Ladies and gentlemen, good day, and welcome to the Ashiana Housing Limited Q2 FY 2023 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Binay Sarda from E&Y. Thank you, and over to you, sir.
Thanks, Lisa. Welcome, everyone, and thanks for joining this Q2 FY 2023 earnings call for Ashiana Housing Limited. The results and the investor presentation have been mailed to you, and it is also available on the stock exchange. In case if you do not have a copy of the same, please write to us, and we'll be happy to send it over to you. To take us through the results for this quarter and answer your questions, we have today with us Mr. Varun Gupta, full-time Director of the company, and Mr. Vikash Dugar, the CFO. We'll be starting the call with a brief overview of the company's performance for this quarter, and then we'll follow it up with a Q&A session.
I would like to remind you that everything said on this call that reflects any outlook for the future, which can be construed as a forward-looking statement, must be viewed in conjunction with uncertainties and risks that they face. These uncertainties and risks are included, but not limited to, what we have mentioned in the prospectus filed with the, and subsequent annual reports, which you'll find on our website. With that said, I'll now hand over the call to Mr. Vikash Dugar. Over to you, sir.
Thank you, Binay. Hi, good afternoon, everyone. Hope all of you and your families are keeping healthy. I welcome you all to discuss the performance of the second quarter of FY 2023 for Ashiana Housing. Thank you for joining us today. To start with, we launched our first premium homes project in Pune, named Ashiana Malhar in Marunji , and achieved 80 bookings till September 2022. Phase 3 of Ashiana Anmol was also launched in the quarter, and 106 bookings were achieved in the quarter itself. Area booked increased to 4.9 lakh sq ft in second quarter, vis-à-vis 3.34 lakh sq ft in the first quarter. Value of area booked went up to INR 240.19 crores, versus INR 152.14 crores in the first quarter.
There was an improvement in realization price at INR 4,904 per sq ft in the second quarter, as compared to INR 4,557 per sq ft in the first quarter of the financial year 2020 to 2023. This improvement was driven by both increasing prices across projects and change in mix towards higher price projects. We handed over 2.07 lakh sq ft in second quarter, out of which 1.63 lakh sq ft was delivered in Shubham Phase 3. This was against a delivery of 2.11 lakh sq ft in the first quarter of the current financial year. Area constructed was at 4.38 lakh sq ft in the second quarter, vis-à-vis 3.85 lakh sq ft in the first quarter.
Total revenue increased to INR 91.72 crore in the current quarter, in the quarter gone by, versus INR 81.22 crore in the first quarter. Total comprehensive income was recorded at INR -1.31 crore in second quarter, FY 2023, vis-à-vis positive INR +10.29 crore in quarter one, FY 2023. Pre-operating cash flow was at INR -1.05 crore for Q2 FY 2023. However, cash flow from operations for half year ending 30th September remained positive at INR 26.67 crore. On this note, I would like to conclude my remarks. We will now be happy to discuss any questions or suggestions that you may have. Thank you.
Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question, may please press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is on the line of Himanshu Pandey from O3 Capital. Please go ahead.
Yeah, hi, good afternoon, and congratulations on Ashiana Amara. Very pleasant surprise. So my first question is on this Ashiana Amara only, the Gurgaon launch. You have done 20% of sales in that project in the initial launch itself, okay? What will be your thoughts on next phases? Would you like to take more time, or do you think that right now the things are very good and everything, and hence you'd like to launch another phase of similar size? So just give some thoughts on that, how are you thinking and how are you planning on the project, just to understand your mindset.
Hi, Himanshu, thank you. First, I would like to correct the name of the project is Amara, so Ashiana Amara. On the second note, yeah, we are evaluating as to what to do, okay? The market is very dynamic, so we are in the process of evaluating whether we should launch a phase right now, should we delay? I think those deliberations are going on. We don't have a specific answer to that. As I said, my view is, the market in Gurgaon should remain good for a while, and as I've been evaluated, elaborating earlier also, it's continues to be, not having much supply in the group housing segment.
I don't see much of it coming because of the regulatory situation there, with effectively no new group housing licenses for a bit. So more supply is coming in either floors or plots, and therefore, I think the market should remain good for a while. So, we'll take a call as we go along. But I think we should. You know, typically, we have liked to launch phases with a gap of 6-9 months, and I hope we are able to sort of maintain that gap.
Okay. Second was on Ashiana Malhar, okay? The Pune launch.
Right.
After a considerable period of time, we launched the project, but and we had around two months into what performance we can see, okay, on the PPT. So it seems we sold around one third of the project launch, okay?
Mm-hmm.
So what is your sense about that market? And when we look at Gurgaon, it was a very splendid success, I would say. Here, it seems it is slightly slower than that. So because this market is slower there, or you think... What is your assessment of this project?
Well, so, so Himanshu, two things. I think, A, the market in Pune is a lot more competitive, a lot more dynamic, with a lot more supply in the market in the first places. As I said, in Gurgaon, the supply is constrained, so there is less competition, from that perspective. So that definitely, helps. But I think also, to the context that, you know, we have done one project in the Gurgaon market, in Ashiana Mall, in Sohna. We've been present in NCR for 50 years. People know us from our senior living developments or other developments in Delhi. So overall, the reputation that we carry and the brand that we carry in Gurgaon is far superior to what we carry in Pune.
So in Pune also, you know, even though we've not gotten the spectacular success in Ashiana Amara, I'm sort of satisfied with what we have gotten. In our context of the market, I think we are fine. We will be able to, at this phase, sell off the phase before the phase... Our biggest aim is to ensure that we sell off the phase before the phase construction is closed, that we don't end up with sort of unsold built inventory. I think we've gotten enough over there that that shouldn't be a challenge.
One more thing. The area under construction is around 4.79 million sq ft, okay? And the area booked is around 3.7 million sq ft, okay?
Mm-hmm.
There also, Utsav Lavasa is there, but so clearly, we have only 1 million sq ft of sellable area under construction, okay.
Mm-hmm.
Are we satisfied with that number, let's say, if we want to have a 3 million sq ft of target, okay?
Mm-hmm.
How do you look at that figure, and what should be a sustainable number you would like to have? Because-
So, two things, Himanshu. First, I will tackle the question, one, is what—where is 1 million? So I'll just say that, you know, we are looking to launch another 1.5 odd million sq ft in the second half of the financial year, of which Ashiana Amara has, is one part which has been launched. Ashiana Advik also is in that, in the launch phase. Right now, we, we're looking to launch a couple of phases of existing projects in Umang and Dwarka. And, Ashiana Prakriti in Ekansh is also up there. So we will be adding to this.
We definitely, some of it will get reduced because they'll get handed over, but I think net additions will be more than the net reductions in the second half of this financial year, and then we will look to add more as we go along in the next year as well. We have projects lined up to launch. We'll have four projects lined up to launch in the next financial year as well, out of the stock that we have already today, and some phases of new projects will come in. Like, you know, we'll definitely want more phases of Ashiana Amara to come in, more to come in of Malar. So we will have a lot more launches coming in.
That said, what I would say is that, and I said earlier, we are going to focus the company on return on equity and not necessarily top line. So, I think a large part of now the focus of the company is not just getting volume, but is also getting price and margins and realization, and we're focusing on improving the same. Like in Amara, the most pleasant thing wasn't just selling the entire volume out. The pleasant thing was achieving a price north of INR 6,000 a sq ft on sellable area. And I think that's what the company's focus will be as well. So I think we're looking to manage both.
That said, right now we are on track for about 2-2.5 million square. We're talking about INR 1,100 crore this year. I think we are on track to get to INR 1,100 crore of area booked this year. We need to keep ramping that up. And I think, you know, right now there is organization capacity in the market to ramp that up. I think the big challenge that we face is getting new projects. I guess land prices have become extremely high. Fortunately, we have four projects to launch in the next year, and we are on the lookout for more, and figuring out how we can stitch together transactions that make sense both for the landlord and for us.
Just a follow-up. See, like we say, that land is a raw material, we have a target inventory of 5-7 times its,
Mm-hmm.
Current year execution plan, okay?
Mm-hmm.
In terms of having an area under construction, okay, and sellable area under construction, do we have any targets on those figures also? Or it would be always launches will equivalent, be equivalent to what sales we are doing?
Roughly, once you look at the sellable area, when, where turnaround time on average of, what? 24-30 months. And therefore, it's like, you know, I would say whatever we want to sell annually, we need to have about, 2-2.5x of that, under the total sellable area. That's what's going to drive that. I think that's. And with the view that we sell everything out by the, when the phase closes, and we develop, during that execution. That's going to be how it's going to play out.
Yeah. Thank you. I'll join the thank you for further queries.
Thank you, everyone. Cheers.
Thank you. A reminder to the participants, anyone wishing to ask a question, may please press star and one. The next question is on the line of Rohit from Marshmallow Capital. Please go ahead.
Thank you for the opportunity and great set of numbers. So curious, because, I mean, we quite clearly seeing good momentum. So, the nature of the business that we lock in the sales price today, and we'll know the cost only down the line. So, how do you think of commodity prices, if they escalate or something like that, in terms of the prices which you sold the projects today, you know, in the main ones like Malhar, Amara, et cetera?
So, I have elaborated this on this, Rohit. I think a lot of this is. And, I think what really matters to us is margins, right? At the end of the day, that we make, right. And I've elaborated this on this earlier. Transactions that we have done post 2015, generally, except for Malhar, where margins are short, okay? Everywhere else, I think our margins are good. And whatever price increases we are doing more than sufficiently covers the construction cost estimates. Like, Ashiana Amara was underwritten at a much lower price point that we have sold at. And I think the increase that we have gotten will more than cover any further increase in commodity prices than what we had expected it to do.
Malhar, as I said, is a thin margin project. We don't have high kind of margins there, so those are hurting. Ashiana Anmol, similarly, is a low margin project. Increasing prices is not covering sort of the increase in construction costs that we have seen over there. But that said, all sort of newer projects that we have launched, Ashiana Adwik will be fine. We launched Ashiana Amantran post this, we are fine. Ashiana Seher, Ashiana Aditya, we are sort of fine. So, and the pre-2015 deals, like say Ashiana Tarang or Ashiana Dwarka, we still have a little bit of a chance. So I think that's where how I will sort of put those things together.
We have more projects to launch, which have been done post 2015. The four more projects. I think, my view is overall, that we are in a margin expansion zone on what we are booking today. So when these, when these bookings get recorded for revenues in the company, our margins should have expanded from what we are today.
Perfect. So second question on Anmol and Gurgaon. So you mentioned that Gurgaon is doing well with limited supply. So in that context, with the phase launch, it was quite a large phase launch, and it sold 1/3 there. So how do you feel, I mean, how... In your view, is that something that's extremely satisfactory?
Yeah, the traction on Ashiana Anmol is more than satisfactory. We've selling very well, month-on-month. I think October sales also went well. And we are more than satisfied with the traction at Ashiana Anmol.
Perfect. So you've mentioned that, I mean, post 15, for 3-4 years, we're looking to solve some of the errors in decision and judgment or mistake that we made. It took 3-4 years, and last 1-2 years, we've been focusing on growing the organization to scale it up to the next level. Just curious, so we know that you've focused a lot on sales, on improving sales, and taking back the organization to the next level. So what would be the next things you think you should focus on over the next 3-5 years?
So I think the big focus now would be, as the organization grows, is to preserve and perpetuate the culture of the organization. I think that has kept us in good stead before, in terms of, you know, being ethical, being customer centric, having a certain set of values in the organization which drives the culture of the organization. I think perpetuating that and taking that further as you grow in size and number of people and locations and diverse, I think that's going to be the key sort of focus of the organization. I think that's where I think we'll put a lot of energy behind as a team.
Fair enough, sir. That was helpful. Last question from me, I just—it's probably not relevant for now, but just want to hear how you think about it. Is, I mean, especially over the last few calls, the focus on return on equity. So in that context, just curious to know, how do you think of buybacks as—because that's a way to shrink the equity and thereby drive the return on equity as well. So just curious to know how you think about it. Is that something that makes sense for a real estate company at all?
I've been trying to wrap my brain around it myself. Personally, it's one of those things which are a little bit more difficult to understand. So, the buyback scenario of shares, we've not been able to wrap our head around it, as to how it will work. I think that's the key aspect of it. There are some heavy transaction costs in India by way of tax, I believe, as well, as compared to ... So we just want to also evaluate whether deploying this capital into growing the business is a better opportunity than buying back the shares of the company. I think that's our only kind of a discussion that there is.
So yes, we have evaluated it, but right now, we just, we're trying to wrap our brains around all these things.
Thank you so much.
Sorry.
Yeah, yeah. That's a very helpful answer. Thank you so much. I'll get back into the queue.
Thank you. Thank you.
Thank you. The next question is from the line of Harsh Beria, a professional investor. Please go ahead.
Hi, am I audible?
Yes, yes, sure.
Hi, congrats for the great pre-sales numbers this quarter. I think I joined a little bit late in the call, and I missed some announcement about your Amara project. So, if you don't mind, can you repeat that?
Okay. And I'll repeat the name also, Ashiana Amara. So, but I think people have a little bit of a challenge pronouncing it. We'll be careful also next time, but this time it is the Ashiana Amara. We launched Phase 1 of 224 units and sold the entire Phase 1 this year itself or at launch itself, Harsh. So the next question was, when do we plan to launch Phase 2? We are sort of evaluating when to launch Phase 2. We are not sure whether to do it right away, whether it will take some time. And generally, we have a 6-9-month gap between the phase launches. We are just evaluating what to do in this project right now.
Okay. Congrats for the sales in the Phase 1 itself. I remember like a couple of years back, we kind of had the same situation in one of the projects where we sold at, like, at launch all the inventory. And you guys have mentioned that this might not always be the best strategy because there can be inflation issues over the construction life cycle of a project-
Yes.
- and you want to keep some inventory available, at the time of delivery itself, because you can get higher prices. Has there been a change in the thought process about that?
No. So I don't think that was completely true. So let me put it this way, even before we said, yes, inflation is a risk that one should be careful on. That was the other question that came in today. So one way to mitigate inflation risk is, you know, if you launch and you're not able to do construction, that's a big concern, okay? And in one of our projects in Ashiana Amantran phase two, particularly construction started late because of the sequence of work.
As compared to Ashiana Daksh, which was also sold off very well, or Ashiana Aditya, which was sold off very well, construction cost side risks were much lower because we started our work, and, you know, the timelines were much shorter for costs to catch up on, and then we used that time to do work. So I think and that part remains absolutely clear, that what we don't want to do is launch, sell, and then sit on it and not build. I think, you know, then we expose ourselves to sort of different types of cost risks to a different level altogether. I just also tackled that question earlier when... So I'll keep it short now, you can have the transcript earlier.
But my view is that overall price increases that we have already gotten and that we expect to receive in the future, in the future phases or future stock to sell, will lead to margin expansion and should cover the cost of construction. And I see overall margins from what we are selling this year, which will get reported for revenues, in general, overall, to be better than earlier. Except, you know, I had said, Ashiana Malhar and Ashiana Anmol are places where margins are going to be constrained and challenging.
Okay, makes sense, and thanks for the clarification. I was looking at the due diligence slide of Ashiana, and I see that both the Jamshedpur projects are supposed to have customer delivery in FY 2023 itself. Is the construction on track, and are we expected to book the revenues in FY 2023 itself for the Jamshedpur projects?
Well, Ashiana Aditya phase one and Ashiana Seher, which is here, it is on track, and we should be able to book the revenues. Unless and until, you know, sometimes we have these. What happens for us to do our deliveries, we have to get occupancy certificates and lots of permissions from the government, including a fire safety permission, a completion certificate, occupancy. These things can, you know, go, you know, two, three months here or there is not something we can control, and it can spill over to another quarter. We keep correcting for those in some projects that might have happened. But, I'm pretty sure that Ashiana Sahar and Ashiana Vispa phase one, we should be able to deliver this year.
Okay. So the construction-wise, it will be delivered, and there can be some delays in the final approvals from the government, which is beyond the control of the company anyway.
Yeah. So but we can't hand over and book revenues without those approvals in place, right?
Correct.
But that said, I think we should get those this year as well.
Makes sense. And one small suggestion, I heard a discussion about buybacks. The next time you're considering a buyback, maybe do it at the same time when you guys were buying shares in 2020 March or April, because that would have been much more value stick attractive for everyone.
Fair enough, thank you for that suggestion. So one thing that I get from you is for the buyback to be efficient for the company, the share price is up, deliverables. The lower the share price, the better it would be to execute a buyback on. And I would just repeat, I still haven't wrapped my head around this conclusion yet.
Yeah.
We need to evaluate and learn from others and get some advice, if that's the right way to put it.
Yeah.
Thank you.
Just a small follow-up on that. Like, if you have a tender-based thought process, then it makes sense to do it at a fair price. But if you are planning to do a buyback in open market route, maybe it makes a lot of sense when we are below book value.
Okay. All right. Fair enough. Advice heard. Thank you for the guidance.
Yeah. Thanks a lot.
Thank you. The next question is from the line of Ankur Jain, an individual investor. Please go ahead.
Yeah. Hi, good evening, Varun.
Good evening, sir.
Yeah. So a few quarters back, there was this, you know, term sheet we signed on the land in, I think, Noida or Greater Noida, for a senior living project. So I just wanted to know what's the progress on that? And if not that land, or as a company, are we still looking for some senior living projects in that area?
No, with that term sheet fell through, Ankur, and we are not evaluating Noida, Greater Noida at this moment of time for senior living. And we find the market frothy in terms of land prices and challenging in regulatory. So we have decided not to evaluate for that right now.
Okay. And any other city, apart from, for senior living, apart from Bhiwadi, Pune, and Chennai, are you scouting for any other city?
We are evaluating. So we are in the process of selecting where, which way to go. So we are evaluating Mumbai, Bangalore and Hyderabad, but it's very nascent, so it will be hard to comment where we're going. But demographically, we want to be in the west and the south. I think, for senior living, that just makes sense from a population demographic perspective.
Okay. So you said, I mean, it is still in the nascent state, but can, I mean, any location which can be locked in, can we expect something in the next financial year, or can it spill over to even after that?
No, probably, we will get a deal in the next financial year, and the launch will be after that, for sure. But I don't think we'll even get to a term sheet stage before the next financial year. In this, I think, we're just early in the evaluation stage of what to do, what to do.
Got it. Okay, thanks, Varun. I had only that question. Thank you.
Thank you. Thank you.
Thank you. The next question is from the line of VP Rajesh from Banyan Capital Advisors. Please go ahead.
Hi. Thanks for the opportunity, and congratulations, Varun and Vikas. So first question was just on the launch of Amara. Are you seeing the return of real estate investors back into the market in Gurgaon or in other parts of the country where we are doing projects?
I don't have data with me to comment on this. Vikash also shaking his head whether it's investor or end users. Our sales team is telling us that it's end users, but, you know, but this kind of traction at launch tells me that investors are back. That's my view.
Yeah, that was sort of my guess as well, because that's what I'm hearing in Gurgaon, that investors are back. So that's what I was wondering about. Okay. And then the second question is on the pre-tax cash flow being negative this quarter. Anything you want to call out on that? Because you were obviously had a robust cash flow in the first quarter.
Yeah. So the reason of a negative operating cash flow this quarter, VP, is that, although there was some improvement in collection, but that was more than offset by higher construction cost, which was due to execution commitments and all. Plus, we had certain expenditure on marketing, sales and marketing side as well, due to a couple of pre-launches. You know, the kind of expenses that we incur typically during pre-launch, like Ashiana Malhar, Ashiana Amara.
Mm-hmm....
And, Pune again is altogether such a new market, so we had certain costs entered out there. So that was the reason, no, no other reason as such.
So I think, yeah, so basically, VP, I think the first quarter was, the second quarter was an aberration, overall, because, you know, constructed area went up, by, like, by about 12, 13% from the first quarter. It also, collections decreased a tad bit from the first quarter because the sales was more back-ended to the end of the second quarter and now and more to the third quarter. And, you know, to put these years together, we had to do a lot, some marketing expenses, some even construction, you know, getting a sales office ready, a show flat ready. A lot of those things got loaded, and the collections and the cash flows to those are really postponed.
It's a little bit of a quarterly aberration in my view.
Got it. And then on the ROE side, I think you were targeting approximately 10% this year. So are we on track for that as you mentioned you can achieve?
So, yeah, on a reported basis, I honestly don't know, VP, again, you know, slippages of a delivery 2-3 months here or there can move things around a little bit. Internally, we don't track on a reported basis. We have an economic basis for tracking. Economic basis, ROE should definitely cross the double-digit threshold this year. I don't think that's a challenge. I think aspirationally, we are looking to get to 15% and over, that does remain a little bit of a challenge on an economic basis. But I think, if we are, you know, if we concentrate our focus and energy that we have done, the way we find a way to get there.
The good news has been the improvement in ROE has been on track, I would say.
Right. Right. No, that's wonderful to know. And then lastly, you know, you spoke about 1,100 crores of top line, this, not top line, but the sales this year. So any, any guidance for next year with more launches planned, et cetera?
No, not yet. We do not--we don't have a guidance for next year. I think, we're still working on the same, together. But again, you know, I think the focus, as I repeated earlier, is going to be ROE. So I might be even happier with a little lower numbers in this year, as long as we are able to improve margins by improving prices. I think, so I think, I'll, we're going to focus on margin expansion as well, I think.
Okay.
I think the projects with the increasing contribution coming from geographies like Gurugram and Pune. I think the mix also will keep contributing towards the higher realization. So both of them, and very well supported due to the tailwinds that we are clearly seeing the sector. So these geographies contributing and plus a continuous opportunity to harden the prices across projects, across geographies in general, also.
Yeah. No, actually, because that was my next question, that your realization seems to be moving up nicely every quarter, up nicely every quarter. So is that a now a structural change because you'll be doing more projects in Gurugram and Pune?
Yes, it is. It's certainly a structural change, because in the larger scheme of things, from a long-term perspective, we are kind of looking at increasing our presence in geographies like Gurugram, Pune, which are certainly higher realization markets as compared to our historical averages. Because... and even if you see in general, we see the prices moving north, like most of the geographies, if you see, maybe with here and there exception of maybe premium homes in Delhi, wherein still they are at a sub-INR 4,000 level. But talking in general, whether senior living project or geographies of Jaipur, Gurugram, Pune. Gurugram, Pune clearly above INR 5,000, and in fact, Gurugram more than INR 6,000 now.
Jaipur also in general, we see crossing INR 4,000. In markets of Chennai, also in senior living projects, we see north of INR 4,000. It's quite secular if you talk about the price increases.
No, that's good. And, lastly, what's the competitive intensity in Pune? Because everybody seems to be announcing projects there.
It is very high intensity vs. in premium homes, same premium, but senior living. So senior living will be a, we feel that it will be a little different ballgame in the sense that there we have got more stickiness as far as the brand is concerned. And the customer segment is a little different in terms of decision making, in terms of their aspiration for our kind of brand and the kind of location that we go look at. So there we feel that the competitive intensity will be less, vis-a-vis the premium housing.
We are doing both types of projects over there, correct? Or we plan to.
So, we have a premium housing launch, VP, and we are in the process of launching this senior living project in a place called Varale near Talegaon, sort of close to Pune, but on the way to Bombay.
Right. But what I'm trying to understand is that going forward, as a part of our strategic direction, we will do both types of projects in the Pune area, right?
Yes, yes. Yes.
Understood. Okay, great. Thank you, and all the best.
Thank you.
Thank you. The next question is from the line of Anuj Sharma from M3 Investments. Please go ahead.
Yeah, thank you. My, my question is on land prices. You know, I think, land prices were running a bit, faster than, historical averages, and you just alluded that it continues. So, you know, on a thumb rule basis, because you believe it's an upcycle, what's the thumb rule for land prices that you would want to continue? Because on the realization, you believe you'll be able to cover it up.
Yeah. So the thing is, we don't want to be very aggressive on underwriting land prices, that the sale prices will improve. I have a view on a bull market, that the bull market is there, but, you know, I, I've been wrong on many things many times. So, so the question on the land price is that we will look for places where it makes sense on the current sales price that we see in that market. And then, you know, and then, if, if it goes up, great. If it goes down, not so good. But, you know, there is still some more protection than if you, you know, it, it, it has to go down from the current land, current sales price and not from the expected future increased sales price.
I think, so the real challenge is, how do we get land with a reasonable set of assumptions? By being aggressive on the assumption, land prices will totally make sense today. I think it's, what do we do that with reasonable set of assumptions, we are able to find deals which are win-win both for the landlord and for Ashiana. I think that will require a place to find pockets where we believe because we are Ashiana and the brand we have, and the development we do, and the kind of development we'll do, we'll be able to fetch a higher price than the market in general. So it's not a call on whether the market will run up or not.
It's a call where we believe we can create a lot of value. Yeah. I think that's the focus area and finding partners. So senior living is one way, you know, we believe senior living has less competitive intensity, so it can find better value. Some places where we have better brand or, you know, in Jaipur, let's say, we can take a call in certain locations, we'll be able to sell better, you know. And that's the important perspective that we have.
Sure, sure. And just, just a related one. So, you know, is there any modeling you would have done that maybe 20% or 30% as a raw material of land is good enough for you? Or does it vary region by region?
Say that again, please.
So, you know, based on the current realization, if you believe that the land is maybe costing you 20% or 30% of your total realization value, you'll go ahead. Is it based on some financial modeling or historical averages, or it will be location to location, in terms of your...
Location to location is deal to deal, and based on certain set of assumptions, where we don't go into historical averages and, we say, "We can sell at this price. This is what our cost of construction and others will be. If we give this, let's say, share of revenue to the landlord, we'll be stuck with this. Is this margin workable or not?" And in those, and when we are calculating this, are our assumptions on construction cost, marketing cost, overheads, and our sale price, are they reasonably conservative or not? But the common thumb rule is that we try to look at a GP margin at a standard of 30% as a number across markets.
Across markets, the realization price and the land price might vary, but 30% is the kind of benchmark that we look at while we are underwriting the projects.
All right. And one last question, please. You know, land prices in a region or in a city will move en masse. So, you know, is it that we go further away from the parameters of the city, wherein we can find a better realization? Is that one of the thought process, or you believe within the city also there might be projects which are... I mean, what could be the reason that one parcel would be cheaper than maybe next to? Where can we find this arbitrage?
The arbitrage is found in places where others are not willing to go.
Okay. Okay, okay.
I think you create some value in terms of open spaces, in terms of quality of product that you are able to provide, timely completion, and all those kind of lifelong facilities management, those kind of benefits that you provide, and you are able to command a good pricing from the customer.
Sure. Sure. Thank you.
Thank you. The next question is from the line of Rohan Advani from Multi-Act. Please go ahead.
Yeah, thanks for the opportunity. My question is to Varun. Varun, you spoke about, you know, return on equity and that you want to get to double digits, but you said you are not looking at reported return on equity, because I understand it's, it's really, you know, there's a lot of noise in that. You said you look at the economic return on equity. Can you just share how you calculate that and how—what do you use as the numerator and denominator to gauge that?
Our denominator is equity of the company's book network. Yeah.
Okay.
It's difficult to adjust. For numerator, we have a way to calculate economic profit, which is based on, you know, how much area we have sold, how much area we constructed, what our cost of construction is coming, what our sales price is coming. So we estimate volumes based on that, and, margins based on that, and calculate an economic profit, basically. We have a whole system of doing this.... So we have a little bit more regular, MI sales.
Okay, and, and that would be based on what you are selling this year and not what is a reflection of what you actually sold two, three years back, and that is the real difference?
It could be either way. It's a reflection of what we are selling this year and what we are constructing this year. So if we have sold this year and not constructed it, we look at it when we actually build it out. Not exactly delivery, but we have a equivalent area constructed, you know. So, you know, if we sell this year and we don't build anything, I'm not gonna capture all the volumes during this year. So the idea is that the sales and construction, both of them have to move in tandem. You can't be in a situation wherein you construct and are unable to sell, or you kind of a scenario wherein you get the orders just like in a factory or you get sales and you don't construct.
So both of them have to more or less move hand-in-hand. So we have a way to estimate this by choosing both of the two things together.
Okay, got it. That was my only question. Thanks, and all the best.
Thank you so much.
Thank you. The next question is from the line of VP Rajesh from Banyan Capital Advisors. Please go ahead.
Yeah, just, couple of follow-ups. So I noticed that your JV project pipeline seems to be drying up, so any particular trend underlying that? Or is it just people are finding easier to sell their land, or you are shying away from doing the deals? If you can just comment on that.
No, most new transactions since COVID, we have done 7 transactions, JV, and of those 7 transactions, 4 have been pure-play revenue share JVs, whether it's Ashiana Ekansh, whether it's in Jaipur, the other project, whether it's been Ashiana Malhar in Pune, Ashiana Amodh in Pune. You know, they've been revenue share transactions. And even the two, three that we have bought outright, 2 in Chennai and 1 in Gurgaon, the 1 in Gurgaon and 1 in Chennai has been bought on the IFC platform. So effectively, you know, it's not like we are putting in 100 we are buying 100% and putting in complete equity and on that.
And the third project, which is Maraimalai, is structured as a profit share, and it's along with Arihant Group, and we've bought the land together. So sort of, you know, we have a local partner there as well. So we haven't actually gone ahead and bought completely out, outright and 100% equity contribution of Ashiana in any of these transactions, actually.
So maybe I misunderstood the line, but if you look at your quarterly sales trend slide, the area sold or for that particular for the joint venture land is 0. So that's why I was wondering what's going on.
Yeah, yeah, because they're those joint ventures or profit share joint ventures, actually, most transactions have moved to revenue share structures. So now we're doing-
Okay.
- preferably revenue share joint ventures, and that's why the movement. In revenue share joint ventures, an entire top line gets captured into our P&L.
Got it. Got it. And then the other question was that, you know, given all the land bank you have, and some of them is obviously not usable, so what is the realistic inventory we have for... How many years do we have the land inventory?
Yeah, so you know, when we look at things, we ideally want to reduce the land inventory to as quick a cycle as we wish, right? If you want, then you want and you want, and while you want a little bit more because it gives you a little bit of room to do work. As of now, I think we have about 5-7 years of work at the current pace that we have. We have 1.04 crore in future projects, which basically means, you know, the land available for future development, which might be a little bit more dicey or not so stuck in those or little too early in the stage.
If I exclude that, we have 1 crore and 4 lakhs, and we have about 10-15 lakhs to sell between ready projects and ongoing projects. So about, we have about 1 crore and 12 million sq ft. So at about 2.5, maybe 2-2.5, where we are at right now, we are running at about, yeah, we're running at about 5-6 times the pace. So as in this, this 2-2.5 million sq ft a year ramps up, which probably it would, as we look at more return, as we get the required return on equity, so I said we look at margins as well, this number might need to increase as we go.
Right. So if you bake in the growth from the current run rate, then is it fair to say that you'll be probably somewhere in the 3-4 year inventory?
Yeah, somewhere, somewhere close to four years, four, four, between four and five is where I would say where we would be. Hopefully closer to four.
Yeah. Okay. Thank you.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comments.
We would like to thank all of you for being on this call and being so patient and with all the questions and answers. If we were unable to take any questions, please feel free to write to us directly or reach out to us directly. With that, we would like to conclude the call. A lot of the material we have spoken about is posted on our website, and you can also email your queries for any further clarification. Thank you once again for taking the time to join us on this call.
Thank you. Ladies and gentlemen, on behalf of Ashiana Housing Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.