Q4 20/21

Jun 30, 2021

Thank you. Thank you, everybody, for joining Suntec financial year two twenty twenty one full year earnings call. The last year has been one of the tremendous growth and learning for me as an individual and for Suntec as a business. The past year has given me some time to reflect on Suntec's impressive growth journey over the last twenty years and the path we are on for the future. We had a great run so far, but our best is lies ahead. I'm excited to use this opportunity to introduce the next leg of our Suntec journey, what I call Suntec three point zero or the new Suntec. I will refer to a few slides to our earnings presentation, which I encourage you all to review in detail. We also published an intrinsic value presentation a few months ago, which is on our website and goes through our various projects as detailed case studies that give you a good understanding of our business. Our journey at SunTek began in the year February. At the time, we operated a few business centers in Mumbai that we leased wholesale and subleased retail. We owned no real estate and had under INR 10 crores in cash. Then in 02/2007, we made a research based decision that a central business district like BKC would be desirable place not only to work, but also to live as a uber luxury lifestyle. The decision and the vision paid off, and we have since helped hundreds of happy families find their own dream home in PKC and OTC in Gorillaume West. Along the journey, we created enormous shareholder value. We now embark on the new Suntec. We realize that there are more efficient ways to do business rather than tying up capital in big land holdings or in finished apartments. Currently, we have close to 1,800 crores of finished inventory. I'm focused on reducing this by 80% plus in the next few years. We are also focused now on not adding much new finished inventory. The objective as we do our launches is to stack it high and let it fly. Our progress at SunTech World in Nai Gao is the exhibit of this new focus. You can see Slide 32 of our earnings presentation. We have launched 4,840 apartments, of which we have already sold with high velocity 4,136 apartments. The overhead to run Suntec engine is about INR 100 crores per year or less than that. This is the amount you would spend even if we did not do any construction for a year. As you can see on Slide 33, the four new near term projects have an operating margin of approximately 6,200 crores. If this were delivered in the next six to seven years, we would add pretax income of around INR 6,200 crore. This is roughly INR 1,000 crore per year pretax or INR 700 crore per year post tax. This INR 700 crore has plenty of lumpiness. We may have INR 1,000 crore in one year and INR 500 crore maybe in another year. It also could be higher as we add more projects. The key is to expand and strengthen our senior team and execution capabilities so that we could be doing six or seven or more projects, big sized projects simultaneously. Historically, our project level margins have been closer to 25%, which was good. Future margins are trending higher towards an average of 35% per project. You can see this in the economics of our Vasei and Vasein projects on Slide 33. There are several reasons for our margin expansion. First, our size and the breadth of our experience that has allowed us to realize more and more economies of scale and savings. In addition, COVID brought in a period of tighter expense control and a good portion of those cost control measures should stay in place even after COVID is long gone. Finally, our price realizations are trending higher because of the strength of our brands and offerings. We have a big opportunity in 2021. Typically, we have to pay Maharashtra lot of fees and premiums for each development, which includes fees to maximize the space we can build that is SSI. These fees can be and amount to 30% of the price we realize. The state cut its fees by half or for all of the calendar year 2021. This represents such good savings for Sunek. And for Sunek, we take full advantage of this in 2021 and even pass on this some benefits to its customer. We plan to prepay approximately INR $2.50 crores of these fees and premiums in 2021. Thus 50% savings means that we will be also 50% savings means that we will be also saving INR $2.50 crores, which is wonderful. This should further improve our project level IRR and leave us with more capital for growth. The benefit for this will come over the next two to three years. With demonetization, GST, RERA, NBFC crisis and now COVID, there has been a major consolidation. As you know, we have done maximum acquisition in MMR during this pandemic. And now we are seeing many more interesting deals being presented to us with minimal SunTech capital required. Of course, we are very selective, and I think significant shareholder value will be created if we are prudent on the deals and keep our error rate low. Our HR team is also working on employees' welfare and expansion plans to support the growth trajectory of Suntec. I'm excited about the road ahead for the new Suntec and for sharing this journey with all of our stakeholders. Thank you. I will now hand over the call to our CFO, Mr. Manoj Jagarmal, for his comment. Thereafter, I would be happy to answer your questions, if any. Over to you, Manoj. Thank you, sir. We can now open the call for questions from the participants. Thank you very much. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, may press star and one on the touch tone telephone. If you wish to remove yourself from the question queue, you may press and 2. Participants are requested to use handsets while asking a question. We would request the participants to please limit their questions to two per participant. Ladies and gentlemen, we will wait for a moment while the questions are assembled. The first question is from the line of Anujesh Chattopadhyay from ICICI Securities. Please go ahead. Yeah. Good good evening, everyone. First, sir, congratulations on the very good performance in a very tough year, obviously, because of COVID related disruption. Sir, now going ahead, first question is, as you said, you want to monetize of your existing inventory largely in BKC. And so going forward from '22, how are you looking at your annual sales figure? Consider than just over thousand crores this year. I mean, how much would be from the unsold inventory, and how much would come from the new launches? What is the broad target you're working with? You can give us any guidance. So good afternoon, Aditya. Good evening. So your first question, monetizing from the inventory of BKC. So we have been always maintaining that those are very high end luxury apartments, and it is definitely not a fast moving product. So that will take some time. But our sales growth, whatever we are doing sales right now, and you can see the sales from the other segment, mid income segment and the affordable segment, That is very robust. You can see in our presentation, which has been uploaded also. So and also not only the sales momentum is good, also the selection, if you can see from across all the segments. So sales momentum in the mid income and affordable will continue to be very, very robust. And looking at the current sales position of the April, May, June, which we see, it is much better than the even in fact, the last corresponding last quarter of quarter of the last year, this corresponding first quarter. And June, especially the momentum, we are seeing all of the momentum picking up. So that gives a clear indication since the lockdown is slowly starting or starting opening up, we are seeing that the q two will be much more robust, and that's what I can tell you about this sales momentum. Okay. So any longer term targets means where you want to scale up the sales, annual sales or something you're working with? If you see right now, we have two or three engines from where we are doing maximum sales. You can save two, three projects from ODC, Avenue 1, Avenue 2, and Fourth Avenue. And Maigang Phase one and Phase two, which is Westworld and Maxwell. Going forward, obviously, there will be a lot new lot more new launches, whatever we have taken, Wassaiv, Asind and the Bodhivari one. Also, you will see new phases being getting launched from ODC and also a new phase from Naikao. So there are a lot of new launches, which we are expecting. I would not like to give any numbers, but definitely, I can see the group will be very exponential in next two to three years, very, very high exponential. Okay. And sir, just my second question. I'll come back to you later for more questions. So there was this media article yesterday about this deal you have done with the D Mart in Avenue 2 in Kozhikode. So, could you confirm anything on this deal, and what are the exact contours and timeline for it, if you would like to comment? So the deal, obviously, I think it was there almost because it's in the public domain, it has been registered. So it's a we have sold almost 40,000 square feet of the showroom area to them, in three levels. And that's what 25,000 square feet. And we are looking to give them a projection in next twelve months. Thank you. We would request the current participant to please come back in the question queue for any follow-up questions. And we have several participants waiting for their time. The next question is from the line of Puneet from HSBC. Please go ahead. Yes. Thank you so much, and congratulations on good performance. My question relates to your future capital allocation. How do you think you intend to indicate allocate your capital? Is it more towards purchase of land, more towards joint development? Or are you looking at redevelopment or society and also the protection? So what do mean, Prakrit? Question. So we are if you see, obviously, our collections are very robust, and it's going to only get more robust from here as we deliver more and more projects because the receivables are very high. Also, our presales are exponentially increasing, as I said in the last question. So if you see, our debt equity ratio has come down drastically from the negligible debt equity ratio, I'd say, point two four, it has come down to 0.18. And this, we are looking almost we may end up with a very negligible debt or maybe God willing cash positive. We are definitely looking at all kinds of acquisitions in this distressed period, and a lot of opportunities are in the market. We will evaluate. We are not averse to not buying the land parcels, but it should be at a good price and good it should add good value to our shareholder and good value to the company. Otherwise, there are so many options of joint development JV JV. Also, definitely, if there is no complications and if there is a society redevelopment, but it has to be a very sizable development. It cannot be a small society or a stand alone development kind of it. If there are large sized projects, we will look at it definitely. And if it makes economic sense, we will definitely look at it. So so from sizing perspective, what kind of capital are you looking to to deploy? Is it more like small ticket of or or is it large single partner with large ticket? So we if you see that in the last four acquisitions, Puneet, we have done Nygong and then Vasai and then Vasai and then the SKP, they are all very large size. We have a top line of more than INR 1,000 crores, INR 2,000 crores, and we are looking at bottom line in all of these projects more than INR 500 crores, 600 crores. So we are looking at a very large size project and without putting much capital. If we are getting this such kind of parcel, why should we putting the capital? First, we like to explore these opportunities. And only then if we feel there is lot of distress available and there we can make a good multiple IRR and that kind of project, we'll definitely look at those as well. And have you seen distress go up post COVID or is it still the same? Because there was some improvement in the entire environment in the post the first COVID wave before the second one. Yeah. So there is a improvement in the environment, but that's or only what we are seeing, the sales are maximum swinging towards the only organized developer. Are all seeing that the sales are maximum sales are market share of the organized developers are increasing more and more, Puneet. And this will only help only to grow more of the organized player and who are corporateized or domestic ones. I don't see the growth happening very soon with others. So and most of the developers are today struggling for the survival. I think the 10% of the developer which are growing, and they will continue to grow. And that's why there will be a lot of consolidation. The next question is from the line of Amit Chetan from Liberum Capital. Sir, thank you for the opportunity. You mentioned in your slides, you have some 1,700 crores of inventory at the B K at the B K C Complexes, and you plan to, you know, sell them off over the next three to four years. Now if I look at your previous sales run rate, you know, you did about 100 crores in the last couple of years, and before that, you're doing 300 crores. So where, you know, where is this coming from? Are you planning to cut prices, or are you seeing a lot of interest? I don't think there is a necessity to cut any prices. Definitely, the velocity has to increase. So that there is only drop of sales in the last year. Otherwise, we have been doing close to INR 200 crores to INR 300 crores of sales year on year. From last seven to eight years, will be more than that, eight to nine years. Now last year, definitely, there was sales was only to the tune of almost 100 crores. But looking at the current situation and the current inquiries, we are quite optimistic and positive that we will have a good run rate even in PKC projects also the sales in PKC projects also. So and what we are considering that to exhaust this inventory not less than three to four after four years, we are very clear, we are talking about growth. This is not stopping the growth of the company anyhow. I don't see that growth is getting because giving a discount will be only spoiling the more the brand image, and such company is not at a distressed position that you need to cut down the prices and sell this desperately. We will definitely see the way the values of options, and we would definitely like to exhaust ideally the inventory even in less than three. But looking at the product and the kind of demand, we'll we definitely see that it will take at least more more than three to four years. Understood. Understood. And currently, are we getting any kind of leasing income from these units, and how much would that be? Oh, that is because it's the leasing income, we all know it is the the like, it is only 2% or 3% of the capital value. So it doesn't make sense to maybe two or three apartments, but we don't want to leave it more. That is only we have leased out those apartments because there are a lot of inquiries, and we have sold those kind of apartments. People who want to do just the investment because they see a lot of opportunity because BKC wants there are a lot of things which are happening, actions are happening in BKT, more of lot of connectivity which are coming to BKT. And then as you see, there is a convention center, which would be operational. Unfortunately, all these things got delayed due to the COVID, I believe, but this will be post hopefully, we don't have a second covered wave. And thereafter, you will see a lot of traction we see in BKC, and that will not so we get a lot of inquiries that people just want to invest. And if there is a leased apartment to consulates and multinationals and which we have in our portfolio, they like to buy those apartments. Only from that angle, we have leased out few apartments, but not the idea is not to keep them leased. The idea is to exhaust them, sell them and exhaust them. Thank you. The next question is from the line of Pritesh Sheikh from Edyweiss Wealth. Go ahead. Yes, sir. I'm calling the opportunity. Am I audible? Yes. Yes, yes. Pritesh, you're very much audible. Okay. So firstly, on your launch pipeline that you indicated in your presentation, what could be the size that we are looking to launch? Because I'm sure we are not able to launch a full project, obviously, there'll be phase wise launches. So what is the time that we are expecting to launch for both fast and battery and? Pritesh, you are not. I think you are taking it from a mobile phone or something. The connectivity is very bad. Not able to hear your question properly. Can you can you can you Oh, I audible now? Clearly? Let us let's try. Can you repeat the question? Yeah. So I was asking about your launch pipeline for this year that you have indicated in the presentation. So what is the exact size of the launches that we are targeting this year on your new acquisition that is Vase, Vaseem, and Gurivoli? So the sizes of launches, I think, in in the first launch of Vaseem, you look at the total size, which is we are looking at the operating means we are looking at the sizes of, like, close to INR500 crores to INR600 crores of the launch in the Versailles. And if you look at first phase of our team, it will be, again, similar INR300 crores to INR400 crores. And again, globally, SK's results, we will we can look at a similar INR500 crores to INR600 crores from the day in the first phase. So these are all approximately size would be INR500 crores each launches. Got it. Got it. That's helpful. And your next phase of Naiga is not reflected there. So so is it stuck for any approvals, or you're altogether planning for launching in post FY '23? Oh, no. It is there. If you see on page 32 on page 32, if you go to the residential side, additional operating margin expected For future, shows 12,750 crore and the total 16,750 crore project operating margin. Preetesh, hi. Preetesh, this is Prashant. Yeah. Hi, Prashant. Hi. Yeah, Preetesh, so the the numbers are reflected on Slide 32. And in Slide 32, if you see, Suntech World, NIGO has been given, and that Suntech World, Naiko includes Westworld, Maxworld and the future phases. So Okay. Okay. So there, if you shift three additional project operating margin, it is total 1,275 crores, and the total is Okay. Okay. So so you will be launching next phase in f I twenty two. That's what I wanted to understand. Yes. We'll be launching. We will be launching. Thank you. The current participant to please come back in the question queue for any follow-up questions. I will hand you to the participants. Anyone who wishes to ask a question may press and one now. The next question is from the line of Aditi Mehta from GK Capital. Please go ahead. Yeah. Hi, sir. Thanks for the opportunity. Sir, I wanted to know about the what are the plans regarding rental and commercial portfolio, which we were targeting around 500 crores of annual revenue? So, Aditya, we all know that I would say we got lucky, I would put it that way. We were supposed to just start our project of Fifth Avenue in ODC commercial portfolio before the before the COVID nineteen hit got hit. It was fortunate that we could we our approvals got delayed and we could not launch. I think we all know the situation of the commercial post COVID. The demands are continuously going down for the commercial, and we don't know there is a lot of uncertainty for commercial and retail. At least I believe that commercial will not get revised till end of twenty twenty three. So we will look at the market. If the commercial market revives, we have the land, we have everything, why should we not start it? So we will be looking to start as soon as we see the market getting better, and we will definitely launch that as well. Okay. And sir, my second question is regarding you that which are the projects that will be delivering in this financial year? And what is the amount of revenue that is yet to be recognized from them? Will Prashant? Hi, Aditya. This is Prashant. So in the current financial year, projects like Suntec City Avenue II, which will be ready for delivery. You will also have Signia Waterfront, which is our project in Ayodolli, which will be ready for delivery. So as and when these projects come through, the pending revenues which are to be recognized, those will be recognized. In in order to get the detail of the revenue, I can provide to you that offline, sir. Okay. And Naigo also, we will we will be delivering this time? This this this motion is And also, Suntec Westworld, Suntec Westworld. The first phase of Naikaa will also be delivering in FY 'twenty two. The next question is from the line of Ajith Chattopadhyay from ICHA Securities. Please go ahead. Yeah. So thank you for the opportunity once again. So just referring to Slide 38 of the presentation when you have talked about the INR $2.50 crores FSI premiums will be paying off. So could you just help us understand for which projects will this be, and is the saving $2.50 crores in this instead of 500 crores? Oh, no. So if if this premium reduction would have not come, obviously, we would have paid INR 500 crores, let's say, approximately. And this reduction is 50%. So obviously, if we prepay this, it is we have calculated approximately we'll have to pay INR $2.50 crores. It may be plus or minus 10%. These are the projects which are because there are maximum projects which are going are under execution. You can see Fourth Avenue. There, we'll be having a lot of savings. We'll have some savings in Second Avenue as well in SunTek City. Then we'll have savings in Andheri East project, which is the SunTek Crest. Then we'll have two commercial projects in the junction of PKG, where we'll have savings. So we'll have savings from couple of these projects, and this will all tune up to approximately saving of close to INR $2.50 crores. Okay. And just another follow-up question on approvals for Versailles, Vasan Bodivili. So are these fairly certain to be launched in second half this year? Or is it contingent on certain key approvals, like environmental clearance or, I don't know, some other clearance? So looking at the way we are getting the approvals, I think we are quite confident, at least two out of the three projects we should be able to launch in the FY 'twenty two. Okay. Okay, sir. That was very helpful, and all the best. Thank you so much, Aditya. Thank you. The next question is from the line of Parviz Akhtar Tazi from Edelweiss Securities. Please go ahead. Hi. Good afternoon, sir, and thanks for taking the question. Couple of questions from my side. First, if you could update us about the status of the new commercial project in BKC. And second, also, I mean, in in terms of value, what is the inventory that is in ODC and Nayaga? So, Parvit, hi. This is Prashant Desai. So both both the BKC Junction commercial projects are the work construction work is is moving in full in full swing. And hopefully, in the next twelve months to eighteen months, we'll be able to complete both these projects and also derive the sales out of it. So that is the status on Suntec VKC 51 and Suntec Icon. As far Parviz, as far as the launch projects that we have done in ODC and Nai as sir has already pointed out in Nai Gao, out of 4,800 units, we have already sold 4,100 units. So 85% of the units have already been sold. And now the collection is on as the construction is moving forward. In fact, Suntec Westworld, as we receive OC, there will be significant collections, which will be coming into the company from the sales already done. Secondly, for ODC, Suntec City Avenue 1, Avenue 2 And Fourth Avenue projects have been launched, where the total number of units is close to sixteen seventy five units. And out of that, 1,000 plus units have been sold. So balance, $106,100 units can give me close to another INR 1,000 crores in the coming years as and when the sales is done. So that is the update that I can provide you right now. And construction, again, I want to highlight construction in all the three projects that is or the two projects basically, Second Avenue and Fourth Avenue is moving in full swing. So when do we expect to complete the OBC 2? Sorry. Which which project you're talking? Avenue 2. Avenue 2. Avenue 2, we are looking to deliver in next three to four months. And lastly, when can we expect any further launch in ODC? So you may will definitely looking at some launch because we want to do a big sale once again in this year. We can see that happening very soon anytime. Thank you. We would respect the current participant to please come back in the question queue for any follow-up questions. The next question is from the line of Sameer Baisiwala from Morgan Stanley. So is it possible for you to talk a bit about the new project acquisition? I think it's a, you know, great job done with Bussai, Watson, etcetera. But what's the visibility going forward? You know, are you in discussions with quite a few, you know, these are city center or more suburban? Just some color would be very useful. Hi. Good evening, Sameer. So, Vince, obviously, Waseem, Ashin and Purivoli, it's Purivoli SK resort. I think it is one of the very prime locations, and it gives almost like a 25,000 per square feet price in that micro market. So I think this is something which you will get in anywhere in West, do not get very easily in Western Suburbs. I think we going forward, we are in talks with at least three to four. We are actively negotiating the deals, and these are all across, I can say, MMR region. This is not like only suburbs or a distant suburb. These are all obviously in MMR region, and these are some some towards the city, some in Western Suburbs, and some in Eastern Suburbs. Okay. Great. And just on your unsold inventory in BKC, so now that COVID is behind us and, you know, stock markets are doing well, which just means the wealth effect is good. So are you seeing a pickup in inquiries, in in visits? Do do you have some sort of, you know, order book or or equivalent to say that, you know, now you can have a quicker, you know, turnover over there? Yeah. We are pretty confident, Samik. We know that we are all concerned about this such a big inventory. We are all looking forward and putting our best foot forward to see that this can be exhausted in ASAP. This can be exhausted. Okay. Great. And just for the two BKC junction commercial projects Yeah. Is it too premature to start the conversations on the sale? Well, I I think it's on the sale model. So is it strata based, or is it one or two large people who you'll sell it down to? And is it premature for that discussion, and you will be looking to do it later, or any visibility on the demand over there? So, definitely, we are just waiting for this COVID to stabilize or just another three to six months because at least the project is ahead for at least twelve to eighteen months to complete the projects, both the projects at PKC Junction. So we are looking three months, four months from now where we can look we have all the options open. We are not rigid on that we want to sell it or we just don't want to lease it or we can lease it, we don't want to sell it. We are open to all the options, whichever gives the best value to the company, we will be opting that. Thank you. The next question is from the line of Pritesh Shaikh from EDWise Wealth. Please go ahead. Yes. Thanks for the follow-up, Pritesh. Again, on your launch pipeline, so can you plan your next phase of, ODC and Naikaa project? And considering how the, raw material prices have increased, so are you planning to take any, price hike across both these projects? So, Pritesh, basically, the prices have only formed up in last three to six months. We all know that prices have only formed up. So and, fortunately, in Bombay, we are only operating in MMR regions, but where our average selling price is not less than $1,516,000 rupees a square feet. So the raw material prices, which is seen as you mentioned, which which is negligible in terms of the entire real estate value. So, it is not that if you are selling a 11,000 rupees product and the real construction cost is itself 2,000 rupees of square feet, so that that gives the real pay. But in fact, I have made clear in my opening remarks that, in fact, our EBITDA margin, what we are looking at last few years to 25% Just put me back on the problem. We will be looking at 35%. Our EBITDA margin at 35%. So we we are not worried about small rise in the price. And also, the measures which have been taken, I think, during the COVID to cut down the cost and strongly manage the cost control, I think that will pay a lot in offsetting the pricing steel and cement price. Okay. Thanks. And just one clarification. So in your current presentation slide, just hold on, slide 31 where you mentioned that your finished inventory for Signature Island, Isles and Pearl BKT so sorry. Sorry. I got that. I think that is on my side. Okay. Great. Thank you. Thank you. That was the last question. I would now like to hand the conference over to mister Ketan, chairman and managing director for closing comments. Thank you all for taking all the time from your busy schedules today. In case if any of your queries have been left unanswered, you can get in touch with me or my team. We look forward to your continued support. Thank you once again for joining us today, and please be safe. Thank you once again. Thank you. On behalf of contact that concludes this conference.