to the landowner, that also gets reported in one of those line items only, right?

No, no, no. It is net. The revenue is net. If you see, when we adopted AS 115, we moved back to our net accounting at that point, 2 years back.

The next question is from the line of Sameer Baisiwala from Morgan Stanley.

Sir, looking at your cash inflow of roughly INR 335 crores for resi and INR 210 crores for contractual, it's pretty healthy. I mean, roughly 60% or even more versus the preceding quarters. So what's really driving this? Was it [ construction linked? ] Or was there something else over here?

Sameer, see, we did a good amount of billing up to 31st of March 2020, especially on the contracting side, it was one of the best quarter. So while the new billing was to the tune of INR 120-odd crores, the collection from the contract side was INR 210 crores. So the billing what you did in the month of March came in the subsequent months, and it got reflected in superior collections on the contracting side. Similarly, on the real estate side also, whatever billings you had done the consistent push, push, push sort of a thing that is why somewhere the cancellation part also, we had to take the call, we kept doing that. And that is where this COVID-19 learning has been, primarily, if I can say so is that our understanding of the cash flow management, vis-à-vis our customers has definitely improved. And going forward, we will be much sharper and much smarter in collecting the money. And the overall period of delays, which used to run beyond 90 days also, it is getting reduced significantly, time to enter into an agreement from the day the sales happen, it had been compressed significantly, earlier, it used to take about 2 months to get an agreement executed. Now we are not doing that, so that the ability to figure out the customers' willingness. Even sometimes small online payment of INR 50,000, INR 100,000, which we keep getting. We are not disclosing that as a sales till we get the full booking money. So sometimes certain sales which we used to report and then it will get accumulated. Now we're not getting reflected in the sales number till we receive the booking money. So some discipline, some kind of a superior follow-up should get reflected in superior cash flows going forward against the sales what we do.

Okay. Sir, this is very helpful. But if I use the same logic that there was some spillover of billings in March quarter, which was collected in June quarter. By that logic, in the September quarter, your cash inflow should actually be lower.

Cash flow should be?

Cash inflows -- cash inflows can be lower because in June you had much lower billings.

You -- yes, yes, you have a point, right. What happens as far as the real estate is concerned, you get 2 billings, 1 from the existing customers for the progress you make and from the new customers, to the extent, whatever progress you have made. So sometimes, we -- shear sales numbers may not reflect but yes, it will have its own impact. The overall cash inflows in this financial year will be definitely much less than what we had shown in the last financial year. But within that constraint, the actual construction cost as well on-site, be it contracts, be it real estate will also be restricted. The labor problem, as we talked about, was also there. So money to be spent also will be less. And then as our CFO was pointing out that the strict control over and the digital way of marketing and other control over other fixed costs, all such things will ensure that even on a restricted cash flow, company remains cash flow positive in the coming quarters.

Okay. Great, sir. And sir, one more from my side. And this is regarding moratorium. If I'm not wrong, I think out of INR 80 crores of typical interest outgo in the quarter, you had moratorium on INR 47 crores, right?

Right. Right you are.

So why INR 47 crores, why did you not take for the whole amount? And what debt you took and what debt you did not take, any color on that thinking on this would be great, sir.

See, I -- we are dealing with roughly 20-plus banks and financial institutions, right, and you have different level of understanding -- expectations from both sides kind of a thing. So keeping and taking that thing into account and knowing fully well that [Foreign Language] why we have got huge undrawn sanction limits. Also the uncertainty enforced that trick we [Foreign Language] go for first the comfort zone by going for the moratorium. As and when things started beginning to look better and better, we have started repaying the loan also and started paying the interest also sort of a thing. So as such there was no, what you call, definitive policy that you need to do this way or that way. Sometimes bankers requested, please don't do, we complied; sometimes bankers requested, still we insisted. So likewise, without a comprehensive policy, this thing was [Technical Difficulty]

Hello?

Sir, this is the operator. We are not able to hear you.

Can [Technical Difficulty] my response. Hello? Am I audible?

Mr. Sameer, are you done with your question?

Yes, I am done.

We'll take the next question from the line of Abhishek Bhandari from Macquarie Securities.

Sharmaji, I had a question again on this interest part. So if I go to Slide 8 and 9. First of all, what is our rate of interest? Because if our total gross debt is INR 3,100 crores, with roughly 10% interest cost, that's roughly INR 31, INR 32 crores. So what is the breakdown of this remaining INR 50 crore in the finance charges? That's one. And secondly, government is now proposing restructuring of debt for everyone, probably. Do you think you'll want to use that to elongate the tenure of our loans? Yes, that is my question.

I will answer the second question. You answer the first question, Subhash.

Yes, yes.

So till we have clarity, right, that what kind of, what you call, restructuring, this government or the RBI or the banks will be permitting, it is premature right now to respond. As such, we are not looking for any kind of restructuring. We believe that post 31st of August, we will start repaying our loan and interest to the banks. But let us see about how the policy is announced. I think you can answer the question on this overall interest and other things, percentage part...

Yes. Abhishek, can you repeat the question? Because the numbers didn't match up, yes, INR 3,100...

Yes. So your gross debt is, sir, INR 3,100 crores, gross debt. If you do a 10%, roughly, the interest cost 9.8%, I'm rounding it off to 10%, that's around INR 31 crore. But...

[Technical Difficulty] INR 310 crores per year. So monthly, it will be INR 26 crores into 3 months, so that's INR 80 crores.

Sorry, sorry, sir, I got something wrong in my math. Sorry for that, sir. And sir, lastly, what will be the treatment of this interest, what you have not paid? Because will you be -- will you have to pay this in the second half under the RBI regulation that the interest, which is not paid for the first half gets converted into a term loan, which has to be paid off before FY '21?

So we are not sure as to how the banks are going to look at this. So we are in discussion with the banks. I think clarity will emerge only in first week or second week of September on this. And whatever call we take will be dependent on what -- if it is a loan, then at what rate of interest will the loan be extended. If it's cheaper than my current cost of borrowing, why not, I will take it for the period. If it is higher than that, then probably we'll repay.

Abhishek, per se, one is the policy part, one is the company's ability to pay part. What I am focusing on is yes, we are well prepared to honor our commitments as and when it becomes due, whatever may be the policy. Then as CFO as telling, if it is in the interest of the organization, why not. At the same time, our interest cost now has further come down to approximately 9.5%. And we believe that going forward, this process of bringing down the interest cost will continue.

The next question is from the line of Parikshit Kandpal from HDFC Securities.

Sharmaji, congratulations on decent performance. Sir, earlier in the call, Subhash, I think had mentioned that the inquiries are back to pre COVID levels. So now pre COVID and post COVID, the 2 scenarios, so how do you measure inquiries here? So -- and how -- when you say it is back to those levels, so what does it imply?

See, what does it imply? See, we follow the sales force that [Technical Difficulty] where about INR 1 crore is -- and the inquiries are routed through this [ level. ] So the number of inquiries, which it used to report on a daily basis and what it is reporting today, it is same or sometimes even better. That's what we are trying to give a message. That [Foreign Language] yes, on the inquiries front, we remain completely clear that they are back to the pre-COVID levels. Then when it comes to the completion of the sales from that, while the inquiry is of superior quality, the restrictions, sometimes restrictions in the locality or in the building or the Sunday restrictions, all such things, it does play its own role in completing the sales booking sort of thing. That is what we are trying to figure out a solution. And from that angle, as I said, that virtual tour [ and nudging ] we are doing, somewhere certain bookings have happened completely where the customers have not visited the site, like in case of NRI customers, it has happened and some local customers also some people have booked. But the site visits still remains one of the key factors to take that final call. Site visits have started happening month-on-month, it is significantly better than what it used to be. And hopefully, that is giving us that comfort and confidence that quarter-on-quarter, definitely, we should be doing better. How much better, it is still not very clear. Because the COVID impact is there.

Sir, my question was that someone who comes to the site and does the inquiry, I would assume that he's a more serious buyer than someone who's doing it online. And with restrictions in place, if the inquiry levels are similar to what it was pre-COVID, so I would assume that lot of inquiries are coming online. But how do you really test the sanctity or just the sanctity of these inquiries, though they may be the similar -- both put together would be similar to pre-COVID levels. But while when we convert it, our conversion ratio may be much lower than what it would have been at pre-COVID levels when you combine both the things.

I won't say the conversion ratio became right now itself. Normally [Technical Difficulty] So it is still premature to say that [Foreign Language] those inquiries not get converted. What we are trying to communicate, had it been a normal scenario sort of thing, without restrictions things would have been significantly better with this kind of an inquiry. But with restrictions, it is taking its own time, where site visits are not that much as it used to be. They -- for them to come back to the pre-COVID levels, we are still a few months away.

Okay. So coming to the collections now. So are the collection in the resi segment now normal to the pre COVID levels now? So whatever deals you have done, so are like, let's say, 100 flats have been booked, so entire 100 flats the collection is coming or there is still a constraint on both on the banking side and the flat side where people don't have jobs. So what would be the collection efficiency now for the sales, which has already been done on a cumulative basis?

Parikshit, this is where as we say, as far as our company is concerned, right, we have done better than what we used to do in the previous years. No sooner the sales happen, the way we have created an internal process [Technical Difficulty] agreements with such customers within few days and the demand letter is generated -- the banking support is provided where, as I said, that HDFC and SBI, they have been doing an excellent job. Except to that KYC part, everything is happening nowadays on a digital platform, which is quite reassuring. The quality of improvement we have witnessed on the customer collection side, it's better than what it used to be on a pre COVID level. Of course, we are selling less than what we used to sell, and this will definitely reflecting overall collections. But the debtors on the build customers, days wise maybe when a couple of quarters pass, you people will see a significant improvement.

Okay. Just lastly on the Chennai project, sir, which was -- which got -- you have basically canceled or you've moved out of the project. So how much was the prepays done and the expenses incurred in that project? And whether the reversals be there...

Expenditure incurred was miniscule, so not too much of work was done on the site. The area sold was about 25,000 square feet. Sections were not [indiscernible] only the booking amount.

The next question is from the line of Mohit Agrawal from IIFL.

So my question is on the launches. So you've mentioned about 14.5 million square feet of launch pipeline. Could you guide what time line is it? And like the next 2, 3 quarters, what kind of launches are you seeing?

See, as Subhash was telling, Mohit, that we are working on these projects at various levels. The -- from the approval point of view in Bangalore, 1 small project, Athena? -- Subhash, what is the name?

Athena. Yes, Sobha City Athena, sir, yes.

Sobha City Athena, where all approvals have come. Then on [ Nagondanahalli, ] the plans have been approved, building plans have been approved. The environmental thing still remains to be approved. Once that happens, that project also will be more or less done with. Then 1 project near [ Jaraganahalli ] in Bangalore, again, a large project. The environment also has been approved. The development plan has been also approved, but the building plan is yet to be approved. That project also is at an advanced stage. At Hosur also the project has progressed reasonably well. At Chennai also the projects have progressed reasonably well. At Gurgaon also the project has progressed reasonably well. At Hyderabad also the projects had progressed reasonably well. At Trivandrum and Delhi, it is at still infancy stage. At GIFT City also it is still at initial stage, may take some time. But from the launches perspective, we will be careful. We do have 15 million square feet plus, equivalent to INR 11,000 crores of unsold inventory. And during this times, we would like to be clear that, okay, when we are launching that add value to both our sales numbers and also gives us comfort on completing the construction. Because right now, we are operating at about 60% of our labor force. And to reach 200% still we are a few months away. Still the existing projects of ours and that of our clients, it doesn't reach to that normalcy. Adding more projects and not having the labor also may not be a right strategy is what we believe. So all such things we are settling, but like CFO was telling, the clarity is there [Foreign Language] all these projects will be launched. And timing part will be probably more clarity will be given next quarter con call when we have the new people.

Sure, sir, that's clear. Sir, on -- the other question is on the sales mix. I was looking at the data that you shared on the pie chart on sales mix in terms of price brackets. I see that the sales under INR 1 crore is about 16% of this...

16%. Yes.

Yes. And sir, this number for FY '20 was -- I was seeing that number was 34%. Now I just want to understand, is there anything to read into in terms of change in any -- the preferences that customers have had during COVID or post COVID? Or is it just a change in sales mix and nothing much to read into it?

Nothing much to read because 1 quarter will not determine the trend. But one thing is clear that the people who are buying now with the lower interest cost, definitely, they are going for the larger apartments. So the people who were expressing some kind of a fear, I'm talking about especially the Bangalore market, that larger size apartments will get impacted and affordable is the future, India has got that inherent strength that it should be able to absorb higher value products also lower value products also. In our case, right, the reduction in the lower value product has been quite sharp. It was also surprising for us. And I believe that in the coming quarters, this ratio will change little bit without hurting the sales above INR 1 crore.

Sure. And sir, just one last clarification on -- you clarified on the cancellations bit that 5, 6 -- 5 to 6 units got revived in this quarter. Could you also share if there were any fresh sales within that 1.93 million square feet cancellations? Or does this 5, 6 units include that also?

See, when we gave you this 31st March results, we have done it when this quarter was over, almost. So the 31st March quarter reflects all the cancellations, where we believe that notices have been served, and the customers are not forthcoming with their payments, which had become overdue. Coming back to this quarter's sales, what we are communicating is that some of the customers to whom we have sent notices in the last month, they have come back and said, [Foreign Language] yes, we would like to continue with the bookings. Those bookings were not sold and we have retained those bookings. But the overall sales numbers of last quarter also includes the sales, which we had declared once and then had gone for cancellations. We are not distinguishing and differentiating between this booking and that booking as it will always have some kind of a confusion and treat them as new sales only.

Okay. Great. So these 5, 6 units, if I understand correctly, is the ones would have happened after you reported the last quarter numbers, so let's say, July and August?

July only, July only.

The next question is from the line of Dhaval Somaiya from PhillipCapital.

Congratulations on good performance during these challenging times. Sharmaji, I just wanted to understand the broader nature of impact on our manufacturing vertical. And what is the kind of revenue and cash flow expectation that we would have for the rest of the year?

See, as far as the manufacturing vertical is concerned, the smallest among them used to be and continues to remain is our [indiscernible] 58:00 division, right, where we used to do about INR 15 crores, INR 16 crores of top line. We are doing online sales of [indiscernible] and within the city of Bangalore, we have started selling about INR 1 crore because it is being sold through showrooms or malls, and they are closed, but recovered reasonably well. As far as the interior division is concerned, we are almost back to 60% of our pre-COVID performance. On the glazing side also, we are back to 2/3 of our normal performance, which means if last year, we were doing about INR 18 crores, INR 19 crores, now we are doing INR 13 crores, INR 14 crores of sales. On the concrete product division, we were doing about INR 5 crores of new sales. We are at about INR 2 crores, INR 2.5 crores of new sales. Here, we have been impacted bit more because the product where it goes, those guys have also been impacted. So very careful in giving credit, wherever the cash is coming only, the order is serviced and this had its own impact on the CP division.

Okay. And sir, are we facing any challenges on the cash collection front from any of the divisions?

I could not understand?

Are we facing any challenges in terms of cash collections from any of the 3 divisions?

Not at all, not at all, not at all. Wherever cash is coming only order is serviced [indiscernible]

And sir, next question was for -- regarding the 1 SOBHA Mall. So when can we expect the rent to start?

A couple of clients have started giving the rent, correct? From the next quarter, hopefully, the things should look much better.

And sir, what is the annual rent expectation?

About INR 60 crores.

The next question is from the line of Sameer Baisiwala from Morgan Stanley.

Sir, what's the outlook -- demand outlook for the contractual business for 1 year, 2-year out? Are those people still expanding or not?

See, where -- I have bought 1 large contract from an Hyderabad guy, and he remains reasonably bullish as far as the office space is concerned, he has not slowed down. I also worked for another 1 large client, this Azim Premji University, Hopefully, they will also go for expansion sort of a thing. There also, as things stand today, the work visibility remains reasonably intact. We have not been working with many developers on the contracting side, so may not have a right perspective from that angle. As far as the Infosys contract is concerned, last year was one of the great year. This year, they have not yet started in a big way, and we will get impacted to that extent while doing the billing on the Infosys side.

Okay. Great. And one final one, sir, from my side. Not only last 3 months, but say, 6, 9, 12 months, have you been seeing any very precise data points on industry consolidation? I mean, we all talk too much about it, but are you seeing those people exiting, what happens to those projects or those land parcels? Anything that you can't share in your micro markets?

Of course, of course, Sameer. See, we need to see this restructuring part because this may again give some kind of a lifeline. We have to see the contour of -- keeping that part aside, in my view, the destruction is quite large, quite widespread, quite significant sort of a thing. To the best of my knowledge, most of our fraternity members, they do not have access to liquidity, and their sales also have been reasonably impacted. So I believe consolidation is only going to be the way forward as far as our residential space is concerned.

The next question is from the line of Parvez Akhtar Qazi from Edelweiss Securities.

Sharma sir and Subhashji, one question from my side. This quarter, obviously, our land-related payments were pretty muted. But how do we see these payments shaping up over the next couple of quarters? I think last quarter, we had mentioned that we had some INR 140-odd crores still to be paid on this side. So how are we likely to see this particular figure moving ahead?

See, Parvez, if you read our response, right, we have been able to manage with 0 payment on the land account, which for us itself was a pleasant surprise. The landlords also appreciate it at current times and they accommodate. At the same time, you cannot keep such things indefinitely, right, vague or uncertain in the minds of the landlords. We got some payment comfort also, wherever the institutions are involved, like GIFT City had given us some kind of a payment deferral, so that will also have some kind of a positive impact. Net-net, the idea is that whatever payments we'll be making on the land account, it should be from our operations and it should not increase our debt. Keeping that thing into mind, some payments here and there you will be seeing in coming quarters, but not -- it will not have an impact like we got impacted in the last financial year.

The next question is from the line of Puneet Gulati from HSBC.

Yes. A bit more color on these cancellation. So you reported 1.93 million square feet cancellations. So is this -- did this number change as you moved into July? Or has it remained the same?

See, 1.93 million got added into our inventory as on 30th of June, right? Correct? Thereafter, when we will be disclosing the sales numbers as on 30th of September 2020, we will be revising some of the bookings as Subhash was pointing out, and we would have sold something as well also from this inventory.

Is there a risk of this number?

See, you cannot -- see, I was telling you what we have done from this quarter onwards, the bookings, which we get up to INR 1 lakh in the good olden days, we will be declaring, and it was perfectly all right to have disclosed such bookings, right? In our sector with expression of interest itself sales are being -- sales numbers are being declared. So we used to also declare, right, as a fair practice. But during difficult times, we realized that [Foreign Language] these are the people, which they are not being able to pay the full booking money to them to go forward is increasingly a difficult task. So what are we doing from this quarter onwards? So we are not declaring them as sales numbers itself, sort of a thing to begin with. So the money is there in the system, but sales is not disclosed till we get our booking money, till we get our agreement done sort of a thing. Hopefully, these measures will ensure that this kind of a scenario does not recur. At the same time, the environment is always supreme. If we had collected the kind of money what we had collected and still we had to disclose the cancellations, sometimes in a certain difficult environment if customer opts for it, you cannot deny his fundamental right on that, we have to honor, we'll be disclosing the same.

Okay. Okay. This number of whatever booking somebody does gets reported as collections in your cash flows, right?

Of course, yes. Collection, whosoever who gives, that money will get reported. And under -- booking gets revived also thereafter. If you're paying money, why should I keep it on a canceled front?

No, no, no. I meant for the sales since you've recorded this prudent practice of not reporting bookings until you get the full booking amount. Does your collection number include whatever INR 1 lakh or whatever -- yes?

Yes, but those are very minor amounts.

But INR 50,000, INR 100,000 credit card swiping all such things, if that happen, to see to it that the salesman is comfortable. That the customer does not go out of his hand sort of a thing, which is perfectly all right. But for us to declare that I just said, we have taken that conscious call that we will not report it till we have got our booking money.

Okay. And my last question is, have you seen -- have you been offering any discounts to customers now?

See, had it been so, my average realization would not be 7,498. At the same time, the marketing guys, they do device their own ways and means to look things attractive sort of a thing. So how do they do it? Sometimes you do make a call, you will understand what we are talking about sort of a thing. But on an average, the bias will be to improve the realization than to give more discount.

Because you also mentioned buyers are looking for larger-sized properties given the need for working from home...

Absolutely right, very clear, very clear that the low interest rate has made the same set of people to go for bigger homes.

Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments.

Thank you once again to hear us out patiently. We would like to reiterate that residential space, real estate sector in India has got a much brighter future. Of course, there will be some challenges in the immediate next few quarters. We are well equipped to handle the challenges also and well equipped to capitalize on the opportunities which this environment will offer. That's how this company is working. That is how we talk about projects to be launched, ongoing projects, collections, cancellations, margins, liquidity management. And we believe that we have got a beautiful role to play in this residential space real estate sector in times to come. Thank you. Thank you once again for your patient hearing.

Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.