Suraj Estate Developers Limited (SURAJEST) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Suraj Estate Developers Limited Q2 and H1 FY '25 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantee for future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Thomas, Whole-Time Director. Thank you, and over to you, sir.

Good morning. I welcome everyone to our Q2 and H1 FY '25 earnings conference call. Along with me, we have our CFO, Mr. Shreepal Shah; Mr. Ashish Samal, our internal IR; and SGA, our Investor Relations advisers. I hope all of you have gone through our investor presentation uploaded on the exchange and our company website. India's residential real estate sector has demonstrated robust growth in the recent years, and we anticipate that positive market dynamics will persist in the coming years. The substantial business development we have accomplished under favorable terms position us to expand our bookings and margins, paving the way for strong earnings growth in the years ahead. The MMR region continues to dominate the residential real estate landscape, accounting for a significant 38% market share among India's top 7 cities. Affordable and mid-end segments continue to be the most sought-after segments by developers and builders, contributing to 35% and 29% of the city's new launches, respectively. Within the MMR, the distribution of available inventory across the 3 subregions, Mumbai, Navi Mumbai and Thane, remained relatively steady compared to the previous quarter. Mumbai continued to lead with a 75% share, followed by Navi Mumbai at 14% and Thane at 11%. Within Mumbai, the peripheral central suburbs emerged as a dominant zone for available inventory, accounting for 30% of the Mumbai's available units. Nearly 32% of Mumbai's available inventory fell within the affordable segment. Compared to the previous quarter, the inventory overhang in the MMR remained steady at 14 months by the end of Q3 2024. We are extremely pleased with the operational performance this quarter, particularly given that it traditionally represents a seasonally slower period. Despite this, we achieved a commendable 14% growth in sales volume alongside a 10% improvement in realizations, showcasing the resilience and the growing demand for our offerings. The year-over-year decline in finance cost is another positive development, largely attributable to the utilization of IPO proceeds for debt repayment, which has enabled us to reduce debt significantly. On a quarterly basis, the decreased interest expense is further supported by the absence of a redemption premium during this period and in the subsequent quarters, henceforth. These favorable financial conditions have contributed to strengthening our bottom line and overall financial stability. We've raised INR 343 crores via preferential allotment of equity shares amounting to INR 243 crores and an additional INR 100 crores via issue of convertible share warrants. In October '24, we received a total of INR 269 crores, which includes fund raised through preferential allotment and subscription money of approximately INR 25 crores in October '24. The balance amount is expected within 18 months from the date of allotment of warrants. These funds will be utilized for land acquisitions, working capital, general corporate purposes and issue-related expenses. A group of high net worth individuals, asset management funds and family offices participated in the successful fundraising round. We are delighted by the robust investor support for the substantial capital raise. This timely infusion will provide the growth capital needed to expand our operations and diversify our product portfolio. We plan to strategically deploy these funds to reinforce our position in the residential and the commercial real estate sectors, seize new opportunities and deliver lasting value to our stakeholders. Looking ahead, we aim for presales of INR 850 crores for the current financial year with plans to launch 7 new projects totaling to a GDV of INR 1,150 crores. Our strategic entry into the Bandra submarket backed by the initial phase of approvals and focused approach on redevelopment under DCR 33(7) and Society Redevelopment under 33(7)B position us strongly for the future growth. We are particularly optimistic about Mumbai's redevelopment potential, where over 19,000 properties are more than 50 years old, with 16,000 urgently requiring redevelopment. Our expertise in tenant settlement remain a key driver of value in these projects. In our ongoing projects, we have 5.39 lakh square feet -- we have sold 5.39 lakh square feet out of a total of 6.09 lakh square feet, generating approximately INR 1,370 crores with a receivable of approximately INR 767 crores. The unsold inventory totaling 2.71 lakh square feet has an estimated GDV of INR 395 crores. The combined receivables of INR 1,162 crores from sold and unsold portion of our current ongoing portfolio are expected to materialize between FY '25 and FY '29. Looking at our future pipeline, we have 18 upcoming projects with an estimated carpet area of over 9 lakh square feet for sale. Approximately 67% of this is in the value luxury projects, 14% is in the luxury and 7% is a mix of value luxury and luxury. And the balance 12% is in commercial properties for sale. The 18 projects are projected to generate a GDV exceeding INR 5,000 crores. The Mumbai Metropolitan Region, the MMR region's residential real estate market... [Technical Difficulty]

Ladies and gentlemen, we have lost the management connection. Please stay connected while we reconnect them. [Operator Instructions]

Hi, we just reconnected. To continue, the MMR region's residential real estate market is poised for a robust performance for FY '24. The sustained momentum witnessed in previous quarters, fueled by favorable economic conditions and a growing preference for homeownership is expected to continue. With several infrastructure projects nearing completion and the continued focus on urban renewal, the MMR's residential market is well positioned to conclude 2024 on a high note, potentially setting a new benchmark in both sales volume and value. Our optimism regarding the potential with MMR region remains steadfast. We look forward to capitalizing on its growth prospects in alignment with our vision for a robust and diversified portfolio. With this, I would like to hand over the call to our CFO, Mr. Shreepal, who will run you through the financial highlights. Over to you, Shreepal.

Thank you, Rahul. A very good morning to everybody. I will now run you through the financial highlights for the quarter and half year ended September 2024. Starting with the performance for H1 FY '25. The total income grew 18.3% year-on-year to INR 244 crores versus INR 207 crores in H1 FY '24. EBITDA grew 16% year-on-year to INR 128 crores in H1 FY '25 versus INR 111 crores in H1 FY '24. PAT grew 97% to INR 62 crores from INR 32 crores in H1 FY '24. On a quarterly basis, the total income grew 6% to INR 110 crores in Q2 FY '25 from INR 104 crores in quarter 2 FY '24. EBITDA grew by just a percentage to INR 64 crores in Q2 FY '25 versus INR 63 crores in Q2 FY '24. PAT grew 88% to INR 32 crores versus INR 17 crores. Coming to the operational performance. Presales grew a growth rate of 26% year-on-year in Q2 FY '25 and 13% in H1 FY '25, despite a seasonally weak quarter and the occurrence of some inauspicious period during the quarter. Realizations grew 10% year-on-year in Q2 FY '25 and 12% year-on-year in H1 FY '25 on account of price hikes and increased sales of luxury portfolio of projects. Collections grew 90% year-on-year in quarter 2 FY '25 and 46% year-on-year in H1 FY '25 on account of new project launches and higher sales volume. 40.9% of revenue came from sales of luxury units and 59% of revenue from sales of value luxury units. With this, I would like to open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of [ Sagar from Nirmal Bang Institutional Equities ].

My first question is on our upcoming 18 projects, which have 9 lakh square feet of development area. If I remove the 1 lakh square feet of commercial project, we have around 8 lakh square feet of residential. And out of that, almost 50%, which is 4 lakh square feet is coming from two projects, which is Mari Nagar and Girgaonkarwadi. So if you can throw some light on these two projects, what are the timelines and what will be -- what we can expect on this?

Thanks, [ Sagar ]. So in terms of -- you correctly said that most of the upcoming projects' carpet area is coming from these two projects. In terms of Mari Nagar, we've already got the first phase of approvals where we have IoD in two of the -- already live IoD in two upcoming buildings there. There would be slight minor amendments in the plan in terms of adding five more buildings in the redevelopment phase. We've already done the necessary paperwork as part of our announcements that the five buildings in the same project also will be added. So there will be an added potential coming up from what we've already discussed. And design is underway as we speak, and we are targeting mostly a big launch by next year.

And the Girgaonkarwadi project?

Girgaonkarwadi will not come in by next year, it will come in the following year.

Sure. And one more question is our average realization, and I see in the presentation on the ongoing projects is shown as some INR 39,000 per square feet. And our estimated average realization on the unsold inventory, we have taken at around INR 55,500 per square feet. So if you can just throw some light on what are the large deals that are happening? And how confident are we of achieving this number of INR 55,000?

Sure. So if you see our average realization quarter-on-quarter, Q4 our average realization was about INR 53,650, Q1 was INR 51,116 to be precise, and this quarter was about INR 48,366. So we're seeing the average realization has gone up in the last 3 quarters. So we've taken a base of the same of the last 3 quarters.

All right. And my last question is all our -- largely our upcoming projects are in the Mahim side and not many on the Prabhadevi Worli side, and we are seeing a lot of traction in the market in the Prabhadevi Worli side. So is it that we have consciously tried to be away from the Prabhadevi Worli side because land cost is high and more towards the Mahim side? What is your strategy, if you can share your thoughts on that?

Actually, these lands have already been acquired. And since these are already lands which have been acquired and these are larger in size, we need to give returns to the shareholders. So we are planning to launch the larger developments first, and they happen to be in Mahim. And we are seeing good traction even in Mahim in terms of -- we have a couple of projects in the Mahim belt as of now, and we're seeing good realizations coming from them. So I think we're very confident in that market as well.

[Operator Instructions] The next question is from the line of [ Rohit from RM Securities Limited ].

I have one question. Which segment do we see traction in the industry? Are we seeing oversupply? Or is it easy for us to sell? Hello?

So yes, [ Rohit ], we could hear you. So the traction we are seeing right now, which is -- has always been steady has been the value luxury concept where it is between INR 1 crores and INR 3 crores. So that is a constant segment which there has been a steady growth. And in terms of not only realization, but also in velocity. Even the larger ticket is doing well. But of course, we see that prices won't go higher than this, this is our estimate that we see that the prices will be kind of steady at the current market price. And we're seeing, again, a big demand for commercial. So just to give you an industry overview, we see commercial, which has a good potential. The luxury segment will be obviously doing well. People have a demand for it, but we see the prices not going up from now onwards. And of course, what is really doing well is the value luxury concept.

The next question is from the line of Krishna Shah from Ashika Stock Broking.

So I have a question on the cost of construction. So quickly wanted to understand what are the margins that we are expecting? Are we expecting any increase in the cost of construction going forward?

In terms of construction cost, we are seeing that the construction -- the labor prices have been going up steadily, so which obviously will impact our construction cost. But we don't see a very substantial hike in the construction cost. It's normally steady. But of course, there is a labor shortfall we see overall in the entire construction industry. And I think that may impact the construction cost, but very marginally.

Okay. Got it. Secondly, on the approval side, are we getting any delay on the front of approvals from RERA or any other government body, which is impacting the project launches that are planned in the second half of FY '25?

Normally RERA approvals take some time. Number of compliances from RERA standpoint also has increased in the recent circular. So normally, it does take time to get a RERA approval compared to earlier. But I think compliances have just gone up. So I think that's why the timeline has been extended.

Okay, got it. And my third question is on the revenue target for FY '25. So what is the revenue number that we are expecting to close this year? And at what margin like the EBITDA margin?

I can't give you an exact estimate on the future revenue, but I can just tell you that our target of presales would be INR 850 crores, and we're quite confident on achieving those numbers. The pro rata of course, depending on the project and the revenue recognition method, it will definitely be higher than last year. But I can't give you an exact estimate right now.

Okay, sure, sure. And one last question, if may I ask. What will be the target spend on business development that we have planned for FY '25? And how much of it has been done in the first half of FY '25?

We have raised some money under preferential. So I think the end use was for business development. So that will be kind of expanded before March.

The next question is from the line of [ Rohit Mehra from SK Securities Limited ].

My question is related to the same fund raise. Where do you plan to use the funds recently raised? And how much GDV would it translate to?

So mainly the objects of the fund raise is also for business development. So a good portion of that would be -- roughly around 40% will be for new BD and land acquisition. So that will be expanded before March. And I can't give you the exact dynamics of the plot because it's a bit too early. But definitely, we'll inform the exchange and everyone on the GDV once we acquire that land.

Okay. Got it, sir. And also, can you highlight the breakup of finance cost?

Shreepal here. So what breakup you require?

So overall finance cost, what's it comprised of?

So majorly, it's from ongoing portfolio of projects, INR 19 crores is there, which is there. We can take that question offline.

[Operator Instructions] The next question is from the line of [ Sagar from Nirmal Bang Institutional Equities ].

Sir, on the Suraj Vibe, our commercial project, if you can throw some light, how has been the response and what we plan to build there, some details, if you can share whatever.

Yes, sir. So like on Tulsi Pipe Road, which is -- we have approximately 1 lakh square feet. The RERA is underway, which is also part of our launch pipeline for this year. So we are seeing good interest coming up from clients who are looking for commercial space. And I think we're quite confident on closing some deals over there.

Sure. And lastly, on the Bandra project, anything that you can share with us right now?

So things are moving positively in the Bandra planning. I think we've already -- like we informed earlier, we already have the first phase of approvals. We are looking at the larger piece, so design and a lot of technical details are getting worked out as we speak. So we are preparing for the next year launch.

In which quarter we plan to launch the Phase 1 Bandra project?

We are still -- it again depends on certain approvals, but I think between Q3 -- Q2 and Q3 is something which we are targeting.

[Operator Instructions] The next question is from the line of [ Arjun Mittal from Mittal Securities ].

Sir, I have a couple of questions. My first question is what gives us the confidence of achieving our guidance considering we did not launch any new project this quarter?

So thanks. So basically, we have already got approvals in our commercial project, which I think [ Mr. Sagar from Nirmal ] had asked the same question. We have the approvals, IoD and the CC for that particular project. It's just that the RERA approvals are pending, which is taking some time. So as soon as that RERA approval comes in, we are seeing a GDV of approximately INR 450 crores of launch only in that one project. So since these are all approval projects, which we've already got all the approvals, it's just RERA is pending. We're quite confident that these launches will come across very soon.

And my second question is that what would be the GDV we would expect from these new launched projects?

Like we said earlier, INR 1,150 crores is -- worth of projects will be launched before March.

[Operator Instructions] The next follow-up question is from the line of [ Rohit Mehra from SK Securities Limited ].

So my just one question. As our debt has gone up despite raising funds, can you give some clarity for the same? And also, can you help us with what is the cost of debt now?

So to answer your question, we have -- the cost of debt remains at the same level, 13% weighted average cost of capital. And regarding the debt, I did not get regarding the fund raise your question.

So my question is, as we have raised the funds, but at the same time, our debts are gone up.

Fundraise has happened in -- after September. The debt position which we are talking of is in September. The increase in debt is on account of the upcoming launches where we have spent approval-related cost. So for two of our projects, one at Tulsi Pipe Road and residential project known as Park View 1.

[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

I'll take this opportunity to thank everyone for joining on the call. I hope we were able to address all your queries. For any further information, kindly get in touch with us or SGA, our -- Strategic Growth Advisor, our Investor Relations advisers. Thank you very much.

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