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Godrej Properties Ltd
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Ladies and gentlemen, good day, and welcome to the Godrej Properties Limited Earning Conference Call. [Operator Instructions] Please note this conference is being recorded.I would now like to hand the conference over to Mr. Devrishi Singh from CDR India. Thank you, and over to you, sir.
Thank you, Janice. Good afternoon, everyone, and thank you for joining us on Godrej Properties Q2 FY '21 Results Conference Call. We have with us Mr. Pirojsha Godrej, Executive Chairman; Mr. Mohit Malhotra, Managing Director and CEO; and Mr. Rajendra Khetawat, CFO of the company. We would like to begin the call with opening remarks from the management following which we will have the forum open for an interactive Q&A session. Before we begin this call, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the results presentation e-mailed to you earlier.I would now like to invite Mr. Godrej to make his opening remarks.
Good afternoon, everyone. Thank you for joining us for Godrej Properties Second Quarter Financial Year 2021 Conference Call. I'll begin by discussing the highlights of the quarter, and we then look forward to taking your questions and suggestions.I hope you and your families are staying safe and doing well. The current pandemic situation continues to pose challenges for India and the world and has substantially impacted economic growth around the world this year. While the number of cases in India remains elevated, the trajectory seems to be moving in a positive direction and the economy has now substantially reopened. Most of our employees continue to work from home and have done a great job ensuring our business continuity is maintained despite the current constraints.The pandemic has resulted in clarifying the value and security that homeownership offers, which bodes well for the sector once people's confidence in the economy return. Decades of lower interest rates and the recent limited time stamp duty cuts in Maharashtra have made many homebuyers realize that now may be a very good time to move forward with their purchase decision. which is already leading to visibility of green shoots in the sector. After a strong start to the financial year in a tough environment, we had a mixed performance in the second quarter.On the positive side, we maintained very strong sustenance sales, which led to another quarter with over INR 1,000 crores of sales despite most of our planned launches getting postponed to the second half due to delays in regulatory approval. The total value of bookings in the second quarter stood at INR 1,074 crores through sales of 1,373 homes, with a total area of 1.73 million square feet. For the first half, despite extremely challenging market conditions, we managed to sell 4.2 million square feet of real estate worth INR 2,605 crores, which represents a year-on-year growth in booking value of 11%.Given our exciting launch pipeline for the second half, we remain confident of a strong sales performance in the rest of this financial year and expect full year sales to surpass last year's performance. On the operations front, the construction activity has resumed in all sites across the country, and we've managed to increase our workforce strength to significantly above pre-COVID levels ahead of expectation. We also delivered approximately 2.9 million square feet across 3 projects in 2 cities during the second quarter. During this quarter, our total revenue stood at INR 238 crores. Our adjusted EBITDA was at INR 82 crores and net profit at INR 7 crores. For the first half, our total revenue was INR 403 crore, adjusted EBITDA at INR 126 crores, and we reported a net loss of INR 12 crores. With construction activity picking up across our sites, we managed to report a positive operating cash flow of INR 14 crores in the second quarter. And we do expect to start reporting much higher cash flow numbers from the second half of the financial year and have already seen in October operating cash flow substantially improved from first half levels.From an earnings perspective, the outlook for the current financial year is poor with limited project completion due to the huge construction disruption faced in the first half of the year. We expect earnings to normalize in financial year 2022 and to sharply grow in financial year '23 given expected project completions that year. Basis our current visibility, we do hope -- we continue to hope to hit our goal of 20% ROE either in financial year '23 or financial year '24. From a business development perspective, we added a new project in Kalyan to our portfolio, which offers a salable area of approximately 1.5 million square feet and fits well with our strategy of deepening our presence in key markets across India's leading cities. We also acquired a well-located land parcel in Sarjapur, Bangalore in October, which offers a salable area of approximately 1.6 million square feet.Lastly, we migrated to the Integrated Township Policy from the existing Special Township Policy for Godrej City, our project in Panvel, and consequently the potential salable area for this project has nearly doubled from 4.3 million square feet to 8.2 million square feet. We have strong visibility in new project additions in the second half of the financial year. The pandemic has forced the sector to change legacy business model, go digital and has been yet another force driving industry consolidation. This has created significant amounts of opportunity for Godrej Properties to sharply increase its market share. Our focus is to emerge stronger from the crisis as the sector recovers and to position ourselves for rapid growth in scale and earnings in the years ahead. On that note, I conclude my remarks. Thank you all for joining us on the call. We'd now be happy to discuss any questions, comments or suggestions you may have.
[Operator Instructions] The first question is from the line of Abhishek Bhandari from Macquarie.
Pirojsha, my first question is on Slide #22, which is the cash flow statement. So if I look at this quarter also, we had almost INR 700 crore of cash outflow for land and approval charges. Can you just clarify, is this inclusive payment for both the lands what we have purchased this quarter, which is be Kalyan and the Bangalore land?
Yes. For Kalyan, we had made a major payment. This includes installment of Ashok Vihar, which is around INR 225 crores to INR 250-odd crores. Plus, it was -- there is a Faridabad land payment around INR 200-odd crores, which [ is signed ], but since we make payment only on completion of a milestone or the CP, those CPs got completed in quarter 2. So major outflow has happened towards that. Hello? Abhishek? Hello?
Sir, just allow me a minute.[Technical Difficulty]
Hello?
Hello.
Mr. Puneet Gulati, you may please go ahead with your question, sir.
My first question is, if you can give some more color on the sales in terms of how much was investor-driven, essentially NRIs? And any other comment that you want to make, given the fact that both 1Q had pretty much one launch and 2Q had none. And despite that, 1Q in a tougher environment was better in terms of sales versus 2Q. If you can give some more color there, it will be helpful.
Yes, sure. I think a couple of things on that. I think as you know, in the first quarter, in particular, we had also rolled out the 10:90 payment plan. So I think a lot of the sales were driven by that and I think led to excellent momentum. Plus we did have the 1 launch. In this quarter, there was no launches, and we rolled back that payment plan. And I think the inventory level also after Q1 sales of INR 1,500 crores, almost all from sustenance sales, the inventory level left to sell is also quite moderate now. So I think all of that contributed. We're feeling pretty good about the overall sales visibility. I think as you would have noticed, we do still have a very robust launch pipeline planned for the second half.Some of those launches are already underway as we speak. And we expect to see very strong sales both in this quarter and next quarter. Some of the other differences worth noting in Q2 versus Q1 is we continued to see strong international sales in the second quarter, but not at as high levels as we saw in Q1. So I think in Q1, it was almost 50% of total sales. That came down to about 25% in the second quarter. But I think from a sustenance sales perspective, a quarter with over INR 1,000 crores is a decent number, we think, and we expect much higher numbers with some of the launches now planned in the rest of the year.
Would it be possible to quantify what would be your unsold inventory either in terms of area or value?
Rajendra, you want to take that?
Sorry. Can you repeat, Puneet?
Yes. What will be the unsold inventory that you have either in terms of area or in value?
In terms of area, I think around 8 million to 9 million, which is launched and unsold. In value terms, I can come back to you because those are all different projects, so I need to sum it up.
Okay.
Which is a reasonably healthy level, you know what I mean. I think that's about 1 year of sales, which is roughly -- is actually pretty healthy level to have.
Yes, which is why I was wondering as there's still a lot to sell. So lack of choice shouldn't really have been an issue here for customers.
Yes. Look, I think if we start with 8 million left to sell, we've already sold 4.5 million in 6 months in the first half in a pretty trying environment. Things could always be better. But I think from a sustenance sales, this is near sort of our best-performing levels. And typically, these quarters where we go much above this, a big contribution does also come from launches.
Right. And what is the launch pipeline? Like how confident are you for the second half?
Very confident. I think, obviously, as usual, you will have some projects filling out from 1 year to the other. Hopefully, we can have a couple pulled into this year that weren't in the guidance. So I think that risk remains. But certainly, we expect a very strong second half for launches.
My last question is on the inventory side. On the balance sheet, the inventory seems to have gone up. What is that related to? Which project is that?
I'll tell you, because since you have to account for Ashok Vihar land, so you see the inventory has gone up and correspondingly trade payables have also gone up. So while the full value of the Ashok Vihar land has been accounted, plus there is a BPTP land, which we have bought and other land parcels, which we have bought. So inventory is higher by INR 1,700 crores, but at the same time trade payables have also gone up by INR 1,300 crores to INR 1,400 crores.
Okay. Okay. Okay. Good. And the investments have gone down, investments in JVs.
So the money has gone towards funding of those BD outflows.
But that money basically should have come back to -- has come back to you or?
No. So the investment you are saying the mutual fund investment?
No, no, no. The investments in joint ventures, for example, which was -- which is INR 884.5 crores was INR 963 crores the previous quarter. It seems like some money has come back from some project.
Avinash, can you just comment on that.
Yes. Investment in joint ventures increased actually. I think you're roughing something, a wrong number. So it's increased from INR 826 crores to INR 885 crores.
The Q1 number was INR 963 crores. But okay, we can have a chat offline.
Why don't we check this and come back to you offline?
The next question is from the line of Abhinav Sinha from Jefferies.
Yes. Sir, first question on the net debt level, which has moved up. So clearly, I mean, there is some pressure on cash flows. But broadly speaking, where do we see the gearing head to in the next few quarters as some of these land payments and business development scales up?
Yes. I think, first of all, we had already guided that what we -- the reason we raised the capital we did last year was to invest in new projects. As those investments come due, we're obviously making those, and we expect to see very strong operating cash flows as these projects get launched and this cash flow starts coming back. So as Rajendra mentioned, we had 2, 3 projects in Mumbai and NCR that alone contributed about INR 600 crores, INR 700 crores of this outflow. I think we expect net debt to go to about 1:1, and that's the level that we should expected to see over the next few quarters. But again, I think the cash flow from an operating perspective we expect now will improve dramatically in the first half.The challenge was the first quarter was almost a washout from a construction perspective. Labor only started coming back strongly in the second quarter. We had a lot of sort of pre-monsoon activities that couldn't get done. So I think all of that now, we think, has settled down. Even customers were sort of holding back payments and things. Even that we think is behind us. So our expectation is that Q3 itself will see much better operating cash flow generation than in the first half, and that will continue. But clearly, the BD investments will also continue. So I think we do expect to see net debt continue to go up as had always been the intention with these investments.
Right. And secondly, on the P&L itself. So we have seen a few deliveries this quarter, right, 2.1-odd million, but it doesn't seem to have made a dent on either revenues or profitability. So how do we explain that?
Rajendra, you want to take that?
Sure, sure. So basically, what the delivery -- the projects which have got delivered, our share of profit was very less, our share of profit in the range of 22% to 35%. So obviously, the contribution was small. Plus, like we have explained in the earlier calls also, there are period cost, marketing cost, which keeps expensing out on to the JV front, so -- since there is no recognition of those projects. So those are shown as a negative. So that offsets the profit which has contributed by the 3 OC received project. Plus there were certain provisions which we have made on account of some legacy projects, basis the auditors advice. So all that has contributed to a negative quarter.
Okay. And just 1 last question, sir. On the sales overall for you as well as for some of the listed peers. Now we have seen reasonably good numbers. Do you think this is all market share gain? Or the cycle also seems to be looking better now than what it was a few quarters back?
Mohit, do you want to take that?
Sure, Pirojsha. Yes, sorry, I was just unmuting. I think the overall sales momentum, which we are seeing both for the company and for the competition, is largely market share gain. I think it's too early to say whether we are seeing any change in the cycle right now.
The next question is from the line of Abhishek Bhandari from Macquarie.
Sorry, I got disconnected at the start. So again, taking back to the land payments, I don't want the break down of the INR 700 crores. What I'm more interested, Pirojsha, is that do you expect this INR 700 crores, INR 800 crores run rate on a quarterly basis to sustain over next few quarters given your BD pipeline and some of the payments which are due for likes of Ashok Vihar and the Bangalore we've got concluded in the post Q2?
Abhishek, I think it will be up and down quarter-by-quarter depending on which milestone hit. But obviously, if we're saying that over the next few quarters, we expect to see gearing go to 1:1, I think that does imply that it will be reasonably regular BD outflows. Now in some quarters may be more or less. And I think this past quarter was obviously particularly high with 2 or 3 big payments. But yes, I do expect BD investments to be at a pretty elevated level for the next 12 months.
Sure. So on related question, Pirojsha, even if you assume 7.5%, 8% debt cost on, let's say, INR 4,500 crores of debt, which is your eventual goal of 1:1, we are looking at almost an annual interest cost of INR 350 crores to INR 400 crores. Now do you think we have enough visibility on the momentum on the operating cash flow that we'll be sufficiently able to cover the interest payments and other charges, what will be due to us?
Yes. We do think so, Abhishek. Obviously, we're putting all of these investments in with the expect -- none of these are projects where the launch time line is many years away or anything like that. These are all relatively quick turnaround project, or at least we plan for them to be. So for example, we spent about INR 200-odd crore on this Faridabad land parcel during Q2. That project is already launched or is in the process of being launched right now. And most of that cash flow, plus the profits in the project, will actually come back -- given that it's a plotted development come back next year itself. So I think we certainly are not putting this capital into very long gestation projects where we're expecting to see huge delays in the return. So we will be quite quick turnaround, which is why we're expressing a high degree of confidence that in FY '23, '24 both from an earnings perspective and cash flow perspective we think the trajectory of the company will quite meaningfully change.
Sure. Pirojsha, second question is basically the mix of promotion-led sales versus the normal payment cycle sales this quarter. If I remember correctly, last quarter, almost 70% odd was driven by subvention kind of scheme, which, of course, was probably keeping in mind the market conditions then. What was the breakup for this quarter in terms of this promotion-related schemes? And do you think time has now come for you to end those given, as you mentioned, some visible signs of green shoots, et cetera, are there for -- on the demand side?
Yes. The promotions we ran in Q1 were ended in Q1 itself. But Mohit, do you want to elaborate any further on that?
Yes. So we did continue it towards the end of July. But overall, if I have to answer your question, the ratio would be largely in favor of -- almost 80-20 ratio in favor of the CLP plan and which is very regular kind of sales which we do. There are some payment plan flexibility we offer, but 80-20 or 75-25 is the kind of split which we have.
So I think from 80-20, the other way in Q1 is now 80-20 is normal right now.
Sure. And my last question is on more like a strategy question on the office side. Many of your peers in Bombay have now started talking about becoming bigger in office possibly driven by investor interest to fund those constructions. Would you want to revisit your standing of not clearly doing CapEx heavy projects and just focusing on residential? Or do you think you might be opportunistic to...
We have in a small way our foot in commercial through our partnership with Godrej Fund Management, where we're focusing on doing A grade office buildings, and we've added a couple of such projects over the last couple of years. But I think our sense is that the residential opportunity is an absolutely massive one and one that we're quite well placed to do well in. So I think any deviation of focus from there, we think is a little bit of a distraction. And so I think the primary opportunity for Godrej Properties remains scaling in residential, gaining market share in the cities that we're operating in. And I think, frankly, the way we expected things to play out so far is more or less on track of what we've laid out as our strategic plan 3 or 4 years ago, which was to make sure we focused on doing a lot of business development, increasing our percentage share in these projects, increasing our market share as a percentage of the market, and riding this wave of consolidation. And, hopefully, we're at the early stages of seeing the market actually turn. I think we've all also forgotten what a residential market upswing looks like. But eventually, it will come.I mean we've had 1 shock after the other that seems to delay it indefinitely. But we think all of this business development that we've done will hold us in extremely good stead for when that comes. And there's no reason that the economy does recover with interest rates where they are with the amount of pent-up demand. We had even said in Q1 that we think really the intent for homeownership has only increased as a result of this pandemic. So I think if the overall economic situation is manageable, we expect to see a pretty good demand recovery, and that's not a 1- or 2-year thing, but a sustained upswing for the next decade. And really, the opportunity, again, is to focus and concentrate on residential, be as good as we can in that, gain as much market share as we can in that, drive better returns and cash flows and that. And office, particularly for our strategy of wanting to do a 20% ROE business, putting a lot of capital in office makes such a target, I think, quite unrealistic. So while we are happy to look at office as part of some of our bigger developments or in structures, such as the 1 we have with Godrej Fund Management, we are not planning to do a lot of on-balance sheet commercial at the moment.
The next question is from the line of Kunal Lakhan from CLSA.
My first question was on the cash flows. So if you look at the project-related outflow, historically, it has been a very sizable number. If you can break it down for us like what it comprises of?
Rajendra?
Sorry. So the project related comprises of construction outflows. Plus there are other outflows, which relates to JVP payments, tax rates, approvals and other stuff.
No. I'm talking -- construction outflow is mentioned separately. I'm talking about the other...
Other project related, this has a JVP share of collection. We have to share the top line or the share of collection, which has been upgraded. So as and when the collection happens, it gets distributed. That is 1 part. Second is statutory dues and other taxes. Then there are marketing and other costs. Then obviously, the period -- overhead costs or the administration costs. All those goes -- sits at the other project-related outflow.
Sure, sure. So technically, historically, if you see that number has been almost close to 1/3 of our collections. You think that will sustain based on the -- on our ongoing projects or ongoing portfolio? You think you can sustain at these levels going ahead also?
Yes. Because it's like JVP share of collection is directly correlated to the collections, what we do and, obviously, statutory dues and taxes. So more or less, it should be in the -- obviously, the only variable figure would be the marketing depending on the launches that can fluctuate a little bit.
But also with JV partner, if -- a lot of the projects now are owned outright. So obviously, in those projects, you see a lower thing there.
Lower outlfow, yes.
Sure, sure, fair enough. And second question was on the collection side. So in FY '19, FY '20, we have seen very similar level of collection, but we have ramped up clearly on the sales side. Do you think these collection run rate would -- I mean, this -- barring this year, maybe but FY '22 onwards, what kind of collection run rate can we expect? Because our outflow remains -- both on the construction as well as the other project related outflow we just spoke about. It remains -- continues to remain high, but on collection side, we haven't really ramped up as much.
Yes. I think we see that ramping up considerably in FY '22 and '23. Even things like some of the 10:90 sales we've done in Q1, a lot of those collections would be in FY '22 and '23. So we definitely -- and, of course, just on the overall increase in booking value we've seen over the past few quarters. So I think you will see a sharp uptick in collection. I mean compared to first half, you'll see it even in the current quarter. But I think from next year onwards, you'll see a very marked improvement.
Sure, sure. And my last question is on the debt side. You mentioned at the beginning that guided net debt to equity you would aspire to have is about 1:1. So that would mean about INR 2,000 crores of additional debt on our balance sheet -- current balance sheet level. Would this all be towards business development? Or would that be also towards construction?
No, that would be all towards business development. We expect operating cash flows to be positive and hopefully from next year onwards strongly positive. So this would be all for business development. Look, I think, to us, the big opportunity is that we are in a market that is -- an industry that is very large, extremely fragmented, where the leading player today has a market share of extremely low single digits. And I think we do believe that a countercyclical investment strategy, which we've been employing over the last 2 or 3 years and continue to do now, will hold us in very good stead as the market inevitably turns in the other direction, which we hope it will where we might already be starting that. But certainly, we expect a couple of years from now for the market to be doing extremely well.
So just a follow-up on that. Like we almost have close to about 200 million square feet of portfolio. We are selling about 7 million, 8 million square feet annually. And we still continue to add projects on the business development side. What is the level of sales that you aspire to achieve over the next 4 to 5 years to do justice to the portfolio that we have built up so far?
So look, I think we certainly hope to grow sales from current levels very rapidly. I hesitate to put a specific number from it. But we did about 9 million square feet of sales last year. I think, certainly, we look to hopefully at least double that in the next 3, 4 years.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
The first question is, can you just update us on the Bandra and Worli project? And specifically, what percentage has -- land has been cleared and what more is left to be done?
Mohit, do you want to take that?
Sure, Pirojsha. So on Bandra, the things have started to move on the ground, and we expect good, positive momentum to start from Q3 onwards. Of course, due to COVID, there was not much happening on the ground, but now things have started to improve. On Worli, we are currently at the design stage. And on the site clearance side, even the JV partner is trying to arrange for funding, which he will be needing to clean the site, and that is their responsibility. So a lot of positive development happening on that front. And again, I think on that project also, we should start seeing momentum on the ground by end of Q3.
That site is already about 50% clear, Sameer.
Okay. Bandra is 50% clear you said, yes?
Worli.
Okay. And Bandra?
Bandra is right now about 20%.
Okay. Okay. So the launch looks more like a 2022 event, expected it?
Yes. I think we do aspire to launch it in next financial year, both these projects.
Okay. Great. And sir, second question is on the 2 land acquisition, Kalyan and Sarjapur. Just wanted to check, what was the -- specifically, what was the value of the transaction, if you can share? And second, who the seller was? Was it another developer? Or was it a third-party or something?
Rajendra, are we allowed to divulge the name of seller due to confidentiality clause?
Yes. We have that because -- and I think there are certain CPs pending in this guy. So normally, we -- unless those gets completed, we don't say. But Sameer, I can talk to you offline.
Okay. No, that's fine. I just wanted to understand whether it's industry consolidation thing or it is a land acquisition? So that was...
No, it's an industry consolidation thing. And we want to do many more with the same partner in the future. So I think clearly, big time consolidation happening in Bangalore with very limited players now looking for land acquisitions.
Excellent. Yes. Great. And just 1 final 1 from my side. And that is for 4 key markets, is there any commentary that you may want to share, one is doing better than the other? One is you're seeing stronger demand versus the other?
Mohit, do you want to take that?
We've seen -- between the cities, I don't see any major change. We see very strong demand across cities. And for mid-income segment, at the right price point, there is very, very strong offtake. And even if you see the sustenance sales, which we have delivered in the first half of the year, there is a very strong momentum. And of course, with the launches coming in, we see another round of strong momentum. Now if you look at even the launch performance of our only projects that we launched, we sold more than 5 lakh square feet of stock in that and still selling quite well. So overall, I would say, for the quality players in the mid-income segment, there is very, very strong demand.
And I think that's borne out, Sameer, also we look at our Q2 sales is reasonably well diversified across the 4 markets.
Sir, does that answer your question?
Yes, it does.
We take the next question from the line of Swagato Ghosh from Franklin Templeton.
So on your overall strategy, in June quarter, which was a really tough time for the sector, you guys had this promotion scheme, which saw very good response. And you also launched a project. You could incentivize, analyze sales. But in the September quarter, when things are actually looking up for the overall sector for other guys, you have kind of cut back on some of these steps. The promotion scheme is no longer there. You said after July, it's no longer there. There are no new launches, although probably there are new phases of projects which could have been launched. So I just want to understand the strategy for you.
Yes, sure. I think on the new launches, that's 100% driven by regulatory approvals. So we don't have any current projects that are approved that are not launched. We're in the midst of some launches as we speak. So certainly, that was not any kind of intentional strategy saying we won't do a launch. But the launches -- we had, for example, planned 3 or 4 launches. All of them ended up not getting the regulatory approvals in time to be launched during Q2. So we'll now add to the second half portfolio. So the balance that we had planned perhaps at the beginning of the year of sales between the first half and second half will slightly get disrupted. That's not extremely unusual. I think if you look at our FY '20 performance, you'll actually see something similar where H2 sales were more than double of H1 sales because of the similar reason that some of the launches got pushed out.So there's nothing sort of intentional there. I think we remain extremely bullish on how the projects will perform once they are launched. And hopefully, we can demonstrate that in the current quarter. On the schemes, those were always intended as a short-term measure. And I think they worked exactly the way we wanted them to. It was to tide over the bookings performance and use an opportunity where other players, frankly, were not really making any sales to register a strong quarter and lock in a huge market share, which we successfully did. Continuing them indefinitely would add further pressure on cash flows, and we didn't see any to do that. It was sort of meant to be a limited time objective, which it served exactly as intended.
Okay. Okay. So another related question is, if I remember last quarter, you had also said that the last couple of years were BD heavy and you now would probably look to consolidate the market share by selling some of those projects. But this call, like you are guiding for increasing net debt with more BD deals, which would entail a cash outflow. So I believe there is a change in that thought process as well. So I want to understand that bit why...
So again, I don't think there's any major change there either. I think what we have said was that the relative priority of business development for the organization today is significantly lower than it was this time last year or this time 2 years ago. And that's certainly true. So for example, in a city like Pune, business development is not at all really a focus. If we opportunistically see something interesting that doesn't cannibalize our current portfolio, we're open to it. But we feel like we have the pipeline we need to deliver strong growth for the next several years and are not really focused on BD yet. There are some exceptions to that. In somewhere like Bangalore, we actually are not satisfied with the scale of our portfolio and don't see the portfolio visibility of delivering the kind of growth we'd like to see over the next few years. So I think you should expect to see us try to do quite a bit of business development in Bangalore.And then Mumbai and NCR are probably somewhere in the middle where we do have very strong portfolios now. But we are still open to strengthening in micro markets that we don't have a presence. So for example, in NCR, we've added this project in Ashok Vihar in Delhi, which is going to be our second project in Delhi. We've had the second project in Faridabad. So I think BD is important and will be something we continue to look at. But certainly, as a scale of kind of our current portfolio, I think BD will now decline on a relative basis over the next couple of years compared to the previous couple of years and will be targeted in cities like Bangalore or in micro markets like some of the ones I described, where we feel our overall portfolio needs to be strengthened.
Okay. And 1 last question on the Bandra and Worli projects. These slum rehab projects always kind of dragged on as we had historically seen. So like -- can we like cut our losses like not in terms of cash burn but at least managing bandwidth, get drained for these projects? Can we maybe somehow exit these projects and focus on more of the higher velocity and which are like quick to get approval kind of projects?
I don't think it's either/or. They don't stop us from focusing on other projects. The cash invested in these projects till date is extremely low and very clearly linked to milestones that give us confidence that launches will happen in short order. I think these projects can be extremely successful. We're very bullish on both of these projects. And things from -- probably from a margin and earnings perspective, these can represent -- each 1 can be like 5 or 10 more regular projects. So I think they have value for the company and are worth pursuing. And we're reasonably confident they won't be inordinately delayed. And I think the important thing is to make sure that we're not locking up a huge amounts of cash in projects that could be delayed, and that certainly be assured we are very focused on in these projects.
The next question is from the line of Mohit Agrawal from IIFL.
My first question is on Ashok Vihar. So could you share the exact time lines of launch if has been finalized? And what is the product like going to be? Is it a high-rise or is it a mid-income or a luxury product? And what is the pricing like?
Mohit, do you want to take that?
Sure, Pirojsha. Yes. So it's going to be a -- it's a very unique site. And 1 thing which we have developed is we have done a mix of high-rise and a low-rise development there. So the master plan is already completed and the drawings have been submitted for approval. So from here on, we are targeting to launch it this financial year. If not this financial year, it will be early next financial year. So we remain quite optimistic. In terms of pricing, we're still discovering pricing. We are talking to the channel partners and the customers in the area, but we remain extremely bullish and optimistic about this project. And if you want, we can take you through some of the development which we have planned on this project subjectively.
Yes. I think just to add on to that, I think we do think that this project is going to be a really significant 1 for the company because we think it has a similar profile in terms of pricing and margins to The Trees, but it's much larger and going to be a unique site, we think. In that, so really all teams looking forward to getting this launch hopefully later this year.
Sure. And my second question is on the cancellations. It's been 6 months since the pandemic and I know you'd report the numbers post -- net of cancellations, but how has it been overall in the last 6 months? And if you could share any geography-wise trends if you have seen or any trends on the luxury or mid-income side where you have seen more cancellations? Any qualitative comment would be very helpful.
I don't think we've seen anything very different from typical. We always have a set of percentage of customers who ask for cancellations. I don't think that has dramatically changed as a result of this. And whatever would have been was more a sort of Q1 phenomenon. I think now, again, there's quite a bit of optimism coming back about residential real estate. So I don't think there's much of an issue. But Mohit, do you want to add anything to that?
No, Pirojsha. Same view.
The next question is from the line of Girish Choudhary from Spark Capital.
I have a question on the deliveries. So you delivered around 5 million square feet in FY '20 and even if you look at first half around 2.9 million, of which 1.9 million was plotted. But looking ahead, how is the scheduled delivery target looking like heading into second half on '22, on '23, if you could give us some numbers to that?
I don't think we have those off hand, but typically, you can assume roughly 3, 3.5 year from launch delivery time line for group housing. We're obviously aspiring to do that quicker and some of the projects have hit even 2, 2.5 years, but broadly should be 3, 3.5. And plotted can even be sort of 12 months after launch. So that can give you a rough sense, if you look back at what the numbers are. Clearly, the deliveries will start going up sharply. I think this year is a bit of a mesh because of -- I think we've lost most of the first half with this lockdown, construction workers moving out, remobilizing, but monsoon effects having hit. So I think completions -- and we're not expecting anything very strong in the second half. But I think next year, we will see good completions. And really, we are where we expect completions and, therefore, earnings and one of the other things to see a big jump up is FY '23.
Got it. Sure. And my second question is on the construction-related outflow. So if I look at the slide on the cash flow, so I'm looking at a number of INR 350 crores, which was spent on construction outflow, which was broadly similar to the number which was spent even in Q1. And this despite -- you had indicated that the labor trend is in excess of pre-COVID levels. So why is the -- why are we not seeing a corresponding increase in the construction outflow?
So a couple of things. I think, first of all, this is the labor strength as of the end of September. So obviously, June was -- between June and September, the number doubled in terms of construction workers. So not all of that was available for the full quarter. Secondly, 1 of the challenges of the situation was that typically in the first quarter, you do a lot of these monsoon preparation activities that you are kind of required to keep the site moving at full speed during the monsoon. And the lockdown sort of totally disrupted those activities, adding a further layer of kind of difficulty on the construction side. Given where construction numbers and construction labor numbers are now, we expect a much, much stronger Q3 onwards on this. So I think the first -- while optically the first quarter was only 1 disruptive, actually, the second quarter was also very disruptive. And some of the construction spend in Q1 would actually have been payments for work done in Q4 of last year.
The next question is from the line of Manish Jain from GormalOne.
I wanted to understand what has been the top customer behavior trends that you have seen, which are unique or different, especially in the last 6 months?
Mohit, do you want to take that?
Sorry, Manish, can you please repeat your question?
I just wanted to understand what have been the top customer behavior trends, especially in the last 6 months, which have been different out of the normal behavior that you have seen over the years?
Difficult to say, Manish. I think not sufficient data to answer this question, because Q1 was largely NRI sales and a lot of investors coming in. But 1 thing which we see as a long-term trend emerging out of COVID is a need for flexible spaces. People are realizing the importance of home. And of course, there's the need for larger spaces. But given the ticket size is constrained, there's a good need for flexible spaces, which is emerging out as a big trend for design, which we are working on. Also, there is a lot of appreciation for balconies and some of these terraces, which earlier people were ignoring. Also at a master plan level, there are certain things, which are emerging. So these are the kind of things. But from a -- these are more of a design thing, which we are doing both from a consumer study perspective. But from a buying behavior perspective right now, a little early for me to comment.
And second key thing, which I wanted to understand is, we have seen that a number of potential buyers of land or joint venture like Godrej have trickled down to less than 5 in each of the focus markets for you all. So the question is, have your IRR rates that on the BD deals that you are exploring -- are they superior to what you have signed in the last 12 to 18 months?
Mohit, do you want to...
You're right. The competition has completely come down. And if you see the recent transaction in Bangalore, where we bought land from a very prominent player, there was no competition actually from any of the other developers in Bangalore. So even across markets, we see the same trend. So definitely, the fact that there are no other buyers give us a lot of buying power, and it does reflect in better deal terms, better IRR. And also, Manish, we are also significantly focusing on plotted development given the unique benefits that opportunity provides. But to answer your question specifically, yes, the IRRs and the deal terms are far superior with every passing quarter.
Actually, my last question was on plotted development. Given the kind of returns that you are likely to achieve in Faridabad, whilst Pirojsha mentioned that you all are not focused on BD much, can we see some significant activity happening on the plotted development side?
Yes. We are actually -- 1 of the big focus area for this year is to secure some of the plotted development projects. And I think somehow people misunderstood -- Pirojsha didn't say that there is lack of focus on BD. There is a focus on BD. The relative focus on operations and launches is higher. But on BD, we have an aggressive pipeline of term sheets already in place for plotted development. And the biggest area of focus right now in BD is to sign some of these plotted development apart from the group housing projects, which we anyways are signing.
And congrats on outstanding achievement without any launches.
Thank you very much, Manish.
The next question is from the line of Biplab Debbarma from Antique Stockbroking.
Just trying to understand on that cash flow for land payment and approval-related payments. Going forward, how much land payment and approval payment in terms of INR crore needed to be paid out?
It's not possible to give that because it's all linked to various milestones getting completed. So it's hard to give that. But certainly, we expect a significant amount given both the number of recent deals we've signed and the pipeline Mohit just mentioned.
Okay. Okay. Fair enough. Sir, on the second question is what would be the ballpark receivables? And I just wanted to understand if going forward, on the ongoing projects, there is no incremental sales. How much receivables would cover the cost to be incurred in those projects? In terms of percentage, just ballpark, I just want to understand.
Rajendra, do you have any comment on that?
So it's very difficult to give. What I can do is I can connect with you offline and give you this number because it has to summer up to 70 projects, and those are at various stages of construction. So I can give it to you offline.
And 1 final question on the approval and premium cost. Does this cost vary from like -- significantly vary from city to city, like from Mumbai to Pune to Bangalore, NCR, the approval and premium cost...
Yes, hugely.
Very much?
Yes, it does vary a lot.
Mumbai would be highest?
Yes, by far.
The next question is from the line of Ketan Gandhi from Gandhi Securities.
Yes. It's very good on your part to deal in I mean land acquisition deal during the quarter. And we noticed that you have stopped doing DM deals for a few years. In regards, I'm keen to know of your plan for upward revision of 10% DM structure at Vikhroli either in terms of higher DM or profit share?
Yes. There's no current visibility on anything there. So we should just assume the DM for now. And obviously, as soon as there is anything we would, of course, come back immediately.
Sure.
But I think from the company's perspective, as you rightly pointed out, DM has now sort of gotten less focus. We, of course, use a lot of DM as part of our other structure, but standalone DMs are less interesting for us now.
Sure. Sir, can you so -- I mean, can you share some time lines on your residential residual inventory of Planet Godrej, Chandigarh and BKC and Kolkata as well as 50% stake in Godrej 2?
Yes. I think the first few projects, Planet Godrej, BKC and Genesis, we have almost very, very little inventory left now. I think Planet Godrej may have just 1 apartment that we held. And BKC also, I think we have 1 small unit like 1% of the area of the project. which we hope to monetize shortly. I think the only 1 of those where we -- is -- remains a bit of a headache is our commercial project in Chandigarh. And I think that we have not been able to successfully monetize yet, but we certainly continue to hope to do that. But the Kolkata commercials are also now almost fully complete. And Godrej 2, we have -- of course, the intent is to lease it out to tenants. We've had good traction there. We've completed a large deal in Q1. We're on the cusp of another large deal, which we hopefully can announce in the next couple of weeks there. So that -- Godrej Properties plan for now is to continue to own the 50% and enjoy that rental income. We may look at some stage at monetizing the 50% stake, but no immediate plan there.
Can you share that Godrej 2 -- how many has been leased till date?
Yes. We've done -- I don't have the exact details offhand, but we've done 1 large deal with Maersk, which was, I think, a couple hundred thousand square feet. We have another similar size deal in the pipeline in quite -- not in the pipeline, hasn't closed, but just waiting registration and a large number in the pipeline. So I think that visibility there is quite good.
Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments. Over to you, all.
I hope we've been able to answer all your questions. If you have any further questions or would like additional information, we'll be very happy to be of assistance. On behalf of the management, thank you again for taking the time to join us today, and a very happy Diwali to all of you. Thank you.
Thank you. On behalf of Godrej Properties Limited, that concludes this conference. Thank you all for joining. You may now disconnect your lines.