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Edited Transcript of PURVA.NSE earnings conference call or presentation 21-May-19 6:30am GMT

Q4 2019 Puravankara Ltd Earnings Call

Karnataka May 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Puravankara Ltd earnings conference call or presentation Tuesday, May 21, 2019 at 6:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ashish Ravi Puravankara

Puravankara Limited - CEO, MD & Whole Time Director

* Kuldeep Chawla

Puravankara Limited - CFO

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Conference Call Participants

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* Amitabh Sonthalia

SKS Capital & Research Private Limited - Founding Director & CIO

* Biplab Debbarma

Antique Stockbroking Ltd., Research Division - Research Analyst

* Prem Khurana

Anand Rathi Financial Services Limited, Research Division - Research Analyst

* Rohith Potti

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Puravankara Limited Q4 FY '19 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Kuldeep Chawla, Chief Financial Officer. Thank you. And over to you, sir.

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Kuldeep Chawla, Puravankara Limited - CFO [2]

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Thank you very much. A very, very good afternoon to all of you. My name is Kuldeep Chawla. I am the CFO of Puravankara Limited. Thank you so much for joining us on Puravankara's Q4 FY '19 Earnings Call.

The January-March 2019 quarter tops what has been a good year for Puravankara. A strong focus on timely and quality execution, sales as well as collection continues across all our markets, both our brands and for both ongoing as well as ready projects. We saw a continued acceleration in sales of the ready-to-move inventory across all our projects, where we sold 610 crores in the full year FY '19, including 227 crores in Q4 FY '19.

I would like to take the opportunity to mention that the 23% growth in sales volume in FY '19 over FY '18 appears optically low, whereas actually it is 106%. By way of clarification, Provident Park Square was actually launched in the last week of March 2018, with a sales volume of 751 units valued at INR 400 crores. Therefore, on a like-to-like basis, the growth in sales value bookings between FY '19 and FY '18 is 68%. We are encouraged not only by our sales across all our projects, especially in slow-moving markets including those such as Chennai and a couple others, but also by a steady and significant improvement in collections during the year.

It is also pertinent to mention that the combined effect of all the regulatory changes that we have seen over the last year or 2 as well as the consolidation opportunity that this market presents to us and the changes that we have taken -- seen taken place in the demand side as well as the supply side prepare us well for the quarters and the years to come.

Coming to the quarter's performance. In Q4 FY '19, backed by the sale of almost 13 units every day, that too without any new launches during the quarter, sales bookings were a steady 1,148 units or 1.23 million square feet valued at INR 726 crores, an encouraging growth of 117% and 19% -- 94%, I apologize, over the quarter October-December 2018. Sales of ready-to-move inventory almost doubled for the quarter from INR 226 crores and 366 units as compared to INR 115 crores and 185 units in Q4 FY '18, respectively. Ongoing projects in both our brands witnessed significant increases in price realization.

Consolidated revenues also doubled to INR 667 crores for Q4 FY '19. The EBITDA for the quarter was INR 156 crores, up 63% year-on-year, representing an EBITDA margin of 23%. Profit before tax stood at INR 63 crores, up 126%, whilst total comprehensive income post taxes stood at INR 39 crores, up 58% year-on-year. Importantly, inflows from operations for the quarter continued to grow and stood at INR 467 crores or INR 156 crores monthly, an encouraging growth of 34% year-on-year.

This growth in inflows has helped accelerate the necessary spends to move projects towards completion as well as to fund the initial expenditure for our new launches which are being rolled out in the current financial year. Consequently, after accounting for operating expenditure of INR 360 crores, the operating surplus before interest and taxes was INR 107 crores. Handover of completed projects as well as the current ongoing ones, combined with the steady sales and collections from ready-to-move inventory, are likely to drive the operating surplus to higher levels going forward. The company continues to comfortably meet all its obligations to its various stakeholders.

Coming to the FY '19 performance. Continuing our stated strategy to diversify across markets geographically, markets other than Bengaluru contributed over half our ongoing projects and importantly 69% of our proposed launches. At the same time, the company is taking careful but strategic steps to start building out an annuity portfolio with a careful rollout of already tied-up land parcels in strategic CBD or near-CBD locations, to start with, in Bengaluru and Pune.

For the full year through March '19, consolidated revenue stood at INR 2,127 crores, a growth of 41% year-on-year. EBITDA was INR 517 crores, up 30% year-on-year, representing a healthy margin of 24%. Profit before tax stood at INR 173 crores, up 32% year-on-year, whilst PAT, i.e., total comprehensive income post taxes, was INR 114 crores, up 25% year-on-year.

The balance collection from sold units of all our launched projects stands at INR 1,971 crores as of March 2019, against a balance cost to go, excluding overheads and interest costs, of INR 2,233 crores. Combined with the value of unsold inventory open for sale at INR 4,582 crores, this is projected to generate an operating surplus of INR 4,320 crores before overheads and interest costs. Apart from this, the company projects a further surplus of INR 2,229 crores from units in approved projects but not yet open for sale. These 2 figures combined give a projected surplus of INR 6,549 crores for the company as a whole excluding overheads, interest costs and loan repayments. It may be pertinent to note that this surplus excludes all projects which are being launched in FY '20 such as Bavdhan and Capella in Q1 FY '20; as well as others such as Kondhwa in Pune; Kachanayakanahalli, Atmosphere in Bengaluru; and Chembur in Mumbai, among others, all of which would add to the surplus of INR 6,549 crores going forward.

The debt level remains largely unchanged from our quarter ago figure. The debt-to-equity ratio as of March 31 was 1.46x as per accounting standard 115 and 1.14x as per Ind AS. The weighted average cost of debt stood at 11.4% for the quarter ended March 31, a marginal growth of 5 basis points over December 2019 which was largely due to the increase in the reference rate by the lenders.

Approximately 8 million square feet of new inventory is being launched in FY '20 across both our brands and across our focus markets, which is not only forecast to help release blocked capital and debt but also reduce bad debt and interest costs progressively.

To summarize. This has been a strong quarter with a significant contribution to a good full year, where we have continued to focus not only on sales and collection but also on execution. We're also preparing the organization for a new and sustained growth trajectory and gaining market share across our key residential markets. The return to Mumbai, the expansion in West India, the sustained launch program across our key markets in both our brands, all this augurs well. Importantly, we have taken concrete steps to ensure cost optimization, contract management and operational efficiency. All these are likely to bear fruit in the coming quarters and indeed the years ahead.

We are encouraged and excited with -- in trends emerging from this quarter and for the full year.

With this, we would like to open the floor for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Biplab Deb from Antique Stockbroking.

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Biplab Debbarma, Antique Stockbroking Ltd., Research Division - Research Analyst [2]

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Congratulations for the excellent year. I have basically 2 observation and 1 query. First observation is that in the high-yield presence in the various micro markets, out of that, Bengaluru is doing well, but what -- with Chennai you have a lot of completed projects. And it seems that you have also projects in Bangalore and Coimbatore, Chennai. And there's a concern in -- about those micro markets also. So this is first query. Second is could you update elaborately on the Mumbai projects? It's almost -- I have been observing. It's been more than 2, 3 quarters, and we have been anticipating your Mumbai entry early. And third is your debt compared to FY '18. FY '18, it was around INR 2,000 crores. Now in FY '19, it has gone up to INR 3,000 crore. In this market where, most of the micro markets, the sales benefit is kind of muted. Is it wise to increase the debt, gross debt? I am just talking about gross debt, from INR 2,000 crore to INR 3,000 crore. I understand you have been selling well. You have been launching excellently in Goa, Bangalore, the Pune doing well. But despite that, there is a concern, yes, on the debt. The -- from the -- especially in the last 1 year, what prompted for the debt to increase almost by 50%, INR 2,000 crore to INR 3,000 crore?

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [3]

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Yes. I'll take the first 2 questions. Ashish here. I think in terms of -- you asked about the micro markets that we're currently present in and Bangalore being stable -- so one correction there. We expect our inventories -- Pune, we have done extremely well. So the first project that we launched out of 800 apartments, we have close to 700 apartments sold. So we are actually accelerating our second phase or sanction as well as accelerating the sanctions of another project in Pune. Goa, for us, has done extremely well. Again there we have sold over 1,000 units over the last, I think, 3 quarters. We have already collected 10% agreements signed, over 800 apartments. So I think that's done very well for us. Similar success even in Hyderabad, where again there I think we have some 85%, 87% sold of the Provident project that we are doing in Hyderabad. You are right. Bangalore continues to be stable. We are seeing some positive responses even in Chennai. So if you see our quarterly sales, Chennai has picked up, and so there is some positive trend there. Coimbatore, we took a pause. We don't have any new projects in Coimbatore. It has 2 projects that we are actually just about completed. The Provident one which is completed. As an organization, we took a call, we said let us give a few discounts but get our inventory out. We had -- we started December end. We had about 200-odd unsold units in the Coimbatore Provident project. We did an aggressive marketing campaign. We have sold -- by March, in 3 months, we had sold 110 units there. And the momentum is continuing. We are hopeful in the next 1, 1.5 quarters we should come -- that number should reduce significantly. So therefore, I think most markets are doing stable for us.

Your second question, on Bombay, yes, Bombay. We first -- the first project that we signed up in Bombay was in Bhandup. There the sanctions have stopped because of that dumping yard issue. Now that has been resolved. So the designs have been completed. They have been submitted for sanction. Chembur, which we bought a quarter ago, the design has been completed. We are doing a submission next week. Shil, which is on Shilphata junction, even there I think we are almost through with the sanctions there, which hopefully [in another quarter but for these elections]. Pune, also we should be getting the sanctions pretty soon. So even though sanctions are moving, but Bombay being Bombay, for one or the other reasons, the sanctions were delayed, but now they're moving.

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Kuldeep Chawla, Puravankara Limited - CFO [4]

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Your question on debt, if I may, Biplab, very simply put, this is a peak level of debt. Debt from here will go down as launches happen. And a large part of our -- this thing is going into production right now. So whether it's own line, JDAs, all these launches and the collections will help reduce the debt. In addition, as you have seen, we have done very good sales of ready-to-move inventory in this last quarter. All this will translate into further collections, which will automatically, through standing instructions, reduce the debt further.

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Biplab Debbarma, Antique Stockbroking Ltd., Research Division - Research Analyst [5]

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Just one more query, if you may. May I?

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Kuldeep Chawla, Puravankara Limited - CFO [6]

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Yes, sure.

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Biplab Debbarma, Antique Stockbroking Ltd., Research Division - Research Analyst [7]

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On the Chennai, what is -- what will be the estimated value of the inventory [inter Chennai] Puravankara have?

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Kuldeep Chawla, Puravankara Limited - CFO [8]

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Out of the approximately 950 crores of total inventory, roughly 270-odd crores will be Chennai, but I want to just mention to you that, if you look at between Q1 and Q4, right, Chennai has actually, across all our brands, Windermere, Swanlake, Cosmo City, every brand of ours, every project of ours, we've seen at least a 25% to 30% growth in Chennai sales between Q1 and Q4, very, very significant. If you want, I can get into each individual projects that we have steadily seen...

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Unidentified Company Representative, [9]

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(inaudible).

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Kuldeep Chawla, Puravankara Limited - CFO [10]

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Windermere, for example, in Q1, we sold about 27-odd units, okay? In Q4, as a data point, we sold 53 units. In Q3, as a data point, we sold 42 units. This is just one project. If I were to give you another project, in Cosmo City we were selling some 3 units a month, right, in -- which is 9 units in a quarter. In Q3 and Q4, we have sold 22 and 29 units, respectively. So just 2 examples. You can see a massive increase in Chennai sales, which is what is driving this whole collection coming from ready-to-move inventory.

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Operator [11]

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The next question is from the line of Prem Khurana from Anand Rathi.

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [12]

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So 2 questions. Essentially, one was if you could help me understand our volume numbers better. Because when I look at the number, we've been able to grow. We've done very well in terms of full year 3.6-odd million square feet apartment sold, but if someone were to look and compare the numbers, because eventually this year you venture into a new market which is Goa wherein you've done pretty well and which has given us almost 0.8 million square feet of area, if I were to adjust (inaudible) point, it seems as if we've done volumes which are lower than last year. As in, FY '18, without Goa, we did around 3.3 million. FY '19 excluding Goa is 2.8 million, so which essentially (inaudible) the market the numbers seem to have come down. So [is it the revenue] busy focusing on Goa because you want to make up the activities that we lost out on some of these markets? Or you would want to believe that the markets went down in Bangalore or Chennai? I mean I think in your remarks you said Chennai has done pretty well for you. I mean some of these projects have done 25% kind of growth on a y-o-y basis, which essentially leaves me with the fact that -- I mean, that Bangalore would have done seriously bad for us.

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [13]

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I think the way you need to look at it is that, your annual sales numbers, there are 2 things that contribute to it. You have the current ongoing projects that contribute to your annual sales numbers. You have launches that contribute to your annual sales numbers. So the minute we have a launch, especially if we look at the last 2, 3 years, with the change in selling strategy that we have adopted, we are almost selling out 60%, 70% within the first 2, 3 quarters. You can see this across Pune, across Hyderabad, across Bangalore and across Goa, right, all these markets. So we do not have that significant launch. So it's 2 things. One is the previous year number, the launch that was supposed to happen in April, just because the Park Square sanctioned sooner, so that got launched at the end of March. That contributed almost...

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Kuldeep Chawla, Puravankara Limited - CFO [14]

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INR 400 crores in sales.

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [15]

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No, no, in terms of volume.

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Kuldeep Chawla, Puravankara Limited - CFO [16]

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7 lakh square feet.

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [17]

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7 lakh square feet. So there are 2 ways of looking at it. You can add that 7 lakh square feet. So it was actually a launch that was supposed to happen the next year. We got the sanction earlier. That contributed to the previous year's number that you're comparing to this year's number too. Secondly, even Goa, I mean, end of the day, we are expanding into new markets. Goa was that launch. And any launch, let it be Bangalore, let it be Pune, any launch, we'll add. If you could do that launch number, then it's a standard steady state. So the minute you sell 60%, 70% of a project, then quarter-on-quarter, you're not going to get that euphoric sort of addition to sale.

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [18]

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Sure. No, no, I think the idea will be kind of grow -- I mean, somehow manage to grow our existing market as well as keep on adding new markets, which is how you will be able to kind of grow even better, right? But then...

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [19]

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We look at -- so for that purpose, you'll take Park Square as an example. And you look at the sales. So when we launched Park Square in March, we had sold -- I'm just giving an approximate number. We had sold about, I think, some 600, 700 apartments. Let's understand how will that trend this year. This year now we are close to 1,100 apartments sold. So given the ones that gave you numbers in the last year, are they slowing down this year? They're not. They are continuing to contribute.

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [20]

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Okay. And what kind of numbers will you be willing to kind of have in this year? I mean at least from the traditional market, I mean, leaving aside, though, Bombay because Bombay again would be as if, I mean, it will all depend on the day you get your approvals in place. From -- on a comparable basis, what kind of growth would you be kind of -- would you want to look at in this year, in FY '20?

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [21]

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While we don't and we've never given any guidance, but if all these launches come through, keeping in mind -- I will say at least a 40% to 50% growth, keeping the launches in mind and the contributions of all these projects. And GST is also stabilized now, so...

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [22]

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Sure, sure. And one question for Kuldeep. So sir, our debt number, I mean net debt number, seems to have gone up by around INR 500-odd crores during the year. A large part of it is explained by land banking, and we've spent around INR 350 crores.

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Kuldeep Chawla, Puravankara Limited - CFO [23]

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Correct.

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [24]

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So which leaves me with INR 150-odd crores of shortfall in our operations. And we're still not -- are working on our annuity portfolio as yet. So given the fact that, I mean, we have big plans for annuity and, by far, residential has been doing negative number, is it fair to assume that the debt would go up even further? And what will explain this negative number on the residential side? Because I mean land bank, as I understand, I mean, it's lumpy and it tends to be seriously lumpy and which is where you have no option but to kind of have that incremental debt. But then operationally, I mean, people tend to believe that residential projects tend to begin [out sales liquidity in nature] wherein you need to fund your land costs. And then the remaining is taken care of by customer advances and given -- especially given the fact that we tend to go for this EOI -- that kind of selling your products.

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Kuldeep Chawla, Puravankara Limited - CFO [25]

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So 2 quick answers to your questions. Number one, as far as the costs -- you had 2 questions. One was on the INR 150 crores, right?

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [26]

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Yes, sir.

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Kuldeep Chawla, Puravankara Limited - CFO [27]

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As far as that is concerned, that has 2 parts. A large part of it is to do with projects such as Kenworth and others where we deliberately have a situation where payment plans are catching up 1 or 2 or 3 quarters after execution. And that's a project which is actually ahead of schedule. So that project is actually executing ahead of schedule, so we had to draw down some debt on that. So there are a couple of projects like that.

Second is where we had -- in the case of near-ready or ready-to-move inventory, we had some costs to go, right? And even after getting OC, right? So that had to be funded. But as you have seen in this quarter ended Jan, Feb, March, we've had a INR 160 crore per month or approximately INR 470 crores of collections, right? That has caught up with our expenditure. So the second part of your question, which is what I think I really want to focus on, is therefore we have hit our peak debt and you should see a net reduction from here, number one. Number two, you talked about 354 -- INR 350 crores or INR 360 crores of land debt.

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [28]

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Yes.

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Kuldeep Chawla, Puravankara Limited - CFO [29]

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75% of that is going into production this year. So that in addition will result in a progressive reduction of debt and of interest costs both. Does that answer your question?

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [30]

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No. So essentially given the fact that with (inaudible) annuity portfolio this year because you've already been [3 now].

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Kuldeep Chawla, Puravankara Limited - CFO [31]

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So as far as our annuity portfolio is concerned, Prem, all I need on -- in the next 1, 1.5 years is a little bit of construction finance, right? You must also recognize that our annuity portfolio is not 3 million square feet, 4 million square feet of execution. It is 0.5 million to 800,000 square feet of near-CBD projects, which are going to turn around quickly. So the debt requirement on that is not huge. Our debt reduction has already started. I can tell you that, in the month of April, we've already started prepaying our debt because our collections from sales in the last 2 quarters have been very good.

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [32]

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Sure, sure. And just last, if I may: What will be the value of the [sanction] within -- really that we have within our completed projects? I think it's...

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Kuldeep Chawla, Puravankara Limited - CFO [33]

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950 crores.

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [34]

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950 crores, okay. And any pending due from the properties that are already delivered?

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Unidentified Company Representative, [35]

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Balance will be collected.

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Kuldeep Chawla, Puravankara Limited - CFO [36]

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Sorry -- balance will be collected, yes, yes, yes. So...

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [37]

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So from -- not form under construction, only the properties wherein you already have OC and then the timely payments are yet to come to you.

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Kuldeep Chawla, Puravankara Limited - CFO [38]

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Yes. Sorry. So is your question that do we have collections from that?

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [39]

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Yes. So do we have any collections due from projects...

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Kuldeep Chawla, Puravankara Limited - CFO [40]

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Yes, we have. We -- you can -- we have significant collections because we sold 230 crores of ready-to-move inventory in February and March this quarter alone.

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [41]

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Okay, okay. And will you be able to share a number...

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Kuldeep Chawla, Puravankara Limited - CFO [42]

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Plus there are projects like Westend which have just been running and started delivery of them. We are starting handover now. And in the next 2 quarters, you're going to see a massive collection from Palm Beach where we have just received occupation certificate. So there is a large amount of money to be collected, which is where our confidence on debt repayment is coming from.

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [43]

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Sure. No, because I observed one thing in our numbers...

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Kuldeep Chawla, Puravankara Limited - CFO [44]

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[Because], if you want to know, it's INR 350 crores. So...

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [45]

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Okay, INR 350 crores. (inaudible) which is kind of, essentially if I were to look at that cash flow sheet that you gave us, I mean the pending collection and the pending costs, we always used to be positive. I mean, excluding the unsold area and your under-construction projects, we always used to be positive in terms of -- there used to be some surplus that used to appear. In the last quarter, the number was around 250. So the idea used to be, even if I am not to sell any incremental units from here on, I'll be looking out to take care of my obligations. But this quarter, the number is down, negative...

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Kuldeep Chawla, Puravankara Limited - CFO [46]

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(inaudible) that, once I do new launches, right, once I do new launches, I have no problem. My launches are -- my success with a launch determines everything.

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [47]

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Sure. No, no, no -- yes.

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Kuldeep Chawla, Puravankara Limited - CFO [48]

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I also want you to recognize one very important thing, Prem, that -- hello? Are you there, Prem?

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [49]

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Yes, yes, yes. I'm...

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Kuldeep Chawla, Puravankara Limited - CFO [50]

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Prem, there were 2 projects which we launched in the last 2 weeks of March. They are Zenium and they are Somerset. Those projects, we just launched, so you're not seeing the sales of those come in, but the costs of that, I've taken into account. The costs of those 2 projects alone is 550-odd crores -- sorry. The construction cost of that alone should be in the region of about INR 350 crores, not INR 550 crores. I apologize.

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [51]

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So 1.13 would be Zenium.

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Kuldeep Chawla, Puravankara Limited - CFO [52]

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Yes, 1.13. And then another 0.35-odd from -- [this thing is] about 1.4 million square feet into a minimum of 2,800 to 3,000.

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Prem Khurana, Anand Rathi Financial Services Limited, Research Division - Research Analyst [53]

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Yes, yes, sure.

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [54]

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And those 2 projects are still in the EOI process, so therefore that has not come into the calculation, whereas the costs have come. Therefore, you've seen that gap.

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Operator [55]

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The next question is from the line of [Karan Singh], who is an individual investor.

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Unidentified Participant, [56]

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Maybe few questions on the cash flow statement. I'm looking the past 4 quarters. Q4 is the quarter where your operating surplus (inaudible) interest cost, if you compare out. Do you see this trend continuing?

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Kuldeep Chawla, Puravankara Limited - CFO [57]

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The short answer is yes.

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Unidentified Participant, [58]

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Okay. And the second question is the net debt level. It's, again, in Q4 it's (inaudible) when you look at Q1, Q2, Q3, Q4. And is it also going to be the same going ahead, on these same levels?

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Kuldeep Chawla, Puravankara Limited - CFO [59]

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Sorry. Is your question are we going to see a reduction in debt going forward?

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Unidentified Participant, [60]

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Yes, net debt.

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Kuldeep Chawla, Puravankara Limited - CFO [61]

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As we collect from ready-to-move inventory, our debt automatically will come down because of standing instructions, number one. Number two, as we launch more and more, we don't need construction -- we need very little construction debt for our residential projects, so there is surplus coming out of that as well. As a data point, for example, Goa is already generating a surplus.

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Unidentified Participant, [62]

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Okay, okay. And the last question I wanted to ask is that sales realization has come down slightly (inaudible) if you look at Q-on-Q, well, Q4 FY '19 and Q4 FY '18...

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Kuldeep Chawla, Puravankara Limited - CFO [63]

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Sales realization is a function of product mix.

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [64]

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If you remove the "ready to move in" inventory and look at our current ongoing projects and our launches, there's a significant increase in sales realization. Like I gave you the example of our (inaudible) project, right, where we are trying to ensure we can simply have already "ready to move in" inventory. (inaudible). We don't have more projects there. How do we ensure we get that [sale of] done quickly? So that affects on an average. This is your sales realization, but if you look at our ongoing and new launches, it's up significantly.

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Operator [65]

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The next question is from the line of Amitabh Sonthalia from SKS Capital & Research.

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Amitabh Sonthalia, SKS Capital & Research Private Limited - Founding Director & CIO [66]

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I was -- joined the call a bit late, so I'm not sure if this question was asked or answered, but your net worth has gone down year-on-year.

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Kuldeep Chawla, Puravankara Limited - CFO [67]

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So Amitabh, optically, yes, the net worth has gone down. The reason is that it would have gone down for all companies because of an accounting standard called 115, which required us to recognize revenue only for those projects which are delivered, where the customer has paid 100% and where the registration has happened. What this meant was that all companies were required to reverse through an adjustment of the net worth all those revenues for ongoing projects that were recognized.

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Amitabh Sonthalia, SKS Capital & Research Private Limited - Founding Director & CIO [68]

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So is it -- it's gone down by what, about...

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Kuldeep Chawla, Puravankara Limited - CFO [69]

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INR 610 crores is the figure that I -- INR 610.76 crores is the exact figure. On a consolidated basis, this was a reversal...

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Amitabh Sonthalia, SKS Capital & Research Private Limited - Founding Director & CIO [70]

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INR 610 crores is the net -- decrease in net worth. Now is that the entire revenue booking as well? Or is it the expected EBITDA reported from -- on that?

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Kuldeep Chawla, Puravankara Limited - CFO [71]

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So this is the retained earnings. The adjustment to net worth will only be on the retained earnings.

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Amitabh Sonthalia, SKS Capital & Research Private Limited - Founding Director & CIO [72]

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The past retained earnings.

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Kuldeep Chawla, Puravankara Limited - CFO [73]

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Yes. The revenue that was reversed was significantly higher. The revenue that is reversed was 3,340 crores.

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Amitabh Sonthalia, SKS Capital & Research Private Limited - Founding Director & CIO [74]

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And what is going to be -- how will this get -- be accounted for in the future?

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Kuldeep Chawla, Puravankara Limited - CFO [75]

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So some of it has already been recognized. And the balance will be recognized over the next couple of years as those projects for which the revenue and the profits were reversed are completed, handed over and registered.

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Amitabh Sonthalia, SKS Capital & Research Private Limited - Founding Director & CIO [76]

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Will it again go back to the net worth directly without hitting your...

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Kuldeep Chawla, Puravankara Limited - CFO [77]

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Yes, it will. Yes, it will. Yes, it will go back to net worth.

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Amitabh Sonthalia, SKS Capital & Research Private Limited - Founding Director & CIO [78]

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Okay. So it's a fairly notional decrease.

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Kuldeep Chawla, Puravankara Limited - CFO [79]

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That is correct.

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Amitabh Sonthalia, SKS Capital & Research Private Limited - Founding Director & CIO [80]

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So does it impact -- it does impact your debt/equity. How do the bankers and rating agencies view that?

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Kuldeep Chawla, Puravankara Limited - CFO [81]

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Okay. This -- we answered this question a couple of quarters ago, but I'm happy to -- more than happy to share with you. We had proactively reached out to our rating agency and our lenders, and neither of them have an issue whatsoever because they recognize that this is an industry-wide phenomenon and that what has not changed is our cash flow, which is the basis on which debt is paid.

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Amitabh Sonthalia, SKS Capital & Research Private Limited - Founding Director & CIO [82]

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Okay. And so virtually it doesn't change anything for you.

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Kuldeep Chawla, Puravankara Limited - CFO [83]

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It doesn't change anything.

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Amitabh Sonthalia, SKS Capital & Research Private Limited - Founding Director & CIO [84]

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Okay. And so this is a -- so from any case, it's not going to go down any further, right? It's a onetime...

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Kuldeep Chawla, Puravankara Limited - CFO [85]

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That is correct.

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Amitabh Sonthalia, SKS Capital & Research Private Limited - Founding Director & CIO [86]

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So next year, it will go up by the -- by...

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Kuldeep Chawla, Puravankara Limited - CFO [87]

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It will progressively go up by the revenue recognized for revenue. And it will progressively go up by the retained earnings that are being re-recognized.

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Amitabh Sonthalia, SKS Capital & Research Private Limited - Founding Director & CIO [88]

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But it will not affect your P&L again, right, the...

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Kuldeep Chawla, Puravankara Limited - CFO [89]

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No, it won't.

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Amitabh Sonthalia, SKS Capital & Research Private Limited - Founding Director & CIO [90]

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So like in the current year, for example...

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Kuldeep Chawla, Puravankara Limited - CFO [91]

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What will change is that we end up -- sorry.

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Amitabh Sonthalia, SKS Capital & Research Private Limited - Founding Director & CIO [92]

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Let's say I'm just trying to do a guesstimate of your FY '20 balance sheet. Suppose it -- how much if -- let's say if your net worth goes back up by INR 500 crores. Will that -- half of that will be through the P&L retained earnings, and half of that will be through reversal of this or the write-back of this reversal or something like that?

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Kuldeep Chawla, Puravankara Limited - CFO [93]

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Amitabh, is it possible that I can take -- this is a slightly more detailed discussion. Can we take this offline, if that's not too much to ask?

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Amitabh Sonthalia, SKS Capital & Research Private Limited - Founding Director & CIO [94]

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Yes, yes, that's fine. That's fine.

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Kuldeep Chawla, Puravankara Limited - CFO [95]

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Okay. Thank you. Thank you for the privilege.

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Amitabh Sonthalia, SKS Capital & Research Private Limited - Founding Director & CIO [96]

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All right.

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Operator [97]

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(Operator Instructions) The next question is from the line of Rohith Potti from Marshmallow Capital.

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Rohith Potti, [98]

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My question is more on the strategic (inaudible) management. So the brand is quite popular -- the brand is already present in a lot of locations in the South, and you're enjoying quite good -- quite a strong uptake. So in this environment how do you think of exploring new markets versus focusing on the existing markets to strengthen the brand further so that, over the long term, the growth becomes more sustainable? Because from my understanding I believe, historically at least, real estate has been a very location-focused play. And it's -- it takes some time for a brand to travel from one location to the other.

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Operator [99]

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Participants, please stay connected while we reconnect the management. The line for the management has dropped.

(technical difficulty)

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Rohith Potti, [100]

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Rohith here. Were you able to hear my question before you -- the call was cut off?

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Unidentified Company Representative, [101]

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No, no. No, we were not.

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Rohith Potti, [102]

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Oh, sorry. So let me repeat it. So I was -- my question is more on a long-term strategic perspective. I am from the South, and I can vouch for the fact that the brand enjoys quite a strong pull in many of its Southern markets. And from my understanding, generally you relocate the brands. In order to get established, it takes quite a long time in a new market. So given the wide number of locations that you're present in, in the Southern market, does it not -- I was wondering if you could share your thoughts on strengthening the brand for the long term in the markets that you're already present in versus going and entering newer markets like Mumbai, for example, which is -- which will be a relatively newer market with a large number of competitors. So would it not -- I want to understand how you think of -- because there's only so much management bandwidth that (inaudible) the senior management...

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [103]

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Understood.

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Rohith Potti, [104]

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Yes. So is it...

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [105]

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Just a couple of clarifications there. So I don't know if -- not too many people know, but the company actually started out in Mumbai. And then we brought our focus to the South, in Bangalore. So Mumbai, in a way, is coming back home, a. B, as our strategy, we are very clear that we've identified the 5 key markets we believe over the next 5 to 10 years will give us growth and have depth, which is Bangalore, Hyderabad, Chennai, Pune and Mumbai, right? Now in Mumbai and in Pune, it's very strategic. So we have now close to 6-odd projects in Pune, about 6 projects in Mumbai. Most of them are with local developers. So in terms of the [licensing], in terms of the sanctions, that responsibility is with the land owner.

In terms of the brand recognition, if we look at Pune, our first project, within the first, I think, 3, 4 quarters, we had already sold close to 700 out of the 800 apartments, which was the total sanction as of that date. Look at Goa. We sold 700 -- sold (inaudible) I think the brand is even stronger in markets like Bombay and Pune. And we have seen that in reality, and we have launched and we've seen that success (inaudible). Secondly, given the entry into these markets with the local developers, I'm now sure (inaudible) in Pune and Mumbai. They have come to Bangalore. They have approached us. They have gone to our sites. They understand our brand. They understand our execution capability. They have understood our selling machinery that's quite efficient, right? So they have in fact invited us into these cities. They are taking the responsibility of sanctions. They're for sanctions and we're executing and selling. In these markets, again, we are very careful. So now my basic understanding is, if I have to look at a micro market in Mumbai, like a Mulund, I believe there is a huge oversupply. And the question was a solid presence in Mulund. So you would not see us taking up a project in Mulund. Where have we taken our projects? We have taken up projects in Thane and Shilphata (inaudible). We have taken up a project in Chembur for Puravankara. We have taken up a project in Bhandup for Puravankara, right? We are also looking at -- we have tied up 2 projects. One is (inaudible) east and the other one is [Gurgaon] east, right? So we're carefully choosing these micro markets. We are carefully choosing the partners. Responsibility of sanctions are on these partners. So then our entire -- so our goal is going to be the brand, the selling machinery and the execution.

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Rohith Potti, [106]

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Understood. Well, okay. So a follow-up to this -- or the answer that you've given us. The broader worry a shareholder in the business might have is that -- I mean, are we spreading the bandwidth that we have a little too thin? When I say the bandwidth, I'm talking not just...

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [107]

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No, no, no. So if you look at -- we are reducing 2 cities that we work within. So for example, in Bangalore we had a project. We're not going to do another project there. Coimbatore, where we had 3 projects, we are not going to do another project there, right? So these are the types of -- we are so very clear. So not -- we keep getting inquiries from [NCR]. We keep getting inquiries. We are not going there. We get inquiries from Kolkata. We're not going there. So we've understood what that bandwidth is, which markets we understand well, and based on that is where we've entered into these cities. And these are going to be -- so I don't think that we will add another city. We're going to stick to these cities that we believe will give us growth over the next 5 to 10 years.

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Rohith Potti, [108]

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Okay. So just to get this clear. What we're going to do is focus on these 5 pretty large cities. And there might be ancillary cities like Cochin and Goa which would continue as a same strategic fit. Is that right?

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [109]

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I don't think there'll be additional projects in Cochin or Goa. I think what we have already, we will execute and come out and then focus on these 5 cities.

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Rohith Potti, [110]

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Okay, okay. So going forward, we will taper down our involvement in other cities, and we'll just focus on the 5 large markets over the next 5 to 10 years.

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [111]

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Correct. Correct.

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Rohith Potti, [112]

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And so just to understand the long-term broader strategy again. So what (inaudible) rather than focusing on just residential, both -- I mean basically you're focusing on residential, right, from affordable to premium housing across many cities. So the focus is now changing to focusing on the relatively large markets that you mentioned. And we are focusing on probably, within them, going from there, so let's say, pure residential plays to commercial and others as well. Is that right?

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [113]

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Let me approach and simply comment on the organization. So I think, yes, the focus of the organization will be residential across the premium brand, which is Puravankara; and the affordable brand, which is Provident, across the 5 cities that we are already in that we mentioned earlier, which is Bangalore, Chennai, Hyderabad, Pune and Mumbai. In addition to that, yes, we have taken a decision where we will create some portfolio of annuity income by way of commercial development. The target that we have set over the next 5 to 8 years is about 7 million, 8 million square feet, 5 million square feet out of which is already land owned by the company. So there is no cash outflow to get these lands onboard, right? So the land is already available. Due to their locations, they qualify as great locations for commercial office space development. We are not getting into retail. We're not getting into hospitality. It will be an office play, commercial office play.

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Rohith Potti, [114]

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The 7 million to 8 million square feet, in -- both of -- both these over, let's say, 5 to 10 years, it might be difficult. And I understand it's stupid. It's not answerable right now, but how do you see, at least percentage-wise, the presence of the company in both residential and commercial across the ticket? Is it going to be equal? Or depending on how the market develops, it might still be towards Bangalore or Mumbai.

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [115]

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(inaudible) by far, I think the residential business will continue to be the most significant percentage. This is a very fixed number. As a strategy, we have set 5 million, 8 million. We are going -- over 5 to 7 years. We are launching close to 6 million, 7 million annually, right, of residential space.

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Rohith Potti, [116]

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Yes. So I was -- the question was not on that. I'm pretty sure that the residential space will continue to grow over the long term, but I was just asking strategically. I think we are -- while we have taking (inaudible), reducing the dependence on Bangalore, I was just asking, over the long term, let's say 5 to 7 years, how do you see the mix between the cities changing in both residential and commercial? Is commercial going to be entirely in Bangalore?

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [117]

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No. So as of now, the lands that the company already owns, so there the -- most of the commercial lands are in Bangalore. There are just one project, which is the (inaudible) project in Pune. So the distribution is -- for now is that. So almost 80% of the commercial will be Bangalore. About 10% is -- I think 20% is Pune.

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Rohith Potti, [118]

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And the residential, over next 5 to 7 years, do you see it becoming broadly more evenly distributed among the 5 geographies that we're talking about?

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [119]

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Yes, absolutely. I think, in fact, with the launches that we have, over the next 2, 3 years, I think the rest of India, which is essentially Pune and Mumbai, will almost become 45%.

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Rohith Potti, [120]

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Understood, understood. Got it. And just I had a question. I mean I -- my sense is that the price of the shares are quite cheap. So how do you think about -- I mean I understand that the business does need capital to grow. There is a long runway that is available to you particularly given the Southern (inaudible) developers are in, but with this organic growth, well, how do you think about buyback of shares? Maybe there is a dividend or otherwise are allocating more capital to share buyback. And how do you think about that?

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [121]

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I don't think we can do a buyback because we are currently at 75% the promoter group. So I don't think buyback is possible. And then...

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Unidentified Company Representative, [122]

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(inaudible) so the -- we can do just take back (inaudible) you go to buyback [and then can you] by [guard] provisions. So many people don't go and play it like that. Buyback (inaudible). One should not go dividend versus buyback.

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Rohith Potti, [123]

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Yes, yes. So I mean the reason I was comparing both was because it's in a way of capital return to the shareholder, and the whole idea being at a cheaper price one is -- I mean, if one is able to buy one's own shares, it will increase the value for -- the purpose of the earnings stream to the shareholders have increased. That was the whole idea...

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Kuldeep Chawla, Puravankara Limited - CFO [124]

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Allow me -- just allow me to say the following couple of sentences. And we would continue to do what is in the best interests of the business and of the shareholders. At this point in time, suffice to say that we basically believe that we would like to invest in the growth of the business, and that is the best way to create shareholder value.

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Rohith Potti, [125]

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Understood, okay. Understood. And one last question from my end, given the large market that you've chosen and the long runway that you have for the business, is there an idea of the debt levels that you're comfortable with over the long term? And how do you measure that? I guess, debt-to-equity doesn't probably make much of a sense for a real estate business particularly given your accounting loans. So how do you think of debt and for a business like yours which will eventually have a larger commercial piece over the long term?

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [126]

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Okay. I think we are conscious of where the debt level is, but I think we are very comfortable at this point. I believe we are somewhere -- we are at the peak. I think that -- I think one needs to evaluate our growth strategy in the West. So like I said, we have almost close to 6-odd projects in Bombay. We have close to about 6 projects in Pune, where we have started design and we have started sanction. 95% of all these projects have been secured on a joint development basis. So there's no additional capital outflow, but -- and you look at that. Secondly, if you look at the RTM, the "ready to move in" inventory, and you'll see that actually sustained over the last quarter and the previous quarter. That in itself will reduce the debt and give some cushion. And this is required in terms of construction finance for future projects. Again, like Kuldeep had mentioned earlier, the -- some debt had gone up on account of new acquisitions, though the acquisitions -- there'll be not -- no more buying the Chembur land, for example, which we talked about a quarter-odd ago. We had already designed it. We are submitting that land for sanction next week. We are hopeful of getting a sanction over the next 5 to 6 months. So we are turning projects around much faster. So that in itself will solve the -- release the debt and reduce the debt.

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Rohith Potti, [127]

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Yes. So I confer with you that current debt levels are not much of a concern and eventually it's manageable. But the idea was to understand how the management thinks of debt over the longer term once...

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [128]

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That's why I gave you a flavor of our activities within Pune and Mumbai. (inaudible) There's not a huge capital outflow. Secondly, if you look at our path change or that selling strategy that we adopted about 3.5 years ago, which was very different from the time before that, which we wanted to sell only 10% and then sell the balance over 4, 5 years of project construction. We said no. We understand that business cycle (inaudible). So we adopted the whole EOI process, the building process, where we are able to sell almost 60%, 70% in the first 2 to 3 quarters of a project launch at higher averages through this entire process. So therefore, if you look at all the launches that we've done over the last few years across Pune, across Hyderabad, across -- so the construction finance requirement has been very minimal.

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Rohith Potti, [129]

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Okay. So would it be right in that case to be that over the next 5, 6 -- or over the longer term the proportion of debt that will be required for the business to complete construction would be lower on average than what was required for [any current] construction in the past because of the changes in process and execution?

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Ashish Ravi Puravankara, Puravankara Limited - CEO, MD & Whole Time Director [130]

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(inaudible) actually I remember (inaudible) look at the last year's launches. And I think Kuldeep (inaudible) give you the number, debt section on those launches, which is insignificant.

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Operator [131]

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(Operator Instructions) As there are no further questions, I'd like to hand the conference back to Mr. Kuldeep Chawla for closing comments.

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Kuldeep Chawla, Puravankara Limited - CFO [132]

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Thank you, ladies and gentlemen, for your time and your attention. We will continue to do what is great for shareholders: to focus on creating value as we roll out the new launch strategy and our overall plans for FY '20.

Thank you once again, and have a wonderful day.

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Operator [133]

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Thank you very much. On behalf of Puravankara Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.