Sunteck Realty Limited (512179) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sunteck Realty's Earnings Conference Call for Q3 FY 2020. We have with us today Mr. Kamal Khetan, the Chairman and Managing Director of the company along with the senior management team of Sunteck, comprising of Mr. Manoj Agarwal, Chief Financial Officer; Mr. Prashant Dubey -- I'm sorry, Mr. Prashant Chaubey, Head of Corporate Finance; and Mr. Raunaq Rathi, AVP, Investor Relations. [Operator Instructions] Please note that this conference is being recorded. Before I hand the conference over to the management, I would like to remind you that certain statements made during the course of this call may not be based on historical information or facts and may be forward-looking statements, including those related to general business statements, plans and strategy of the company, its future financial condition and growth prospects. These forward-looking statements are based on the expectations and projections and may involve a number of risks, uncertainties and other factors that could cause actual results, opportunities and growth potential to differ materially from those suggested by such statements. I would now like to hand the conference over to Mr. Khetan, Chairman and Managing Director of the company. Thank you, and over to you, sir.

Good evening, everybody. And welcome to the earnings call for the third quarter of the financial year 2020. Thank you for joining us. I would like to share with you a couple of quick updates. Our presales have jumped significantly, which was expected with our ongoing launches across our portfolio, especially ODC Goregaon West and Naigaon. Due to the extended monsoon, our launch time lines were affected, but we have been able to successfully launch 4th Avenue at Sunteck City and Sunteck MaxXWorld at Naigaon in consecutive quarters. Both projects have been -- both projects have seen phenomenal response at 4th Avenue, Sunteck City, and we were able to sell close to 125 units within 3 weeks of the launch. And Sunteck MaxXWorld at Naigaon, we have sold already 1,600 apartment in just 2 weeks. We are extremely overwhelmed and humbled with the confidence shown by the customers in our brand. Despite the ongoing market conditions, we have been able to outperform our own last year's record sales at Naigaon. Looking at continuous good sales momentum in our recent launches, we are confident to maintain the strong traction in multiple launches coming soon. While we intend to begin our rental income portfolio with Avenue 5 in Sunteck City, our boutique commercial projects like Sunteck Icon and Sunteck BKC 51, both at BKC junctions, and Sunteck Crest at Andheri are garnering interest, and we are -- and we remain confident of monetizing them in the upcoming quarters. Our high street retail at Sunteck Westworld, Annex 2 at Sunteck City and retail at Signia Waterfront is already being preleased at 2 large established retail players as they see immense opportunity with such captive residential catchment in our projects itself. This, in itself, will generate strong cash flows of close to INR 1,000 crores. Construction is in full swing at all our ongoing projects across Sunteck World, Sunteck City and at all our commercial projects. Given the current market scenario, it is imperative that we continue to focus on delivery, which in turn will continue to generate strong cash flows. Further, our development spend in first 9 month of FY '20 is INR 390 crores approximately, which is equivalent to what we spent in the entire FY '19. With respect to now, acquisitions, we have already entered into several binding and nonbinding term sheets. In view of this, we are already in a very advanced stage, and I'm hoping to announce once we conclude the definitive documentation. On that note, I would like to take and hand over the call to our CFO, Mr. Manoj Agarwal, who will take you through the Q3 numbers. As always, I will be happy to answer any of your questions that you may have during the conference call. Thank you. Manoj?

Thank you, sir. Good evening, everyone, and thank you once again for joining us today. I would now like to run through the financial and business performance numbers for the third quarter and 9 months of financial year 2020. I'll begin with the operational performance numbers. Presales in Q3 FY '20 stood at INR 325 crores, a robust growth of 222% (sic) [ 220% ] Q-on-Q in comparison to INR 102 crore of Q2 FY '20 and 5% increase year-on-year in comparison to Q3 FY '19. Presales for 9 months FY '20 stood at INR 613 crore as against INR 913 crore for 9 months FY '19. Distribution mix of quarterly presales are as follows: 10% in BKC, 64% in ODC and 26% spread across our other projects. On collection front, significant construction progress has enabled our collection momentum in this quarter as well. We recorded collections of INR 166 crore in Q3 of FY '20, a 9% increase year-on-year in comparison to INR 153 crore of Q3 FY '19 and INR 540 crore for 9 month FY '20, a growth of 19% year-on-year when compared to INR 454 crores in 9 months FY '19. During this quarter, we have spent INR 112 crore on execution, INR 19 crores on overheads, which generated INR 33 crore gross operational cash flow. In terms of financial highlights, we reported a consolidated revenue of INR 194 crore in Q3 FY '20 as against INR 135 crore in Q2 FY '20, a 44% quarter-on-quarter increase. And INR 505 crore for 9 months FY '20 as against INR 587 crore in 9 months FY '19, a 14% year-on-year decrease. On the EBITDA front, the consolidated EBITDA for Q3 FY '20 is INR 50 crores, a 21% increase in Q-on-Q in comparison to INR 41 crores in quarter 2 FY '20 and INR 153 crores for 9 months FY '20 as against INR 275 crores in 9 months FY '19. Consolidated EBITDA margins in 9 months FY '20 stays at 30%. With respect to PAT, we recorded INR 34 crore in quarter 3 of this financial year as against INR 30 crore in quarter 2 FY '20. And INR 100 crores for 9 months FY '20 as compared to INR 163 crore in 9 months FY '19. Our consolidated PAT margin in 9 months FY '20 stood at 20%. We can now open the forum for questions from the participants. Thank you very much.

[Operator Instructions] Our first question is from the line of Adhidev Chattopadhyay from ICICI Securities.

Firstly, congratulations to the entire team for a very successful couple of launches, even in this tough market. Sir, now specifically, we have done this tie-up with SBI, right for a few of our projects assured possession. Could you help us understand how many of the apartments would have been sold under this scheme in these launches? And going forward, how do you expect it to help you garner more sales? That is first question. Second question is on the ODC project. Now that we have seen such a good response to the new launch and Avenue 1 and 2 are nearing possession, so what is our strategy to monetize that inventory? And when do we see the commercial project kicking off over there?

So, Adhidev, first, coming to SBI scheme. So first of all, I would like to clarify both these launches, 4th Avenue at Sunteck City as well as the recent launch of Sunteck MaxXWorld, both these launches -- the tie-up has not started. So not a single unit has been sold under that scheme of SBI. That is -- that this entire -- both these launches has been entire to the credentials of and on the merits of Sunteck itself. We definitely see advantage, that if the -- once the tie-up -- they are working out the modus operandi and how it will work and all. So to give you broad understanding about the scheme, what SBI is trying, to obviously bring positive sentiments to the entire industry. They wanted to start with one credible developer. So we were lucky to -- we were their first choice. So the scheme says that if the construction of the apartments are not completed or the developer due to any reason, maybe due to the financial crisis or due to any reason, is not able to deliver the project on time, so SBI will give that equivalent money paid by the customer as a -- means whatever money paid by the customer to that date and if he wants to get out of the project SBI will be responsible and SBI will pay that entire money to that customer. That is the -- this scheme guarantee by the SBI. So that definitely will help lot of developer and bring a lot of positive sentiment in -- to the sector. That is the idea, I think. But going forward, we definitely look forward to launch one of the projects. We have tied up, ideally, for ODC Naigaon and our Andheri project. But once the -- everything is finalized and systems are brought in place, we will definitely go and work together with SBI. And whatever additional -- maybe we will be able to generate some additional sales that will be always benefit to Sunteck. Now coming to the next question, which is ODC project. Obviously, we have done a good sale. We are definitely -- we'll keep doing good activations. We are to exhaust the inventory of Avenue 1 and 2 as well as we would, ideally, also like to launch very soon the second tower in 4th Avenue. So that is top of our mind. And very soon, you will hear some good news on those as well.

Okay. Sir, any clarity on the OC for Avenue 1 or Avenue 2? When are the things expected -- the final completion?

We have been maintaining that OC, obviously, we will be delivering by March Avenue 1. And next year -- next financial year -- before next financial -- end of next financial year, we will give Avenue 2.

[Operator Instructions] Our next question is from the line of Janaki Krishnan from Cogencis.

I just wanted to get an idea about how the pricing is. Have you taken -- have you reduced the pricing in any way? Are you seeing the prices being stable? And how do you see the trend in pricing going forward?

Yes. So if you see both these launches, 4th Avenue, the launch price was almost equivalent to what we are selling at Avenue 1 and Avenue 2. The difference is only people are happy to pay over a period of 2 to 3 years the -- instead of giving onetime, say, immediate -- in case of ready-to-move inventory, which is RTMI. They find it difficult to pay. So they are happy to pay over a period of like 2 to 3 years. So that gives them good comfort. Even in the case of Naigaon, if you see, we've not only outperformed the sales volume, we also -- last year, when we launched, the ticket size was -- the price was INR 25 lakhs for 1 BHK. And this time, we launched the same product close to INR 30 lakhs for 1 BHK, INR 25 lakhs versus INR 30 lakhs. So in spite of that, we have been able to get a better sales and better volume -- better sales realization and better volume than the last year.

Yes. And the pricing trend for the next year or so.

So we are -- we would not say that the prices will go up or we'll increase the prices. Definitely, our focus is to do volume sales, and we see our prices to remain stable.

Our next question is from the line of Parvez Akhtar from Edelweiss.

Congratulations for a great set of numbers. A couple of questions from my side. Sir, first, what would be the value of units that you'd have sold in Naigaon Phase 2 this quarter?

So that is close to INR 600 crores.

Okay. That's great. I mean it's really a fantastic launch from you that too in a tough market.

In 2 weeks.

Yes, I mean, really a great performance from you all. Second, sir, what would be the time line for the completion of the 2 commercial projects in BKC?

So we are looking less than a year in both the projects, not only both the projects of BKC, also the Andheri project, which is Sunteck Crest. And also, there is -- we have created a one small more commercial next to Avenue 2 at Sunteck City ODC, which is we are calling Annex 2, even that. So all these 4 projects -- commercial projects we are looking to complete in next 12 months -- in less than 12 months.

Wow. Sir, as far as the commercial projects in ODC is concerned, what is the status on that?

So we are definitely delayed there for some approval delays are there. But as we continue to maintain, as soon as that approvals, we would expect very soon. We are looking forward to launch in at least first quarter of next financial year.

Okay. And sir, lastly, the status of the Lokhandwala project?

So again -- so we have an understanding arrangement with the developer that, obviously, the approvals have to be brought by them. We are all ready with our plans and everything. So they are working on the approvals. Once the approval is there from their side, we are all ready to do the sales and execution and can go ahead with the project.

[Operator Instructions] We'll take our next question from the line of Biplab D. from Antique Stockbroking.

Congrats on a good set of numbers. Sir, on Lokhandwala, if I understand correctly, you have a JDA with the landlord. And can you give us some [ download ] on the market because Lokhandwala seems to be a premium market of Andheri West? What kind of projects that you want to launch? And what would be the time duration, like 3 or 4 years, you will be able to sell that 1 million square feet? What kind of products that you are planning for in Lokhandwala?

So we would -- it will be very difficult to disclose that. This is obviously a same strategy what product and what we would -- we like to launch. But we are confident that whenever we do that launch, we have done our full research study on that. We are confident that we will get a similar good response what we have experienced recently.

Okay, okay, sir. Sir, second question is on the inventory -- unsold inventory. What kind of unsold inventory is there in BKC and ODC Phase 1, Phase 2 in terms of value?

Raunaq here. In BKC, in terms of unsold inventory, it will be close to INR 1,750-odd crores. And if you look at ODC, the unsold potential will be close to INR 1,150-odd crores -- sorry, sorry, close to INR 600-odd crores. That will be in Avenue 1 and 2. I'm not including Avenue 4 for that. Avenue 4 separately will be another INR 1,150-odd crores.

[Operator Instructions] We'll take the next question from Adhidev Chattopadhyay from ICICI Securities.

Specifically Naigaon, when is the completion of Phase 1 expected? And do we also expect the retail portion to become operational along with the Phase 1 completion over that as well?

So Adhidev, yes. First, I will answer your last question, which is the retail. So retail, we are -- already signed up lease with some good brands and on -- for the high street retail. And we are confident that, most of the people, we'll give possession for the retail in next 2 to 3 months, and they will be operational in next, let's say, 3 to 6 months. And we are also looking -- although our time line to deliver the Phase 1, which is Sunteck Westworld, last year what we launched, is like as per RERA 3, 3.5 years, I wouldn't -- but I can confidently tell you that we will be able to give the -- get the occupation (sic) [ occupancy ] certificate and delivery to the people, customers much before schedule, which is in less than 6 to 9 months we will be able to give the possession of the -- all the towers to our customers.

Okay. Sir, to understand it correctly, so around Diwali or by December the first possessions should -- will be given and the shops will also open simultaneously. Is my understanding correct?

Yes. So in less than -- so this will be a record that someone giving from the date of start of the construction. In less than 18 months, we'll be -- less than 18 to 19 -- let's say, 21 months, we'll be delivering all 2,500 apartments, all 20 wings of -- means towers, you can say, will be delivered.

I just have a follow-up question on this. Sir, and just lastly again on Naigaon only. Sir, now looking at the phenomenal response you have in Phase 2, any thoughts for launching Phase 3 or whatever more inventory very soon over there? Or you'd prefer to wait again before bringing up...

I don't think we will wait or something, but we'll definitely -- we want to go very aggressive. If you see, last year we launched Phase 1, and only due to monsoon we got delayed by 3 months. Otherwise, almost similar time in less than one year or almost one year, we launched Phase 2. If you leave apart the delay, which was caused due to the monsoon, which -- because we didn't want it to launch it during the monsoon period because it becomes difficult to handle the crowd, and the response may be -- go weak during that time. So that's why, intentionally, we delayed that. But if given a choice, it's not required that we have to, again, wait for 12 months or 15 months. We see a great response and traction from the customers. So we will definitely look to launch Phase 3 as early as possible.

We'll take a next question from the line of Ruchi Parekh from Anand Rathi.

Congratulations, sir. Sir, I have 2 questions. Sir, one would be if I -- if you can help me with revenue breakup for this quarter in terms of majorly from which projects the revenue came from? And the second is, if I can -- if you can help me with the breakup of strata sales that has happened during this quarter?

This is Prashant this side. The revenue breakup is as such for the third quarter: from BKC projects, it was around 18%; from ODC, it was around 41%; from Naigaon, 27%; and the balance was from our other projects.

Okay. Sir, and then on the strata sales breakup?

Yes. So basically, what we have done, we have been able to achieve a very good sales in our Sunteck Icon project where we have done -- where we have been able to monetize the asset since the construction has already been initiated. And as you can see, construction is going on in full swing in both Sunteck Icon and Sunteck BKC 51. So that has been -- that has helped us to achieve this monetization of close to around INR 80 crores in Sunteck Icon for close to 2 floors.

We'll take our next question from the line of Sandeep Mathew from SBI Capital.

Congratulations on the very strong presales numbers. My question is actually related to the collections, I think. So because we've obviously been showing very strong presales. And also on the construction front, we have been extremely doing very well. But however, on the collection side, I think the pace probably is slightly still a bit lagging, even though we have a lot of these of completed as well as inventory that's been sold in the past. And also in Naigaon, where -- as sir pointed out, the construction pace has been very good. So I'm guessing, why would the collections -- at what point does the collection cycle effects really also kind of go and start to go in tandem with the presales numbers that we are reporting?

Good questions. So very frankly, if you see the last year, so presales in fact numbers have been good. And you'll see this -- incrementally this number will continue to improve. So if you see last year, in 12 months, we did a collection of INR 540 crores...

9 months FY '20.

So 9-month. So FY...

'20.

'20, sorry. 9 months, we collected, sorry, INR 540 crores versus INR 450 crores -- INR 454 crores 9 month last year. So it is almost more -- almost INR 100 crores -- INR 90 crores to INR 100 crores more than the last year in the 3 quarters. And fourth quarter, you will see much more, maybe better. And going forward because of our strong presales number, definitely, you will see the collections will improve further and quarter. We'll have a very strong cash flows. That's what we are confident on.

Right, sir. So is there any particular reason for cash flow slightly becoming munched up towards the end? Because I would say, in fact, even the presales number would be, I guess, much more than 20%, right, on a year-on-year in the 9-month number or close to...

So if you see, very frankly, projects are under construction. So you can't -- so presales numbers effect will come. Exponentially, every quarter, you will see it will come. So like right now, we have done INR 1,600 crore sales, where we have not even collected, let's say, 10% immediately. So it will -- in next 21 days, that -- and that will come in this quarter, current quarter. So that will not be reflected in last quarter. Also, if you see what we did, ODC good sales. That was towards the end of last quarter. Again, the money has to come, the 20%, 30% when people start registering. And as per RERA, we can't take more money until the time the stamp duty and registration is done, more than 10%. So all those takes time such volumes of -- and people take time to register and put the stamp duty. So that's what I'm trying to say. Exponentially, we'll see a strong growth of cash flows, strong growth of cash flows.

Great, sir. And just one final question, if I may. You had indicated that going forward -- or rather, you were in very advanced stages of negotiations with probably multiple landowners or developers for new projects. Is it safe to assume that we will probably continue with the JDA approach, which has worked well for us in the case of Naigaon and also, I guess, in Lokhandwala, to some extent? So should we expect a similar kind of a strategy? Or are we also looking at buying land parcels outright?

So we are very clear. We want to -- this is a distressed market. A, we want to be cautious, at the same time very aggressive. We'll continue to explore every opportunity which is there. But it's not that we will risk -- we will prefer, obviously, joint development or asset-light model. But if there is a good opportunity to buy, we will definitely buy and how to ensure that we don't increase our debt to see the balance with the cash flows, we will be very cautious on even that so that we don't want to increase our debt levels. We are very clear. But there is lot of opportunities in the market. We will cautiously look at those without increasing the debt. We'll continue to do good business, good acquisitions. You'll hear from us.

[Operator Instructions] Our next question is from the line of Chandrasekhar Sridhar from Fidelity.

Congratulations, Kamalji, on the Naigaon sales. Great numbers. Just a question over here. How -- what would you assess the competitive environment in Naigaon just going ahead because of this Suraksha Realty's Smart City, which is sort of being planned around there? And it just seems like -- just in terms of planning, it seems a huge area. So I'm just trying to understand your thoughts on competition there.

So Chandrasekhar, again, why Suraksha Realty? If you start that micro market from Virar, Vasai, Nala Sopara and Naigaon, we take that entire micro market. There is not only Suraksha City. There are many Suraksha cities like that -- there are -- which are there in the market. And there are ready inventories which are available in the market in Virar. I can tell you end number of inventory, which is readily available. I don't know the reasons, but we are doing something right and something better, fortunately. And I think -- so we are -- I can say that we'll continue to perform in a similar manner, and we'll monetize and get the best value for our investors.

Right. But do you see that -- is the inventory competing because, I think, from what I gather, I think the dimensions are little smaller than yours. Is there any color, which you would sort of happen on this in help, a little more specific?

Which inventory is slightly smaller than the?

Suraksha's.

So I can only share with -- tell you that I don't know about their inventory, but we know that, definitely, they will be launching. Again, that micro market is -- they are into the Vasai micro market. They are different -- within that micro market, the set of people who would like to buy them, that target audience, I think, will be totally different than our target audience. I feel. And we will be -- so we -- as far as Phase 1 and Phase 2, we are almost done with our inventory. We are confident before their launches come. And in Phase 3, whatever we plan, will not be, again, competition with them. So just to share with you, there is already -- it's not -- Suraksha is a new player out there. But you can -- I can name some very established player and some of the big corporate who are there in that micro market, which I think has not affected us at all, and they have huge land parcels. So it is lot many things that -- and if you look from Virar to Naigaon, the land -- there are enough land parcels which are vacant, and we cannot stop someone from coming. I can only say we'll do much better than the other players. I'm pretty confident.

We'll take our next question from the line of Parvez Akhtar from Edelweiss.

Just a bookkeeping question. What would be our gross debt at the end of Q3?

Parvez, this is Prashant this side. So our gross debt levels are at similar levels at what they were in the first half of FY 2020. And our debt-to-equity ratio is less than 0.25.

Our next question is from the line of Janaki Krishnan from Cogencis.

Okay. I need to -- do you have some kind of an outlook as to -- for the next fiscal year what is the kind of project launches that you have envisaged in terms of square feet or in terms of growth?

So if you see, we have already surpassed the presales number of last year in almost -- even this year, we will be surpassing the presales number of last year. And we are confident that the next year, what we are planning, our sales and marketing team and our team together, we are, again, pretty confident you'll see a decent -- you'll see a good growth over the current year -- current financial year. The next financial year, the numbers, you'll see a better presales than even this year.

Okay. For the -- in terms of the scheme with SBI, which you had said earlier that you are still thrashing out the details of it, will any scheme be launched in the next year, FY '21?

We -- why FY '21, Janaki? We would love to launch it as of yesterday. But my team is definitely working. It is the first time for SBI also and for us as well. So we both are the reputed brands. Both want to be extra cautious and -- before we launch, everything is in line because the same scheme will be applicable for any other developer. So they want to be -- they want to make it foolproof so that they don't have any problems in future because it is a big risk SBI would be taking by saying that if someone defaults, they will be paying that entire money to the buyer -- to the customer.

Okay, yes. So would it be a new project? Or would it be in any of your existing projects? I mean, how would that work? Have you thought about that also?

It can be in the existing projects, definitely, and it can be in the new projects. It can be -- we would ideally prefer to be a new phase in the existing projects. Like, ODC, if we launch a new tower, let's say now, in the 4th Avenue, there we would like to come -- take the advantage of that scheme. Or let's say, Phase 3 when we launch in Naigaon, so there we can take the advantage. Or we launch in Lokhandwala something, there we can take advantage.

Ladies and gentlemen, that was the last question. I would now like to hand the floor back to Mr. Khetan for closing comments. Over to you, sir.

Thank you all for taking off the time from your busy schedules. In case if any of your queries have been left unanswered, you can get in touch with me or my team. We look forward to your continued support. Thank you once again for joining us, and have a pleasant evening.

Thank you, members of the management. Ladies and gentlemen, on behalf of Sunteck Realty, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.