Signatureglobal (India) Limited analyst Q&A

Thank you very much. We will now begin the question and answer session. The first question is from Deepak Poddar from Sapphire Capital. Please go ahead.

Thank you very much, sir, for this opportunity. Sir, just first up on the last statement that you mentioned. I think in the presentation, I read somewhere we are looking for Rs. 12,000 crores kind of a revenue recognition over FY24 to FY26. So, also ideally if FY24 is about Rs. 1,200 crores and this year we are targeting Rs. 3,800 crores, so about 7,000 crores of revenue recognition we are targeting in FY26. Would that be a fair calculation?

Yes.

Okay. And what sort of pre-sales we might be looking at FY26? I mean if you have to do Rs.7,000 crores of revenue recognition, so what sort of pre-sales we are looking at?

You see, 2 things are mutually exclusive, Deepak. So, pre-sales is a factor of what is the dry powder with us, what is the unlaunched inventory. So, we have not given a guidance for FY26 as yet, but if we're achieving Rs. 10,000 crores in this year, we'll definitely be giving a good growth target for the next year, but one thing at a time. As far as completions are concerned, yes it's basis the ongoing project, so your math on that is by and large correct.

Absolutely. Okay, I got it. And you also mentioned on the pro forma, right, that ideally the pre- sales or that we would be ideally doing in FY25 would have an embedded PAT of about 25% and FY24, I think, was about 20%-21%.

Correct.

So, ideally, I mean would that translate also to your reported revenue as well if you I mean report Rs. 3,800 crores this year or Rs. 7,000 crores next year. So, how would the reported PAT margin might look at in light of I mean Rs. 16,000 crores more launches you might be doing in FY25 itself, right, and FY26 might be higher. So, if you can throw some light on that would be very helpful.

Deepak, see what that embedded EBITDA pro forma statement portrays is that the sales which we have done in the current year which is roughly Rs. 7,300 odd crores, on that we anticipate a profitability of 32%. So, now, see, we know our land cost, we have our estimate of the development cost with certain contingencies on that sales where we get realizations of about Rs. 11,800 odd a foot, we anticipate a profitability of about 32% at an EBITDA level. And likewise, for the current year, we have with us the launches which are happening, the estimated price points we have. So, on that, since we are also coming up with projects in sector 71, which is more prime, the profitability is going up and 35% is a number we are very comfortable for the sales which are yet to happen.

Correct. So, I was just trying to understand this pro forma translating into the reported P&L. So, how different would that be, pro forma versus your reported P&L?

So, reported P&L is being done basis projects which are getting completed. So, if in this year, we are talking about completions which will reflect a revenue recognition of about Rs. 3800 odd crores, my guess is the average per square foot realization on that sale would be anywhere between Rs. 6,000 odd to Rs. 7,000 odd and our EBITDA margin will be a little southwards of 30%, won't exactly be 30, but it will be a little lower than that number.

So, that itself is a very good number. If on Rs. 3,800 crores we can have an EBITDA margin of 30%, so that ideally means 18%-20% kind of a PAT margin.

So, yes, about 27%-28% of EBITDA margin and yes, a high teen sort of PAT margin is something which we anticipate.

Fair enough. I got it. I think that would be it from my side. All the very best. Thank you so much.

Thank you, Deepak.

Hi, Rajat. Hi, Pradeep ji. Congratulations on fantastic performance. Two or three questions from my side. One is if you could, you've given a Rs. 12,000 crore odd of revenue, Rs. 120 billion, which is to be recognized over the 3 years. Can you give us a sense on what is the cost and the total cost against it and the cost already incurred? That's my first question.

Murtuza, we can answer it offline. I think right now we don't have that number on what is the exact cost incurred and yet to be incurred. But by and large both put together, I think one can assume a 27%-28% EBITDA margin on this. So, I think that will answer to your point from a recognition perspective.

Okay. Point two, similar on the margin thing. If you look at Slide #17, you've given the breakup of revenue recognition between mid-income and affordable. There is a reasonable shift in the composition towards mid-income from affordable, but the adjusted EBITDA margin does not seem to reflect that fully, you had a bit of a drop. So, any reason, I mean we would have expected that a higher mid-income recognition would lead to an expansion in margin. So, anything that could help align that or reconcile that?

See, mid-income, Murtuza, see what's getting recognized, so if since you have some bit of background in the company, so mid-income segment when we started, these were very entry- level mid-income floors which we were doing in Sohna market. When we started selling, these were about Rs. 4,200 to Rs. 4,300 a foot. So, it was somewhere you could call it either premium or affordable stock early level mid-income project. So, what is starting to get complete or what is coming to the P&L are these floors which we did in Sohna market. As we did floors in the Gurgaon market, we started at about Rs. 7,000 odd a foot and we sold them at about Rs. 10,000 as well. The margins are expanding with the Gurgaon mid-income portfolio.

And just the last leg of questions from my side. I think you’ve partly already addressed that. If I look at that cash flow statement, Rs. 31 billion of collections, getting you about Rs. 9 billion, the cash flow statement would also be representative more of lower margin projects and we could see this margin profile. You already highlighted that you're looking to go to more towards 45% next year. So, would it be fair to say that the current cash flow also has a fair amount of those legacy projects?

See, I think 2-3 factors, I think it's tough to generalize. So, one factor is, of course, yes, I think there is mix of projects, they're still affordable housing projects getting completed. So, while the collections and the completion cost does not have the kind of difference, which a premium project has. So, I think that's definitely one of the factors. We also have mid-income projects in Sohna which we started with as part of it. The other key factor is that we have spent or we have increased our construction spend in the previous year. However, some of those completions are happening in the current year. So, that's one or I would say an equally critical factor due to which the operating surplus was around 30%. But in the coming year, if we are assuming like a Rs. 6,000 odd crores of collection with a much higher sort of construction spend for us to achieve that Rs. 3800 crores completion plus construction spend on other projects, we are achieving much higher sort of operating surplus. And that's why that 45% number is being expected for this year.

Thanks so much Rajat. Thank you, everyone. More better performance. Looking forward to continued improvement. Thank you.

Thanks, Murtuza.

The next question is from the line of Pritesh Sheth from Motilal Oswal Financial Services Limited. Please go ahead.

Thanks for taking my question. First is on launches. You briefly mentioned in your commentary about the kind of launches that we are looking at this year. Just if you can elaborate on the exact size, how much of that is sector 71, Sohna Road, et cetera, that would be helpful.

Sure, Pritesh. So, Pritesh, we are coming up with 2 larger launches. The first one is in sector 71. It's a group housing project. It's already a licensed project spread over some 22.5 acres. So, in that project, our overall revenue is expected to be in excess of Rs. 6,000 crores. Likewise, in Sohna, it's a large project. We may not fully launch it, but yes, I think bulk of it is getting launched which also has a revenue potential of more than Rs. 6,000 odd crores. Then we are coming up with another group housing project in Sector 84, which is actually literally on the Dwarka Expressway. So, that will have a potential of a little short of Rs. 2,000 crores, but somewhere in that range. And then we have a smaller project in 37D, and another township project in Manesar. Both again put together have a potential of about Rs. 2,000 crores. So, all these 4 projects, we are at a reasonable stage in approvals. And that's why we put them in our guidance roadmap for this year. If you'll add all of this, it will actually cross Rs. 16,000 odd crores.

Sure. That's very helpful. And generally, we have seen this mid-income or products which are very well priced have seen a very strong response, almost sold out like you saw in your recent project 37D. This Rs. 10,000 crore guidance is just your conservatism to start with. And you feel confident about clocking much more than that. Or do you expect certain of these projects can have a slower absorption as part of your strategy?

So, Pritesh, ever since we have started working, we have never seen a slow absorption. We’re always conscious of the customer requirement, the price points which make the product value for money. Because eventually these are homes being developed for people and societies and complexes should have that value element from a customer perspective. So, see, we are very confident on the product which we are coming up in all of these markets. So, for instance Sohna is, these flows which we have done in very high volumes over the previous years, there is very little supply of such product in the market right now. So, this more than Rs. 6,000 odd crores which is coming from Sohna is very uniquely positioned. Likewise, even in Sector 71, we have done a fairly good product and we do intend to come at a price at which it remains affordable for that segment. It's of course a reasonable price point as in today's terms, but still it will be like value for money from a customer standpoint. So, see, we are focusing on the product and mindful of the pricing. I think I hope what you're saying holds out to be true and we end up looking conservative on our sales target, but let things happen and we speak again in maybe 1 or 2 quarters or 3 quarters in this regard.

Yes, that's awesome. Second on margins. So, when you say embedded EBITDA margins, does it include the interest cost related to the working capital which you might need? Or we are at such stage where projects are getting sold out, so there is no need of working capital and hence everything in that 35% EBITDA margin is all in cost that is included?

So, Pritesh, we can talk about this number in different ways. If I have to very simply put it, we are super comfortable about this embedded EBITDA margin being talked about because we have acquired land over the last few years or we have been working on it in a very diligent way. So, we know our land cost, which is not very steep, it's very competitive given the current situation. So, construction can be estimated, a certain level of escalation you can assume on construction. So, this 35% is like a very a safe figure which is there. So, as far as interest is concerned, see, our land is by and large paid for. If you look at the entire this 32 million square foot portfolio, I can tell you that there is maybe less than Rs. 400 crores, which is still due on this entire land parcel. I am still kind of keeping some buffers while talking of this number. So, there is not much land cost which is yet to be paid. And once land is paid, see, it's by and large a negative working capital business. So, interest, we have considered below the line after this 35% working capital, we don't end up spending interest cost. So, yes, this factors in all sort of finance costs, which we may incur in times to come.

Yes. So, eventually once these projects come for recognition in P&L, your adjusted EBITDA margin and EBITDA margin what are getting actually reported will coincide, right? That's what I want to know. Or maybe I mean if it's very detailed, we can take it offline.

We can definitely take it offline, but see, the gap will come down. See, in the past when we were not listed, the debt levels were similar. So, the loading of interest on the project cost or effectively cost of goods sold was much higher. Today, for a much larger enterprise, the gross debt level has come down. So, that finance cost and the cost of debt is coming down. So, that loading on cost of goods sold is much lower. So, gradually, yes, this EBITDA margin and adjusted EBITDA margins will come into a narrower range with each other.

One last. How much do you expect your land spend to be in the next year? While you have given us operating surplus guidance, how much do you think you'll spend it on land and how much would go for a debt reduction?

So, see, on the land side, see, about Rs. 1,200 odd crores to Rs. 1,500 odd crores we may spend on land and the balance should be available for debt reductions to debt servicing. Actually, the net debt levels could come down significantly from the current level is what we are expecting by the end of the year.

Perfect. Very interesting. Thank you. All the best you guys. You're doing a good job. Thank you.

Thank you, Pritesh. Thank you.

The next question is from the line of Vaibhav Saboo from Nippon AIF. Please go ahead.

Thank for the opportunity and first of all, congrats to the promoters and Rajat for a very good quarter and a very good year. So, a couple of questions. So, the first question, I will break it in terms of the sales and launches. So, whether that Rs. 16,000 crores will be launched this year? And what I feel is that the inventory level is currently at around Rs. 6,150 core. So, that cumulatively is somewhere close to around Rs. 220 billion. So, is there an upside to the sales which is there? And just as a second part of this question that in the presentation you have provided on Slide #11 that the whole 32 million square feet you aim to launch by FY26, and if I do like just selling price into a saleable area, that total comes out to around Rs. 430 billion of JDV. So, for FY26, are we looking that Rs. 27,000 crore worth of launches and do we have the teams in place for handling that sales? So, that will be my first question.

Sure, Vaibhav. Thanks for asking the question. So, Vaibhav, see, fundamentally, we do consider land by and large as a raw material. It's a raw material with comparatively longer gestation period. Usually our experience has been that whenever we have acquired any land, we end up planning it as we acquire and it takes anywhere between 15 to 18 months to seek all approvals. Approval process is quite streamlined in Gurgaon. There are 4 or 5 key approvals. We are quite used to obtaining them on a project by project basis. So, it takes about 15 to 18 months to kind of launch any land parcel which gets acquired. So, even as a strategy, the idea is to have land bank, which is good for, let's say 3 or 4 years and not more in terms of launches. Don't want to comment exactly on the quantum of launch which we'll do for the next year, but yes, I think your math is not wrong. Over the next 2 years, 2.5 years, 3 years, we’ll launch whatever we have. It's not that we intend to sit on any of these land banks with the assumption or for any speculative reasons that the pricing may go up. It is like a home manufacturing company. The idea is to keep buying land and keep churning out the end product and sell it. So, that's the thesis. Yes, I think the quantum of launch for the coming year is going to be much higher and we have the dry powder right in hand with us and there are no significant land payments on this entire portfolio.

And so just reiterating, so for the sales team, like have we planned for the magnitude of the sales that we are doing? So, has the sales team been encapsulated because let's say that Rs. 16,000 crore launch let's say for next year even conservatively Rs. 20,000 crore, Rs. 22,000 crore of launch, that would require we assume because we have done like Rs. 7,000 crore of sales this year. So, is there a team which we have built out and how we are looking at that?

So, Vaibhav, we are comfortable from a competence and capability perspective whether it is on the sales front or on the execution front. So, I think the platform has competencies to achieve a much higher scale than at which we are operating. So, that we have those capabilities what I would like to admit.

And just second question. In terms of the Rs. 12 billion that we recognized this year, how much have we delivered in terms of a million square feet and number of units for the year?

Vaibhav, we will share that with you offline, as I don’t have that number handy with me right now.

Sure. Just one last question from my side. For the sector 71 where we have 17 million square feet of total land and we are launching like, I am assuming around one-third, so around 5 to 6 million square feet. Perfect. What's the JDA share? What is the revenue share for the JDA partner approximately?

So, we are not launching one-third first of all. We have assumed a launch of about your 3.6 million square foot for the coming year to be precise. So, a lot of it will still be available for launch in the coming years. I can reconfirm on numbers, but out of the 17 million, I think about 13 million to 14 million is fully owned by the company whereas about 3 million, 3.5 million is going to come up on a project where there is a JDA partner. Rest is about 13.5 million is kind of owned by the company.

Understood. What's the attributable number in the JDA of the 3.5 million square feet to the company.

3.5 million, you could assume that about 1.2 million, 1.3 million revenue equivalent will not come to us while we’ll incur the cost. So, it's a simple revenue share JDA. I think about 32% to 34%, 35% odd is attributable to the landowner.

Thanks a lot for the opportunity and all the best.

The next question is from the line of Prem Khurana from Anand Rathi Shares & Stockbroker. Please go ahead.

Thank you for taking my questions and congratulation on good set of numbers in this quarter. Sir, my first question was related to the growth that we envisage in our presales, I mean we want to go from Rs. 73 odd billion to almost Rs. 100 odd billion which is good 38% sort of growth on a Y-o-Y basis. I mean would it be possible for you to kind of deconstruct this growth in terms of I mean how much do you expect the 38% to come from improvement in same location sales velocity? How much would be the pricing action with the existing project? And how much of this would essentially be dependent on the new launches that you manage? And fair to assume given the fact that we, I mean we generally get to see good sales even at the launch itself. A large part of this 38% growth would be dependent on the new launches?

So, Prem, thanks for asking this question. So, Prem, the way we look at it is that we are coming up with launches in our core markets. So, within Gurgaon, there is certain micro markets where we have literally done category creation. So, if you look at the Sohna market, Sohna is just on the periphery of Gurgaon and with this Sohna Elevated Corridor and this Delhi-Mumbai industrial corridor starting from Sohna, it’s literally become a stone throw away distance from the Sohna road market of Gurgaon. So, we have done the highest volumes in that market on a sustained basis over the last 5 to 6 years and literally, if I may boast a little bit the sales, I think that we have done market creation or category creation in the Sohna market. So, we are coming up with a very reasonable size project, which has sale potential of upwards of Rs. 60 billion. We are very bullish on the sale. I will prefer to refrain on whether all of the sale is happening at launch or it's happening in 1 or 2 quarters, that would be a lot of prediction or lot of I would say guesstimate involved in that. But yes, we are very comfortable with that product and location is what I can say. Second is Sector 71, which is the group housing project, the product is I would say a notch above what we recently launched in Sector 37D. So, between these 2 projects itself, we are doing launches in excess of Rs. 12,000 crores or almost 75% of the launch pipeline which we have talked about. So, see, we are comfortable with both of these projects, Prem. I think we'll wait to see on the customer response, who knows, we didn't highly get sold on launch, but it's all a guesstimate. Let's wait and watch in next couple of quarters on how the market responds to it, but confidence level is high.

And the other question was essentially I mean when I look at the NCR real estate market today and then if I were to compare with the last cycle, we are more than double of what we used to be which is our and most of us have been able to grow there. But any sense, what will be our market share? I mean would you have any number in mind, let's say if you achieve that number which is I mean you would start looking out because I mean at this point, I don't see any issue in terms of growth potential for us because there are multiple micro markets wherein we are not yet present within NCR region. But what sort of number would kind of make you kind of start looking out for new growth opportunities or new growth areas? And what will be our market share in terms of let's say value sales in let's say NCR real estate market today? What could the total size of this real estate market be now?

So, Prem, I will not have the exact numbers with me, I can give you guidance broadly in terms of a few numbers. So, see, the migration trend from people moving from Delhi to Gurgaon is very strong, okay, because a lot of grade A offices are in Gurgaon, and it supports a much better social infrastructure. The connectivity between Delhi and Gurgaon has also gone up significantly. So, over the years, that trend is only going upwards post pandemic again we have seen a lot of that trend kind of getting a lot of traction. So, migration trends are very strong. Supply is still not happening in very large numbers. By and large, Gurgaon is give or take like 15,000 to 20,000 odd homes have come up in the previous year and we have sold about 4,500, 4,600 odd homes. So, we have a fair share in the market right now and we have also tried to distinguish ourselves within that market. So, mid-income, we're playing in a slightly broad sort of spectrum starting at about Rs. 1 crore, Rs. 1.5 crore and going up to about Rs. 5 crores odd. So, that's the spectrum in which we are playing. So, there is little competition which we see from large developers who have like good presence in this market and who can come up with a sustained supply. There are few large developers who've got very little land position in this market and hence will not be able to come up with a sustained supply whereas since we belong to this market and we have good portfolio, we have a good you could say a quarter about anywhere close to 25% odd market share is something which we are enjoying and we'll hold up to that sort of share in this market.

And any thoughts on when will you be required to go and start looking on outside NCR real estate market? Because as I see it, I mean if I look at the large 3 listed real estate developers including you, I mean the aggregate sales between you 3 seems as if we have done more than 30,000 odd crores between three of us. Is it possible to be able to see some more consolidation with the Rs. 30,000 crores in itself between 3 is fairly, fairly large number, right? Is it possible to be able to have more market share consolidation or the way to grow is to be able to kind of look for new growth areas?

So, the way we look at this frame is that see, we are still supply constrained. We are not housing surplus as a country or as an any of the cities. The demand, the population growth of this region Gurgaon within the entire large North Indian sort of area is so significant that we are usually supply constrained. So, see, it's tough to say what is that real housing market in Gurgaon right now, but it's significantly higher than the numbers we are talking about. So, I don't think we need to eat up into any market share. I think this entire pie is going to increase significantly over the years to come.

Thank you. Ladies and gentlemen, we'll take this as a last question, and I will hand the conference over to the management for closing comments.

Thanks to all of you for giving us this time out today. We have seen a good last year and we have tried to maintain that discipline in terms of the guidance which we give and what we try and actually achieve as a company. So, we hope that statement holds good for the year to come. But given the current situation, we stay very positive on the business and we would like to keep coming up or keep beating our own targets in times to come and hope to stay associated with all of you in times to come. Thanks a lot for your time today. Thank you.

Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.