Oberoi Realty Ltd
NSE:OBEROIRLTY
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Oberoi Realty Ltd
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Good evening, ladies and gentlemen, and a very warm welcome to Oberoi Realty's earnings conference call for the quarter 1 financial year 2019 that ended on June 30, 2018.We have with us today on the call Mr. Oberoi, the Chairman and Managing Director of the company; and Mr. Saumil Daru, the Director of Finance.Please note that this call will be for 60 minutes. [Operator Instructions] This conference is being recorded, and the transcript for the same may be put on the website of the company. [Operator Instructions]Before I hand the conference over to the management, I would like to remind you that certain statements made during the course of this call may not be based on historical information or facts and may be forward-looking statements, including those relating to general business statements, plans and strategy of the company, its future financial condition and growth prospects. These forward-looking statements are based on expectations and projections and may involve a number of risks, uncertainties and other factors that could cause actual results, opportunities and growth potential to differ materially from those suggested by such statements.I'm now glad to hand the conference over to Mr. Oberoi, the Chairman and Managing Director of the company. Thank you, and over to you, sir.
Good morning, good afternoon, and good evening to all of you as per the time zone from which you have logged in, and welcome to the conference call of our first quarter financial year 2019 results and business updates. Thank you all for taking time to attend this call. I'll give you a quick update.We have successfully completed an issuance of 24 million equity shares to qualified institutional buyers, raising an aggregate amount of INR 1,200 crores. This reflects the faith our investors have in us. Our subvention scheme, both in Goregaon and Mulund, have received great response, which is very heartening. You will see more presentation in detail from Saumil. We are also happy to announce that we received occupation certificate for Prisma, our project, and this takes our last 6-month tally to having delivered 23 lakh square feet, which includes Esquire project also.With this, now I want to hand over the call to Saumil so that he can take you through the details of the numbers, and as usual, I'll be more than happy to address any of your individual questions and queries once we begin our Q&A.
Thank you, Mr. Oberoi. I guess most of you must have gone through the presentation, and if not, the same is also available on our website along with the results which have been filed with the exchanges. We'll keep the talk short and sweet as usual, to keep enough time for Q&A.In terms of consolidated financials, the total consolidated revenue for this quarter stood at around INR 895 crores, which is as against INR 352 crores for Q4 FY '18 and INR 270 crores for the same quarter last year.The consolidated PBT was INR 454 crores for this quarter as against INR 178 crores for Q4 FY '18 and INR 131 crores for the same quarter last year. And the consolidated tax stood at INR 309 crores for this quarter as against INR 142 crores for Q4 FY '18 and INR 91 crores for the same quarter last year.To move to the asset level performances, beginning with the investment properties. Oberoi Mall, which is the retail asset, contributed a total top line of INR 35 crores to the operating revenue for this quarter as against INR 29 crores for the last quarter and about INR 26 crores for the same quarter last year. The EBITDA margin in this vertical stands at about 94%.Commerz, which is our office space asset, contributed INR 10 crores, a little over INR 10 crores actually to the operating revenue for Q1 FY '19 as against around INR 11 crores for Q4 FY '18 and about INR 12 crores for the same quarter last year. The EBITDA margins in this vertical continue to be in excess of 98%.In Commerz II Phase 1, this contributed about INR 16 crores for Q1 FY '19 as against INR 12 crores for Q4 FY '18 and about INR 11 crores for Q1 FY' 18.The Westin Mumbai Garden City contributed about INR 30 crores to the operating revenue for this quarter as against INR 34 crores for Q4 FY '18 and INR 30 crores for Q1 FY '18. The EBITDA margins in this vertical again continued to be in excess of 34%.Now to move on to the development properties, for Esquire, out of the total project of 21.22 lakh square feet, we booked about 1.29 lakh square feet in this quarter. Till date, we have booked 14.63 lakh square feet which is about 68% of the inventory. The total booking value for this quarter is about INR 267 crores as against INR 92 crores in the same -- in the -- in Q4 FY '18 and INR 26 crores in the same quarter last year. The cumulative booking value till date is about INR 2,279 crores. And the total revenue recognized for this project in this quarter is INR 400 crores, and the cumulative revenue recognition till date is about INR 2,279 crores on account of 100% project completion.For Exquisite, of the total project of 15.47 lakh square feet, we have booked about 5,070 square feet in this quarter. Till date, we have booked about 14.07 lakh square feet, which is about 91% of the inventory in this project. The total booking value for this quarter is INR 12 crores as against INR 8 quarters (sic ) [ crores ] in the preceding quarter and INR 33 crores for the same quarter last year. Cumulative booking value till date is INR 2,306 crores, and all of this has been recognized on account of 100% project completion. The total revenue recognized for this project in this quarter, obviously, stands at INR 12 crores.Moving on to Prisma. Of the total project size of about 2.68 lakh square feet, we have booked another 14,600-odd square feet in this quarter. Till date, totally 2.23 lakh square feet, which is about 83% of the inventory in this project. The total booking value for this quarter is INR 26 crores as against INR 16 crores in Q4 FY '18 and about INR 5 crores in the same quarter last year. And the cumulative booking value till date is about INR 390 crores. The total revenue recognized for this project in this quarter stands at INR 89 crores, and the cumulative revenue recognition till date is at least INR 390 crores, again on account of 100% project completion.For Mulund, Eternia and Enigma, beginning with Eternia, in this quarter, we booked over 30,000 square feet. Till date totally about 5.4 lakh square feet. The total booking value for this quarter is INR 42 crores as against INR 10 crores in Q4 FY '18 and about INR 4 crores for the same quarter last year. And the cumulative booking value till date is about INR 790 crores. The total revenue recognized for this project in this quarter is INR 23 crores, and cumulative revenue recognition till date stands at INR 113 crores. In this case, this impact is coming out of the new Ind AS 115.For Mulund Enigma, again, Q1 FY '19, we have booked 14,005 square feet. Till date, we have booked 3.68 lakh square feet. The total booking value is INR 19 crores as against INR 8 crores for this quarter -- for the preceding quarter and INR 3 crores for the same quarter last year. The cumulative booking value till date is about INR 541 crores, and the total revenue recognized for this project in Q1 FY '19 is INR 14 crores and cumulative revenue recognition till date stands at INR 67 crores.Coming to Sky City. We've booked close to about 58,000 square feet in this quarter. Till date, about 13.95 lakh square feet. The total booking value for Q1 FY '19 was INR 89 crores as against INR 84 crores for Q4 FY '18 and INR 52 crores for the same quarter last year, and till date, the booking value stands at INR 2,226 crores. The total revenue recognized for this project is INR 228 crores, and cumulative revenue recognition until date is about INR 580 crores.In Worli, Oasis, we booked a little over 35,300 square feet in this quarter. Till date, we have booked about 4.77 lakh square feet. Total booking value in this quarter [ INR 556 crores ], and till date, the booking value stands at INR 1,925 crores.Coming back to some key financial parameters. Our EBITDA margins for Q1 FY '19 was up 52%. The PAT margin was 34% for this quarter, and the EBITDA margins for Mall and Commerz are much higher than average as mentioned before. Excluding them, the margins for our pure residential business is over 50% for this quarter.With this, we can move on to the questions that you all have. Thank you so much for a patient hearing.
[Operator Instructions] The first question is from the line of Puneet Gulati from HSBC.
Just -- if you can help me understand how is the Ind AS 115 impacting you here. You've started recognizing revenues from Eternia, Enigma. And is there any change in any other project which you have recognized?
Puneet, thanks. Saumil here. Very clearly, Ind AS 115 is applicable for all accounting periods from April 1. As we are aware, the revenues earlier were recognized basically under and following the method which was laid down by the ICAI under the guidance note of -- which was to -- and for revenue recognition by the real estate companies. As you will also be aware, the institute also subsequent to the introduction of Ind AS 115, also withdrew the guidance note. And under Ind AS 115 -- so basically, your determination for whether you are supposed to follow the percentage completion method or the project completion method is now going to be determined by AS rather than by the guidance note. There are tests which are laid down under the Ind AS 115 and based on an analysis of those tests, we had earlier also confirmed and we reconfirm now that we will continue to follow the percentage completion method. What we have done is obviously for the sake of continuity for our existing projects, we are looking at continuing the threshold that we have used earlier. But obviously, our position on this is going to evolve once there is obviously more guidance which will come out from the ICAI from what practice of other players in the industry are going to adopt and even as the overall regulatory environment evolves. Because if you look at some of the tests in Ind AS 115, those also throw you back to how the regulatory environment is. The only thing that -- coming to your question, the only thing that -- there are 2 aspects which are changing. The first aspect is what Ind AS says is that till you reach -- till you achieve a level of certainty, in those cases, so basically for us that level of certainty was in a way a threshold. So till you receive a level of certainty, you should recognize revenues to the extent of costs incurred. So you will not bring in the margin impact, you will only bring in revenues to the extent of costs and which is what you are seeing coming through for Mulund.And the second thing that we have done is, as far as the percentage completion is concerned, where earlier, the percentage completion was considered including the land cost, we believe that in cities like Mumbai, including land cost as a part of percentage completion results in very aggressive revenue recognition, and that may not necessarily have been backed up by cash collection. And hence we have moved to exclude the land cost while arriving at the percentage completion method. This is something that we used to also do pre-2011, before the guidance note of the institute came out. So -- and the way the transition impact works is, so for example, as of March 31, 2018, for Sky City and for Mulund, in both cases, we should have recognized revenues to the extent of costs. So that is what we have done and we have recognized revenues to the extent of costs as far as Sky City and Mulund are concerned and made that adjustment in the opening results. And what we have done is we have transferred some part of revenues and we have transferred some part of cost to the net impact on my retained earnings coming forward in May. And as far as Mulund -- as far as Sky City is concerned, because we have crossed the threshold and we are commencing revenue recognition, what you're seeing this quarter is revenue recognition including the margin. But as far as Mulund is concerned, the revenues have been reported, and they are only equal to the cost. So there is no margin which has so far been recognized form Mulund.
So when do you recognize margin for Mulund?
That will happen in the quarter in which you will cross the thresholds.
And the entire previous few quarters, margin will be recognized at one shot?
Correct, correct, correct. Currently, you are recognizing the entire previous few ] quarters' worth of top line also. Under the earlier method, you used to recognize the entire revenues, including margin. Now the position that is being adopted is that till you achieve that threshold, you will continue to recognize revenues to the extent of cost, and the margin gets deferred to the period in which the certainty is achieved.
Oh, so basically on the very first quarter when you recognize the margin, that will also not be the quarter which will be truly reflective of the actual margin of the project?
Yes, yes, yes. So basically the -- as I would look at it, everybody will have to wait for a few quarters to settle down for all these impacts of all these Ind AS 115 to run through, at least as far as real estate is concerned. Whether you are following percentage completion or project completion, both are having their own ramifications.
Secondly, if you can -- more on the operational side, if you can give color on why is there a divergent performance between Enigma and Eternia? One seems to be doing well with the new scheme, but the other is still lagging.
So Eternia are smaller apartments. This is Vikas Oberoi. Eternia are smaller apartments, and they seem to be doing better than Enigma because Enigma are bigger apartments. What is heartening is that Esquire 1 complete has done very well under the subvention scheme. So what we are really coming to is that whatever one can sell during under construction, one will go about selling them. But as the product gets ready, the buyer base increases because people want to now move into ready apartments. So this is how we look at it. And just to answer your question, Puneet, it's just the size of the apartment. And in the stage where the construction is today, maybe people who have appetite for a smaller apartment are coming forth first. Bigger apartments are more expensive. People like to buy them when they are more ready and want to move in. I'm just assuming the logic. That's how it is.
Similarly for Exquisite also, was there no scheme for Exquisite?
No, so Exquisite also had a scheme, but Exquisite is competing with its own Esquire. Now both of them are ready, so there are a whole lot of people who prefer -- and moreover, Exquisite has very few apartments. Either they are on a very higher floor or maybe like some of these apartments may not have the view people like or whatever, but the choices are limited here and the choices are plenty in Esquire, and hence Esquire is doing much better.
Okay. Sorry, jumping back on Eternia and Enigma again. If you look at the average price, it used to be around INR 16,000 plus in FY '16. It has come down to almost close to INR 14,000 now, despite I thought the understanding was the lower floors get sold first and then the higher floors get, and consequently, the realization should actually improve.
No, so what really happened is that, see, in the first stage, the best views or some of the views get sold. When we came up with this scheme, yet we saw probably people wanted lower apartments. And these were apartments, which probably may not have that greater view or whatever that kind of gets sold first.
Okay, okay. Lastly, if you can give some color on which all projects will be counted for revenue or profit from this year. Will we expect to recognize Mulund this year or next year?
So since you are asking a question which is pretty much an obvious, we will say that they all will get recognized this year itself. I mean, though we don't want to give forward-looking statements, but they are so close. And these datas are anyway available. We will end up recognizing both of them this year.
Okay, okay. And lastly, just on accounting perspective, there was some investing cash flow of INR 800-odd crores for this quarter. What is that related to? Is it for Thane?
No, not really. So this is basically investments which go into mutual funds and all. These are treasury impact.
Okay, okay. That's...
[The trend of funding,] if you would have seen the investing cash flows, you would've seen that we had raised those money. So that's where it goes. It's the deployment of cash.
The next question is from the line of Atul Tiwari from Citigroup.
Sir, again, just to harp a little bit more on this percentage of completion method and asking this question because a couple of other real estate companies who have reported so far say, the larger companies like L&T, et cetera, who have real estate business, they have kind of chosen to go with project completion method. So I mean, if you could throw some light, how are your contracts with your customers different which kind of make the company eligible for still sticking to the percentage completion method?
See, it's very simple. I think, you can, for whichever companies have declared their results, you can get their contracts downloaded from the RERA websites today. All of us as a part of the registration process under RERA have to compulsorily upload our document drafts on the RERA website. You can pretty much download their documents and our documents. Essentially, the test if one looks at it is what is an ability for someone to terminate voluntarily. And as far as from what I have understood as far as developers in the south are concerned and maybe a few developers in the North, they would be having clauses in the agreement, wherein there will be an option for the customer to terminate voluntarily. So if there is that situation, then a transaction becomes reversible. And in the case of reversibility of a transaction, the standard recommends that in that case, revenue has only to be recognized at the very end. If you look at almost all the Bombay developers, there are no such clauses as far as the agreements are concerned. And correspondingly, the transaction is then permitted to be recognized under the percentage completion method.
Okay. So as long as, as per the contract, the transaction is irreversible, you can go ahead with the percentage completion method.
Absolutely. Atul, our contracts -- our documents are a binding contract on both parties, the developer and the buyer. So the buyer cannot simply come and tell me that now I don't want to go ahead, you terminate my contract, and you can forfeit 10% and pay me the rest of the money back. I am under no obligation to cancel and repay him back. He can very well stop paying me. I can even forfeit and reclaim the money or I can continue to hold his payment until I find a new buyer. And until I find a new buyer, I can continue to charge an interest on the outstanding amount and this, that and the other. So ours is a very well-balanced document on both ends, developer and the buyer included. It's not buyer centric or developer centric per se. And luckily, the RERA does not require you to get into an agreement with a buyer where he has an option to terminate at his will without you having gone through any default or anything of that sort.
Okay. And sir just one more question on the Oberoi Mall. So we have seen pretty -- some pretty strong performance numbers in revenue and EBITDA on an year-on-year basis. So what is driving that very strong growth? Because obviously the area is not growing, so...
So you know when we started the mall, the leases that we have done with the large anchor tenants were at historical prices. The mall has done exceptionally well. These retailers have done very well, and they've all come under renewal. We finished 10 years of our mall, and most of these contracts were even 9 years and 10 years. So we have -- they wanted to continue, and we've allowed them to do that. And we renegotiated and we set the numbers basis today's market price. And that's why you see this bump up.
The next question is from the line of Niraj Mansingka from Goldman Sachs.
Vikas, just wanted to know a few things. One, after you've launched this scheme of 25% each, you have seen a bump up in the sales. So how has been sales in the last one month when you have -- just wanted to understand is this a consistent thing or is it just a one-off jump in the sales that you are seeing?
So 2 things. One, where there is a apartment which is ready, we continue to see demand. And wherever we had the regular scheme, we need to continue to back it up with advertisements and stuff like that so, which we will continue to do. We see a steady state right now. It's too early for us to comment either/or. But like I said, we continue to see a steady state. If we see a change, then we'll change our strategy. We've got a few things lined up so that we can continue with the momentum. The idea is that we want to grow, and we want to be prudent about how we understand and address the market needs. We will do that. So yes, we are ready.
I have 2 more questions. One is, on the Exquisite, you have seen a slightly fall in prices and the realization from, I think, the last quarter also you bumped up. But how much would had been the impact of the total cost in rupees per square feet of the scheme that you've launched?
So the impact on the scheme per se is negligible because we had increased the price also. And it's more of a convenience that people get to pay within the 3 years. My idea is that if somebody has -- is already living in a house which is, let's say, 60% or 70% of the value of the house, he wants to buy it. It's not easy for him to time the sale of his apartment, time the purchase of his apartment, continue to do his work, his children are going to school and multiple things. So with this scheme, the person who has this 25% down paying considering buys the apartment, he gets 1 year, 2 years or 3 years to sell his apartment. He's pretty confident that I can sell my apartment and take that cash and pay me or pay the banks through which he wants to be, where and stuff like that. So this has been really the motive behind how we have structured it.
And the last question on the occupancy of Commerz II. For some time you have been talking about constructive discussion with people to rent out the [local] place. But we haven't -- we have just inched up to 63%, but do you see a possibility of leasing out the entire -- when do you see the possibility of leasing out, say, to a 90% occupancy.
So we feel that within this financial year it will be 100% or 90% plus lease out. WeWork has already started operations here. And for us, they've been like a catalyst and worked very well for us. So after that also we've done some transactions, which don't reflect right now in these because they are on an LOI or the rentals have not commenced. But we are very confident that within this year, we should be pretty much done with Commerz II, and we'll start Commerz III instantly.
And what rates, talking of?
So similarly, the rates have not changed. They've been pretty steady on that.
The next question is from the line of Adhidev Chattopadhyay from ICICI Securities.
Sir, I'm referring to your corporate presentation you had uploaded in second half of May. So specifically, for Borivali and Glaxo Worli, the areas seem to have gone up, especially for the malls. And in Borivali, I believe, there is a Sky City extension. So could you just help us understand why the areas have gone up? And has there been some increased spend for FSI or for land purchase for this?
Not really. You know, so the areas have not gone up, per se. We were always planning for 3 FSI, and the composition of that 3 FSI has changed. Earlier, it used to be 2 FSI as base area. 1 FSI from public parking. Now it'll be 2.5 FSI as base area because the government changed the rule from that road a bit. So overall, it does not change. Again, we also follow a norm where how much ever approval comes into play, we want to put that. And if you see the RERA website, which was loaded one year ago, also mentions similar numbers. So there is no change just in May of this year. It's been done last year, and it's been done in the RERA website also because RERA wants us to project whatever is approved and whatever can be approved in the near future.And that's why we thought that we will bring parity between what we've applied at RERA and almost what we are now projecting it to investors. So earlier, we were only updating investors of the area that got approved. So we were following a conservative approach when it came to giving data to investors. But once it's available on a RERA website, might as well even investors have it. So they know what we are aiming for or running for and stuff like that.
Okay. Sir, the reason I asked because that slide for Borivali says there's an acquisition under process and a development agreement has been executed.
So that also forms a part of RERA. If you see, there was a small slum redevelopment. We are not good at convincing people to do slum with us, but in this case, looking at the brand reputation, the committee themselves have come in and said that we want you to build it for us. That kind of gives us an additional area. So that's also a part of RERA. It's been going on for like a year plus, and today we now have the development approval from the committee and stuff like that, and we made applications to SRA and so on and so forth.
Okay. So there is no incremental spend. I just wanted to clarify.
No incremental spend.
And sir, the area of mall now it's been 1.56 million. So what we are building will be the same area or will it be lesser? Will it be in phases now in Borivali?
No, no, not really. It will be in one stroke. It will be in one stroke, one shot.
So it will be a one entire mall you are building of 1.56 million. Is that the right way to look at it or?
So yes, about that much.
Okay, okay. Then similarly, in our Glaxo, now we have got over 1 million square feet of a mall space and a hotel of 0.68 million. So what is the thought process here. This mall we are going to build a luxury mall, if I recollect earlier. So have the plans changed? Or we want to build such a large mall just for the luxury or?
We absolutely want to build a luxury mall there. There's a lot of good malls in Mumbai. We've done well building Goregaon. We are getting very good traction for our Borivali. We want to build one in the city as well. City just has one mall. I think it'll compete and complement that mall. It's already running full occupancy, almost. So we feel that we, in fact, have a much better location, that's not denying anything, and we will be then on the metro station. So if you look at everything, things are really well stacked up for us to do a very good mall, do a luxury mall.
Sure. Sir, and just following on this Thane and Goregaon Phase 3, when do we expect the launches? And Thane, have we made all the payments for the FSI and other approvals which you require?
So Phase 3 of the work has already started. We want to kind of let the dust settle on our new bookings and then we want to renew this new schemes that we launched for Esquire. Then we want to strategize how we go about doing the next phase. So like I said, there the work has started, contracts have been issued and all that is in place, we're just waiting for how this -- the rest of it pans out. And Thane, again, like we continue to have status quo, though a lot of work is being done, but we will want to, first, finish the process and only then want to talk about it.
Okay. So sir, also Goregaon Phase 3, definitely we should see a launch sometime in this FY '19. And Thane also you're reasonably confident it should happen or it may spill over?
Like I said, Thane, I don't want to comment till we do a few things. But certainly, Goregaon Phase 3 will be launched this year itself, and we will also launch another residential project that we have in JVLR. We bought that last building to be built. That will also be launched in this financial year.
The next question is from the line of Chintan Modi from Motilal Oswal Securities.
First question is on, if you look at the gross margins, they had -- they have kind of come off in the quarter. So wanted to understand like was there an impact of Ind AS or there were some other reasons to it?
Chintan, Saumil here. So various reasons. Obviously, Ind AS is also contributing because again as I mentioned earlier, for Mulund, for example, we have recognized the revenues over there, but those are only equal to costs. So basically there is a margin coming in from Mulund. So that is contributing to the top line but not contributing to the bottom line and hence the margin impact of that. The other angle is also that historically, our margins on Goregaon have been higher. So wherever Goregaon has contributed to a larger proportion of the total revenue, you would've seen the residential margins at a higher number. Then it will come to the newer projects and recognition from the newer land acquisitions that we will do, so which will be Borivali, and Borivali is also contributing meaningfully now to the top line. In those cases, the margins are obviously way less than what Goregaon is at. So the average impact of that you will see the margins come up slightly, but yes, I mean that is how the number -- it will all depend on what is the mix of numbers coming through.
Right. And in context of Ind AS 115, if I have understood it correctly, it will get normalized in next quarter whenever the threshold -- you reach the threshold and recognize the revenue?
Yes, so once you have -- so you will see the spike in the quarter in which there is a revenue -- in which there is a margin recognition. But once that goes away, then you know regular service resumes.
Okay, sure. Secondly is on Oberoi Mall. We have seen some occupancy coming down, a little bit of it. So if you can tell me like...
It's just the [ temporary ] occupancy, which would have been there at the end of the quarter or something, nothing very major, very frankly.
Nothing. Okay, sure. And one is on your Tardeo project, if you can update us? And second is on in the past you've spoken of exploring new models like DM JV. So if some progress on those fronts, you can help us understand.
So Tardeo is a redevelopment, where we have to do some development for the tenants before we start the free-sale building. The tenant component has started. The free-sale building has been designed. And once the tenant building is reasonably up and ready, these guys will move in and we'll be able to start the free sale. And what was your next one?
It's on -- in the past you've spoken on exploring new models like DM.
So we continue to explore the DM business, and we want to do DM at terms which we feel will be fair to both, of course, and beneficial to our company. We want it to be -- the returns to be commensurate to the risks that one takes when you do a project. See, for us, I feel that our biggest input is our own brand franchise, and we don't want to jeopardize that. So the terms and conditions that we look for or the status of the project that we look for is not very easy for us to find, because most of them have either got a lot of debt and either some developers have already launched their project. So I don't want either the institution to take him to NCLT or take them into RERA and then complicate issues and then on top of that we also get in. So we are continuing to look at green land parcels. If we get, we will do. But like I said that we will not do it at the cost of our franchise.
The next question is from the line of Abhinav Sinha from CLSA.
Just to begin with, on the fundraising that we saw, so what are the expected time lines and where should we expect these funds to be deployed?
So basically the funds, we are looking at obviously land acquisition. If we -- when we get good land parcel, which we continue to get, we will use and deploy this to bring in more land.
Okay. And the mall CapEx and possibly the next building of commerce, which will progress, is that also a part of the deployment or that should be funded organically?
Not really. So there will be a lot of internal accrual. We will probably -- these asset-heavy, what your call, business model, we'll probably take some debt also. And because you know you generate rent and they can be self-paying, so they don't really stress or stretch the balance sheet as such. They are backed by their own income and then can be repaid. So we don't have that issue on rent-yielding assets.
Okay. So we should not ideally expect the current debt to be, let's say, paid down anytime soon, right?
No, no. We want to grow,. The idea is to grow. We don't want -- we have not borrowed -- we have not raised the money to repay debt. This is growth capital, and we use it for growth.
Sure. Saumil, I had a few questions on Ind AS. So first one, on Borivali, did we see a margin catch-up this quarter?
Yes. Some part, which was recognized as a part of my retained earnings and there would be -- correspondingly because the threshold was crossed in this quarter, you are seeing the margin catch-up in this quarter.
Okay. And theoretically now if I were to launch a new project today, so for example, you have data approval for the JVLR 1. Does the clock on revenue tick from day 1?
So that will depend on the thresholds that would have to be set, whether you -- historically, if you looked at it, they used to look at it in terms of construction. It was 25% of construction cost incurred and from a sales perspective, it was 25% of sales done and within that 10% of revenues collected, under each of those contracts. So it will all depend -- now basically these were all the thresholds, which were laid down in the guidance note. As I mentioned, earlier, the guidance note stands withdrawn. So obviously, one part of the opinion, which is moving around within the accounting fraternity is that companies are free to set their own thresholds, and that's why, again, at the beginning of the call, if you recollect, I have said that these divisions are all evolving, and we will have to continue to wait and watch. Obviously, we have not seen any pronouncement from the institute itself after the Ind AS 115 has come, saving except what they have clarified a couple of weeks back saying that percentage of completion method will continue to be available for real estate. Hopefully, whether it is the institute or whichever or maybe the set of practices that emerges in the sector, we will have to see how this thing goes in the future and evolves, and what should be the threshold, if at all there should be any threshold. I think these are all things, we will have to take a call on as we keep moving ahead.
And Abhinav, we feel that this is a great opportunity to kind of set practices that can be so transparent and allow a real estate industry to not have these lumpy profits declared only once you have built 25%. So basically what the accounting guidelines are saying is that the minute you feel you have certainty, whether it's the certainty of building or certainty on cost, you can continue and declare profits based on tax. If you see, what you really have to do is you have to marry accounting and the other regulations, let's say, RERA. RERA does not permit you to sell an apartment until and unless you've got all approvals in place. Once you've got all your approvals in place, your title is clear, all you need to do is execute that project. And in our case, let's say, we've already hired a contractor and given that contract, there is very little left in terms of suspense. So I personally fancy a very transparent and what we call, every quarter we will show you exactly how much money Oberoi is making. So we will literally become like a manufacturing industry, and you'll have no lumpiness, no surprises, no -- I mean see today, you guys already know that, okay, if I book revenues this quarter, and if I can do that then my profit will be so much. But by and large, people don't get it. So we want to streamline it, no surprises. Every quarter will become with that incremental increase, we will be very -- it will be very steady. So I feel that this is an opportunity where one can take it to that level and create a fantastic form where complete transparencies are available.
Sure, great to hear thoughts on this. Finally, on the Worli project, we have yet to see revenue recognition, right? And how does it go from here?
So again, there -- like Saumil said that we continue to use our old traditional internally guided threshold. We are continuing to use that on Worli also. But like I said that we are thinking progressively with Mulund. And with both Mulund projects almost near revenue recognition, we will bring that in. And after that, we ideally also, I mean again we are in an exploratory stage, but we want to start recognizing revenue from the day you start sell the first apartment for that apartment. So whatever we sell will straightaway reflect into our P&L account also, and if we start doing that, we might even do, okay, in Worli that way is near revenue [on-year near] those threshold. So we won't be left with any historic baggage. And when we'll start afresh, we will start afresh which will be clean. So that's where we are on Worli, also pretty much where Mulund is.
The next question is from the line of Puneet Gulati from HSBC.
Just wanted to understand, has the pricing changed post your OC in Esquire?
So obviously, pre OC, we were selling at a price plus GST. This is what we've been trying to explain to all the buyers, that once OC comes into play, we do not get the benefit of input credit of all the purchases that one has made. So the gross price reflects the cost inclusive of GST, and that's why they are higher. So it does not make a difference. A lot of buyers believe that if I buy after OC, I'll get it cheaper I don't have to pay GST. But if developers are fancying that idea, they are actually giving the discount of GST, which they would've gotten an input credit and could give it away to the buyer. But if they want to recover that GST cost which is now not available, they'd have to add it to the cost and give it to the buyer, in all fairness. So we've basically just done that. So we are even-Steven as far as whether we get input credit and pass it on to the buyer, or we don't get input credit so we have to recover it in the price itself.
But since the land cost anyway is quite a large component here, does that extra 12% will be your profit margin now?
Not really. We are not profiting at all, all we are saying is that what whatever input credit I was getting earlier [ in ] I was passing it on. I was never charging the buyer 12%. In fact, in case of Goregaon, we were passing on almost 6% to the buyer. So now the prices go up by 6% because now I can't pass that 6% to you. So prices have gone up only to cover my cost. I'm not profiting at all.
Okay. So MRP has remained same here?
Yes.
Yes.
Okay. Lastly, In terms of your subvention scheme, how do you book the cost impact there?
So the cost impact there is, obviously, it goes in proportion to the revenue recognized. So whatever be the cost, if there is a revenue recognition in this quarter then correspondingly, there will be a cost recognition of that scheme also to that extent.
Okay, okay. And lastly on the Worli project, you seem to have given almost INR 1,800 crores, INR 1,900 crores of advances, while that -- if your share is much lesser, how you will get paid back once you start recognizing profits?
So basically the waterfall is very clear as far as receipts from customers are concerned. There's a small percentage which goes to the JV partner and a majority of that amount comes to us. So in the initial stages, those amounts will go toward [ sending ] off of the construction cost bucket and then subsequently once all those moneys that have been invested by us are returned, then [resultantly] all the profit shares and everything starts coming in.
So basically once the project is complete, will the entire share of construction costs comes back to you. Yes or?
Yes, yes, yes. And that comes back to us on a priority.
Yes, and only then you start sharing the profit?
Absolutely.
So there is 1 element of construction cost, there is 1 element of extra capital contribution that you have done, that also comes back?
All comes back in entirety.
The next question is from the line of Abhishek Anand from JM Financial.
[indiscernible]
Your voice is breaking. Abhishek, you need to turn that off, you're not audible.
Is it better now?
No, we can't hear you, Abhishek.
No? Is it audible -- better?
Yes, better.
Yes. So just one clarification, Saumil. On the 360 bps, basically although that's a JV and [a free] booking the revenues on top line, but the opening reserve accounting is followed in 360 [day-structure] all right? The following? So that will be -- although we haven't shown it in our presentation, it will be there?
Yes, yes, it will be there.
Okay. Because I think that one of the [ relation historical ] but you're not recognizing revenues...
In terms of a consolidation method, it's a single line item, no? Basically we just do our -- if it's a matter of accounting. So it's a share of profit from the JV.
Yes, yes. that I understand but the top line and the cost will have some component there which are net...
Yes, yes.
And if you could help us, how much spend is remaining? And what's the time line of Worli project now, just the residential part?
So of course, whatever dates we have given in RERA are the dates we want to publicly commit, but we are scheduled to finishing the project by next year March. So in the next 9 months, you will see the building complete and we will start handing over possession to people to do start doing their interior. As far as the hotel is concerned, even there we've given all packages for the interior [ sikout ] and other stuff. So we are looking at a soft launch somewhere around September next year, and by December we should probably be in a position to also formally start the hotel as well. So all in all, if everything goes well, we will be done and dusted with the entire project by the end of next year.
And construction spend will be?
You can take that off-line with Saumil.
Okay, okay. And finally, we signed a 1 lakh square feet with Inox Borivali mall. Any tentative rentals on that? How much we would've signed it on?
So there's an NDA, we are not supposed to divulge all these details. But it's a win-win for both of us. They get access into a market where they did not have presence, and it's a mall which is going to be probably a super A grade mall. We are good partners, and I think it's a good partnership. We are really proud of it and very happy and looking forward to it.
And construction of both the malls has commenced? The contract, I guess, has been given?
Yes. Both have commenced. The work has started. All of it is done.
Due to time constraints, that was the last question. I now hand the conference over to the Chairman and management director, Mr. Oberoi, for closing comments.
Thank you, everybody, for taking your precious time. We like to receive your feedback. We really value that. It helps us think harder and perform better. I would request you to continue to participate in our calls and continue to give us feedback. And thank you once again. Look forward to speaking with you all again next quarter.
Thank you.
Thank you very much. With this, we conclude today's conference call. Thank you for joining us and you may now disconnect your lines.