Oberoi Realty Ltd
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Oberoi Realty Ltd
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Ladies and gentlemen, good day, and welcome to the Oberoi Realty Q1 FY '20 Earnings Conference Call. We have Mr. Oberoi, the Chairman and Managing Director of the company; and Mr. Saumil Daru, Director of Finance of the company, with us for the call.Please note that this call will be for 60 minutes. [Operator Instructions] This conference call is being recorded and the transcript for the same may be put up 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 the general business statements, plans, strategy of the company, the future financial condition and growth prospects. The forward-looking statements are based on expectations and projections and may involve a number of risks and uncertainties and other factors that could be -- cause actual results, opportunities and growth potential to differ materially from those suggested by such statements.With this, I now 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 first quarter financial year 2020 results and business updates. Thank you for taking the time out and attending this call.Before I begin, I'd like to tell you that we have sold the highest area in a single quarter in our project Sky City since the launch. The area is about 125,000 square feet this quarter. Our annuity assets also continue to do very well. Commerz II has achieved 96% occupancy. We also have had this quarter where we had an election year and a lot of headwind with regards to NBS issues and so-called subvention scheme stopping. So a very interesting time ahead. I'm sure you'll all have a lot of questions towards that, and I'll be very interested in talking to you guys about that.For now I'll hand over the conference to Saumil, he will take you through the details. And like I said that I'd be very happy to answer your questions. Thank you.
Thank you, Mr. Oberoi. I guess most of you must have gone through the presentation for the results. If not, the same is also available on our website along with the results filed with the exchanges.In terms of consolidated financials, the total consolidated revenue for this quarter was INR 618 crores as against INR 597 crores for Q4 FY '19 and INR 895 crores for Q1 FY '19. The consolidated PBT for this quarter was INR 216 crores as against INR 220 crores for Q4 FY '19 and INR 454 crores for Q1 FY '19.Similar numbers for the consolidated pack, INR 152 crores for Q1 FY '20 and INR 155 crores for Q4 FY '19 and INR 309 crores for Q1 FY '19.Now to move to our asset level performance and to begin with the investment properties. Oberoi Mall, which is the retail asset, contributed INR 39 crores to the operating revenue for this quarter. This is as against INR 38 crores for the last quarter and INR 35 crores for the same quarter last year. The EBITDA margins in this vertical are at about 95%.For Commerz, which is the office space asset, this contributed about INR 10 crores to the operating revenue for this quarter as against the same numbers for the preceding quarter and for the same quarter last year. The EBITDA margins in this vertical continue to be in excess of 94%.In Commerz II Phase 1, this contributed INR 29 crores for this quarter as against INR 25 crores for the immediately preceding quarter and INR 16 crores for the same quarter last year. The EBITDA margins in this vertical are again about 93%.The Westin Mumbai Garden City, that's the hospitality asset, contributed INR 32 crores to the operating revenue for this quarter as against INR 37 crores for the immediately preceding quarter, and INR 30 crores for the same quarter last year. The EBITDA margins in this vertical hover around 32%. Now moving on to the development properties. For Esquire, out of the total project of 21.22 lakh square feet, we have booked over 63,200 square feet in this quarter. Till date, about 16.55 lakh square feet, which is 78% -- which is about 78% of the inventory. The total booking value for Q1 FY '20 is INR 124 crores as against INR 97 crores in this quarter -- in Q4 FY '19 and INR 267 crores for Q1 FY '19. The cumulative booking value till date is about INR 2,678 crores and the total revenue recognized for this project this quarter was INR 119 crores, and the cumulative revenue recognition till date is about INR 2,673 crores on account of 100% project completion.For Prisma, of the total project of about 2.68 lakh square feet, we have booked a little over 8,000 square feet in this quarter. Till date, about 2.4 lakh square feet, which is about 89% of the inventory in this project. The total booking value for Q1 FY '20 is INR 16 crores as against INR 26 crores for Q1 FY '19. The cumulative booking value till date is INR 424 crores. The total revenue recognized for this project in Q1 FY '20 is INR 16 crores and the cumulative revenue recognition till date is about INR 424 crores on account of the 100% project completion.For Mulund, Eternia, and again, we have booked a little over -- more than 20,250 square feet. Till date, total is 6.1 lakh square feet -- 6.16 lakh square feet. The total booking value for Q1 FY '20 is INR 27 crores as against INR 14 crores in the preceding quarter and INR 42 crores for the same quarter last year. Cumulative booking value till date is about INR 898 crores. The revenue recognized in this project for this quarter is INR 59 crores, and the cumulative revenue recognition till date is about INR 428 crores.For Enigma, in this quarter, we booked over 22,500 square feet. Till date, about 4.31 lakh square feet. The total booking value for this quarter is INR 34 crores as against INR 17 crores for Q4 FY '19 and INR 19 crores for Q1 FY '19. Cumulative booking value till date is about INR 636 crores. The total revenue recognized for this project in this quarter is INR 28 crores. Cumulative revenue recognition till date, INR 161 crores.For Sky City, as Mr. Oberoi explained, we have booked close to about 124,000 square feet in this quarter. Till date, we have booked 17.23 lakh square feet. The total booking value for this quarter was INR 187 crores as against INR 83 crores for Q4 FY '19 and INR 89 crores for Q1 FY '19. Till date, the booking value is INR 2,748 crores. The total revenue recognized for this project in Q1 FY '20 is INR 240 crores and cumulative revenue recognition till date is INR 1,462 crores. For Three Sixty West invoices, till date, we have booked about 5.53 lakh square feet and the booking value till date is INR 2,252 crores.Key financial parameters. Our adjusted EBITDA margins for this quarter was 41%. PAT margins was 24% and the EBITDA margins for Mall and Commerz are much higher than the average, as mentioned before. And excluding them, the margins for our pure residential business is 32%.With this, we will want to hand over to any questions that you all may have. Thank you.
[Operator Instructions] The first question is from the line of Tanuj Mukhija from Bank of America.
The first and obvious question on the subvention scheme. Oberoi Realty reported fantastic sales last year on the back of subvention schemes in Esquire and probably this quarter in Sky City. Sir, I would like to know your thoughts on subvention scheme. And going forward, what is the alternate plan for Oberoi Realty?
Okay. So I clearly believe that the government's intervention in disallowing subvention is probably a positive for Oberoi Realty and it's one more step closer to, I think, consolidation of developers. So that's a huge positive. The second thing is that, historically, if you go to see we have less than 1% of our sales that actually have been targeted through subvention. In fact, even less than 1%. We all know that we started using subvention only last year. So we ourselves have been detesting this entire bit because it is nothing but another way of discounting your product, number one.Number two is that our subventions were very different from a lot of other developers. Most of our subventions, rather all our subventions are given only to people who are bank-loan approved unless and until -- so there is no developer subvention. These guys who I have sold apartments to have been approved by banks and only then have been eligible for some sort of subvention. So whether I pay interest or they pay interest is the only differentiating factor. Their credibility at no point in time is of doubt because they are already approved by the banks.And why is it important for me to say that is because going forward, if the customer has to pay the interest when the building is under construction, we hope that he is going to use or be very prudent in choosing the developer. And this is why I say that it's a positive for Oberoi Realty with a track record that one has. And because he's going to be choosy about picking a developer, we see or we feel that there is bound to be a huge consolidation that will happen in the industry.My first belief is that real estate is not going out of fashion. People who want to buy a house, want to buy a house. Whether subvention or no subvention, people look at the ultimate price. In a subvention, the customer thinks that he's derisked to give any installments until the apartment is ready for him to move in. All our subventions require people to pay up to 25% out of their own pocket to be eligible to loan, and that's the loan criteria as well.So all-in-all, one, the removal of subvention doesn't affect us at all. In fact, if it does, it actually helps us. Because like I said that there will be consolidation in the industry, and we also believe that the customer will become that much more prudent when he will buy an apartment, he'll choose the right developer.
Okay. So Vikas, clearly I agree with you that the market was consolidated over a longer period of time. But in the near term, like next 12 months, there will definitely be an impact on sales velocity of your, let's say, Goregaon or Mulund project particularly.
Again, it's really funny, Mulund, people -- some of them, I mean most of our customers are actually paying out of their own pocket because they just don't end up qualifying. These are businessmen, who are not able to show their income. They have money but they're not able to show their income to be qualified for getting a bank loan. So they don't even end up being -- they don't even end up qualifying for the subvention scheme. So in fact, Mulund, I hardly have like a push in sales because we've brought in subvention. Everybody comes in and says that I'll pay you at a regular term, what sort of rate are you going to charge me if I do that? And if you see that in all our projects, we've always maintained that construction-linked program payment is this and subvention is this. So we've always created a differentiation and always given a better price to people who buy without subvention, which clearly shows that we have actually not discounted it. Whatever be the cost of interest gets added on to our price, which is what the customer pays us. So we technically don't have any subvention as such.
Understood. And the second question was on your plans for Thane launch. Given that government has put a cap of INR 45 lakh to claim income tax benefit, could you please guide us regarding your approval and launch time line for Thane, part one? Part two, what is Oberoi Realty's long-term plan for its Oberoi Aspire brand?
So again, we are gearing up to launch Mulund somewhere in Diwali. And we are hoping that we will get all our approvals before the scheduled date so that we come under the old rule. And hence, we will not get that upper cap of INR 45 lakhs, and we'll probably be able to go through. And again here, a very small component of our project, what I would say probably 10%, 15% of our project is designed to be fitting that areas. We are not looking at the entire project. So that's where it is.The Aspire brand will obviously continue, and this will be maybe 1,000, 1,200, 1,500 square feet. So these are apartments between, let's say, INR 1 crore and INR 3 crore apiece is what we are going to bring it under the Aspire brand, more like INR 2 crores, not even INR 3 crores. Between INR 1 crores and INR 2 crores is what we are really looking at doing this. And sorry, what was your third question?
Actually, those were my 2 questions.
The next question is from the line of Abhishek Bhandari from Macquarie.
Vikas and Saumil, I have 2 questions. Basically, do you think the industry is heading towards a scenario where the working capital cycles are likely to remain long? Now where I'm coming from, it's now become kind of a practice that we are able to sell very little during construction, excluding the Borivali project. And bulk of the sales probably are now happening after completion or towards completion. Do you think, am I right in my observation over here?
So your observation is actually based on only one project, which is Mulund. If you see bulk of our sales in Goregaon have been done in the construction, preconstruction stage. Borivali is, again, the same. And so only Mulund is an outlier and as such. And of course, I don't count Worli because Worli is very high-end luxurious and very high-ticket item. So obviously, people like to see that building complete and done that.But your observation is not without any basis. The industry is kind of moving towards that. And this will, again, require developers to go back to the drawing board become more efficient. So we are slowly becoming an industry, an industry that will appreciate speed at which you build, the quality you build. And so no fly-by-night developers, no developers who basically think that as buy land and hold it and prices will go up. All those things are not going to happen, they're going to become a real industry. And it's again a huge positive for a company like us, all of you at least point out that we don't have a land bank, which last a lifetime in a market where things are consistent, why would I need a land bank like that. I want land bank just in time, I want to build it, I want to sell it, I want to make that kind of money. So this will force industries to become efficient. And only the fittest will survive, so which is great again. We don't know any other business. This is something we love and we know whatever little we do. And we'll try to get better at it and address this. This is an industry issue and which is great. It's not going to be unique to us.
Sure. My second question is, if you can probably help us with some of the incremental leasing, what you might have done in the quarter for 2 of your new malls, both Worli and Borivali. And also if you can probably give some kind of your estimate when these malls will come and the hotel at Worli. Just trying to get a sense of your ramp-up on your rental part of the business?
The construction of the mall is happening on schedule. As far as leasing goes, we haven't opened up as yet, but it's really heartening to see that if one were to, one could easily lease the entire mall in this financial year itself. That's the kind of demand we are having. And that is, again, thanks to the way Goregaon has done. If you will once -- you will see the numbers. You'll realize that how well Goregaon is doing for us and again, for the retailers as well. We have people who don't want to go. We are -- we have to force people to leave Goregaon if we want a churn for a better brand to happen. But existing brands are resisting and are willing to pay more because they know that they want to continue here. So given that, I think we're really very excited about both Borivali and Worli. And like I said that, for us, leasing is the least of the issue. Yes.
So Borivali mall will come up in fiscal '21 and Worli in fiscal '23, is that...
No, no, no. Not '23, it will be earlier than '23.
Borivali mall is a November '20 launch.
So Borivali mall is November '20 launch. So it's like next year November we will be done. We've already done 3 levels of basement. We are on the ground floor, and we have 4 levels to go. Contractors were given a 14-month period to do the entire shell. And we only have to do a little over 100,000, 120,000-odd square feet of interior spaces. The rest of the entire area is done by retailers themselves. So there's very little that one needs to do. We need to do the facade and we need to do common area. So we are really gearing up for next year November, and Worli will be a year after that.And Worli, again, also we've done entire excavation and are ready for things to roll.
Sure. So in one of the earlier conference calls, you have spoken about your intention to come to a solution to this 50-50 holding, you did Worli plot. So any progress over there? The reason I'm asking is that, at what time probably you'd want to do it? Before the mall opens, after the mall opens?
Not really. Again, we've been busy doing so many other things. This part of restructuring has gone onto the back burner. Not that it's not on our mind, but we continue to think through, speak, engage with investment bankers and see how this can be done. Because obviously, within the company, there is a great valuation that one gets, and I'm still the largest shareholder in the company. So again, again, everything is aligned, including the interest, we're just finding the right way to do it and the right time.
And -- sure. And my last question, Vikas, your comment last quarter that many developers will lose shirt and we don't want to participate, has got many -- has got too much of eyeballs in social media, et cetera. So if you could share what has been the experience incrementally since you made that comment? Are you really seeing many more developers go down under and some of the proposals increasing? Not from an asset point of view, but in terms of even land being more available to you to develop? That will be my last question.
Honestly, whatever was put on the WhatsApp message, obviously was what I said. So I don't blame somebody putting it that way. They genuinely were my thoughts. There were of course multiple sentences picked and put together, and they were not meant to sound as harsh as they did. But so they were like -- there were statement made for different questions. But obviously, like I said that I don't take away the essence or the thought behind that message. And I clearly see that what I said -- I'm not a Nostradamus or somebody like that. But I clearly see that playing out. And it's just an obvious, you don't need to be Einstein to kind of predict something like that or whatever. It is bound to play out like that. We are in an industry which is cyclical. We do end up in a situation where one can have cash flow liability mismatch. And the other big thing is that reputation is everything for us. Because, like I just said that if there is no subvention and a buyer has to pay interest, he needs to know that whether this developer is going to finish his building. Otherwise, he's going to be -- keep paying installment, whether he pays it out of his pocket or he gets the bank to pay, the liability gets created on him. So he's going to use his prudence to pick a developer. And we are really hoping that he goes about doing that very well and in that, he probably will give us business. So for any developer who wants that business will have to actually take great caution and measures to protect his franchise. So I genuinely feel that the way our industries and the way things are, and government's reluctance to give developer money and rightly so, I mean we called this upon ourselves, is absolutely driving the behavior of customer and our industry. So that's how it is.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
Really can you talk a bit about the Worli project? There are no sales that was recorded. So how to think about the sales philosophy? And so I mean are we just...
So -- okay, go ahead.
Are we just 2 apartment sales away from recognition?
So actually, Worli, we had 3 sales and we had 3 cancellations. And I mean I'm a little finicky about who ends up buying, who does not buy or whatever. And the 2 -- the purchase that somebody had done, we were just not able to come to terms with his expectations. So I had to literally apologize and tell him that I am not in a position to satisfy you. And hence, let's call the deal off, let's be friends and I had returned his money. And of course, I mean in a market like this, that fellow thought that I'm really fibbing or I'm not going to do what I told him to. But really, the deal was so difficult that I couldn't go ahead and do that. And we were able to replace those 3 sales with brand-new sales. In fact, if you see, there is an increase of 1,800-odd square feet in the area, and that comes out of the area previously sold versus the area sold today, the 3 flats that I sold, the combined areas/values higher than the combined area value of the previously canceled. So that's about it. And I must say, Worli is turning out to be beautiful. I was there on-site yesterday. And saw the clubhouse, I saw the bowling alley and indoor swimming pool, the cricket visiting and squash court and foosball court, the theater. It's really something I feel, and really international quality.Before the end of next quarter, I will personally take any of you guys who is interested and is on the call to see the development, and you will have that sort of confidence that I have today in the way we've done Worli. So I'm not worried about it. I'm sure -- and again, I must say, people who come absolutely [indiscernible] they love it and they buy. So we're not really worried about that at all.
Okay. And you're on track for OC in September/December?
Yes. Yes.
Okay. Saumil, on recognition?
Yes, you're right. Of course, we calculate the percentage based on the area rather than the number of flats. So we have about -- whatever [indiscernible] to go for achieving that 25% area threshold, and then we will recognize.
Okay, great. Your equity...
Looks like this quarter by the way.
Sorry? In the same quarter, yes?
Yes.
Okay, great. Vikas, just on your equity raise plan and any big deal that you may be working on? So any thoughts on that? I mean we have seen the sector in stress for pretty long now, but not much that has come about by way of either you or any other developer doing big deals.
You're absolutely right. If you look at the environment, the NCLTs of the world are not really able to push or let our sales go through. A developer who's losing his property gives it a real fight and will delay it and stuff like that. So what really I feel the positive of this is that any new land parcel that comes in the market, which is a clean land parcel, sells at a price which is attractive. I wouldn't call it distressed, but it sells at a price that's attractive. The reason being that there is very little competition trying to buy that land. There are a few of us who would probably want to put in that kind of money in, buy land. And there is enough for all 3 of us. There's no point in trying to outdo the other. And I like -- I kind of mapped that very clearly that if there is somebody who hasn't bought land and he's going to be very aggressive, I allow him to buy that piece. And once he has exhausted his cash, I will enter in and buy the property. We do time that. If you see both our Thane property, and the Thane property were bought in a similar fashion. So and that's the way one should go about doing it. I'm not -- like I'm not going to go after brownfield projects because there's a lot of mess. Firstly, the method in which this is going to be sold. Will it be an auction that an NCLT will do? Or their entire process -- will it go -- through what sort of mechanism will this come out into the market? And one does not want to take liability in a brownfield project where developers already created third-party and is committed to give possession. So their consent is important, and so on and so forth. So there's a lot, I would say, that needs to be done on that account. But like I said, the positive of that is that you do end up getting land parcels from clean, good companies, which we will focus on and buy. And again, there will be non-competes [indiscernible] and so on and so forth. So I really don't want to -- I've got enough and more to sell in Borivali. I wouldn't want to buy another property next to my plot. It won't do any justice.
Great. And just one final question. For the Goregaon 2 offices, Commerz I and Commerz II, do you have same 3 years 15% escalation clause? And second, what was the marginal rentals that you got from -- for Commerz II towards the end?
So you're absolutely right. We do have this 3-year -- 15% every 3 years increase. And the large deal that we did in Commerz II was a 140-plus-plus-plus. So 140 plus tax, plus CAM, plus parking. And this is on the leasable area. Like on our carpet, we've gone beyond 200 -- sorry, 225. My team corrects me, it's 225 on carpet plus-plus-plus.
Okay. More the better, yes.
The next question is from the line of Chandrasekhar Sridhar from Fidelity.
Vikas, I think you told us last time around the pending construction costs on Worli worth INR 150 crores. I think you've incurred INR 150 crores in this current quarter alone. But I think there's something more to go. So could you just help us out is, how much is -- just how much is left in terms of costs? And how much have you spent to date?
Sekhar, Saumil here. We can take this separately offline, but the numbers that you see reported are a consolidated figure for both the hotel as well as the residential. So we can discuss that separately as to what's the breakup and then, correspondingly, how much is pending.
Right. Right. And I think for second quarter last year, you said that the Ritz is on sort of soft launch in September and a full launch in December, is the time line there or has that been pushed forward?
No. No. It's being pushed forward. I mean, I must tell everybody here that hotels are a real moving target, and we are now focused on first finishing the residential building, put all our energy there, and then get down to doing the hotel bit. So if everything goes well, it probably will be the same days but the 2020 of September and December.
Okay. So it's being pushed forward by [indiscernible]...
[indiscernible]
Right, right, right. And just to my understanding, have you -- the realizations on Esquire, I mean, which are effectively selling; the higher floors have come off and then -- have you cut prices on -- in Eternia as well? Or is this something relating to the GST adjustment? Or is it -- so I'm just trying to understand that. Because the realizations incurred rapidly to -- for the quarter.
Again, Sekhar, the thing will be always that it's a question of a mix which are the higher floors and which are the lower floors. So it's -- there are -- the tendency for the overall mix to tend towards the lower floor than the average will kind of go downwards. And otherwise, it will go up. So for example, if you look at Q4 FY '19, then it was higher than the Q1 FY '19 numbers. And almost similar to the overall FY '19 numbers. So if you typically end up looking at full year numbers, you will get a better average and a better picture than just for what's happening in one quarter.
If I'm not wrong, I think it's right only that higher floors were remaining. If I'm not wrong.
Yes. But -- so within the higher floors also, what happens is, if in a particular quarter, what you sell is above the 50th floor, then that will give you a different average. And then what happens if in another quarter, you sell things more around the 40th floor. So it's not lower floors in terms of absolute lower floor in -- for the whole building, it will just be with -- compared to the earlier quarter, which -- where did leased apartments [ act ] up, that's all. Because if you look at the numbers, we report the numbers inclusive of floor rise. So that's where the mix comes into question.
Okay. And sorry, is there any reason for the delay of why -- I mean, last we -- my understanding was that we were supposed to get Worli also in June 2019. And this has now been pushed to December 2019?
No. In fact, there are dates talk of December of 2020, but we are actually going to get this OC within September and December. So it's, in fact, 1 year ahead of schedule.
Right. Okay. And my final question is, just this time last year when you were done with [indiscernible] you did speak about it being used at -- there are opportunities which you were seeing in land. I know you've spoken about it just in the previous question. But I mean, is there a timeline to which you're giving yourselves? Because it's been a year and I mean -- or is it something you're still on the lookout, it may take another 6 months, it may take another year because it's been a year since I thought you've been in the market looking for land?
Again, like I really can't put a time line because it's a search literally. And it's for the right location. It's for the right price. It's for the right seller. There are many variables here, unless and until all of them are aligned, I am not ready to strike. So we're very prudent about that. And we continue to look, it's like literally part of my everyday job and we put in a lot of effort. And we continue to do that. So it could happen in a month, it could happen in 2 months, and yes.
The next question is from the line of Abhinav Sinha from CLSA.
The first question on the balance sheet and cash flow front. So we have seen about a reduction of INR 160 crores in cash balance Q-o-Q, and also borrowing there up about INR 220 crores, INR 230 crores. So where would have this been used?
Abhinav, Saumil. So where you're seeing that consumption of cash, it is more going into the Borivali mall that we are doing.
Okay. And the remaining? The increase in debt?
I don't know from where that is coming from because, actually, if I look at it, the overall numbers have -- it has only reduced as far as this quarter is concerned. It's off by about -- by a net amount of about INR 50-odd crores. So I don't know where that one is coming from.
No, sir. I was looking at the borrowings under current liabilities, that has gone up from 248 to 468?
Correct.
On...
There is some reclassification also which is happening from long term to current. So that's where you're seeing the change coming in. And if I look at the overall borrowings, if you look at the noncurrent financial borrowings, then those come off from about 678 to 580.
Okay. So that will explain it. Sir, secondly, on the Sky City project. So sales were quite good. And I just wanted to check, I mean how much of that will you attribute to, say, higher footfalls because of subvention or if this is a pace that we should expect now irrespective of any subvention plan?
Firstly, it's probably a difficult quarter. We ourselves were surprised with the result. And I would say that one building of ours, we top up our construction within the end of next month at max. Correct? No, one building, the Tower...
Tower B.
Tower B, we actually finish within the next month. So people are seeing like an excellent pace of work and that is driving people. They actually believe that it's now ready. Even though we are committed to people at a particular date for RERA, we are running probably a year or 1.5 years ahead of schedule. So that itself is like really boosting the sales. And I'm myself surprised that despite subvention -- because, again you know how subvention is different from other people because we clearly charge a higher price. So a lot of people prefer not to go through subvention and coming directly because they feel that they'll benefit out of this because of whatever extra load, they end up paying stamp duty on that value versus if they were to pay it themselves, then this additional component would not require a stamp duty and other things. So they are far happier and then they pay subvention, a part of that also gets tax deductible and stuff like that. So people are not really coming in, in a very big way. I would say, probably 30%, 40% of our sales would have been through subvention and the rest, 60% to 70%, is construction-linked plan. So it's just not one thing or the other. In fact, even before we had launched this scheme within this quarter, we had done reasonable number of sales there already.
Right. And will you look to launch more towers here now?
So we have 3 more buildings to build. And the work for all 3 are on. And we just thought that, let us sell a little more here. We have -- I mean, from what I recollect out of the inventory that we have in the market, we have sold over 70%. And we are still technically with RERA a date of completion probably 2, 2.5 years into possession. So we clearly look like, again, going back into an era where before our buildings are complete, 100% of sales are done. So we want to push the sales here a little more because our recovery when we sell is far higher. So any customer who comes to buy from me, I want to motivate him to take an apartment here because that allows me more cash and allows me better profit recognition and everything.So for us, strategically, it's better to sell this and keep funding those buildings with our own cash flow and bring them to a level where there is enough confidence. People know that these buildings are also going to get done very quickly, and so on and so forth. And that's how it is.
Right. And just a last question. On the Worli project, so I mean the product looks quite fantastic and it's completing now. Is there any possibility that we can raise our stake in this project now?
Not really. No, we are not looking at that.
The next question is from the line of Saurabh from JP Morgan.
Sir, firstly, on this residential margin, [ around ] 32%, I'm just wondering, you have sold higher units in Esquire and Sky City. So I mean why should this margin [ reduce ]?
Saurabh, Saumil here. Two things. So if you look at 2 of the projects, so one is Enigma and the second is Sky City E. So as far as Sky City is concerned, the revenue and the corresponding margin recognition is only happening in Sky City A to D. It is not happening in Sky City E. Because as far as RERA is concerned, these are 2 separate registrations. So for the purposes of the books also, these are 2 separate projects. If you will recollect, last year, when we had this adoption of this new AS 115, which was in connection with the revenue recognition policy. We had said that till we hit all the thresholds, we will only recognize revenue to the extent of cost incurred. So while for Enigma and for Sky City E, of the sales, we are not recognizing the margins. However, there is an impact coming in on account of the turnover and hence, the top line is being shown but correspondingly, the margins are not being shown. So in both of these projects, when we hit revenue recognition, then in those quarters, you are likely to see the margins go up substantially. So that is what it is. So if I take out the effect of that thing, then your residential margins are close to the vicinity of what we have always reported on an average every quarter.
Okay. So the fall which is happening, let's say, from 34%-odd, which you were in 3Q, 4Q to 1Q because, see the -- I mean you would still have been recognizing those top lines, right?
Correct.
Quarter-on-quarter, it has still come down. So why should that...
No, no, no. So but the point will be that what is the ratio? So for example, if you look at the sales which have happened in Borivali this quarter. So out of that 74 units, again, there is quite a lot of contribution coming in from Tower E. But the sales percentage is not enough. It is not exceeding 25% as far as Tower E is concerned, but there is a fair amount of sales coming in from Tower E, and that's why you're seeing recognition in Tower E. In the earlier quarters, Tower E would not have contributed as much. If fact, Tower E was only launched last year in December. So if the projects for which you're not having a margin recognition are contributing a little bit to the top line, then in that case, you will see this margin reduction coming in. It's just an accounting anomaly. And hopefully, as we hit revenue recognition for both of these projects in the coming quarters, you will more than see things getting righted.
Okay. Sir, second question is on Worli. I mean you can answer whatever you're comfortable with. But it seems that your joint venture partner has mortgaged his share with a stressed NBFC, and that loan is whatever is being -- in the process of being sold down or -- so I just wanted to confirm, there is no impact to the project per se, right? As to whatever may happen with the loan out of the NBFC?
Absolutely, no. I mean so as far as we are concerned, he's not even entitled to mortgage. All he's entitled to is mortgage the receivables of his amount. And he is free to do that. One can't stop that. But per se, the -- our AOP has not done anything. And it doesn't affect the project. It doesn't take our right at all.
No, no, I'm -- so your right is protected. But in terms of the units, he may have mortgaged.
No, there are no units mortgaged at all.
So he mortgaged a share of [indiscernible].
[indiscernible] his receivables with Worli.
Yes.
Okay. But you will decide the pricing and the [ monetization ].
Of course. Absolutely.
Okay. Yes, okay. And sir, lastly, on -- again on this JDA strategy and your capital allocation. So if we look at Sky City, we are in the fifth year of our acquisition this year. And I mean if you just kind of do some financials, you've just barely recovered the investment in Sky City at this point. Even in Worli, that is in the eighth or ninth -- I mean actually more like 10th year of our investment. So I mean how do you see at what point -- I mean how would you kind of allocate incremental capital when the gestation of our projects is so long?
Well, if you really look at the amount of money one's going to be making in Borivali, it will justify all the investment that one has made. Merely the value of the mall that we will be creating will be more than -- I mean, let's say, if we have, at an average, hit about INR 300 crores or INR 350 crores as rent every year, the asset value will be a little over INR 4,500 crores. At an 8 cap rate or whatever.So it more than justifies paying INR 1,000 crores for a land parcel which can give you that figure. Plus you're talking about the profit that you will get out of the projects. And so -- and our -- like you rightly said that our capital is back, which is a big thing, and we are still left with close to maybe 2.8 million square feet of ready-to-sell and a little over 1 million square feet of mall and a hotel there. So I mean if this is a bad deal, I'm willing to do multiple of these as many times as you can...
No. No. My question, Vikas, was simply on the IRR. I mean, obviously, there's a multiple and there's an IRR. I mean if you kind of just...
So it will because right now, my investment is 0. So now I have my IRR as infinite.
Okay. Fine, I'll take this offline. And just one last question, sir. On the CapEx for the rental assets, the number if I recall was INR 2,500 crores. So how much will you have spent of that?
The new development?
Yes. The rental. Yes, the...
The rental assets. Yes, so...
You can take that offline with Saumil. Like I said, we haven't done any borrowings on that as yet. We are only using our internal accruals to build all 3. And of course, we will look at leveraging that at some point in time. And because we want to keep our cash free for future land acquisition, and these assets are well -- like literally, 2.5 years of rental will probably take care of all the debt while we're creating this asset.
No. No. My question is not on debt. I just wanted to know how much has been incurred in terms of your...
Okay. That, you can take with Saumil offline.
Yes.
The next question is from the line of Adhidev Chattopadhyay from ICICI Securities.
Sir, firstly, I just want to ask, sir, technically, can we still offer subvention schemes in partners with banks across our projects?
Well, banks haven't stopped doing this subvention. But anyhow, I mean they are absolutely okay.
It's only -- I mean right now, their circular is on the NHB, so it is the housing finance companies which are covered.
So we continue to offer the schemes whatever is in place. In Mulund, Goregaon, will you be continuing to give that option to the customer?
Obviously, yes.
Okay. And sir, secondly, there are now a couple of news that the municipal commissioner, there has been a letter doing the rounds that they have proposed to reduce their FSI charges and premiums by 50% in the city of Mumbai. So could you just now elaborate on whatever balance, whatever we have to build, okay, in Borivali and Mulund and other projects? Any cost savings which would be happening from there?
Substantially for that matter, I would say. In fact, they've already come out with a letter circular. And again, unfortunately, it's not 50%. It is down from 50% to 40%, which is a reduction of 20%, one can say. Again, I mean good, but not good enough. I mean we all are hoping for a lot more. And -- but again, it's still, at least, it's good that the government is sensitive to the developers' need. And I guess one will need to have -- like one will need to plead their case better. We have a good government. We've tried to do that. They can pull that out a little more, but for now, they've already done from 50% to 40% and they've gone ahead. So that's it. And it's only a small window. It's a window for 2 years. They just want to support the industry and they've come up with this.
Sure, sir. And just a last question on the industries. We have been reading there have been a few land deals now recently which have happened in Mumbai over last 3, 4 months. From whatever we gather, the land price is not simply falling. In fact, they seem to be even higher than previous years. Any thoughts on that on where it is headed in your view?
Oh, yes. I mean, again, I really feel great that companies like Sumitomo are interested in Mumbai. And so this is how it is. Like at one end, you'll have companies like Sumitomo wanting to pick up marquee land, clean land. And at the other end, you will see developers in distress. So that's going to be the story going forward. It's very encouraging. I was very excited, very happy when I saw that happening. So like people still believe in the real estate story of India, and Mumbai for that matter. And hence, they are interested in coming here. So if you do your job well, you -- I think it's a great story. I really like that.
Sure. And just a final question. So where are we on the launches for the Goregaon Phase III and Thane now? When do you expect those to come in?
Goregaon Phase III, the work continues to be at brisk pace. A lot of my monies are -- all my internal accruals are actually going there as well. But so we are looking at either like a Diwali or a little around that kind of launch there. So we are now doing our show apartment. We're doing our sales gallery, the new one. And then we will start the sales there.
Okay. And Thane, any clarity? Like when do the -- all the approvals come in? And when we are clear?
So again, we are hoping for a Diwali launch in Thane as well. It's a non-competing market. It's a non-competing sector. So that will probably give us volume in terms of sales and our -- all that.
The next question is from the line of Kunal Lakhan from Axis Capital.
Just a follow-up on the previous question. Have we -- is the land transaction completed at Thane? And do we have some clarity on what is the final cost of acquisition of that land?
So we are literally on the last leg. And so once that is done, we'll be able to share everything with you. You have patiently waited. Just give us one more quarter, and we'll give you all the news and good news as well.
Sure. So but the land -- the transaction closure should not have any impact on the time line of the launch, right? I mean [indiscernible] the launch?
No, not at all. Not at all. Like I said, we are like, literally -- we were hoping we would be able to give you good news in this quarter itself. It's just been postponed to maybe next quarter. But it will be happening within weeks.
Sure. Sure. Sure. Also just again to dwell on the subvention schemes. Some developers were used to also offer like the developer subvention schemes, so to speak, not the bank subvention schemes. With, say, our kind of balance sheet and our kind of borrowing cost, while maintaining the hygiene in terms of, like qualification requirement for buyers to avail of such schemes, will we look at offering developer subvention schemes?
On this scheme, no, we won't do developer subvention schemes at all. We want the credibility of the buyer to be ascertained by the banks. And we have no wherewithal to check the credentials of the buyer and his capability and ability or rather convince him to pay us.
Sure. Fair enough. And lastly, just you mentioned that the -- like with Worli, the residential will get completed first. Any idea on what -- why changing that strategy? I mean we always thought that sales at Worli would pick up once the hotel becomes operational.
So you know...
[indiscernible]
It's just our focus. We want to focus in and do the building first. And that's why, like I said, that we have preponed the entire finishing bit of the building first and get that going. It's also a better strategy. We generate cash out of the resi building, and then use that to do the interiors and so on and so forth. There's no major strategy as such.
Ladies and gentlemen, I now hand the conference over to Mr. Oberoi for his closing comments.
Thank you all for taking time to attend this conference call. Like I've always said, we genuinely like all the questions that you come up with. It helps us think better. It helps us plan better and it helps us run our company better. So please continue to do that, and thank you once again for attending this call. Really appreciate all your effort. Thank you again.
Thank you. Ladies and gentlemen, on behalf of Oberoi Realty, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.