Sunteck Realty Limited (512179) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sunteck Realty's Earnings Conference Call for Q2 FY '21. 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 Chaubey, Head of Corporate Finance; and Mr. Raunaq Rathi, AVP Investor Relations. Please note, this call will be for 60 minutes. [Operator Instructions] The conference is being recorded, and the transcript for the same may be put on the website of the company. [Operator Instructions] Before I hand the conference over to the management, I'd like to remind you that certain statements made during the course of the 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 and uncertainties and other factors that could cause actual results, opportunities and growth potential to differ materially from those suggested by such statements. I'd 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 second quarter and first financial -- first half of the financial year 2021. Thank you for joining us. Before I share a few updates, I wish you all a very happy Diwali and a very happy new year. As you all may be aware, we are now seeing a revival in residential demand, especially in MMR, owing to the combination of various favorable factors, such as reduction in stamp duty and lower home loan rates. At Sunteck, we are witnessing an expedited turnaround cycle for purchasing decisions by prospective customers. There is a slight customer bias towards organized developer, which we see, for ready-to-move-in inventory and nearing-completion projects. Our luxury projects are also seeing a spike in inquiries, especially on account of, we feel, lower stamp duty. Post lockdown as well, our digital platform, SunteckAER, continues to garner customer interest and add to our sales momentum. We continue to be agile to adapt to the disruptive changes brought about by the ongoing pandemic and are utilizing this phase to strengthen our systems and processes, including onboarding of Grant Thornton affiliates Walker Chandiok & Co as our company auditor. All our under construction sites are now approaching prelockdown activity levels, and finishing work is in full swing at a few of our projects, which are like Signia -- namely Signia Waterfront at Airoli, Gilbert Hill at Andheri West, Sunteck Westworld in Naigaon. It is also important that we continue to focus on construction progress, which, in turn, will lead to generate strong cash flows in coming quarters and revenue recognition at regular intervals. The second, the affirmation of AA- credit rating with a stable outlook by ICRA highlights our continued focus on prudent cash flow management. The sales and collection trajectory has been growing post the easing of the lockdown, and we remain confident of increasing our market share. Our recent project additions are the perfect example of our philosophy of making research-based, asset-light value-added acquisitions. These projects will largely cater to the mid-income to affordable segment, especially post-COVID-19 scenario. We continue to aggressively explore new opportunities and intend to capitalize on these opportunities at hand, setting the stage for further sustainable growth and attractive ROE. On that note, now I would like to hand over the call to our CFO, Mr. Manoj Agarwal, who will take you through the operational and the financial numbers for this quarter. 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. Before I begin, I would like to take this opportunity to wish everyone a happy Diwali and happy new year. I'll start with update on the revenue recognition method in the financial segments. During this quarter, looking into the current COVID-19 impacted and [indiscernible], we have moved revenue recognition to project completion method from percentage completion method for all the new as well as upcoming projects, and accordingly, comparative numbers have been -- also been stated. But they was also concurred by new incoming auditors, that is Grant Thornton affiliates Walker Chandiok & Co LLP. This project completion method for revenue recognition is more conservative. Please note, while cash flow of the projects and company remains as it is, it is mere timing difference of revenue accounting. Now I would like to run through the financial and business performance numbers for the second quarter and half year of financial year 2021. Presales in Q2 FY '21 stood at INR 200 crores and at INR 300 crores for half -- H1 FY '21. Distribution mix of quarterly presales remained healthy and are as follows: 56% in Signia High Borivali, 27% in ODC, 16% in Naigaon and 11% in other projects. On collection front, momentum picked up in this quarter as a function of healthy presales of different parts as well as increase in home loan disbursements. We recorded collection of INR 141 crores in Q2 of FY '21, a 117% increase on quarter-on-quarter basis as against INR 65 crores in Q1 FY '21. In terms of financial highlights, we reported a consolidated revenue of INR 143 crores in Q2 FY '21 as against INR 53 crore in Q1 FY '21, a 167% growth on quarter-on-quarter basis, and as against INR 132 crore in Q2 FY '20, an 8% growth of year-on-year basis. Revenues stood at INR 196 crore for H1 FY '21 as against INR 305 crore in H1 FY '20. On the EBITDA front, the consolidated EBITDA for Q2 FY '21 is INR 31 crores as against INR 13 crores in Q1 FY '21, 140% growth on quarter-on-quarter basis. EBITDA for H1 FY '21 was INR 44 crore against INR 110 crore for H1 of previous financial year. Our consolidated EBITDA margin for H1 FY '21 stands at 22%. With respect to PAT, we recorded INR 14 crore in Q2 of this financial year as against INR 28 crore in Q2 of previous year, FY '20, and INR 11 crore for H1 FY '21 as compared to INR 61 crore in H1 FY '20. Our consolidated PAT margin at H1 FY '21 stood at 6%. We continue to focus on our cash flow management and financial discipline, a must in this environment, and that continues to reflect in our lower net debt equity ratio, which is 0.25x, which excludes quasi-equity components. We can now open the call for questions from the participants. Thank you very much.

[Operator Instructions] We have our first question from the line of Sagar Karkhanis from Motilal Oswal.

Am I audible?

Yes. You're audible.

Sir, my question was more broad-based on these new integrated comprehensive development control regulation, this ICDCR. What can be the potential upside for us in our lands in Naigaon, Vasai and in Asangaon if they are to be implemented the way the draft is right now? If you can highlight something on that.

So Sagar, it will be, very frankly, too early to comment what will be the advantage on that. So I would refrain from making any comment on that, very frankly. I don't -- because we have to get into detail of every project versus that policy. So once everything is cleared, we will, frankly, get on to that.

Sure. Sir, no problem. So I'll come back in the queue for more questions.

No. You can ask a second question, if you want.

Yes. My -- the next question was on the update on our Oshiwara project only. If you can highlight what steps we are taking to improve the sales velocity in ODC, that would be it, sir.

I think...

So Sagar, just wanted to highlight, if you see, the quarterly performance in Sunteck City for the last 2 quarters has been very good. We have been able to achieve significant sales, especially in Avenue 1, which is now ready, OC has been received, and even for Avenue 2, which is nearing completion. As Mr. Khetan had said, we are also seeing more and more demand in this category of projects. So Sunteck City continues to see good momentum for the last few quarters, and if we're fairly confident going forward also that...

And I think it sold...

We sold 27 units in this quarter, 26 in 1st Avenue and 1 in 2nd Avenue, worth about INR 54 crores.

In fact, Sagar, in the -- Prashant on this side. In the entire first half, we have done close to around INR 90 crores in ODC. So from that perspective, our digital sales platform, which is the SunteckAER platform, that has served us quite well, and it has enabled us to go ahead with the sales momentum, plus the completion of Avenue 1. As Avenue 1 has received OC, so that is also now giving it another level of growth. So in the -- so that is something which will also help.

Sure. Got that. And just one more thing. Any update on the retail or commercial development in that growth?

I think, Sagar, we updated in the last analyst call as well that looking at the current -- with this pandemic going on, it will be too early. We all know what is the state of retail, in fact, in this pandemic situation, so it will be stupid to start any retail project at this junction or juncture. And the commercial, the clarity is still not there. So we would like to wait and watch that whether there is a demand, which comes like residential. Like that demand has picked up in residential, that certainty is not there in retail and commercial. It's -- once that is clear, we will definitely look to start. As on -- yes, I would say, as on yesterday basis. But nevertheless, if we see that demand is paused for quite a long time or there is some problem in the demand of retail or commercial, we can always launch -- looking at the residential demand, which has picked up, we can always launch a residential tower or a residential phase in that particular component of 3 million square feet.

Okay. So just one thing I wanted to understand. So it is possible that we may not do any retail development in ODC also? Is that what you are saying?

If the market does not allow, why should we do it, if market -- just for the heck of it. So we'll do maybe the limited retail. The size of the retail may change, the size of the commercial might change. But it's -- looking at the demand, we would like to see that what kind of demand is there. Accordingly, we can -- we have that advantage that we can shift from the commercial. What we were looking to do 3 million square feet of commercial and retail, maybe we do it 2 million or 1.5 million. But we'll continue to explore. We don't say we'll not do retail and commercial. We'll continue to explore retail and commercial. We'll see what is more beneficial for the company. Obviously, we'll do that.

Sure. Understood. I was just asking it from the perspective that it can improve the velocity of sales for our residential units.

I think the -- if you look at that micro market, I think we feel we have done decent without any launch, without any new activation. Like on a regular, sustainable basis, I think this momentum, what we see over the past year, in fact, this has been better than the previous quarters, even pre-COVID quarters when there is -- there was not a launch. So I think this is quite decent, and we see this momentum continuing. And this will only pick up from here.

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

Sir, just two questions, one of them on the ODC commercial, as you've answered. Just wanted clarification on the percentage completion because the wording in the [indiscernible] accounts is -- says certain assets. I just want to be sure we've moved across the board to project completion, or it's selective that some assets are on percentage completion and some on project completion. I just want to clarify on that.

So going forward, obviously, all the projects will be on the project completion method. And so the old, which are almost nearing completion or projects which are completed or going to complete in next 1 quarter or 2 quarter, obviously, there is no point shifting because substantial amount of profit has been already booked. So we are trying a more conservative method, obviously. We want...

Sure. And just on the big projects, can you just say which are the ones which are still on percentage completion?

So like Avenue 1 and Avenue 2, which are almost near completion or almost completed, so they are on percentage completion. And the Westworld, which is completed, these are on percentage. But going forward, I'd say like MaxXWorld is on project completion, so -- which has moved from percentage completion to project completion. Anything new we launch, obviously, that will go into project completion.

Okay. So whatever is launched and existing inventory, given that it doesn't make much of a difference since the projects are already in completion, you have not changed. But going forward, all the new projects will be on project completion.

Yes, yes.

[Operator Instructions] Your next question is from line of Parvez Akhtar from Edelweiss Securities.

Sir, congrats on the good performance. A couple of questions from my side. First, how do we see our launch target we're doing. And this quarter, we have done pretty very well despite [indiscernible]. Going ahead, what kind of projects can we expect to launch in that segment in 1 year or so. And second thing is a little bit of update on the commercial projects in BKC [indiscernible].

Sorry, you're breaking. I think you're taking the call from your mobile phone. So the question is breaking.

I said -- the first question was about our launch pipeline. What kind of projects can be getting launched in the next, let's say, 3, 4 quarters? And the second is an update on the BKC commercial projects time line.

Okay. So Parvez, the launch of -- obviously, the launch pipeline, obviously, we have a lot of projects right now in our hands to launch. We have phase 3, we can do, for the Naigaon project. Phase 1 and phase 2 we have already launched, and we have successfully -- we have got a good response. And so we have phase 3 where we can launch. We have a Vasai project, which we are looking forward to launch. Then we have Vasind, what we have taken recently, that is we are looking ahead to launch. So these are the few projects. And plus maybe the second -- 1 more tower in ODC since we are almost now -- almost -- in the verge of almost exhausting quite a lot inventory. Almost 2 BHK we have almost exhausted in the 4th Avenue first tower. So we are looking to launch even the second tower. So there are quite a few in pipeline, and you'll see these multiple launches happening very soon. So coming to the second question on the update of the project time line completion of the BKC commercial projects. I think both are on track. We have already got CC about the plain level. There was obviously some delay of 3 to 4 months because the execution was stopped due to the pandemic, COVID-19. But now since the constructions are back to normal almost across all our sites, they are also in the full speed. And we see them to get completed over the next 12 to 15 months. If not 12 to 15, I would put it on a more conservative like 15 to 18 months.

[Operator Instructions] We have next question from the line of [ Dhruv Dulahra ] from Aurum Capital.

Sir, are you able to hear me?

Yes. Yes, [ Dhruv ].

Excellent. Sir, I have two questions, first one being, can you give us a figure for the total value of ready or almost ready inventory?

Yes, [ Dhruv ], the ready -- value across all our ready projects today stands close to INR 2,200 crores.

Okay. I then had another question as well about the total realization potential of the current and future projects in the Sunteck's pipeline.

So [ Dhruv ], if I understand you correctly, you're trying to understand what is the estimated future sales value potential of the company, right?

Exactly, sir.

Yes. So [ Dhruv ], see, what we can share with you right away is that, as Raunaq said, that our total estimated operating cash flows from the completed projects is close to INR 2,200 crores. Then from our ongoing projects, we are going to realize another INR 2,000 crores. And from our upcoming projects, we are -- we have the potential to realize another close to INR 4,000 crores. So all in all, you are looking at a total future operating surplus of close to around INR 8,800 crore to INR 9,000 crore. So that is the number basically that we have.

Excluding, obviously, not the projects which are not launched. Only the projects which we have launched.

Dhruv, can you hear us?

Yes, sir. That's it from my side.

We have next question from the line of Prem Khurana from Anand Rathi. [Operator Instructions]

Three questions from my side. So one was [indiscernible] and the other one terms of [indiscernible].

Sorry. Prem, excuse me. Prem, you're not audible properly. Can you speak slow and...

Am I audible now?

Yes. Now you're better.

Hello? Is it better?

Yes.

So my first question was with respect to the recent acquisition in Vasind. If you could share time line, and when do we expect to have tools in place and going to hit the market? And also, I mean, I think when you give us your launch pipeline, I think there was no mention of Andheri in FY '20? Any thoughts there as well please?

Yes. So Prem, yes. So Prem, the Andheri project, obviously, we have not got any approval till now. So I don't want to comment on the -- where we are seeing any delay or any possibility of any -- due to any other reason. So I think we want to hold to announce on that. [Foreign Language] I would not like to say that it will be very soon or something. I think whereas you're asking about the Vasind where we are quite -- we have moved fast on the approval side, I think. And you wanted to know the numbers on the Vasind side, I believe?

Yes. Actually, in terms of when do we expect this to launch? Is this for next year or, say, year after that? Because the presentation says the landowner is responsible for liaisoning and approval, so I'm not sure, I mean, if things are moving as per your expectation or not?

So yes, Prem. So there, we are seeing the landowner is able to get the most of the approval part. We are talking only about the projects. When I said about the launch project, we are not talking about the launch which can happen after 15 months or 18 months or 2 years. So we are talking only about the projects which we are -- we'll be able to launch in less than 9 to 12 months, so 8 to 9 months or 9 to 12 months, I would say. So if -- when talking -- while talking about Vasind, so we are talking Vasind also to launch in less than 9 to 10 months. So all these projects, what we are talking, whether it is Vasind, Vasai, the phase 2 -- phase 3 of Naigaon as well as the tower -- 4th -- tower 2 of the 4th Avenue, the next tower of the 4th Avenue, which we are very -- we are seeing that they are -- the approvals are going at a very advanced stage, and we are looking to launch all this over, I think, less than 12 months. In the current -- these are the new -- these are the pipelines, which we can see we can launch in the next 9 to 12 months.

Prem, regarding the commercials of Vasind, so we are expecting about INR 1,200 crores to be the top line of the project. Our share is about 80%, which translates to about INR 950 crores. The project cost we estimated to be about INR 550 crores. The gross surplus is expected to be INR 400 crores, which we hope to realize over the project time cycle of about 4-odd year. Those are the commercials for Vasind.

We have next question from the line of Rohan Koshy from New Horizon.

Mr. Khetan, just had one question. Could you give us some idea on FY '22 and '23? What sort of presales target you're setting out for yourself?

Rohan, it will be wrong on my part to give you a forward-looking -- make a forward-looking statement, very frankly. But I can say that it will be -- in spite of this pandemic -- and as we have seen, the sales are picking up in real estate, especially in residential. We -- I can only say that you will see a good results -- you'll see a good number.

Okay, sir. And second question really was on the debt. Where do you see it going from this level over the next couple of years? And what's the plan?

So Rohan, we are very clear that we have been always very disciplined in terms of debt in the [indiscernible] maximum. We have always tried to restrict our debt to not more than 0.3x in 0.35x and -- whereas not compromising any acquisitions or further group story. So that is one thing very clear. So we don't see ourselves crossing the debt level of 0.3x, 0.35x like those things. At the same time, we will continue to aggressively keep doing acquisitions. As you saw in last 2 quarters, we have done already 2 acquisitions, Vasai and Vasind, and there are many more news, God Willing, you'll be hearing going forward.

We have next question from the line of [ Aditya Mehta from ZM Investments ].

Sir, my question is on Vasind project. We have acquired 50 acres of land over here -- over there. Am I right?

Yes.

And just around 50 acres of land was acquired in Vasai also, but the developer area in Vasind is quite less, approximately half of that in the size. So could you please explain how that works out?

So Aditya, obviously, there is a FSI difference, obviously. The -- how much you can construct in Vasai is obviously much more. Then -- like the same 50 acres in Mumbai would construct much more than what we are constructing in Vasai. And like Vasai, we construct much more than what we will be constructed in Vasind. So it's local authority norms. Obviously, we can't construct more than what is allowed, what FSI is allowed. So it is because of that, the difference in the numbers there.

Okay. Got it, sir. And sir, next question is you mentioned that you have ready plus ongoing plus upcoming inventory of around INR 9,000 crores, excluding projects which are not launched. So upcoming will, obviously, include the projects which are not launched by us. So how -- what do you mean to say by that, that it doesn't include not launched projects?

I'll let Prashant explain that.

So Aditya, Prashant on this side. For upcoming projects, what you have to understand is that upcoming projects are projects where we believe all the approvals are in -- almost in place, and we can launch it. So upcoming and not -- there's a difference between upcoming and planned projects. So in our upcoming projects, like we have projects like MaxXWorld phase 2, we have the tower 2 of 4th Avenue ODC, we have the Vasai project. So these are projects which are -- where the visibility is very, very high from our side. And tower 1 -- like Tower 1 of 4th Avenue is already launched. So from that perspective, we talk about these projects. And even if you exclude the upcoming projects, still, we are sitting on close to around INR 5,000 crores of operating surplus. So from that perspective, the company is sitting on a solid foundation. Thank you, Aditya.

We have next question from the line up [ of Yash Mandviwalla ] from Mandviwalla Family Trust.

The first question is on the pricing. So have we taken any pricing action this quarter across any of our properties? And if you can also provide some sort of outlook on prices going forward.

So [ Yash ], there is -- pricing means -- very frankly, we have not given any discount on -- we are selling at the similar -- same levels as we have been selling. So I don't see there is any problem of pricing. And since the velocity of the sales is good and decent, so we don't see any upward movement of price, whereas the downward revision of the price. But going forward, if this trend continues, we can only see that the prices will be former and transformer going forward. That's the trend which is going right now. The way the sales philosophy is going, I feel the price is moving only towards north, nowhere else.

Got it. So the sales we've done this quarter, they would be -- the realization would have been closer to what we did last year -- or last quarter. There's no -- not been any decline this quarter?

No. No. I don't see. So we have given the numbers, I think presales numbers, in the starting also and the results also, and you can compare that, obviously. So in fact, from the last quarter, it has doubled this quarter.

Got it. My next question is on BKC residential. It's been a few quarters now since you saw a sale there. So any update on that? And what is the feedback that we're receiving there?

Yes. For last, in fact, 2 quarters, unfortunately, we have not been able to do 1 deal. So one quarter, we did 1 deal, but again that -- we had to -- so we had to write-back 1 deal. So -- but we are seeing now because of -- in fact, post this COVID-19, we are seeing now very firm inquiries for the BKC project. Hopefully, we may see something good in coming quarters.

Ladies and gentlemen, that was the last question. I'd now like to hand the conference over to the Chairman and Managing Director, Mr. Khetan, for closing comments. Over to you, sir.

Thank you all for taking out the timing from your busy schedule today. 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 today, and please be safe. Thank you. Thank you, once again.

Thank you very much, sir. Ladies and gentlemen, on behalf of Sunteck Realty, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.