Sunteck Realty Limited (512179) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to Sunteck Realty's Earnings Conference Call for Q1 FY 2022. We have with us today Mr. Kamal Khetan, the Chairman and Managing Director of the company, Mr. Manoj Agarwal, the Chief Finance Officer, and Mr. Prashant Chaubey, SVP Corporate Finance. [Operator Instructions] This conference is being recorded. [Operator Instructions] 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, the Chairman and Managing Director of the company. Thank you, and over to you, sir.

Thank you for joining Sunteck Realty First Quarter FY 2022 Earnings Call. I'm excited to share with you our continued progress on the next phase of our development as a business. In our last call, we introduced the guiding principle of the new Sunteck, what we are calling Sunteck 3.0. Sunteck 3.0 is focused on three key priorities: first, an asset light approach; second, a flywheel of high-velocity growth; third, an exceptional and incentivized scheme. Over the years, as Sunteck worked to establish this brand and track record, we acquired large land holdings on our balance sheet. In certain cases, we also held onto finished apartments that could increase in value. While this decision was strategic and created enormous shareholder value, currently, we have over INR 1,700 crores of finished inventory. Although this is only approximately 15% of the total inventory of respective projects. I am focused to exhaust this inventory in the next few years. Slide 6 of our presentation shows our finished inventory and the progress we have made in the last 15 months, including the sell-down of the almost our entire inventory at our Borivali East project, namely, Signia High and the Gilbert Hill project. We also do not want to add new finished inventory to our balance sheet. Our priority is high sales velocity. This has been the hallmark of our recent launches and will continue to be our modus operandi moving forward. Sunteck City and Sunteck World are the exhibits of this approach. I think of Sunteck as an efficient factory that takes input just in time and manufactures widgets, which happen to be highly desirable apartments. Our trusted brand and reputation allow us to operate this factory through JVs and JDs that require little, very little capital upfront and yield high returns on our invested capital. Sunteck spends approximately just less than INR 100 crores a year on overhead. Our near-term engine, if you see Slide 8 of our presentation, alone have a potential to generate approximately INR 700 crores of profit after tax for next 6 to 7 years. With more scale, our cash flow engine will grow stronger. The key is to expand and strengthen our factory, our senior team and execution capability, so that we can do 6 to 8 or even more sizable projects simultaneously. Our project level operating margins are trending higher from 25% towards an average of 35% per project. As our brand and offering grow stronger, our price realizations are improving. This, coupled with a greater economies of scale, is improving the profitability. Sustainable expense control we implemented during COVID are helping our margins further. In 2021, the state of Maharashtra is cutting various developer fees by 50% to incentivize developers. These fees are significant, an amount almost 30% of the price we realized. We are taking full advantage of this opportunity and pass on the benefit to our customers. We plan to prepay almost INR 250 crores of these fees in 2021. The 50% saving means that we will also be saving INR 250 crores, which is wonderful. This should further improve our project level IRR and leave us with more capital for group. The benefit will come over the next few years. I'm very proud of the team we have built at Sunteck. In recent weeks, Sunteck has begun to roll out a new employee incentive program tied up to form an employee-level objective. I'm excited about this development. Incentives can be very powerful in influencing and rewarding outcome, and we intend to put a lot of our attention on our employee development in this regard. Sunteck 3.0 is off to the races. It is still early days for us, but we are well positioned and focused on what we need to achieve. The runway is long, but Mumbai housing stock has significant room for continued growth and redevelopment and the demand we are witnessing for homes today and have a structural tailwind that we expect will continue for a very long time. I'm excited for what the future has in store for Sunteck and excited to continue to share it with all of you. Thank you. I will now hand over the call to our CFO, Mr. Manoj Agarwal for his comments. And thereafter, I will be happy to answer your questions, if any. Over to you, Manoj.

Yes. Thank you. Good evening, everyone, and thank you once again for joining us today. I hope all of you are safe and well. The financials and operation numbers have been already uploaded on the stock exchanges. I hope you all must have gone through the deck. Now I would like to run you through the key financials and business performance numbers. Pre-sales in Q1 FY '22 stood at INR 176 crores as against INR 101 crores in Q1 FY '21, an increase of 74% on a year-to-year basis. On collection front, we achieved collection of INR 172 crores in Q1 FY '22 as against INR 65 crores in the same quarter last year. That is a 165% increase on a year-on-year basis. Pre-sales to collection efficiency ratio is 98% in this quarter, which is the highest. In terms of the financial highlights, we reported a consolidated revenue of INR 93 crores in Q1 FY '22, as against INR 55 crores in the same quarter last year, which is an increase of 69% on a year-on-year basis. Consolidated EBITDA for Q1 FY '22 is INR 21 crores as against INR 16 crores in Q1 FY '21, which is also an increase of 32% on a year-on-year basis. As always, we continue to focus on our cash flow management and financial discipline that is must in this environment, and that continues to reflect in our low adjusted net debt equity ratio that is excluding quasi-equity, which has been reduced 0.17x due to our strong operating cash flows. In this quarter also, our gross operating cash flow was positive by INR 32 crores. The positive cash flow helped to reduce interest costs by 19% compared to the same period last year. We can now open the forum for questions from the participants. Thank you very much.

[Operator Instructions] We have the first question from the line of Kunal Lakhan from CLSA.

So I have 3 questions actually. So firstly, on the Borivali project, right? So just can you update us on what is the status of the settlement of the club members by the landowner? And what is the status on the approvals? And also the targeted time line for the launch? That's my question one.

And so that -- you said 3 questions?

Sure, sure. So I can say all of those together. Okay. So the second question is on the BKC side. We haven't seen much of traction in the last 5 quarters. But what is your strategy to monetize this in the next 3 to 4 years that we are targeting? And the third question is, little generic, it's like what is the sales target for FY '22? And in general, over the next 3 years, what kind of sales level do you plan to achieve? Those are my 3 questions.

Thank you, Kunal. So Borivali project, just to answer that query that it has -- it is -- the developed -- the landlord, he has to settle this. And anyhow, that -- the club is on another company. It's not with the company where the land is. So we have done a JDA. And I don't think that should be a problem. I think if they are simultaneously settling the members, but that should not stall or that should not stop the project from going. And as far as the approvals are concerned, it's -- again, the landlord has to get the approval. We are monitoring it, definitely. And we are seeing that it should happen in the next 6 to 9 months, and we are looking to launch this project by the end of -- either the last quarter of '21, '22 or the first quarter of '22, '23 financial year. Coming to the BKC project, I think last year, we did a sales of INR 90 crores in BKC. That was in 1 quarter. Definitely, this quarter, we have not been able to do some -- any sales. But we are very -- we are pushing and we are doing -- I think now with the lockdown opening up and slowly the things are quite heading to the normal, we are seeing good traction, which we are expecting from BKC project also. Coming to the sales level, your third question, Kunal, that is sales -- that sales, definitely, we are looking to double our sales every 2 to 3 years that we have been giving this on all our calls and we maintain that. And looking at the current momentum and the current sales velocity, we are very confident of achieving that.

We have the next question from the line of Raj Rishi, an investor.

Just want to ask you, what would be your aspirational sales in, say, 3 years compared to what it is today?

I think we told you -- we just -- I answered this question, Raj, I believe. We are looking at least minimum double the sales in next 2 to 3 years.

Okay. And like compared to, say, a quarter back, say, 3 months back, let's say, the last con call or something, how would you give -- how would you assess the present scenario in the geography you're serving?

We are looking very -- there's a good traction in MMR region, and we are focusing obviously, in MMR region. If you see a year on -- quarter-on-quarter -- year-on-year basis, this first quarter versus last when the first COVID wave was there, and the second COVID wave, we have done much, much more than the corresponding quarter of the last year. So we see this momentum across all the quarters, and that's what we are confident about.

And you think this trend should continue for a long time. What's your assessment?

Yes. We see that housing demand, at least in the housing segment, we are very bullish, and we feel this will continue.

So you think the cycle has turned for the positive finally?

Yes. Yes. The cycle has turned, we believe, for positive. And already, we are seeing the prices getting strengthening -- prices are strengthening across all the organized developer, and we see too -- we also see that we will be one of the big beneficiary out of it.

What would be your appreciation? Like how much price hike can you assess in the next 1 year in the projects you are doing?

Raj, I think I made the statement very clearly in my speech, in my commentary right now. We are here to first exhaust the inventory very fast, but that does not mean we will not rise the prices. We have already hiked up prices in certain projects where we are seeing a good velocity without -- we will definitely like to maximize the pricing without affecting the sales velocity.

[Operator Instructions] We have the next question from the line of Parvez Akhtar Qazi from Edelweiss Securities.

Two questions from my side. First, what would be a target launch time line for the Vasai and the Vasind project? And second, on the business development front, obviously, FY '21 was a very good year for us. So what are our thoughts regarding FY '22 and going ahead? I mean, is there any internal target as to the number of projects or maybe a sales potential that we would like to add every year to our project portfolio?

Thanks, Parvez, for asking questions. So as far as Vasai and Vasind, we are pretty confident in current quarter, we'll at least launch 1 project out of the book. So we are looking at least to -- like we have acquired recently 3 projects, Vasai, Vasind and Borivali Eskay Resorts. So out of these 3 projects, we are very confident that at least 2 projects we will launch before the end of this financial year. And as far as at least this quarter, we are confident that at least 1 project we will launch in this quarter. So -- and coming to the BD development, acquiring more projects, we are aggressively looking out for the projects. And as we talk -- as I'm talking, we are already negotiating with 1 or 2 at a very forward -- very, very -- we expect that something to close in the near future. And coming to the sales, I have been maintaining that we will double our sales in less than 2 to 3 years.

We have the next question from the line of Biplab Debbarma from Antique Stockbroking.

Sir, my first question is on your Sunteck Avenue. I believe that you have around 3 million square feet yet to be developed. Just wondering whether those -- the 3 million square feet in terms of development, whether there is any flexibility. Is there a flexibility option where you can develop under 3 million residential or whatever you want to develop? Or is there some -- as part of the layout, you have to develop some amount of commercial, some amount of retail, some amount of residential?

Biplab, this is Prashant this side. Biplab, as far as Sunteck City is concerned, the 3 million number is a conservative number. The actual development potential is much higher. And yes, as you rightly pointed out, there is flexibility in the development. We can do commercial, we can do residential. So there is a lot of flexibility we can -- that is allowed in that land parcel. So yes, you're absolutely right, depending on the market conditions, we will take a decision on that.

Okay. Okay. Sir, my second question is on the price rise you mentioned. Sir, just wondering in the last 3 to 6 months, what kind of price rise -- can you give us some insight on kind of -- in terms of percentage or in terms of project some insight on the price hike that you did in the last 3 to 6 months in your projects?

So Biplab, we have done some price hikes in the -- and without affecting the velocity of the projects. And going forward also, without affecting the velocity of the projects, we will take a decision on the price rise. But as, sir, also pointed out in the previous question, the prime motive is to exhaust the inventory.

Yes. I just wanted the quantum, if you can give us some number like 5% price hike, 10%, across the board. I'm just trying to understand what kind of -- because this has been observed in other -- amongst other developers also. So I was just trying to understand what kind of price hike that you have done in the past 3 to 6 months?

Biplab, if you can see already, our EBITDA margin is growing. That means, obviously, we have done some increase of minimum 5% to 10% in our existing prices what we have done. So -- and that you will continue to see in our result, whatever the outcome comes. So we are pretty confident, but at the same time, we don't want to lose on the velocity, but we'll not leave any opportunity. Looking at that, we'll try to maximize our brand value. I can tell you that.

We have the next question from the line of Rahul Jain from Emkay Global.

Sir, just wanted to know the breakup of sales between April, May and June? And how has the run rate been in July so far? Any color on that one?

Rahul, Prashant this side. Offhand we don't have that data. I can share it to you offline. However, we are seeing -- we are getting back to track post the second wave, and that is getting reflected in our numbers.

Again, obviously, April was the weakest. May was better than that, and June is better than the May. Obviously, exact numbers, we don't have right now at the moment. But you can take the split from Prashant offline.

We have the next question from the line of [ Sahaj Sondhi, a student. ]

Am I audible?

Yes, [ Anirudh ] (sic) [ Sahaj ] please go ahead.

Yes. Actually, I just had a single question. On the PPT -- investor presentation, there was a thing where it was written as a collection efficiency for pre-sales. So it was written 98%. I just wanted to know, like it was 98% for the whole sale, whole pre-sales, like the whole pre-sale amount?

So yes, it includes the past -- it includes the -- collection includes the collections from the past pre-sales as well. However, when we calculate the number, the number is calculated on collections for the quarter divided by the pre-sales for the quarter.

Okay. So like it would -- the pre-sale for this quarter would have been 98%, right? Or it would be from previous quarter as well included?

Yes. Yes. Yes.

For the future, like where we would be seeing this percentage of the collection efficiency?

This will be good only, don't worry about that. I think this is a very simple thing. I think this is -- I think it is very nicely explained in the presentation, [ Mr. Sondhi. ]

We have the next question from the line of [ Anirudh ] from Z M Investments.

Great to see the new spread in the company after the pandemic. So sir, just needed clarification from your end. And in your opening remarks, you mentioned that we could do a INR 700 crores of PAT in next 2 years. So do we mean PAT or operating profits?

So this is definitely -- 1 second. This is PBT, what we are talking about INR 700 crores. Because if you divide -- I'm dividing over the period of 5 to 6 years, only from the existing projects in whatever portfolio we have right now. So we're not talking about any further new acquisitions. From the existing acquisitions, whatever we have done and the existing portfolio we are talking about. So the receivable is -- obviously, if you see the presentation, it would come to INR 13,000 crores, INR 13,000 crores. So this is INR 700 crores of -- you can consider almost of PAT also. You can almost consider a PAT. You can almost consider a PAT. Not PBT, it's almost a PAT.

Okay. And sir, just one more question. May I know what is the cumulative booking till date and cumulative revenue recognized in Avenue 2 project?

Anirudh, so if you see Slide #7. In Slide #7, we have in Sunteck City, we have sold 64% of the inventory that we have launched. And in Sunteck City, Avenue 1 and Avenue 2, we have almost sold 80% of our inventory, 80% of our inventory. So apart from this, whatever remaining data that you require, I can provide to you offline.

Okay. That's will also work. And sir, just one more question. So Naigaon, we launched at around INR 7,500 per square feet, right? And what are the current realization right now?

Current realization is close to INR 8,500 to INR 9,000.

So the higher flows must be going for the high prices, around at INR 10,000 per square feet also, right?

Due to strengthening of the prices, which I already said that we are increasing the prices at that.

[Operator Instructions] We have the next question from the line of Biplab Debbarma from Antique Stockbroking.

Sir, just 2 questions. One is out of in your presentation, you mentioned receivables from sold inventory of INR 14 billion, INR 1,400 crores. Out of this INR 1,400 crores, how much is from the non-BKC project?

So Biplab bhai, Prashant again here, so non-BKC projects will be more than around -- will be closer to 60% to 65%, sir.

Okay. Non-BKC. And for this non-BKC...

So sorry. So sorry, it will be close to around 70%. I'm so sorry. So sorry.

That's okay. That's okay. No issue. No issue. 65% to 70%. And on this non-BKC project, the project that is ongoing, total how much cost to be incurred?

So the cost to be Incurred can be completely taken care of from the receivables which is yet to come. So any new things that you have seen in Slide # 7 that will only be additional cash. The cost can be completely taken care of from the receivables that will come from the non-BKC projects. Hello?

Sir, this is the operator. The audio is slightly fluctuating from your line, sir.

Now is it okay?

If you could adjust it a bit more, sir?

Is it okay now?

Yes, it's better, sir.

I just wanted to understand the cost that you foresee to be incurred for these ongoing projects overall. I just -- I understand that receivables would cover, but just wanted to understand if we have some ballpark numbers for this cost of income. Hello?

Yes. Prashant is just giving you the number.

So Biplab, the cost -- the balance cost to be incurred majorly will go towards Sunteck City 4th Avenue and Sunteck MaxXWorld, Naigaon and the other project the costs remaining is very minimal. The total cost will be closer to around INR 800 crores to INR 900 crores and that can be easily covered from the balance receivables that I will be having of close [indiscernible] INR 1,000 crores from these non-BKC projects.

So basically, without any incremental sales, you have surplus cash flow, right?

Absolutely, sir.

We have the next question from the line of Parvez Akhtar Qazi from Edelweiss Securities.

Sir 2 questions again. First is, what would be the completion time line for the BKC commercial projects? And second, as far as ODC is concerned, when do we expect to get OC for ODC, the second phase? And any plans of further launch in ODC may be a tower this year?

Parvez, so for BKC projects, both the commercial projects, we are looking to complete in the next 12 to 18 months from now. They are in -- construction is in full swing, and we are quite confident to complete in less than 18 months, maximum, let's say, 18 to 20 months. Coming to the ODC project. The second phase, we are expecting to give possession in the current quarter itself. So Phase 2 -- Avenue 2, which is Sunteck City Avenue 2, we are looking to give possession in the current quarter itself. So August, September, we are confident to give the possession. Looking to launch ODC 1 more tower. Yes, we -- looking at the demand, we will definitely -- we are definitely planning to do some -- 1 more maybe new launch very soon.

We have the next question from the line of [ Anirudh ] from Z M Investments.

Sir, just a follow-up on the previous participant's question. So Naigaon project, Naigaon WestWorld, we will be -- when we'll be expecting to receive OC?

Yes. We are looking to get the OC in next quarter.

Ladies and gentlemen, we will take one last question from the line of Bajrang Bafna from Sunidhi Securities.

Okay. So sir, what would be the demand drivers for this structural change or the shift that is happening in the real estate sector? If you could slightly outline on that will be really helpful, sir.

So we are all seeing the demand [indiscernible] and we are seeing this demand across the globe, not only in India. And we are seeing that this demand is definitely in India as well as the demand in MMR region is, in fact, more stronger. So we continue to see this demand over the next at least minimum 2 to 3 years.

So ladies and gentlemen, that is the last question. I would like to hand the floor back to Mr. Khetan, the Chairman and Managing Director, for closing comments.

Thank you all for taking out the time from your busy schedule today. In case 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 once again.

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