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Oberoi Realty Ltd
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We have with us today from the management Mr. Oberoi, the Chairman and Managing Director; and Mr. Saumil Daru, Director of Finance.Please note that this call will be for 60 minutes. [Operator Instructions] This conference is being recorded, and a 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 general business statements, plans and strategy of the company, its future financial condition and growth prospects. These forward-looking statements are based on expectations and projections and may involve a number of risks, uncertainties and other factors that could cause actual results, opportunities and growth potential to differ materially from those suggested by such statements.I'll 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 our fourth quarter and full year financial year of 2018 results and business updates. Thank you all for taking this time.A quick update. We are happy to announce that we have received occupation certificate for our project Esquire and we have completed this project in time and well before the date that we had mentioned in our RERA submission.We also leased 4 floors of Commerz II to RERA and we continue to see excellent inquiry and we are very hopeful that the rest of the building will also be leased quickly. You are also aware that we had launched a scheme, a new marketing scheme for our completed project, which is Esquire and Exquisite and we're very happy to inform you that we've received a phenomenal response to that.I will now hand over the call to Saumil Daru, to take you through the numbers. And again both of us will be more than happy to answer individual questions. Thank you.
Thank you, Mr. Oberoi. I guess most of you have received the presentation from the IR team and if not the same is also available on the website along with the results, which have been filed with the exchanges. To come to the numbers.In terms of consolidated financials, the total consolidated revenue for Q4 FY '18 was INR 352 crores, this was as against INR 302 crores for our Q4 FY '17 and for the full year FY '18, the total consolidated revenue was INR 1,292 crores, as against INR 1,161 crores for FY '17.The consolidated PBT for Q4 FY '18 was 178 crores, this was as against INR 151 for Q4 FY '17 and the consolidated PBT for the full year FY '18 was INR 649 crores, as against INR 565 crores for FY '17.The consolidated PAT for the quarter was INR 142 crores, as against INR 101 crores for the same quarter last year and the consolidated PAT for the full year FY '18 stood at INR 458 crores, as against INR 378 crores for FY '17.Moving on to the asset level performance and with the investment properties. Oberoi Mall, which is the retail asset contributed about INR 29 crores to the operating revenue for this quarter as against INR 25 crores for the Q4 FY '17.For FY '18, the operating revenue was at INR 110 crores, as against INR 100 crores for FY '17. The EBITDA margins in this vertical continued to be in excess of 99% -- sorry, the EBITDA margins in this vertical is about 94%. For Commerz, our office space asset, contributed about INR [ 11 ] crores to the operating revenue for this quarter as against about INR 12 crores for the same quarter last year. For FY '18, the operating revenue was at about INR 45 crores as against INR 48 crores for FY '17. The EBITDA margin in this vertical continues to be in excess of 99%.In Commerz II Phase 1, that contributed about INR 12 crores for this quarter as against INR 8 crores for Q4 FY '17. For FY '18, the operating revenue was INR 48 crores, as against INR 28 crores for FY '17.The EBITDA margin in this vertical stands at about 84%. The Westin Mumbai Garden City contributed about INR [ 54 ] crores to the operating revenue for Q4 FY '18, which is as against INR [ 33 ] crores FY '17 and for the FY '18, the operating revenue was INR 128 crores as against INR 126 crores for FY '17. The EBITDA margins in this vertical continue to be in excess of 30%.Moving on to the development properties for Esquire, of the total project of 21.22 lakh square feet, we booked a little over 42,000 square feet in Q4 FY '18. Till that, we have booked about 13.34 lakh square feet, which is about 63% of the inventory. The total booking value for Q4 FY '18 is INR 92 crores as against INR 38 crores in Q4 FY '17 and accumulated booking value till date is INR 2,011 crores. The total revenue recognized for this project in Q4 FY '18 is INR 184 crores, and the cumulative revenue recognition till date is about INR 1,879 crores.For Exquisite, out of the total project of [ 15.47 ] lakh square feet, we have booked about a little over 3,500 square feet in this quarter, till date about 14.02 lakh square feet, which is more than 91% of the inventory in this project. The total booking value for Q4 FY '18 will be INR 8 crore as against INR 16 crore in Q4 FY '17.The cumulative booking value till date is INR 2,294 crores and the total revenue recognized for this project in the quarter is INR 8 crores and the cumulative revenue recognition till date is, again, INR 2,294 crores on account of 100% project completion.For Prisma. Of the total project of 2.68 lakh square feet, we have booked about 8,778 square feet in this quarter; till date about 2.09 lakh square feet, which is about 78% of the inventory in this project. The total booking value for Q4 FY '18 is INR 16 crores as against INR 22 crores in Q4 FY '17. Cumulative booking value till date is about INR 364 crores and the total revenue recognized for this project in this quarter is INR 43 crores and cumulative revenue recognition till date is about INR 301 crores.For Mulund, Eternia, Q4 FY '18, we booked about 6,900 square feet so till date about 5.09 lakh square feet. Total booking value in this quarter was INR 10 crores as against INR 20 crores in the same quarter last year. Cumulative booking value till date is about INR 747 crores.For Enigma, in Q4 FY '18, we booked about 5,360 square feet. Till date we have booked about INR 3.54 lakh square feet and the total booking value for Q4 FY '18 is INR 8 crores as against INR 16 crores for Q4 FY '17. Cumulative booking value till date is about INR 521 crores.Moving on to Sky City, we booked a little over 54, 500 square feet in Q4 FY '18. Till date, we have booked 13.37 lakh square feet. The total booking value for this quarter was INR 84 crores as against INR 43 crores for Q4 FY '17 and till date the booking value is about 2,137 crores.For Worli, Oasis, we have booked 9,500 square feet in this quarter. Till date, we have booked 4.42 lakh square feet. The total booking value for this quarter was about INR 43 crores and the total booking value till date is at about INR 1,759 crores.Coming back to some key financial parameters. Our EBITDA margins for this quarter was 53% and for FY '18 was also at 53%. PAT margins were at 40% for this quarter and over 35% for FY '18. The EBITDA margins for Mall and Commerz are as usual much higher than the average, as I've mentioned before. And excluding them, the margins for our pure residential business stand at about 48% for the full year.With this, we would like to open the floor for any questions that you all may have. Thank you.
[Operator Instructions] The first question is from the line of Atul Tiwari from Citigroup.
Sir, can you throw some light on any plans for the Thane land. Any color in terms of when we could see some launch from that profile and the contribution of projects and total [ saleable ] area?
Hi, Atul, Saumil here. We are still in the process of closing out the transaction and what we are looking at is from an architectural perspective. We have started work on the design of the project. We are working with the whole bunch of architects in terms of the contract and all of those. One thing that we are very clear about in terms of the launch is that the launch will definitely be in this financial year. In all probabilities, since you look at it, we have always said that between -- the effective season is something that we could be looking at as a launch for this project. So maybe about September, October of this year in all probability is the launch. In terms of configuration and all of those, these are still pretty dynamic. We are also at our end studying the market, seeing what all is there, what is it that we could come up with? Obviously, if you look at the way that Thane market is, we will end up doing some bit of mid-size -- what we can say, apartment, and some other bits but I think we would want to discuss that in far greater detail as we get closer to the launch and as we get more clarity on how things are working out from an architecture and design and a market's perspective. So that's the limit of which we have right. We have always maintained that once we close out everything, once all things are done then we will come out and give more color around how we want to go ahead with that project.
Yes, and any comment on those saleable area that we could get from the total land parcel taking into consideration...?
Again these are all -- once we finish the entire acquisition, I think it would be better for us to comment on that entire potential at that point of time rather than say something now and either end up looking very conservative or end up looking very over-aggressive.
The next question is from the line of Abhishek Bhandari from Macquarie.
I actually had 2 questions. First question in regard to you mention in your opening comment that you have seen a good response to this discount scheme so-called discount scheme. Can you throw some more light over there? And do you expect this scheme to significantly increase the sales velocity in those 2 projects?
I can easily answer your second question because it's not quantifying something. These are all market sensitive information. But like I said that, the response has been phenomenal and we are very excited and motivated to do similar schemes at other projects also and for other inventory that we have and stuff like that. Again it will be projects basically again it will be to boost sales in certain projects and we are currently working on it and hopefully come up with something.
And in terms of velocity, from our perspective, we have already seen [ if we can ] sit back and increase. I think maybe we just wait for the June numbers to come out and I think it will then be easy for you guys also to see the impact that this has had on the uptake and the velocity.
Okay, sure. And the second question is around this accounting. This quarter we had some deferred tax creation, which led to overall tax rate coming down. So could you explain what is it regarding? And on the sustainability, what's our effective tax rate?
No change on what we consider effective tax rate on a sustainable basis. These are just some accrual adjustments, which we typically end up making at the end of the year. So I wouldn't want to read anything more into this than the fact that it's a true-up adjustment at the end of the year.
The next question is from the line of Puneet Gulati from HSBC.
Just continuing on the same deferred tax thing. But really led to this creation?
Sorry?
What really led to this deferred tax?
It's not a deferred tax creation or anything, just a tax adjustment, which we have done. As I have said this is the end of the year adjustment. These are tax related matters so I typically don't get into more details on that one. As I -- suffice it to say what I mentioned earlier that it's a onetime tax adjustment.
Okay. Okay, and then broadly on these leasing side with 4 more floors that are being leased. Where -- when does the rent start kicking in? And what does it take you to in terms of occupancy?
Also in terms of occupancy, I guess we would line up at close to about 63%, 64% or thereabout. Again as Vikas also mentioned when we began the call that, in addition to this, what we have seen is also a very healthy pipeline in terms of inquiry. So that also gives us a lot of confidence in terms of how it would go. As far as this particular transaction is concerned, if I'm not mistaken, the rank commencement is definitely in this quarter. I'll just have to come back to be -- sorry, the rank commencement is with effect from July so it will be with effect from the next quarter.
Okay, and how are the terms of trade here? Is it similar to what you've done for the previous 48% or is it different?
Trade is pretty similar. Everything is in the same ballpark now.
Okay, so there is no revenue sharing kind of thing here right? So flat rental that you would ordinarily expect of how they do?
It's the contract. Typically an office space contract. The revenue share is more what we are seeing in the Mall rather than in the office space asset.
Yes, yes, okay. Then there was also a bit of a price discrepancy between Esquire and Exquisite. Has that gone completely now?
More or less yes, it's gone in terms of the way we have priced that, now both are almost similarly price.
So on per square feet basis from a buyer's perspective, it will not make any difference whether he's buying the Esquire or Exquisite?
Except for the size of the apartment, other than that nothing else.
So on per square foot is the same then.
It is more or less similar.
In a way Esquire in addition would have gone up, is it fair to assume?
In a way yes, but also for example, the reason Exquisite always also ends up being on the higher side is with the inventory. As far as Exquisite is concerned, it's now all on the higher floors, 45 and above. So when that gets sold, it comes with it corresponding aspects of floor rights. And as far as Esquire is concerned, we have inventories kind of spread a little over all the floors. So there the average realization ends up being a little lower.
So what is the base rate right now?
It's close to about 17,000 lakh square feet in terms of base rate.
Okay, for Exquisite?
Again similar.
It's similar. So 15 has gone up to 17,000 in a way?
Yes.
Okay, okay. Lastly, any progress on the Mall, which was supposed to come in early in [ Borivali ]?
Yes, so in terms of work internally, there is more than a fair amount of work which is happening internally. In terms of site preparation at both the sites we have starte our's site preparation activities. And once we get the plans in and get all the approvals, then again that would be the time to come back to you all in terms of what are the exact dates in all of this.
Has the construction contract being given out already?
Yes, for both.
For both okay, okay. Sorry, just one more. In terms of the third phase in Goregaon, any comments here? How are you thinking about that now?
That also has been -- contract has been issued. In fact, a very interesting data that comes out is after we are done with Esquire, we, from our own account, will not have a single ready apartment left for us to sell. Everything that will come will come after 3.5 or 4 years when the third phase of Exquisite, Esquire and the third phase comes into play. So there again work has been -- work order has been issued to [LND]. So site preparatory work is on.
Excavation is on.
Excavation is on. We want to finish this scheme bit. We want to get the right numbers in place and we then probably might launch that also [ instantly ].
Okay, so again.
[There is no ] competing product because this will only coming get ready in the next 3, 3.5 years.
Right. So should we look at month, again, also around September, October?
Same festive season, yes. And we want to start the work, get the momentum on site so people know that the work is started and it's progressing well and stuff like that.
The next question is from the line of Adhidev Chattopadhyay from ICICI Securities.
My first question is with this [ development ] that's just come out today so would you like to know -- do you see some delay in any approvals coming in now in the year? Although I know, you have already purchased a lot of the TDR and other stuff for your Goregaon and Worli projects. Do you envisage any delays there?
Well in fact, this is a positive because the delays were because this plan was not coming out. Now that the plan is out there is clarity and certainty. So things will only get better.
Okay, but you need to rework any of your plans? Or do you think because of that...
No, no. I again want to tell you that there is really no surprise meeting because the government has, in piecemeal, got a lot of it in play already. Like the FSI, certain [ of which ] have gone up. So all these were all very eager -- already declared, all the intentions were clear like -- so there is really no surprise element in this at all. We will or we were -- we'd already planned and all the developers, I would say to their credit, with that plan because this information were very easily available.
Okay, and you [ ending up axis is ] going up anywhere on account of this?
Well, whatever I read little again it's not going up in the fee. It's pretty much generalization of FSI. They want to give boost to commercials so they are pushing commercial FSI in city and so on and so forth. But nothing other than that.
Okay. And second question is now, this is to Saumil on the regulatory commission for both Mulund and Borivali, so where do we expect and which quarter around and the first half or second this year? Any clarity on that?
I think as far as Borivali is concerned, the first half of the year is very much on. As far as Mulund is concerned, also Eternia, should be pretty much again the first half. As far as Enigma is concerned, we just have to ensure that we hit that 25% sale mark and then if that happens then that is also the first half of the year.
And just last question, any activation plans away from Mulund. Because I understand like [ whatever is not ] completed inventory, but again Mulund we are just what you say a third of the way in terms of construction. So any specific plan to do any activations to boost the sale [ trick ] there?
I think we will see as we go along. We are also keeping a track of what we are selling and how much we are selling. So as and when things work out, it will happen. But we have clearly got an eye out on what our go-to-market strategy is in the coming year. I think we're already seeing the first roll out of that happening in terms of Exquisite and Esquire. So let's wait and see and see how it kind of rolls out.
The next question is from the line of Kunal Lakhan from Axis Capital.
Just on Worli, this quarter we saw like a big drop in -- in terms of sales traction versus what we saw last quarter. Is this more of a timing issue to close the transaction or basically how should we look at the run rate going ahead?
No. I mean absolutely correct. We have our internal processes, which capture complete closure of a transaction. So it's just one of that and nothing other than that. Their demands are fantastic. In fact if you will see collections from there also are being very good. So absolutely on track, in order.
Sure. In terms of [ business performance ], have you now have clarity on what to do with the overall land outlay and time including the approval cost of lease and the conversion costs?
So I think -- I think as we have mentioned even before this that we are still in the process of closing out that whole thing. So give or take, here, a quarter or so more and I think we should be able to come back to you all with full clarity on that one. We are -- have our own internal handle on it, but let us just finish the whole process and then it will be far easier to come back to you with more accurate numbers.
Sure, sure. Lastly you've taken approval for fundraiser for INR 2,000 crores of equity, so how likely will that be this year?
We have seen [ this ] resolution for the last 4 years. So we've always said that -- we always -- see from a typical perspective. If there is a transaction in the market, I mean in the physical markets where there is a land acquisition opportunity. If you will try to do anything around those terms and getting shareholder approvals and all these typical 30-day process for the whole thing. So from our perspective, if you see this is what we have been doing for the last 4 years. We take an enabling resolution and we wait. So as I was just discussing with somebody else also earlier today, just because I have loaded the gun doesn't mean I'll fire it. But it also means that it's easier to press the trigger when required.
The next question is from the line of Abhinav Sinha from CLSA.
A couple of questions. So firstly on the Esquire project, we did have I think the [ received ] in January, but the sales surge wasn't -- I mean it wasn't that high like so. And you have launched this new scheme now. So is the market, underlying market I mean what are you reading now?
We just thought that if we want to create velocity, we have to do something different. And this is exactly what we've done. We entered the market and just went in, did that. Like I said, we received phenomenal response and very excited about it. There's no point in retaining that inventory and holding on for 3 years or 2 years. If I continue with that velocity, I'll take 3, 4, 5 years to sell the rest of the stuff. So I didn't want that lag to happen and this is why we like really tested the depth of the market by doing this. And like I said that we received excellent response.
Right and I think on just the scheme itself, how are your cash flows [ over here ]?
So well people pay extra 25% upfront. We give them literally a credit to pay the rest of the 75%, which they do in the first year, second year, and third year. And just so that we are sure of the money that we should receive, we make sure that these guys are all bank loan approved. And we simply go and discount that money and take it today so the bank takes the payment risk from the customer directly. All the customer needs to do is either refinance it after the first, second, third installment or go and pay it to the bank because we've already discounted that money and received it.
Okay, and sir lastly realization should not vary too much, right? I think that is what Saumil was saying right now?
Yes, yes.
And sir, can we, I mean, beyond the third phase in Goregaon, what are the launch pipeline that we can expect for FY '19?
Thane property is one. Again, we've got Borivali, next phase is on Borivali Mall. We've got Worli Mall. So all of these are there, enough work.
Next question is from the line of Chintan Modi from Motilal Oswal Securities.
Just one thing on, first, on the collection part. This quarter, we have seen pretty strong collections of [ INR 46 crores ]. So just wanted to know that -- or you had mentioned in the quarter 2 that there are some collections being postponed. So is that kind of effect of because of that?
Yes, if you recollect the consequent to [ RERA coming in ], we have worked out all the agreements under [ RERA ]. So consequent of that -- there was a little bit of a pile up on collections. So one aspect that you are seeing is the unwinding of that. And as far as the other aspect is also concerned is you would've seen that we have started handing over possession in Esquire. So the demands for that also were raised so even that is, so to say, something to the cash flow.
That has now fully been -- or what had been piled up is now recovered or we will continue to see in further quarters also?
More or less. I think if you would see in most of the cases I think whatever was the winning stage to be done until then has been done. It's just simply a question of money coming in now over the next quarter or so. So now the lag effect is, so to say, over.
Alright. And in your launch pipeline, do you also have Commerz III to be launched in FY '19 or you are planning to [indiscernible]?
Oh yes. So that is also something that we would look at now that Commerz II has done well [ the critical ] and we already as I mentioned earlier at about 63%, 64%. A few more transactions and we should be up into the [ '18 ]. But would give us a very good support and a lot of confidence going ahead with Commerz II.
Okay. So can you also give us some highlight in terms of...
[indiscernible] So that's the other angle to it.
Yes. So I was just coming to that. If you can just highlight how is the market behaving in terms of commercial overall as we typically -- if I look at Goregaon only area. There are a few more launches also being planned by some other peers like [ Esco ], which has a new composite office coming up by December.
No. So from our perspective, what we are, as far as Oberoi and Garden City is concerned, we believe that it's a fantastic location in terms of being an integrated development. So there is a residential around it, there is a mall around it, there is a hotel around it. So the entire support system for the office also is pretty strong around this area. And then if you look at it, the Metro connectivity so again as far as this one is concerned, again the other Metro station bound outside the complex. So that also -- of course, the Metro connects everybody on the highway. But from our perspective, it just adds that much more to us also. So if -- it will come up. Again, if you look at it, it generally becomes a commercial hub. It's a nice thing for the whole area to develop and if you look, we can see it's not dominated by one building or one developer. There is a huge cluster of development. So we are very happy the whole area develops as an office location. And it also helps us with our residential market because people staying close by would want to come and stay close by -- working close by would want to come and stay close by.
Okay, and just one data point, like, for Three Sixty West, how much you would have spent till now?
Again -- sorry? So it would have been a close to about INR 2,000 crores spend.
Okay, this includes the Ritz-Carlton? Ritz-Carlton is separate?
[indiscernible]
Okay. And Thane, if you can mention like where do we stand in terms of approvals and how much we would've spent till now with only land we have paid for?
So as far as Thane is concerned I think as I mentioned earlier also, give us a quarter or so and we can come back to you with all the numbers including what all has been spent and everything. So just give us a quarter, let us close that out and come back to you.
The next question is from the line of [ Manish Gandhi ], he is an individual investor.
So my first question is sir, will you be able to share detail about our new [ Padave ] project for which we have recently awarded construction contract?
Again not a very large project, Manish [Foreign Language]. The total area there would be about anywhere between 3.5 lakh to 4 lakh square feet. Other than that -- and let us get to a situation where all the approvals and everything are in place and then again we will come back to the markets with more information about that.
One more thing just to add on to that resolution. So surprisingly, you have upscaled the mix on INR 750 crores to INR 2,000 crores for the QIP. So now we are sitting on INR 3,500 crores limit. I'm sure it is not for Thane. So are you sensing -- I understand that -- what is a technicality. But are you sensing that you have a great opportunity in hand or something on table that you can close this year apart from Thane? [indiscernible]
See from our perspective, we have always said that courtesy RERA and courtesy everything, there are going to be a lot of opportunities that are going to get thrown up. Some of them would involve, say, a joint venture or something like that, which should be capital efficient. And some of them could also give us opportunities in terms of outrightly buying out the land from the developers or even [ pro pay ] from the kind of transaction that we saw as far as the Thane land was concerned. So from our perspective, we are -- again as I mentioned in my earlier answer also, we always like to be ready. This is an enabling provision that we have always had since the last 4 years. The quantum that we were looking at, at that point of time would have been based around the market value of the company at that point of time. Today if you look at the market cap of the company that has also changed substantially. So I would only read that much and not more. So from our perspective, it's always been kind of a Boy Scout's motto, to be prepared. So if there is an opportunity which comes, we don't want to be spending time, spending 30, 40 days in terms of getting shareholder approvals and all of this.
Definitely. Just to squeeze one last one. Regarding Phase 3 of Goregaon, so it's almost 65-plus story tower of [ 5 towers ]. So as per our old presentation, we have [ 1.6 million ] indiscernible] so this is of course going to be much bigger than that so can you quantify that?
Again I think our responses to almost all these questions are we always like to come back to the markets with more color once all approvals and everything are in place. That just helps avoid unnecessary estimations. As I said earlier also, you don't want to be overcautious and you don't want to be overaggressive. So we're happy to get full clarity and full confidence about what the total potential is and then come back.
Okay, I think in this career [indiscernible] cautious. So that's very good to me.
Thank the next question is from the line Archana Menon from Morgan Stanley.
Can you hear me?
Yes.
Quick question regards to you -- it's on your discount scheme. Is that -- does that show that you misread the market in terms of the pricing. And the real price is actually 10%, 15% lower and that's what your discount scheme achieves?
Firstly the velocity which we want to achieve probably would not have been achieved had we not come up with this sort of scheme. And again I mean these schemes also given a lot of emotional value more than merely price. If you see the prices of both Exquisite and Esquire, they're not less. I mean they are at least 30% or 40% higher than its closest development. So I wouldn't read as much on price. It is more like the product is ready. We want the volume and we can afford to do this. And I thought it appealed to the emotional sentiment to the buyer and this is what we're really going for.
When you, Vikas that you are going to -- do -- try to do something like this in other projects as well. But the big difference between this and the others is, this is not completed, ready inventory and others might get some given the revenue recognition has not started. So why would you want to do this sort of thing in other projects?
We feel that as a company, we want to increase our market share when it comes to volumes and we also believe that doing more work, we can make more money for all our stakeholders. We as a company have evolved and we are in a position to build a lot more and as good as or in better quality. So I feel that we want to gain market share. We want to scale up and if this is the game one has to play, then so be it. But we really want to test the depth of the market and we want to go for it.I might be hoping that we are on a right strategy if there is anything that you must tell me, which is different from what we think we're doing, I'm very happy for advice also.
Yes. Sure. I appreciate it. No, I think clearly the sales velocity shows because that the pricing had -- and it's sort of what you said about the market. Prices had gone ahead of the demand maybe by 2, 3 years and developers were sort of keeping the end value with themselves and that's the reason why we are saddled with so much of unsold inventory. So but just moving on, regards -- my concern here is that I don't know how many units you sell and that you can call success may be [ 350 ] is unsold, may be you sell [ 150, 200 ] whatever. But the point here is that if you get say INR 1,000 crores or INR 1,500 crores or whatever upfront within may be a quarter or 2, what's your thought process of deploying this capital and I guess that's the whole reason why you are doing this?
Well, we obviously believe that we want to buy land and this will be the best way to do that. Again like I said that we've changed our philosophy. We want to build a lot more, we want to sell a lot more and thereby make a lot more money than rather sitting on inventory and waiting for it to appreciate. So if I were to say that yes, we don't see prices appreciating going forward, but as a company we have enough to build and make money out of like we are doing at today's land price and construction cost and then selling it. So we feel that we want to play that game.
So you have deals on the table at the moment that you can deploy this capital?
We generally process 2,000 land proposals every year and we literally end up buying 1 because we go for the best and the best and the best 1 only. But again, we see a lot of deals that are available. We let them go for multiple reasons, but yes we could look at them as well.
Okay. And see on capital deployment, once you will have Borivali Mall, Worli and Commerz II Phase 2, all 3 of them sort of upfront capital and no concomitant in-solds. So what's our total capital outlay between these 3 over the next 2 to 3 time period. And how do you plan to fund it?
We'll obviously be taking construction finance and we're funded through that. We are still working out the numbers. But again for our mall, we have so much demand for both Borivali and Worli that again pre-lease it in the next -- one single quarter if I want to. I mean if I was again not very price sensitive on the rent I want to get. I have that kind of demand today. So this is exactly what we're doing. And then once these are already spaces that are leased out, they payback for themselves. So construction loan will probably go away in 2 years or 3 years of it is rent.
And how you total up that total -- the full outlay for these 3 projects?
We are still working because we were waiting for these new policies to come. We want to understand what part of that area we need to buy from the government. What part of that area will be available on a premium and what part will be coming by the FDDR. There is a -- the Metro TOD scheme that is going to come in and all that. Time Oriented Development scheme where the government will sell that FSI to fund the entire TOD and all that. So we just want to finally have that number in hand and then come and tell you exactly what will it be.
Okay, great. Just one fast with you?
No, please go ahead.
Worli, that has been taken, I mean has been bought out by Oberoi.
Sorry, come again?
The plot which is adjacent. I think a part of this plot has been bought by Oberoi. Is that true?
No, no. That's not true. I wish it was true, but it's not true.
The next question is from the line of Samar Sarda from Kotak Securities.
Just a couple of questions. On your Mumbai [ central ] project and I wouldn't want the numbers, but just understanding the size. Mostly we've been developing larger layouts. So what is the thought process of getting into a smaller project? It can be a little higher value but 400,000 square feet plus minus and if you are getting into one such project, are there plans to replicate this across different markets of Bombay?
We've always been open to projects that are smaller. We have had the strategy we like large land parcels, but this is a good deal. We -- like Saumil said that once we get all the approvals in place, we will explain the entire transaction and we'll be very happy and proud of the fact that we did this. It's a beautiful location overlooking the Wellington Club. So very beautifully located and so it's a good location. And we were very tempted to do it because of the location itself.
And one question on Thane, of course it wouldn't be on the numbers. Just on the payment front since the [ addition ] has not gone up. The payments which have go to the government like because it's a big quantum, will they happen in FY '19 by the end of the fiscal or you're thinking of pushing it to like next fiscal?
No, no. It'll happen within this year itself. Because if we are planning to launch it then obviously, we'll have to make sure everything is done and we are in control of the entire land parcel and all.
And one last question was on the absolute debt. It would be a number around INR 1,900 crores by the end of March?
It could be around close to about [ INR 1,600 crores ] right? Yes, it could be close to about INR 1,600 crores.
So just a question on that. Like, again, it's the best balance sheet in the industry right now, but from an absolute debt perspective what is a comfortable number for the management? Like is it INR 2,000 crores, INR 2,500 crores. To what level can you take this debt to?
Ideally, we wouldn't want to increase our debt and we want to keep it -- keep the ship tight. And we may not really need it as such, with the way we are now planning to sell or whatever. But like I said, it's all opportunity-driven and we take this very seriously. Haven't had a number in our head, but it certainly is conservative, very clearly. So and if you look at the sector, I mean if you really look at it where have all the aggressive leveraging by all of the developers got them to also. So you can expect us to continue to follow prudently. Again, with every [ time ] if you look at the revenue recognition coming up, going down, in terms of Borivali that cranks up your network also. So again your debt to equity ratios start looking very different. So it will all be relative at all points of sometime somewhere.
The next question is from the line of Mohit Agrawal from IIFL.
And just one question. So they are setting increasing trend among Mumbai developers of cutting the apartment sizes in order to reduce the overall ticket size and make it more affordable. What's your thoughts on the same? And do you plan to do something like that going forward in new launches? Or we continue with the 3-bed configuration that we do.
If everyone is doing 1 and 2 bedroom, there will obviously be a huge oversupply in that segment. Having said that, we -- other than -- we have a good brand reputation and we are able to build quality and sell these larger apartments much more than anyone else would. So obviously, our focus is going to be to do this. And in some markets maybe like Thane and all, we might come up with apartment sizes that are smaller. So we will play within this for now.
The next question is from the line of Saurabh Kumar from JPMorgan.
Sir, the first question is essentially on the accounting of the scheme. So basically, whatever you sell, the balance money which comes [ serves debt ] on your balance sheet. So it comes on [ fuel ] side and against that you have a securitized debt on the liability side.
No, not typically, because once we have collected the money, we won't be reflecting it as debt.
So this is all off balance sheet?
Yes, it's not [ off ] balance sheet also as far as the banks are concerned. The loan is to the customer. So there is no off balance sheet as far as this is concerned.
And we will take it net of the interest cost that we'll have to incur so we'll only get net what we are supposed to get. Our obligation is done. We don't have to repay to the bank. The customer has to repay them. So for -- in our books it will never look like a debt.
It's not a debt.
It's not even a debt, really. Technically also it's not a debt.
So it's not a debt, okay. So there's no receivable on, okay.
Nothing like that.
And second question Saumil, you just referred to this market capitalization of the firm. So I mean you obviously get a boost in profits in fiscal '19 because you have, whatever, 3 projects and hopefully Worli if it comes. But F '20 onwards, if somebody ask to look at can this profit sustain and I was just looking at your presales. It is kind of stuck at that INR 1,300 crores, INR 1,700 crores range. I mean we just [ took out once there in Worli ] for about 4, 5 years. So I mean do you think you can get to something like INR 2,300 crores, INR 2,500 crores for you to sustain profits beyond fiscal '19 beyond the bump up you get next year?
Yes. Again if you look at it, the bump up coming just from the first phase of both Borivali and Mulund, we have a second phase left as far as both are concerned. If you look at Thane, so maybe by the time period you are talking about even Thane starts coming into revenue recognition and then all of those. Then we have the Phase 3 of Goregaon, which is going to come in. So these are all large meaningful projects, which will all contribute very well as far as the P&L is concerned. So I don't see so much of a problem as far as the sustainability is concerned because just look at everything that we have right now that itself good enough to sustain, plus whatever additions come along as we move down the line.
So for eventually for that you will have to like get to about INR 2,000 crore plus number more than that, is what I was getting to.
Correct, correct. So Worli starts coming into the recognition and Worli would then continue to kind of, over the next couple of years, that will also contribute meaningfully to D over L leverage. So as far as Phase 3, '22, '23 are concerned, I think we have a fair amount of clarity as to how this pans out.
Okay, that's good to know. And second is essentially on this Worli thing. So Vikas has obviously mentioned that you don't want to be stuck with inventory post completion and that's heartening to hear. But that would likely be the situation with Worli because it will get completed hopefully over the next 12 months and you will have almost, whatever, the way you -- depending on how you calculate it, you have between INR 5,000 crores, INR 5,500 crores to come to that. So -- I mean if you sell everything. So would you want to figure out some activity around that today just to get that thing in as quickly as possible?
Well, all these schemes [ would be process ]. We can't generalize everything at one go, as someone earlier mentioned that these are inventory [ this are ready ]. Others are under construction we still have a lot of time and when it comes to Worli we will see how the velocity is. And again, today I genuinely feel that Worli is underpriced compared to the product that is ready and available. Today Beaumont is available for [ INR 100,000, INR 125,000 ] a square foot on [ carpet ] and we are still at [ INR 60,000, INR 70,000 square foot ]. Beaumont is not [ Samsung built ] or KPF designed or such a sophisticated building as ours is. It's a good building, but it's good -- it was good in its time and this building is far superior. So we feel that once -- like our entrance lobby is getting ready, stores are getting ready. It's a product Mumbai hasn't seen. So we know for the fact that there are a lot of people who are fence-sitters waiting for the building to get ready. They don't have any compelling reasons. One, it's not even ready that they can pay and move in. So they are waiting for reasons for them to come in and buy and one being that when it is ready and people start moving in you will see momentum. So I don't think Worli I will even require to discount. It's a beautiful product and we hardly have anything to sell beyond this.
And just one on this -- on your rental assets. So when does this Borivali and Worli Mall complete and when does Ritz-Carlton commission?
So Ritz-Carlton would be about September, October next year. So put it at Q3 next year. And as far as what we can say the other 2 are concerned, give it about anywhere between 2, 2.5 year kind of a time line.
Okay, so Q3 F '20 you're talking about, and not September...
Q3 F '20.
So basically a rental growth in F '19 which is a leading we achieve in Commerz II and then grow then substantially in F '21 [ we get ].
Right.
The next question is from the line of Parikshit Kandpal from HDFC Securities.
So I've got a lot of questions for you. First [ hoping to know ] that you had said that we are focusing now on [ celebrity ] and getting volumes and higher market share. So pertaining to that are we looking out anything at all and [ returning ] to diversify outside Mumbai. So will that plan for doing that now it's focusing on volumes?
Well, we continue to look at property outside Mumbai and our start that we want should be with a land, [ someone ] that was going to do JV with us, who has a good local connect. We haven't been able to get one. The minute we do that, we will obviously be at it. Once we are able to set an office there then we will look at buying land parcels also. So -- and again we are in no hurry. We want this company to last 100 years, it could happen in the next 1, 2, 3, 4, 5 years. There's no real urgency, we are doing enough work in Mumbai. So we want to go with the right partner for the right cause with the right reason and all that. So that's where we are.
In regards to the new DP, so will this be [ asset ] neutral for our portfolio in Mumbai?
I still have to study it. It's a positive for the whole of Mumbai, really. So I see it more positive than neutral, but I have to still study the entire impact and then come back.
And the year I think around [ 2,000 ] of opening up I would say rather -- land, which is like 8% or 9% of total land in Mumbai. So how will it impact, I mean, obviously, you open up a lot of land fortunately, but internal supply will it restrict further an enterprising situation?
This is the music to my ears. Because it is raw material I need for my product and we are able to build well. We have a good reputation. If the market size increases, it will be a huge positive for us. And like I said, we've changed strategy, we've changed gear, we are like getting ready to build more and earn more money around building more. So price is not something that we are really concerned. If land prices get rational, our profits are more out of processing land into ready product and we'll continue to do that.
But will you stay around the similar band of margin sizes 48%, 50% in the resi business?
That again like I said we want to focus more on quantity of money earned rather than the margin.
Last time in the call you had mentioned there is one big corporate office that you have shifted to Commerz II, so has it happened or you are still awaiting for it.
So this is what we were saying, this is the international company that we were talking about.
The next question is from the line of [indiscernible] from [indiscernible].
Can you give us some background about the Juhu property, what actually happened in a nutshell. And where are we heading by [ one time ] there are some revaluation there?
Sorry which Juhu property you are talking about?
The Tulip Star.
Okay, the result, there is no progress there. We have -- sorry?
[indiscernible]
The matter is in court. We are seeking, what do you call, specific performance of the agreement that we've entered with them. But nothing is really moving there as yet.
Any ray of light that we can have from there?
Well we keep talking to each other offline, but nothing really, nothing is happening as yet.
Okay. And for the last one, within Esquire, anything [indiscernible] acquisition are we also having a similar profit visibility for the larger-priced penthouses and the place that we have there and is it the similar form of demand coming there as well?
Yes, absolutely, the demand is overall. Like I said, we are appealing more to the emotional buyer than anything else. It gives him that confidence. He comes in with less money and the rest of it is [ staggered ]. So this is a huge positive for them.
Ladies and gentlemen, due to time constraints that was the last question. I'll now hand the conference over to the management for closing comments.
Thank you all for taking time for this conference call. We like receiving feedback from you all. It only helps us think better, deeper and into our performance. Please continue to give us your views and input and continue to help us deliver better. Thank you again.
Thank you. On behalf of Oberoi Realty that concludes this conference call. Thank you for joining us. And you may now disconnect your lines.