Sobha Limited (SOBHA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Sobha Limited Q2 FY '22 Earnings Conference Call hosted by ICICI Securities Limited. [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 on the call today. Today from the management of Sobha Limited, we have with us Mr. J.C. Sharma, the Vice Chairman and Managing Director; Mr. Subhash Bhatt, the Chief Financial Officer; Mr. Tejus, the Head of Treasury and IR; Mr. Ramesh Babu, the Senior VP, Finance; Mr. Vigneshwar Bhatt, the Company Secretary and Compliance Officer; and Mr. Yogesh Bansal from Finance. I would now like to hand over the call to the management for their opening remarks. Over to you. Thank you.

Good evening, friends, and belated Happy Diwali. We are pleased to connect with you today post declaration of our unaudited financial results for the second quarter as well as for the half year ended 30th September 2021, through this con call hosted by ICICI Securities. Thank you, Adhidev and your team for organizing this call. We have already shared the operational update of the company in the first week of October 2021. The investor presentation based on the financial results adopted by the Board can be downloaded from the website of our company. As far as the outlook of the sector and Sobha's performance is concerned, we believe that the Indian real estate market is showing clear signs of steady recovery with residential segments recording robust performance in the last quarter gone by. The structural changes in the real estate sector has created new opportunity for the established financially strong and multi-locational based developers. However, pricing prices of key inputs is definitely putting some pressure on the margins. Real estate activity gained momentum during the quarter as the country began to cautiously return to the normalcy. And the economic tempo supported by aggressive recognition drives helped people to start resuming their normal responsibilities and activities. Record low home loan interest rates, increased affordability, work from home, significant pickup in the prospect of the IT sector and increase in the salary that helped Indian property market to move upward after a lull in the April-June quarter, marked by the pandemic resurgence and restrictions imposed by the various state governments. The market [ seemed too affected ] in the very low likelihood of the complete lockdown as was seen last year due to the ample availability of the COVID vaccine now. We at Sobha have reinforced our typical processes and have used technology to strengthen our systems and procedures and the way we engage with our customers. The company was able to withstand the adverse impact of 2 successive pandemic waves and showed its resilience. We are better prepared now than ever and had already adapted to the requisite digital tools. Like past many quarters, in this quarter also, Sobha has performed well on all the parameters during this quarter. During the quarter, Sobha has achieved its [indiscernible] sales volume. It was primarily driven by good sales numbers achieved in Bangalore, Gurgaon, Pune and GIFT City, Ahmedabad. Due to our consistent focus on cash flows and efficient cost management, we are also able to reduce our net debt and debt equity was better during this quarter. We launched 2 projects, Sobha Manhattan in Bangalore and Sobha Arbor in Chennai with super built-up area of 0.88 million square fleet and 0.29 million square feet, respectively, in the last quarter. As of September 2021, we have an unsold inventory of 14.92 million square feet in our ongoing projects, which we consider adequate in the given market scenario. As on 30th September 2021, we have an unsold completed project inventory of 0.44 million square feet, diluted 3.35 million -- 3.35 billion, which is one of the lowest by industry standards, and it also shows our capability to sell the inventory before project completion. So far, we have achieved 65% sales on the area which is released for sales in our ongoing projects. Committed receivables from these sold units stands at INR 50.10 billion as of 30th September 2021, which provides coverage of 97% of the balance cost to be incurred on these ongoing projects offered for sale. Going forward, we believe that the steps taken, and the improved sales performance will further improve our cash flows, which will help us in deleveraging our debt further, we believe that the second half of this year should be better from the cash flow point of view and from the debt reduction point of view. We also believe that overall this year will be the best ever year in our history, both from sales as well as from the cash flow generation point of view. Some of the important things which we have noticed now is that the dependence on the Bangalore is increasingly becoming less and less with Bangalore [ effect ] showing this clear improvement in its volumes. The Gurgaon market, the Pune market, the GIFT City, they have shown much better performance. In the coming quarters, we believe that the Kerala market and the Chennai market also should start doing better. And this gives us a better comfort from the resilience perspective where somewhere here and there with the way the economy moves we should be in a position to consistently show better performance and keep gaining market share in the other markets than the Bangalore one. We also believe that our business model will allow us to keep the cost under control and the margin reasonably consistent with what we have been delivering so far. I believe that the further details on our operational and financial performance, our CFO, Subhash Bhatt, should be giving to you. Over to Subhash.

Thanks, Sharma Ji. First of all, before I start the discussion, I would like to introduce to the investor community, Yogesh Bansal, who is currently our finance head for the northern region, and he will be taking over as the CFO from me in next 1 week. I will request the finance community and the investor community to give him the same kind of support which was provided to me and Tejus so that he also continues to live up to the expectations that Sobha has created in this market. With that background, I would now to summarize our performance for the second quarter as well as the half year ended 30th September 2021. First, let me cover the sales highlights. We have achieved the best ever quarterly volumes of 1.35 million sale of super built-up area, valued at INR 10.3 billion during this quarter. The best ever Sobha's share in the sale value was also issued during this quarter, which was INR 8.54 billion. Coming to the specific numbers, our sales volume, sales value and Sobha share of sales value were up by 51%, 49% and 61%, respectively, if you compare them with Q2 of the last year. On the sales volume, sales value and the Sobha share of sales value as compared to Q1 of the current year, were up by 51%, 51% and 50%, respectively. During this quarter, Bangalore has performed considerably better, which is one of our key markets, followed by good performance coming in from Gurgaon, Pune and GIFT city. During the quarter, other regions contributed 41% of the total sales volume as compared to 26% during the Q1 of the current year. This reflects our potential and also it reflects on the focus that we have put in to grow in other operating markets apart from the Bangalore market, where we are [ sort of a new ] player. We have planned new launches of 10.49 million across various cities, and this has been mentioned clearly in the investor presentation. Coming to the cash flow. Sobha with its continuous focus on cash flow generation as well as efficient cost management has reported consistent and good cash flow performance during Q2 of the current quarter -- current year. We have received total cash inflow of INR 9.14 billion during Q2, which is 33% higher as compared to Q2 of last year. Our real estate division got a cash inflow of INR 7.25 billion in Q2, which was 44% higher as compared to Q2 of last year. In all, we have generated operating cash flow of INR 1.77 billion during this quarter, which is 37% higher as compared to again the corresponding quarter last year. During this quarter, our net debt has shrunk by INR 0.39 billion, and because -- despite the dividend payment that has happened during August. Our borrowing cost, too, has been reduced during this current quarter and now stands at 8.85% as of 30th of September 2021. The real estate division projected cash flow from the projects which have been currently launched, ongoing and are still to be launched totaling to INR 72.13 billion. The details are in the investor presentation, which you guys can have a look at. Coming to the financial highlights. The total income for Q2 of the current year stands at total INR 8.23 billion, which is 59% higher as compared to the sequential Q1 of the current year. The real estate revenue stood at INR 6.54 billion, which was 74% higher as compared to Q1 of the current year. The contracts and the manufacturing verticals delivered INR 1.65 billion as revenue for the current quarter. EBITDA for Q2 stood at INR 1.6 billion with the reporting margin at 19%. The PBT stood at INR 0.65 billion with a margin at 8%, and the PAT was reported at INR 0.45 billion with a margin at 6%. The debt equity, as Sharma Ji mentioned, we have reduced it to 1.13 as on 30th of September as compared to 1.15 as on 30th of June. The contractual and the manufacturing order book today stands at INR 22.8 billion as of 30th of September 2021. Of the cumulative sales done in the residential business on 30th September 2021, there is still balanced revenue to be recognized in the books at INR 72.32 billion. On basis of the current market scenario, Sobha has given increments to all its employees during the current quarter that's Q2, and this has resulted in increase in the employee benefit expenses. The operating activities are picking up. And as Sharma Ji mentioned in his discussion, we are expecting to perform better going forward on this page. During H1 of the current year, the company achieves the best ever first half total sales volume and sales value of 2.24 million square feet and INR 17.13 billion, which is up by 46% and 45%, respectively, as compared to the first half of the last year. The sales value of Sobha's share in H2 -- H1 of the current year is also up 54% on a year-on-year basis, and that was reported at INR 14.25 billion. We have achieved total cash inflow of INR 16.32 billion during the current half year, which was 32% higher as compared to the last year's half -- corresponding half year. The real estate cash inflow was reported at INR 12.72 billion during the H2 -- sorry, H1 of the current year, which is up by 52% as compared to again H1 of the last year. We have reported a net operating cash flow of INR 3.12 billion during the current half year, which is 40% higher as compared to the corresponding half year last year. On the financial front, the total income for half year stood at INR 13.4 billion, with the real estate revenue at INR 10.31 billion, which was up by 48% and 85%, respectively, as compared to H1 of the last year. The contractual and manufacturing verticals revenue stood at INR 3 billion. EBITDA, the PBT and the PAT for the half year to that INR 2.65 billion, INR 0.78 billion and INR 0.57 billion, with the respective margin coming in at 20%, 6% and 4%. That's all from our side, and I would now request the conference holder to open the floor for question and answers.

[Operator Instructions]. The first question is from the line of Parikshit Kandpal from HDFC Securities.

So we are finishing on a very good set of numbers. My first question is on the pricing environment. So when we all know that macro factors are favoring, the affordability is at all-time high. Besides that there has been some micro factors where wage inflation has gone up record [indiscernible] market. Do you see a possibility of substantial price reset in the [indiscernible] market over the next 2, 3 years?

Yes. Can I answer this?

Yes, yes definitely, that was my first question.

See, we do believe that the price rise, per se, is inevitable, doesn't mean it is going to happen overnight. But as the old inventory starts getting replaced with the new inventory, you will be seeing on those inventories higher price realization than what it used to be. We are clearly seeing the opportunity cost of acquiring the land as well as the input cost, as well as the wage or the tender cost has been increased. We are also seeing nonavailability in a sense now the demand for the products and the sales velocity seems to be greater than the new supply coming in the market. And coupled with increase in the salaries, especially in the IT sector, and the low interest rates vis-a-vis the cost input pressures, it looks quite likely that going forward, the price rise will be there and 2 to 3 years' time, definitely about 25% to 30% increase in my view can be expected from the current levels as far as the sales prices are concerned in my view.

Okay. So my second question is, as you highlighted that now [indiscernible] south regions have started contributing at a higher pace as the contributions on the regions are going up. So what is your [indiscernible] plans in the northern markets and other markets outside the southern region. If you can make some sense on the strategy on the business development in the down south market going ahead given the growth we are seeing in [indiscernible].

We will be going a bit slow in other markets than what we have communicated. Rather than what we intend to do, which we have started giving hint is that from our existing land bank, we would start leveraging. And especially in Bangalore, Hosur, Chennai, you will see that the leverage on the existing land bank will get accelerated. At the same time, the new launches, whatever we have planned, we are putting more focus on them to fructify. And in the pipeline, also a good quantum -- good number of projects are being planned at the design stage, which, in due course, we'll be sharing with you people. So there is a clear visibility of the newer opportunities in the existing markets. And the focus is to move ahead and provide from the supply side the inventory as early as possible.

Okay. So my last question is on land bank which you have. So the entires of which you have accelerated the development of the land [indiscernible] and given you are a very large holder of land bank. So it's only the launch prospective over next 2, 3 years out of the current guideline which are holding. How much of that can be brought in and added to the launch pipeline? If you can quantify on the number.

See quantification right now, I will not be able to share -- But as I was telling that most of the land banks, what we have been talking about since last couple of our calls, we have started working on that. And maybe from this coming quarter onwards, you will see greater visibility on release of this inventory as we move forward.

Parikshit, Subhash here. The [ 48.49 million ] square feet was the commercial part portfolio in addition to that [indiscernible] about 3 lakh feet, together, would consume almost 200 acres by the time we launch it, underline that.

Okay. So my point is more from that how much we need to incur on the CapEx because kind of ramp-up in the [indiscernible] we have seen in the last 3, 4 quarters, especially the run rate that we are currently on. Last time we saw a larger quantum of launches to be fed in to sustain that growth. So will that growth largely be coming in from the existing land banks or do you need to incur CapEx for buying on new land parcel. So that was basically I wanted to get an answer from Sharma Ji. So what will be the kind of CapEx we will have to do over the next 2, 3 years to sustain this kind of run rate on [indiscernible].

Parikshit, [indiscernible] are also talking about that we will continue to focus on cash flows. We continue to deleverage our balance sheet. And at the current rate also, we have got good quantum of unsold approval inventory with the 10 million square feet plus likely to come in next few quarters and good quantum of the inventory is also in the pipeline. And all these things -- more or less the land is Stage 4. From the newer opportunity point of view [indiscernible], somewhere, you are right, we may be looking at those opportunities. But the primary focus is to leverage on the existing land bank. Primary focus is to keep growing, keep deleveraging. And at the same time, maybe at some point of time, look for the opportunities you have been talking about. But then right now, very difficult to predict because there is no commitment as such on any of the land parcels as we talk.

And as shared with the market earlier, our current payable on the land bank continues to be in the range of INR 140 crores to INR 150 crores, which is payable over the next 2 to 2.5 years.

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

And firstly, season greetings to you and your team. My question is on the launches. So post the end of the quarter, have we had any fresh launches? And how was the response? And how does the pipeline look at least for next couple of quarters, if you can guide us on that?

In last month, we have launched 1 project in Gujrat. 1 more project in Bangalore, we have applied for the RERA registration. Once that happens, that project also should get launched either this month or early next month kind of certain. Couple of more projects are in the pipeline in Trivandrum as well as in Hosur, which may happen this quarter or maybe the next quarter from a launch perspective.

Overall, we should be launching at least 2 million in this quarter and the next quarter of the 10.8 million that we have showed with the [indiscernible] presentation.

2 million each?

No, no. As far as -- probably, some can slip into January, that's 2 million by January or February.

Okay. Okay. Got it. And I also focused on, I think 1 residential launch in Thrissur which was planned earlier, has been taken out from the launch pipeline. So any update on that?

Yes. So we have moved it to ongoing projects because it was the Phase 2 of the existing project, Metropolis Phase 2. And it has moved from the pipeline into area launch.

Right, right. and in terms of...

It is still not open for sale because there is inventory available in the Phase 1.

Okay. Got it. Got it. But it's on course. I mean nothing has changed it terms of...

No.

Yes. Okay. Got it. And in terms of business development, so we have been highlighting that we won't be taking up any land acquisition. But how is our focus on JV/JDAs with -- in which part of our existing regions, we are seeking these opportunities in terms of expanding our business through JV/JDAs?

See, we have yet not ruled out even acquiring certain opportunity in [ headwinds ]. What I am trying to communicate is, I think till today, what is -- at the design stage or phase, this has not been disclosed in our new launches. Mostly those lands, we own them, and we are working on that. In addition to this, a couple of land parcels in the southern market, we are looking at from a JV/JD perspective. Going forward, as and when those things get crystalized, we'll be sharing with the market. But rest assured, right, the pipeline is being strengthened with the new project transits. As and when things mature, we will keep sharing this with you.

Sure. Why I was asking this is in terms of competition because most of the players are right now targeting JV/JDA. So are we facing any strict competition in terms of acquiring projects through JV/JDAs or there is still scope for everyone to present in this market with these kind of deals?

Yes. There is not much of a competition as things stand today. There are very few players in almost all the markets who are competing for the opportunities vis-a-vis what we used to face. Rather what we have seen is that there has been basically increase in both the opportunity cost of buying the land or doing a JV/JD as well on a DM basis, whatever opportunities which earlier we used to talk, and this is primarily on account of the inflationary pressure we are witnessing or the better sentiments we are seeing across. My point is that our current focus, I repeat is on our own land bank. And somewhere as and when certain transactions do happen on JV/JD/DMA or outright purchase kind of a thing. Definitely, we will be sharing. But we are more than adequately covered with the new launches to sustain our business momentum.

The next question is from the line of Monika Sharma from Morgan Stanley.

This is Sameer here, sir. On more serious note, sir. So on price increases, sir, have you taken any pricing stipends over the last 6 months across the portfolio? And second, is the distinction between launching new projects at a higher price, is that easier versus increasing prices for the ongoing projects?

To answer your last question first, Sameer, it is relatively easier on a new location, new projects to have a better price incorporating the increase in the construction cost or the opportunity cost of the land than on an existing project. But what we have been doing, primarily, if you look at the last 1 year or so, is that the discount what we have been offering, that they have been reduced to a great extent. Then we have almost moved to the fixed pricing formula than giving sometimes to get the cash flow that was like this, not to lose a customer, certain discounts, which had been completely stopped. So wherever the new towers have been launched in the existing projects, the realization has been better than what it was of the last sale in the other towers sort of thing. So net-net, there has been an increase of between 1% to 2% on the tower wide sales. The best example remains our Dream Acres where I believe this year, we may have taken an increase of about 6% to 7% in the last 6 to 7 months. Similarly, on the new launch in Sobha Windsor also we have succeeded from the March launch the price increase of about 6% to 7% as we talk.

Okay. That's great, sir. Second question is on the use of technology. I think you have also -- you spoke about, it's been in your press release. So can you just elaborate on that? Is it on the customer engagement? Is it only NRIs or local sales? And how is it helping the company?

I think it's a very good point. We will talk about this on 2 fronts. One, on the technology front, right, we have reasonably now understood, for example, the [indiscernible] technology. And on top of this now, the [indiscernible], as we are constructing it outside the tower and trying to fix it, the post recall sort of a thing. So there has been a lot of further savings in time and cost is in doing this project where -- from where we started 6, 7 years back to now, we believe with this technology, we have been reasonably successful in doing. Similarly on the stage part on the same technology that aluminum shuttering work. Now from one slab to other slab, we have been [indiscernible] between 8 to 12 days -- sometimes between 8 to 9 days we go to the next place. Earlier it used to take 15 to 16 days time. So there has been a significant improvement in the building cycle and in the overhead. Likewise small, small mechanization you talked about, the technology introduction we talked about has been an ongoing process which is helping us in executing the project. On the sales and marketing side, what we have done in the last 1.5 years, we sell -- earlier the sales guy used to head the marketing. Now the marketing was demarcated from the sales people, and then it got centralized in Bangalore. So that part was new, which helped us in understanding with the marketing as a definitive function and not linked to the selling part and [ 10% ] from the outside was worked-in and more than highest number of people have been recruited in the last 18 months in the marketing front. Almost 200 people they work today in the marketing department, which includes the full fledged back-ended office, which includes the content writers, which includes the people who design the advertisements as well. And the use of technology to see that seamlessly from the moment the customer makes an inquiry to be able to reach out to the customers has been 2 to 3 minutes by the marketing side. And thereafter, the way it is being handed over to the sales people. And thereafter, we are pushing this same set of customers to go for the site visits. It has all ended with superior results than what we earlier used to achieve. We are having now 7 lakh-plus unique data of the customers. We also have highest ever, the what you call, the opportunities getting generated on a monthly basis, highest ever site visits taking place and the cost to be incurred to achieve these things is at a significantly lower cost than what we otherwise used to, what we call [ spend ]. And when you say that the 18% time to [ save ] plus the margin part, the business model further supports us in keeping this marketing cost not only under control, but making it far more competitive, then sometimes you must be knowing that the outside agencies they charge 5% to 6%. They receive the data, and we are not sure about whether whatever inquiries which were generated were addressed by the third parties in a 100% full-proof manner. So such things we believe have given us an extra edge now than what we were maybe before this COVID.

Excellent, sir. Very nice. With your permission one last question. So it's after a long time that both capital market and physical markets are sort of booming, are very healthy. Is it a good option to raise equity capital and then to power your development pipeline further with the help of that? Is that a good idea? Are you thinking on those lines?

See, looking at the size of the market and the opportunities, right, all these ideas definitely do have some merit. But [indiscernible] like I have indicated that means we've learned the lesson in a very, very hard manner. We believed that somewhere the, what you call, the cost of debt we had not understood as much earlier, we presumed we knew. So this one, the first half, after many years, we launched the numbers where we could generate operating free cash flows and bring down our debt. Going forward, I believe that this will get accelerated due to the better focus on the sales management, agreement management, collection management kind of a thing. And hopefully, we should be able to power the growth or the opportunity that it comes through us with our own cash flow is our first, what you call, effort. At the same time, such things right now, we are not discussing, but maybe once Board understands the opportunity and the sustainability part, I cannot say. It is for them to look for.

Next question is from the line of Kunal Lakhan from CLSA.

Sharma Ji, 2 years back, you had mentioned about or highlighted a target of doing 7 to 10 million [indiscernible] bit of sales in the next 3 to 5 years. I understand in the last year also ha been a bit of a challenge. But now that we have achieved like record sales, would you revisit that target? And if you extend and if you can give us some timeline by which you will do that 10 million square feet of sales.

See, let us first achieve at frist landmark of the 10 million square feet to begin with. Hopefully with the new launches and hopefully, right the way that the market [indiscernible] sooner than the later, we should be hitting the target. And since our focus has been primarily on the residential space as well as using the incremental capabilities of our manufacturing units, our design units and other units for the contracting job, we do believe that we can achieve this 10 million square feet of annual delivery with a little bit of [indiscernible] here and there. And we hope that what we talk about, with the Indian economy getting into a new growth cycle. And [indiscernible] playing its role at this phase of the development of our Indian economy. We did -- 10 cities are already under our control with the outside Bangalore doing relatively better than what we have ever achieved, few more cities getting added. We do believe that with what we have talked about of achieving 7 million to 10 million square feet, we should be able to achieve faster than what we had asked for before the COVID period.

Sure. That's okay. But let me just ask this slightly differently. Since Bangalore remains our core market, right? We have say about market share of about anywhere between 8% to 10% there. Looking at the consolidation that is playing out right now, where do you think -- what kind of market share can we achieve over the next 3 to 5 years?

The market to begin with, we will not be like this. As people start seeing the momentum as they start seeing prices rising. I do envisage, this is my view that there will be newer players. They may be from the other markets as well as certain corporates that may get into this business because it doesn't require that with the [indiscernible] is not that difficult sort of a thing. Which is like to see your [indiscernible] exams. Anybody can apply for -- they think how successful is difficult, not like our NET or those UPSC exams. But so the big picture is that we do foresee new players coming in. At the same time, I do believe that our market share right now may be about 12% to 15%, not 8% to 10% sort of the thing. And it's -- we did new launches, and with kinded of project that we envisage in the coming quarters, we are in good locations, the Southeast region, which is our forte. Hopefully, we will see chipping in this market share bit by bit. But the most important thing what I would like to communicate is on sustaining the volume, a, and selling the projects before the project gets completed. Now these are the things which we have been following in a very scientific and systematic manner. Going forward also, we'll keep pushing on that account to ensure that some were there is a hedging on the cost increase or there an advantage during the project cycle of higher realization with the market [indiscernible].

Sure, sure. Just again a follow-up on that. It's like you mentioned the newer developers from say, newer or established developer from other geographies can enter and [indiscernible] market share. How are we thinking about hedging that risk by like entering into newer markets, in especially markets like Mumbai or say acquiring another project in a big market like NCR. How are you looking at those opportunities?

You are right, you are right. That is what -- you see only 2 quarters have passed by. And we used to talk about 50-50-50 from Bangalore and 50 from outside Bangalore. There has been some delays in the -- in seeing the other markets like Trivandrum, Hyderabad or Hosur. But with the new launches, I do believe that our presence in the other markets will be significantly better and higher. And then in the same market, we have started looking for newer opportunities. As and when they materialize we will be sharing. And that way, we also will be gaining market share, say in Chennai or in Gurugram or in Pune or in GIFT city as well in the new cities where we impact. It's an on going process. Some say the market size is too large. Our business model allows us to compete with anybody on quality as well as on the price front. And going forward, these are the 2 additional, what you call it, or the strength that we have will get demonstrated as the market becomes more centralized and more competitive.

Sure, sure. That's very helpful. And my last question is on the cash flows. Subhash, you have seen cash flow collections from real estate ramp up significantly in the second quarter. But we haven't seen a similar ramp up in the project outlays. Do you think with the increased scale of operations we'll see the outlays will catch up and the cash -- the overall cash flow surplus that we are generating or will generate in Q2, that may not sustain or maybe that we'll be still cash flow positive, but may not be at the same level as we have seen in Q2.

[indiscernible] real estate project expenses are not going up at the same level as the collection [indiscernible]. Few of the launches that have happened have happened with the land being our own land. So naturally, there will be no spend happening there. And the JV payment would go down on this [indiscernible]. And since the land is at a good price that we would have achieved earlier. So the percentage of the construction costs in the collection will be far more significantly lower as compared to the earlier land parcels, which would have come in at either a JDA price which is quite high or the newer land parcels that would have start. Like [indiscernible] or in Marina. So we expect this to continue. This differential between the real estate projects and [indiscernible] collection would continue, probably 5%, 6% here or there can be the moment during the quarter, but not much.

And Kunal, to answer your other question, our calculation sales that in the second half, there will be an accelerated cash flow which means there is a better possibility of EDC, the debt at an accelerated pace than what we have seen in the first half.

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

Congratulations on a strong result. On -- can you just talk a bit if the same sales trend is continuing in October as well?

Yes. Abhinav, we believe normally the second half has been always better as far we are concerned then the first half sort of a thing. And the momentum that we have seen in the last quarter continues. There are sometimes [indiscernible] all the effective days, which normally do not get converted into sales because [indiscernible] are traveling. And the traveling has increased many fold in the last [indiscernible] time than what otherwise we have witnessed. But the level of interest, the inquiries, the site visits, et cetera, continue to do well. Gurgaon has done exceptionally well in the last month. Bangalore also continues to do better. Pune also has done well. The GIFT City also has done well in the last month.

Okay. So broadly, I mean, INR 1,000 crores a quarter should become more the norm, right, going ahead?

Could become the norm, should become the norm. Yes.

Okay. Sir, second question is on the contractual did. Now the revenues have been lagging even thus far and contractual plus manufacturing. And I noticed that there was some improvement in the order book. So by when that order book translates to higher revenue?

Yes, it is -- as far as the contracting and the manufacturing part is concerned, we really have started seeing increased activities now. Lots of work had been stalled, the audit that we have had, off late it's not only the order book, but the activities part has started showing improvements. The second half should be better than the first half. And by the time we enter into the next year, there should be a significant improvement in the revenue recognition in our contract and manufacturing [indiscernible] as well. Some say you are clearly seeing the companies which had gone very slow, has started giving the jobs from now onwards. But initially, when we start, the [indiscernible], the civil work doesn't give you much of the billing. So may maybe 3 to 4 months from now, the billing also will improve -- And the next year will be significantly better on this front I guess.

Okay. So fourth quarter and first quarter is basically the guideline -- guidance for us?

Yes, yes, yes.

Okay. Okay. And Sharma, sir, on last question on the balance sheet. I mean, I know you have been spending well on the net debt front coming down. Any sort of guidance on gearing you would like to give us like a sub 1x gearing target feasible in another 12, 15 months?

I believe that we have been communicating about 1.10 for the March 2022 and [indiscernible], hopefully, we should be doing better than that as we move forward. That's what I look at. And looking at the current momentum, this is a good thing what we can say with confidence. That looks clearly visible. That's either in the new opportunities or in the debt reduction. The surplus cash definitely will get generated significantly higher than what we have been generating till now. Other thing also just I wanted to put it across, that the quality of the sales now what we are seeing is better than what we had witnessed pre-COVID era. The agreements are getting executed faster and the quality of the collections also is improving. Another good thing what we have noticed now is that across all categories and across all regions, we have seen improvement in the sales. So below INR 1 crore continue to be about 22%. And more than 50% of our new sales is coming between INR 1 crores to INR 2 crores. And the remaining 22% also is coming above INR 2 crores kind of thing. From the customer profile perspective also, today, more number of customers are buying homes below the age of 30 then the people buying above the age of 51, sort of thing. This is a good sign. From the MRA perspective, also, we got back into the double-digit [indiscernible] number, which is a good sign. So on balance, what has been witnessed is that all the regions, all the category of the products and people from every range of the age between 21 to 60-year-old guys, they have been buying homes. We see a secular growth as we are witnessing after a long, long time. And that gives us the kind of comfort or the conviction that this is a momentum, which is sustainable which can absorb a little bit of price high increase because of the supply constraint or because of the input increase or because of the lower cost of interest which the customer now pay and such things will help us in working out both the product as even as the size of the product as we move forward.

Thank you. Ladies and gentlemen, due to paucity of time, that would be our last question for today. I now hand the conference back to the management for their closing remarks. Thank you, and over to you.

Yes. Again, I would like -- I request Yogesh to say a few words as he is starting the position to take over from me. Over to you Yogesh.

Good evening, everyone. You know that -- already disclosed that I am working with Sobha for the last 10 years. So I was handling Delhi, NCR and Gujarat region. So now I'm moving to a new role, the CFO role. So I'm taking over Subhash, sir. So I will make -- we'll work towards the numbers. And [indiscernible]. Thank you.

Thank you, friends, and for your present hearing. We hope that -- as we move forward, we should continue to keep doing better and better in our sales, in our cash flows, in our margins. We believe that the sector definitely has turned for the better. And it should be sustaining, at least in the near foreseeable future, with a good momentum. Let us hope that we can provide a good home to our customers and a good balance sheet to our investors. Thank you.

Thank you very much. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.