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Oberoi Realty Ltd
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Ladies and gentlemen, good day, and welcome to the Oberoi Realty Q3 FY '19 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] And this conference call is being recorded and the transcript of 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 general business statements, plans, strategy of the company, the future financial condition and growth prospects. The forward-looking statements are based on expectation and projection and may involve a number of risks and uncertainties and other factors that could cause actual results, opportunities and growth potential to differ materially from those suggested by such statements. I would now like 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 third quarter financial year 2019 results and business update. Thank you for taking time to attend this call.Before we begin, I would like to tell you that we are glad that we have achieved our highest-ever top line in a financial year ever. Secondly, we've also crossed 1,000 unit sales at our Borivali project, Sky City. We've also started our booking in the fifth tower at Borivali. Of course, I'm here to take any and more questions from you. I now hand over the call to Saumil to take you through the details of the numbers and look forward to talking to you.
Thank you, Mr. Oberoi. I guess most of you would have gone through the presentation, which has already been put up. And if not, the same is available on the website, along with the results, which have been filed with the exchanges. In terms of consolidated financials, we achieved a consolidated revenue of INR 548 crores for this quarter. This is as against INR 619 crores for the Q2 FY '19 and INR 360 crores for Q3 FY '18. The consolidated PBT was at about INR 195 crores for Q3 FY '19 as against INR 307 crores for Q2 FY '19 and about the INR 183 crores for Q3 FY '18. And the consolidated PAT for this quarter was at INR 137 crores as against INR 213 crores for the immediately preceding quarter and INR 120 crores for the same quarter last year. Moving to the asset level performance and beginning with investment properties. The investment properties continued to have steady and strong performance. Oberoi Mall, which is our retail asset, it contributed about INR 38 crores to the operating revenue for this quarter as against INR 37 crores for the last quarter and INR 27 crores for the same quarter last year. The EBITDA margin in this case is in excess of 95%. In Commerz, our office-based asset contributed about INR 10 crores to the operating revenue for this quarter. This is as against INR 10 crores for the last quarter and INR 11 crores for the same quarter last year. The EBITDA margin again continued to be in excess of 95%. In Commerz II Phase 1, this contributed about INR 22 crores for this quarter as against INR 18 crores for Q3 FY '19 and INR 11 crores for the same quarter last year. Lastly, The Westin Mumbai. This contributed about INR 36 crores to the operating revenue for this quarter as against INR 32 crores for Q2 FY '19 and INR 35 crores for the same quarter last year. The EBITDA margin in this vertical continued to be in excess of 33%. Moving on development properties, beginning with Goregaon. Esquire, out of the total project of 21.22 lakh square feet, we have booked nearly 30,000 square feet in this quarter. Until date, about 15.45 lakh square feet, which is about 72% of the inventory. The total booking value for this quarter is about INR 66 crores as against INR 110 crores in Q2 FY '19 and INR 48 crores for Q3 FY '18. The cumulative booking value until date is about INR 2,456 crores. And the total revenue recognized for this project in this quarter was INR 66 crores. And the cumulative revenue recognition until date is INR 2,456 crores on account of 100% of project completion. For Exquisite, of the total project of 15.47 lakh square feet, we have booked 1,690 square feet. This was the one last 3-bedroom in Exquisite in Q3 FY '19. Until date, we have booked about 14.25 lakh square feet, which is 92% of the inventory in this project. The total booking value in this quarter was INR 4 crores as against INR 39 crores in Q2 FY '19 and INR 41 crores for Q3 FY '18. And the cumulative booking value until date is about INR 2,351 crores. The total revenue recognized for this project in this quarter was the INR 4 crores. And the cumulative revenue recognition until date stands at INR 2,351 crores on account 100% of project completion.For Prisma, out of the total project of 2.68 lakh square feet, until date, we have booked about 2.31 lakh square feet, which was about 86% of the inventory in this project. The cumulative booking value until date is INR 407 crores. And cumulative revenue recognition until date is also INR 407 crores on account of 100% project completion. For Mulund, moving to Eternia. In this quarter, we booked about close to 22,000 square feet. Until date, we have booked about 5.86 lakh square feet. The total booking value this quarter was INR 32 crores as against INR 34 crores for the last quarter and INR 10 crores for the same quarter last year. And the cumulative booking value until date is about INR 856 crores. The total revenue recognized for this project in this quarter was INR 57 crores. And cumulative recognition until date is about INR 292 crores.For Mulund, Enigma. This quarter, we booked close to 21,000 square feet, until date about 3.96 lakh square feet. The total booking value in this quarter was INR 32 crores as against INR 10 crores for Q2 FY '19. And the cumulative booking value until date is about INR 584 crores. The total revenue recognized for this project in this quarter is INR 18 crores. And cumulative revenue recognition until date is about INR 104 crores. Lastly, to Sky City -- rather for Sky City, we booked over 75,000 square feet in this quarter, until date about 15.47 lakh square feet. The total booking value in this quarter was INR 119 crores as against INR 130 crores for Q2 FY '19 and INR 76 crores for Q3 FY '18. Until date, the booking value is about INR 2,476 crores. The total revenue recognized for this project this quarter was INR 246 crores and cumulative revenue recognition until date is about INR 988 crores. For Oasis, Three Sixty West, until date about 5.27 lakh square feet and the booking value is about INR 2,135 crores until date. Coming back to some key financial parameters. Our adjusted EBITDA margins for Q3 FY '19 was 42%. PAT margins were 25% for Q3 FY '19 and the EBITDA margin for Mall and Commerz as usual are much higher than average as before. And excluding them, the margins for our pure residential business stands at about 33%. Thank you very much. And with that, we are happy to take questions that you all could have. Thank you.
[Operator Instructions] We take the first question from the line of Adhidev Chattopadhyay from ICICI Securities.
So sir, could you just give us clarity on what is now the expected launch time for Goregaon Phase 3? And what is the approval status for the Thane project?
So Goregaon Phase 3, work has already commenced. And as far as Thane goes, I think this quarter, we should be in a position to close all the documentation and that's it.
Okay. So we'll expect something within first half of next financial year, means in the April to June quarter or...
For the approval?
No, I'm saying, sir, when is the launch plan, means when do you...
Launch plan for Phase 3 of Goregaon, right?
Yes, yes, yes.
So probably either the -- more likely in the second quarter because like probably more like September is when we want to launch that.
Okay. And Thane rolls out at a similar time line?
Thane will also have similar time line. Because the festive season, we want to begin well and all that. Immediately after May, like as in June, you have rains and stuff like that. We don't want to get into that. It will be more around August, September when we will start looking at our launch and stuff like that. But by then, like a lot of work would have also been done. And it's always nice to go to the market with work in full swing and so confidence is different and stuff like that.
Okay. So then continuing that, how do we intend to like prop up our sales volume now in the next 6 months then if the other launches we are keeping on hold for some time?
We have to lot to sell. I mean, that's the least of our problem. We have Esquire still to be sold. We've got Sky City. We've got Mulund. We may in between launch Maxima, which is on JVLR. So we'll have one or the other launch. But anyway, we have enough to sell.
We take the next question from the line of Puneet Gulati from HSBC.
Just a little more trying to understand here on the launch. I thought the original plan was to launch in fourth quarter of this fiscal year because you wanted to create an inventory of completely freshly launched projects. Why has the thinking changed now?
It's really not -- it's not changed as such. We are also looking into the election month, coming March. So I don't think the mood is all that set. I would say let this play out, let the election bit play out and then we'll have more clarity. And even people per se like that. It's a budget month. And so we didn't want to really kind of do that. At March end, our experience has also been that that's the time when liquidity is at its low. People have to pay their taxes and all the expenses have to be met. So we just thought that we will either take it into the first quarter or the next -- second quarter of next year. But then we thought it's better we do it around a festive time, which is more like August, September.
Yes. But all this was not -- what you think that, that NBFC issue is also hurting a bit on the demand side from your projects?
Not really, I would say. Because if you see how Borivali has done so well, in fact this quarter, Borivali also is among the highest sales. So it's not really affected us. In fact, even Mulund, if you see, we have in fact bounced back in many of our projects. I don't see that as a problem. Again, of course, in a way, if I would say that it's been a huge positive because very few people will today be credible enough to get money. So in a market like this, I think this squeeze, of course, is a squeeze. But it's the least of a squeeze for us. And if this is like literally decimating the market, it is only that much more room for us. So we are not really worried. And we almost [ read it ] because we couldn't stack up the mat the way most of these NBFCs were giving monies to developers. I really couldn't understand how this is going to finally play out.
So sir, are you seeing some better opportunities now than earlier or...
So we have been seeing better opportunity for the past 6 to 9 months, even before the NBFCs. Because before NBFCs started acting, they started squeezing their loans out and they put pressure. Only once these guys failed and it became public, did it really get to the market. But we could clearly see that a lot of these developers are under a lot of pressure, having borrowed money and stuff like that. So yes, going forward, we'll see even better opportunities, I would say.
Okay. And there are some news on relaxations of CRZ norms. Are you expected to see any extra land becoming available -- necessarily becoming available for any of your projects?
Actually, it's not relaxation, it's only streamlining. All these rules and regulations were there. But the processes were bigger and a little more stringent. So what basically they are saying is that they will literally get approval from CRZ point of view for the entire development plan. Once it's approved in the development plan, then one need not go to the CRZ for special permission. And that's about it. So there is no real change as such.
So is it likely to impact you at all in any way or no?
No, not really, not at all. I mean, not at all, actually. It won't even impact anybody as such, either positively or negatively. The only thing is yes in the ease of business, this might get a little better. One will not have to go to CRZ for specific approval. Once the DP is approved, the government has decided that they'll get the entire DP approved under the CRZ, so then they don't have for the CRZ portion to especially go to MoEF and all that.
Okay. Lastly, on the Commerz II, the occupancy is still 65%. When should we see that reaching a higher number? I thought you had a higher committed occupancy?
So Puneet 100% literally, I mean, as everybody in one floor, 100% of the entire building is already leased. The rent begins -- we've got the rent-free period and all that. And in fact, there have been agreements done, all signed, sealed, delivered. We are only waiting for rents to commence. Probably some of them start in February.
March.
Some of them start...
All of them by March.
All of them within this quarter. So the next quarter, you will see 100% occupied. It's all done.
We take the next question from the line of Kunal Lakhan from Axis Capital.
Sir, on Goregaon, clearly the demand has slowed down since our activation in Q1. How should we look at this going ahead? Will we look at, say, altering our payment strategy or pricing strategy, for that matter, going ahead to just to give that little extra push for the sales?
Kunal, last year, we had done in fact less than 60 apartments in total. When we came up with the scheme, we thought that we would do anywhere between 100 and 120 in a year. We thought that if we can double it, we'll be very happy. You'll be happy to know that we started this in April of last year. And it's been 3 quarters. And we have already done 102 apartments. So I think the scheme has really worked very well for us. Of course, and if you note in the scheme, we had not changed the payment date. Irrespective of whether you book in April or if you book in December, you'll still get 3 years from April. So that means the people who are coming now get almost 2 years and 3 months to pay the rest of the money. So like we want to play this year out and then we might take a call, whether one wants to relaunch the scheme with the 3-year payment term so that we can then give actual 3 years to people or maybe we will reduce it to 2.5 or something like that. But this scheme has done exceptionally well, like I said, that we have sold 2x the apartment compared to what we sold the last year. So it's been positive for us.
Sure. On Worli, we are expecting the OC later this year sometime. How should we look at sales going ahead? Because say, for example, like after OC, the GST will be out. And those apartments, which are INR 40 crore-plus would be a lot cheaper in terms of absolute amounts. So will the -- do we expect the sales to remain muted until we get OC?
No, not really. I mean, I would hope at least we don't see that scenario. Having said that, anywhere after this March, which is like literally 2 months from now, we will start giving possession to people to do their fit-outs. That doesn't mean the building will be complete. We'll also be doing our work and finishing it. But we will have now physically got third party as in like people involved. And they are given possession to them. So in the next 9 months or so, when they finish their interiors, they can move in. I think that will give a very big boost to our sales. People are now waiting and -- like waiting for it -- for them to get possession. So I think that will really play well. And we will also be applying for OC, let's say within the March or June of this year. And once we get OC, of course, GST will drop and people will benefit out of that. And yes, we hope that people don't wait. But if they do, then the wait will only be the next 3 to 6 months. So it's not really that big.
Sure. And one last one from my side. Saumil, in terms of your cash flow, right, the investing cash flow, those outflow of about INR 66 crores.
Yes.
How do you reconcile this with the balance sheet? Because your investments haven't gone up by that much and your CapEx doesn't seem to be going up either significantly. How should we look at it?
Predominant movement of it was from bank deposits to what you can say mutual funds. So that is what predominantly qualifies under the investing cash flows. And some part of it would be investment into joint ventures and other things. So that's what it comes down to in the end.
And if we had to just like break it up into, let's say, CapEx done in this quarter, how much that would be?
Pure CapEx done so far is predominantly for Borivali mall and this. So it would be about -- say, about INR 40 crores or INR 50 crores out of this.
And investment in JV, roughly?
Can I come back to you on that one? Because I just need to go through the numbers in details, that's all.
Sure, sure, sure.
Next question is from the line of Chintan Modi from Motilal Oswal Securities.
So basically, on Three Sixty West, we clearly -- I understand we lag in terms of collection compared to the booking value. But considering that by March, we'll be giving out for possessions, when do we plan to build for the rest of the amount? And should we kind of assume that next year, we'll be able to recover the whole gap of positive growth?
Oh, yes. Chintan, it's Saumil. See, the payment schedules with the customers are all milestone-linked. So now that RERA is in place, I think all of us know what all the milestones are. So as soon as we hit each of these milestones over the coming quarter or by June, whenever those ease in, you will see us collecting 100% of the amounts, which are due.
And can you update us in terms of Ritz-Carlton, where are we?
Well, so there also, our work goes on. We are looking at a launch date for that hotel within the calendar year 2019, most probably towards the end of '19 and beginning of '20. So that's where it is. Work goes on at full pace. For hotels, [indiscernible] lies in the details because these are finished fully, every single room is fitted out. So they take their time. But yes, this is what we have discussed always with people. We are online with what we have discussed earlier.
Sure. And lastly, if you can give us a broad range of how much we intend to spend in terms of construction during the next year?
If we can discuss that separately because there are things at our end also which we are just reworking because once Thane comes through, then that is also something that we add in, and all of that. So we are still working through all of those numbers. Give us a month or 2 and I think we should be able to come back to you in terms of where our plans are. The more predictable part obviously, if we look at Mulund, work will go on. If we look at Sky City, the work will go on. So there, you will continue to burn what we have been doing this year or maybe not probably it will only pick up from there. And then more likely, the next one would be Goregaon that would come in.
Next question is from the line of Niraj Mansingka from Goldman Sachs.
A few questions, one -- on Three Sixty West, how much construction was remaining for that apartment block?
Hardly. I mean, we are 2 slabs away -- or rather 1 slab away, 1 slab on the top of it and glazing work. And then we're not doing any interiors. And only like the lobby is being done as we speak. The entire common area is being done as we speak, so very little, really hardly anything left.
Okay. And so when would you -- I'm sorry, I didn't -- there were some interpretation -- interruption in between. So you plan to collect how much -- by when the 100% payment, like by March? Or is it still...
So between March and June, we'll get 100% of the payment.
Okay. And what -- and why wouldn't customers delay purchases, right? Because why should somebody pay 10% higher cost for GST as a customer?
I want to explain this to you first and to, in fact, any and everyone who's on the phone that a lot of people have this myth that once the building is complete, there will be no GST. Of course, there will be no GST. But I will also not be able to recover all the input credit of GST. So that means whatever I'm going to sell, I'm going to basically like -- and we've done this in all our projects. We make it into inclusive price. It's a price inclusive of GST. So because I'm not going to get input credit, that becomes my cost. If I recover it from you, I get to recover it from the government. If I don't recover it from you, which is after OC, I'm not entitled to, I don't even get to recover from that. Either this works as a discount or I increase the price. Of course, the power of increase the price is not there with the developer today. But at the same time, I mean, like what we've done is we've moved on from price plus GST to an all-inclusive price. So the price will not change.
Okay. So is it right -- see, what I know is...
Whether you buy it today or later, the GST effect is not going to change on me and to the customer.
Yes, because I understand. But the input tax credit is quite a low percentage of revenue that you carry from the customer.
No. But we are passing on 100% of the benefit. So when the customer pays, he pays net-net. So he's only paying me the net GST, we are anyway passing on today also. Let's say I'm only charging him as much as -- like the loss in input credit is what I get.
Okay. So if the construction cost is at INR 10,000 per square feet and you're charging INR 50,000 per square feet, so you are collecting 12% of INR 50,000, right?
Correct.
And this is more than they have in the construction cost. So my point is that input tax credit has a limited usage until the percentage sale is being done. Like if you have -- so beyond that, you won't have any input tax credit to offset and so you'll have to deposit that money back...
The input tax credit is also proportionate, no?
Okay, got it. So okay, the other question is on the cash you are holding. Any thoughts on that now that there are a lot of opportunities? And have you targeted a few of them or you are still waiting for some larger opportunities to come?
Let's see, evaluating properties, business as usual. And we continue to evaluate that. And we'll take a very prudent call. We also want to see -- I don't think from line prices, anything is going to really change. We are really looking into the election in 2019, both state and central elections. So I don't see a lot of activity happening there. So there, we will clearly be looking at a wait and watch, unless we get like a very compelling transaction on a deal, where we'll probably jump in.
And your view on the crisis situation. Do you think it will go down gradually or it will be a lot of defaults of small developers will be there?
Well, I mean, I see problems at two ends, both at NBFC as well as some of these developers who over-leverage. So it's not going to be just one. I mean, it could really affect the NBFCs also. I mean, it is affecting the NBFCs.
Right. And sometime back, you had done -- I think it's an MOU with the Sahara Group land in Goregaon West. And won't you get a benefit of that [indiscernible] clause that comes into...
We have not done any transactions with Sahara. We don't -- I mean, absolutely nothing. I mean, this is really like news to me also.
No, I think that, that Oshiwara land that...
No, nothing with Sahara...
Maybe with [indiscernible]
Nothing, nothing of that sort.
Okay. And the last question, what is the rent of the Commerz II that you have leased out of 100% occupancy? And what is the status of Commerz I now in terms of occupancy?
So on Commerz II, we are getting I think INR 141. And Commerz I is about INR 140.
So rupees per square feet per month, Niraj.
Got it. And in terms of Commerz I, do you still have some occupancy to be...
Again, there, we are at about close to about 78% occupancy. But there also again, we are in talks with people. So hopefully that also starts culminating into transactions.
We take the next question from the line of Abhishek Bhandari from Macquarie.
See here reference of Slide #17, where you've given some photos of your investment properties ongoing, both Borivali and Worli, where you have spelled out the area also. So if you could probably give some more details about the expected size of the malls and hotels, if you have that. And what is the total investment you're looking in these 2 projects with some kind of spread over the next few years will be helpful.
So see, Borivali mall will be anywhere between 1 million to 1.2 million square feet. And we will use another probably 300,000-odd square feet, 300,000 to 400,000 square feet of hotel. We also are looking at a small office component there. So the balance area will probably end up being an office. And in the Worli -- in Worli, we have about 1.7 million square feet of leasable area, out of which probably close to 9 or 10 lakh square feet is the mall. And the rest is an office building with a small component of a hotel also. But it will be like an 80-, 90-room hotel, just as a signature hotel.
Okay. And what is the expected spend over these 2 assets?
So on the Worli front, I think we should spend about INR 800-odd crores. And for Borivali, also similar numbers is what we are expecting.
Okay. So Vikas, in the Worli project, if I remember correctly, you have 50% stake in your personal capacity and 50% remains with the listed company.
Correct.
So is it fair to assume that you will want to stick to your stake? Or will you want to sell it out to -- I mean, either party sells to the other one? The other thing I want to know whether this INR 800 crores is split between the 2 guys in terms of spending. Or how should we think about it?
I personally also want to find a very elegant way of getting out of this investment. We are internally thinking on how do we do it. And we do it in such a way that it's very transparent and at arm's-length. So more than -- we are absolutely mindful of the conflict of interest that I'll have if I do anything otherwise. So we are really evaluating ways of ensuring that, that doesn't happen, like any conflict of interest or anything like that. It'll be done in a most elegant way. Now I really don't know whether, let's say, circumstances might require me to sell it to third party. It could be one of the sovereign funds or something like that who would partner well.. So it's clean. I am only selling my share. Or I will get a partner in return, who is a third party and a prudent partner, brings in it value or whatever or something like that. Or we'll find some way in which, like I said, that it has to be absolutely transparent, arm's-length, very acceptable to the market because we are very conscious. We've built a reputation with a lot of effort. We won't want to lose it for something like this. So very mindful and we will take a very prudent call on that.
That's helpful, Vikas. But also I just wanted to understand the logic of this doing another 80-, 90-room hotel in Worli when we have new upcoming one Ritz-Carlton hardly few hundred meters away from it. So is it because you get some FSI benefit because of doing the hotel? Or what will be the logic behind going -- 2 competing assets next to each other?
Well, I mean, firstly, it's a very small hotel. It will be 80, 90 rooms. And we also feel it adds that glamour quotient, it adds that wow factor. Internationally also, if you'd see, like they always have hotels like Hong Kong has Ritz-Carlton and an office building below. Then they have a W next door. They have a mall below it. So these hotels or whatever, like even in here, like Westin also is in an office hotel building. It gives you that glamour quotient. In fact, Commerz III, also we are planning. We are doing so well in Westin that we want to plan another hotel in...
Goregaon.
In Goregaon also.
Okay. So actually that was my second question. If you could help us with the update on Commerz III. Where are we in terms of planning. I remember last quarter, you said probably by next few quarters, we'll be able to share more details. So...
So we again, continue to plan. We've hired KPF who have done our Worli project, who also have done Commerz II. We're very happy with them. We've appointed them to do the design. And we've done a few alterations, and once we are ready, we'll get rolling. And I think it will be not later than probably a quarter or so.
Okay. So Vikas, if I take a little top-down view, it looks like whatever big free cash you are likely to generate for Worli, you are trying to funnel it back into for growth, especially around CapEx projects. Is this the right way to understand? Or you think the surpluses will be meaningfully higher than the CapEx what you have planned?
So one thought is that we do not want -- we do not shy away in leveraging our company to build these capital-intensive assets that we are intending to hold. So that also is a strategy, because if you see what rentals one will get, it will be -- we really -- literally, our payback will be probably 2 years or 3 years of rentals will pay back the entire loan. So that's where we are. So we might conserve cash that we generate out of sales. We may or may not deploy that into the mall. We may leverage it and -- so there are many things that are going on in our head right now. Like I said, that we want to think what is best for investors. We also have been discussing how do we position this, should you -- when REIT will come, how REIT-ready should we be? How should the company view all these assets once they are stabilized? So we are constantly thinking about it. How to get clarity in valuation? How to get optimization in valuation? How to have a structure of a company, which is clean and very predictable for our investors and stakeholders? So these are questions that keep. So we do not want to answer anything in isolation. We may take a holistic view and then come up with what's best. We've been engaging with the best minds. We've hired external consultants to tell us how we should position them. We have investment bankers who are advising us on how we should position these, how markets perceive it, how they appreciate this. So all these questions are going on in our mind, and we will really do something amazing to unlock the value for our investors.
We take the next question from the line of Abhishek Anand from JM Financial.
My first query is on Sky City. So basically, we had taken a price hike in that project. And the project was -- the Tower E was launched in December. So how was the response in general and do you think this 51 is a base case? If this is the run rate we should be able to maintain going forward? Basically, just trying to understand whether the price hike was absorbed by the market or not?
Yes. So that price rise was, I wouldn't call it significant. It was only INR 500 a square foot. And the market absorbed it very nicely, very quickly. In fact, there were a lot of fence sitters who took these decisions quickly and kind of concluded. So in a way, it got absorbed very well. It was not anything big. So that's where we are.
Sure, sure. Secondly, Vikas, could you tell us, in Thane, have you made any payments during the quarter for the conversion and the pending payment for regulatory approval? Or it's going to happen in the coming quarters?
No, we haven't made any payments. Like I said, we want to get done with this and only then speak about it. So we just don't want to comment until we are clear -- we are done with it. This will allow us a little more time, one more quarter. I assure you, we should be through with it.
Sure. And just talking about the strategy of land acquisition. So historically, we have always been -- most of the time, we have been buyers of -- from a corporate entity through an auction process or through MOU basis. We haven't actually gone ahead and bought land from a developer per se. So how comfortable are you at this point of time to go ahead and buy developer land? Do you see any issues there? How should we think about the strategy of the group on that side?
So there are 2 reasons why we buy land from corporate. One, we love the process. It is transparent. It is seamless. It is nonemotional. It is basically driven by market and these guys are -- they are prudent people. Whereas when we deal with developers, they tend to get very emotional about their property and their expectations are way above what market wants to pay them and stuff like that. So I have always seen that it's longer and more cumbersome to deal with these developers. Going forward if -- we don't want to color our mind with whatever our past experience has been. We'll be happy to look at land transaction where developers are seller so long as it fits into the parameters that the sale has to be full check and it has to be in a good location. It has to be clear. They should not have any legacy issues, be it with approvals or with customers. A lot of these developers have -- whoever are in trouble, have actually started booking and have not cleared them. So the liability of those customers will come on to me. If I take -- these things on the developers. So there is, obviously, some amount of nervousness when we deal with them because of the way they behave and stuff like that. But again, like -- we will give it a fair chance and show that we are not like biased about any of our -- due to our past experiences and all that.
Sure. And finally, on Goregaon. This run rate of 12 flats in the Square, I believe we should be seeing similar numbers in the fourth quarter because that scheme still continues and the customers have to make the payment by 31st. So unless you revise some terms there, I believe the demand should ideally remain in similar lines, right? Is that understanding correct?
Like I said in the earlier question that we had originally envisaged anywhere between 100 and 120. We'd be most excited. So if I do that many number, I'll be very happy. I'm already 102, another 18 to go to be at my best, but we are thinking what to do with it and how to go about it and stuff like that. We continue to deliberate internally. So whatever.
Yes, because we have still 230 units of inventory.
Correct, correct, absolutely correct. We are very mindful of that. This is also one reason we did not want to kind of start Phase 3 and put pressure on Phase 2. So we said that let's phase this out. Really, let's give it maybe 6 more months and let's do that. And today, what has happened is I would say that a lot of people have now moved in, and so everybody has a friend who they invite, they look at this project and then, they kind of get impressed and they come back and they want to buy. So Goregaon is really selling very strongly on referrals, which is very heartening that people who buy are referring us very aggressively and they end up buying apartments from us. So I hope that we still have enough steam left and we can push this through.
And then finally, any timelines for the deployment of QIP funds? Anything you are targeting internally?
We've never set ourselves a time line target to deploy monies. We always set up ourselves a qualitative, like maybe -- yes, we want to see qualitative opportunity to deploy that. So [indiscernible]
Because -- yes, you will be getting...
And I'll surely be putting my money where my mouth is, I absolutely want it.
Because you will be getting a look at the deals which are currently available to you...
Absolutely.
Yes, there might be some idea you will have at this point that will find clear visibility ability of deploying extra money?
It will still be speculative then...
Still, I understand, but yes.
Not ready to comment on something we're close at Thane. Imagine me telling you about something that is -- like just is being considered.
Our next question is from the line of Sameer Baisiwala from Morgan Stanley.
Vikas, how do you think about the upcoming 2 or 3 very large infrastructure development in Mumbai, which is all Metro, coastal road, hopefully, Panvel Airport. Could this mean anything for you? Does it open up new pockets of areas to go?
Well, firstly, look at the Metro. My Borivali property is bang on the Metro station. Our Goregaon is bang on Metro station. Our Worli is bang on Metro station. So Mulund is bang on Metro Station. Of course, I mean, there's nothing big because there is a metro station every kilometer, that's how they've designed it. But our existing land parcel becomes so much more premium because these are -- the Metro corridors. So obviously, we are very excited. The sea link also will open the north, south transportation. We are at Worli, which is the only link that is ready. So imagine now Worli will either open up into the city or open up into the suburbs. So again, that also is a huge plus. We haven't aggressively looked at Navi Mumbai or Panvel, but I think now the way things are going, it does demand our attention there. We are talking to people. We've looked at, but not really put our money there in all. But yes, you are absolutely right. It's a great time to be in Mumbai to see so much of infrastructure development happening. I mean, if really you put everything together, we are looking at over $20 billion being invested in Mumbai to bring this up. So it's really huge. I mean, the sort of commitment by the government is really going to be like a boom to the city. Plus we all don't know that lot of green spaces are being planned in and around all these developments. So a lot of green spaces and stuff like that. So it's a huge drive, the city. I think the city needed this boost, and it'll be good for the entire city.
Okay. Great. And just following up on your 50% stake in Worli mall. Are you considering -- is this from the option to swap it with entity-level shares?
Like I said, for me, there's a lot more to gain if I am able to give an elegant solution than gain by doing something where I make a little more money. Because markets -- look at the promoters' behavior, and we are very mindful of this. And I don't even mind being vocal about it. And it's the right way the investors perceive you. So we are mindful of that. We are more interested in an elegant solution than something that is beneficial to me. If I get a suboptimal deal also, I am fine so long as it is at arm's length, it is fair and it is explainable or other -- it can be understood by the investor. So that -- they will appreciate much more than anything else. And we are very, very mindful of that.
Yes, sure, but do you think the swapping at entity level does not meet this criteria?
Again, like I said, we have the best of the brains advising us from every angle, from legal, commercial, investment bankers. All these guys are advising us, and we will take a call, keeping everything in mind, whatever is best for the company and whatever looks absolutely aboveboard is what we'll do.
Any timelines in mind for this?
Sooner than later. I mean, we are already -- like, we would rather have it done earlier.
Okay. And just thinking about the future liability in terms of, what could be the pending FSI cost for Goregaon, Borivali and Mulund, all the ongoing projects?
In fact, good question that you are asking me. I want to use your good offices to explain to people that most of our projects, the land cost is already considered in the first phase. So what is left in the second phase is the TDR and all that. So if you were to average the FSI cost in Borivali, it has actually come down. So our margins in the latter towers will end up looking more because most of the land cost is already taken into account...
Already into the first phase.
Building the first phase. The first 5 towers consist of 1.5 FSI from which 1 FSI comes out of land and 0.5 FSI comes out of government FSI. So the rest of it is all TDR that we had loaded today at -- we buy TDR anywhere between 40%, 42% of the Ready Reckoner rate. That means my balance FSI is going to cost me like, INR 4,000 and less. So if you spread that, my margins only end up increasing. But on a specific call, I mean, how much money that Saumil can take you separately offline and tell you. We, obviously, have to buy the rest of the area, but it only brings our cost down and our margins higher, rather.
Fair enough. My question was more from the cash outflow point of view.
Correct. That's what I said that Saumil will take you offline and explain to you each and every -- this thing. There is no rocket science. It's very simple, but we'll take you through that separately.
Sure. But -- so I mean, in the ballpark, it's at least couple of thousand crores is the number?
No, no, no. It's not that high.
Not at all.
Not at all that high.
Okay, fine. I'll take it offline. And just one final question. What are timelines for profit recognition in Enigma? And also when does Worli come up for recognition in accounts?
Both would be in the next financial year, Sameer.
For second quarter.
Next question is from the line of Parikshit Kandpal from HDFC Securities.
So you spoke about the activation, which propped the sales almost 2x in Goregaon. So in Mulund, we have already done, I think 63 units, put together both the projects, versus 32 last year. So what would be your number here for the full year?
Well, again, it's a pleasant surprise in a way. We were -- we are very happy the way Mulund has finally started shaping up, but you will also see that the progress on site has been fantastic. The buildings have shaped up the way we like. Today, if you see the building, we have already started applying external putty and windows and stuff like that. Very soon, in fact, in the next 3 or 4 months, we will be moving into a show apartment inside the buildings. That also gives a lot of confidence to people. So I guess, if we can end this year with probably 80, we would be happy. And then going forward after 3, 4 months when we have all this ready, we will again be able to push a lot out, and I think then our numbers can increase.
And Saumil, on these margins for this quarter, I mean, EBITDA margin is around 35%. So any particular reason why the margins have fallen off so much?
Yes, Parikshit, if you go to our slide on Page 8, that's the margins -- that's the 9 months EBITDA margins. So if you look at 9 months, FY '18 is about 54%; 9 months, FY '19 is about 53.6%. So if you look at the 9-month margin, it is even-Stevens. A lot of things are coming in on account of this new 115 thing. So if you recollect, before we hit the threshold, under the new 115, we will recognize revenues, which are equal to cost. And it's only after the threshold recognition that you will have even the margins of that coming in. So when you do the first recognition, the margins come in quite lumpily. The first quarter of this year, we had recognition from Borivali. So that made it a little lumpy. Second quarter was Mulund, Eternia, which came in. So that made it a little lumpy. And then in the last -- I mean, again, the margins have also to do with the mix. So in the first 2 quarters, Goregaon was contributing a lot more to the turnover compared to Borivali. And Goregaon is a higher margin than Borivali. It does not have any interest cost loaded in it. Borivali has also got the interest cost for the bond that we raised on that one. So that's about it. We expect that it will take about -- if you allow this 115 things to play out over some time, then that's what works out. Again as Vikas explained in one of the the earlier questions about how land cost gets treated, we typically load the entire land cost on the first FSI, which gets loaded into the project. So again, the initial phase ends up looking -- at coming in with maybe a lower margin, and in the future phases which get loaded with TDR, they end up showing a higher margin. So it's more a question of accounting niceties rather than any business practicalities changing.
If it interest's you -- would you have capitalized the booking at above the EBITDA now? Hello?
Out of operating cost and then it comes through as a recognition and a percentage-completion basis.
Okay. So any particular reason why, I mean, Worli project has still not hit the revenue recognition? Because we have not used the 25%, because I think you have already pulled down 23%.
Correct, correct.
Because other projects have come in at least -- I mean, I understand that it could -- it should have reached, that is revenue and cost recognition, though profit recognition would not have happened. But any reason why still it is not?
So Worli, we are doing the revenue recognition equal to cost. The only thing is Worli, we follow the equity method for consolidation. So you don't see it coming as a part of the top line. But as far as Worli is concerned, we have incurred more than 25% of the cost. So that threshold has been met. It's only the sales threshold, which needs to be met and then we are done. So we'll be able to commence even the revenue and the margin recognition.
Because we saw some profit from associates coming in -- I mean, this quarter so...
Yes, that's margin, I'll bet.
Coming from Worli project only or...
I will have to check that, but some bit of it's from Worli and some bit from others.
Okay. When are you launching the Commerz III? I mean, the construction -- actual construction has started or...
So construction is not started. We will be starting construction soon, and we are already talking to one of the large anchor tenants. In fact, we are incorporating their input as far as what they want, and once we get that we'll probably be signing. This will be the first commercial project that we would have pre-leased, which normally, we end up doing only after we have built, but this will be a large corporate, which is pre-leasing from us.
And what will the percentage like of pre-leasing?
Well, if the deal goes through, it could be about 20% of the entire area. It's a large one.
Well. There's 1.7 million. How much is there...
Correct. So this is almost 3.5 lakh square feet.
And at similar rates like current 140 or...
Yes, yes, yes.
So lastly, just on the Blue Star land. Any update on that?
Nothing. I mean, it's just a market rumor and unfortunately, people are taking it true. Nothing more than that.
Next question is from the line of Tanuj Mukhija from Bank of America.
My first question -- I have 2 questions. My first question is on Eternia and Enigma. We have seen that despite the launch of flexible payment scheme, the sales over here have been weak given the level of inventory you have. So do you plan to launch a new, more attractive activation scheme for these projects in FY '20?
Tanuj, we are only asking for 10%. I don't know how much more attractive I need to be to get people to buy this. Well, having said that, it is doubled. So it's not bad beginning. Plus, like I said earlier, that the project is shaping up now and shaping up well and people are liking what they see. And I see a huge -- I mean, there's a huge increasing site visits and stuff like that. A lot of people in Mulund area have shied away from buying under construction because if you remember, we had that -- all of us -- I mean, the entire Mulund had this forest issue and all that. So they are literally startled with what happened earlier. And a lot of people come and say that I'm willing to pay more when it's ready than now. So this is where we are. But like, again, because we are asking only 10% and 15%, these guys are coming ahead and booking. So they kind of taking that punt. But as the project goes up and comes closer to completion, you'll see the demand pickup. And if, let's say, the market requires something, then we'll not shy away to do that.
Okay. And can I ask a follow-up question on this? As a strategy, would you think it be better to maybe offer a price discount of 5%, 10% from these levels that could push volumes?
Well, like discounts have never moved volumes. I mean, so that's why we come up with these payment plans. Because people have issues of paying on time or -- like that they -- they are not that concerned about absolute discount. It's what our marketing people tell us and all the marketing gurus tell that us they are better-off giving schemes than giving upfront discount.
Got it, got it. My second question was on your margin mix. Could you please help us understand your margins in, let's say, Goregaon and Borivali? And how should we look at your sustainable EBITDA margins going forward? After mix of Goregaon, where do we stand when the mix from other different projects will go up?
So Tanuj, Saumil here. As far as Goregaon is concerned, our EBIT in Goregaon is well in excess of 60%. As far as Borivali is concerned, while it is averaging in excess of about 36%, 37% now. Obviously, the higher floors of Borivali are yet to come in. So you can only expect that to improve. And in the next -- again, in one of the earlier questions, both Vikas and I have answered about how the accounting of the FSI cost go. So the entire land cost, which contributes about 1 FSI, gets loaded in the first phase of the Borivali development. The subsequent phases, which will be done with the TDR, will incorporate the TDR costs in those -- what you can say, developments. So there, the margins will be way higher. So that is where we are. I think we are consistently been clear about the fact. Of course, Goregaon will also have higher margins because of the fact that it's a historical land cost and things like that. So -- but going forward, if you will look at an average EBIT margin in Borivali, which will -- between the first and second phase, average about 45-odd percent. That's what it would be even for some of the newer projects or whatever -- whichever way one would like to look at it.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Oberoi for his closing comments. Over to you, sir.
Thank you for taking time out for your -- for this call. We like receiving feedback from all of you and it only helps us to think harder and perform better. Please continue to share your views, inputs and help us in delivering better. Thank you, once again.
Thank you very much. Ladies and gentlemen, on behalf of Oberoi Realty, we conclude today's conference. Thank you all for joining us. You may disconnect your lines now.