Sobha Ltd

NSE:SOBHA

Earnings Call Analysis

Company Forecasts 20% Revenue Growth for FY '24

In a bid to scale up, the company has raised capital equating to about INR 2,000 crores, marking a significant move given its current equity base of INR 2,500 crores. Acknowledging past cycles, the company has learned from previous experiences, deciding not to undertake land banking activities to avoid poor profitability like before. Instead, they have seen good profitability by judicious deployment of capital, particularly in the last cycle (2014-18), where managing costs contributed positively to margins. Looking ahead, the company projects a 20% growth in FY '24, building on a 38% upturn in the first 9 months, compared to FY '23 revenues of INR 5198 crores.

Exceptional Sales Performance with New Records

Sobha Limited reported an extraordinary performance in real estate sales for the first nine months of the financial year 2024, marking the best ever sales value in the company's history, achieving around INR 5,140 crores and covering 4.74 million square feet. In quarter three alone, the company reached its highest ever quarterly sale value of INR 1,951 crores with 1.66 million square feet sold, continuing a trend of surpassing sales each consecutive quarter for the tenth time. Additionally, Sobha Limited enjoyed an unprecedented average price realization of INR 11,732 per square foot.

Regional Sales Surge and Future Growth Projections

The third quarter saw a significant contribution of sales from Bangalore, accounting for about 77% of the total due to new launches. The sales mostly comprised properties with ticket prices below INR 2 crores, which constituted 70% of the sales for the quarter. The management is confident that the current sales momentum will be bolstered by ongoing projects and future launches. The company is on track to exceed the previous financial year's sales value of INR 5918 crores by over 20%. The quarter witnessed the launch of two major projects—Sobha [indiscernible] and Sobha Metropolis Phase I—totaling about 3.8 million square feet and aims to launch another 3 million square feet in quarter four.

Robust Cash Flow and Debt Reduction

Sobha Limited's operational cash inflow for the quarter was commendable, marked by the highest figure to date at INR 14.93 crores, signifying the fifteenth consecutive quarter of positive cash flow and a reduction in net debt. This positive trend underscores the company's financial health and efficient capital management.

Investing in Growth Amidst Increasing Scale of Operations

While the company remains dedicated to reducing debt and generating positive cash flow, there is a strategic shift in focus towards growing the real estate operations. This may lead to a decrease in net cash flow generation, given the anticipated higher expenditures for ongoing and upcoming projects.

Future Cash Flow Visibility and Financial Highlights

Thanks to robust presale numbers and a constant emphasis on cash flow management, Sobha Limited saw a substantial cash inflow from real estate operations totaling INR 12.93 billion in Q3 and INR 37 billion over the first nine months of FY '24—both record figures for their respective periods. Furthermore, the company has visibility on future margin cash flows from residential projects, amounting to approximately INR 64.7 billion from ongoing projects and INR 55.98 billion from future projects. In Q3, revenue from real estate amounted to INR 5.21 billion with total income at INR 7.14 billion, and the EBITDA margin stood at 14.4% for the quarter and 12.7% for the nine-month period.

Strategic Land Bank Development and Project Pipeline

Looking ahead, Sobha Limited intends to disclose details of new projects totaling 20 million square feet in the upcoming financial year. These projects will be predominantly located in Bangalore, drawn from the company's own land banks and a few joint development plans secured three years prior. The majority of these projects will feature Sobha's share of over 90%. Among these, a portion of the land from the House Kota deal, estimated to be between INR 8 million to 10 million, will be incorporated into the new project initiatives.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to Sobha Limited Q3 FY '24 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] please note that this conference is being recorded. I now hand the conference over to Mr. Adhidev Chattopadhyay. Thank you, and over to you, sir.

[Adhidev Chattopadhyay, analyst]

Good evening, everyone. On behalf of ICICI Securities, I'd like to welcome everyone to the Sobha Limited call today. From the management, we have with us, Mr. Jagadish Nangineni, the Managing Director; and Mr. Yogesh Bansal, the Chief Financial Officer. I'd now like to hand over the call to the management for their opening remarks. Over to you. Thank you.

[Jagadish Nangineni, executive]

Thank you, Adhidev. Good evening, everyone. Sobha team and I are happy to interact with you both financial results of quarter 3 for this financial year 2024. As most of you would know, the investor presentation can be accessed from our website, sobha.com. In this call, we will briefly touch upon our last quarter and 9-month performance and provide an outlook for the last quarter as well.

Firstly, on real estate sales, the first 9 months of this financial year was the best ever for us in terms of tail estate sale value with an achievement of about INR 5,140 crores and 4.74 million square feet. In this quarter, we again achieved the highest ever quarterly sale value of INR 1,951 crores and 1.66 million square feet. This is the tenth straight quarter where the sales have been better than the previous quarter. Our average price realization has also been the best ever at 11,732 square feet. Thanks to the increasing contribution of [indiscernible] projects across all our operating fees.

About 77% of the sales in this quarter has come from Bangalore due to the new launch. Also, 70% of this quarter sales have been contributed by INR 2 crores less ticket price due to the mix of the projects that are ongoing. We are optimistic that good sales numbers in this quarter to will contribute in the -- from the ongoing projects and new launches if they come in and will add to the momentum.

Overall, for the year, we expect to go over 20% of the previous financial year value of INR 5918 crores. Secondly, on the project launches. We launched two projects in Q3 of this year. Sobha [indiscernible] in Bangalore and Sobha Metropolis Phase I, both put together about 3.8 million square feet. We have a project pipeline of 1.77 million square feet in residential, we launched, majority of which we are aiming to do by the end of next financial year.

For quarter 4 of this financial year, we hope to do another 3 million square feet of launches. Since they are back ended towards the end of March, there is high downs of radiation as well. apart from minor delays, most of the remaining activities and time line for launches are intact.

Sobha shares in the forthcoming projects would be about 80%. In addition to this 16.77 million square feet, we are working on our next 20 million square feet branches as well, which we will start including in the forthcoming projects during the next financial year.

Thirdly, on our cash flow. With the help of our best ever sales milestone achievements in projects, collections from long-standing contractual customers our operational cash inflow has also been the best in this quarter at [ INR 14 ], INR 93 crores. We have generated positive cash flow for the 15th straight quarter and reduced our net debt. We will continue to aim to generate positive cash flow during the growth phase as well. And directionally, we would like to continue to reduce debt.

However, with more focus towards increasing the scale of our real estate operations, going forward, the net cash flow generation might be lower due to higher spend towards ongoing and new project opportunities. With this, I request our CFO, Mr. Yogesh Bansal, to take you through the financials and open the floor for questions.

[Yogesh Bansal, executive]

Good afternoon, everyone. Our strong presale numbers with improved digitalization demonstrate not only reiterates of our brand, but also puts us in a strong position for the business. Sobha pre-sales will play a water hold in generating even higher cash flows, enabling us to allocate resources addition for a INR 13 crore. Once they come for recognition, these sales will boost our EBITDA margin in future. Our constant focus on cash flow management has resulted in 13 consecutive quarters of quality net cash flow, we continue to generate improved operational cash flow quarter-on-quarter.

During Q3, on collection resulted in overall a cash inflow of INR 14.93 billion with real estate contribution amounting to INR 12.93 billion, the highest ever in Sobha history. We achieved a positive net cash flow of INR 97 crores during the quarter. Similarly, for the first 9 months of FY '24, cash inflow was INR 42.98 billion with real estate contribution being INR 37 billion, again the highest 9-month comparative period.

Strengthen our future pipeline. We invested INR 1.72 billion in first 9 months in land payments. And achieved a positive net cash flow of INR 2.96 billion in the first 9 months. I would like to highlight that we have got visibility of margin cash flow of [ INR 120.68 billion ] from our residential portfolio reached INR 64.7 billion from ongoing projects and INR 55.98 billion from forthcoming projects. Finalization of these amounts over coming years have activated to deploying more capital towards growth opportunities. Our will reduce around peak of 1.3 to about 3 years that 2.54 now. On the P&L side, for the quarter, we recognized 5.21 billion of revenue in real estate with total income of INR 7.14 billion for the period of 9 months, total income was [indiscernible] to [ INR 27 billion ]. For the quarter, EBITDA was INR 1.03 billion, with a margin of 14.4%. And for 9 months, EBITDA was INR 3.01 billion with a margin of 12.7%.

As indicated a [indiscernible] earlier, margin continued to be due to the recognition of pre-COVID sales. Going forward, margins are expected to spend once more decent sales compares. As on 31st December 2023, we had about [ INR 120,000 billion ] worth of revenue to be recognized. I would like to thank you once again for your participation. And now we can open the floor for the question-and-answer session.

[Operator]

[Operator Instructions] We have our first question from the line of Parikshit Kandpal from HDFC Securities.

[Parikshit Kandpal, analyst]

Congratulations on a good quarter, especially on the [indiscernible]. So my first question is that you -- on the call said you are reading a pipeline of about 20 million square feet of projects beyond the existing launch pipeline you have. So just wanted to get some more color on how much is the pending CapEx on land payments to be done in this? How much will be our share in this? How much the JDA, so if you can give some light on that?

[Jagadish Nangineni, executive]

Interest in 20 million square feet, the details of those, we would, of course, declare as we convert them into projects over the course of next financial year. But largely, these projects which we are going to do will be in Bangalore, and those will be some our own land banks and a couple of plans that we have done in joint development for 3 years ago. So the mix would be roughly, again, there, the Sobha share should be over 90% and the majority -- like I said, the majority of the projects are for our base based in Bangalore. .

[Parikshit Kandpal, analyst]

Does it include the House Kota land, the 20 million square feet?

[Jagadish Nangineni, executive]

Part of the House Kota land is included in this. Yes.

[Parikshit Kandpal, analyst]

So how much would be that line if you can quantify out of the sentiment?

[Jagadish Nangineni, executive]

So that would be about -- it was between INR 8 million to 10 million would be some from House Kota.

[Parikshit Kandpal, analyst]

And sir, in terms of development potential, what will be the of this $20 million? Is it right to assume that average utilization would be about 10,000 plus.

[Jagadish Nangineni, executive]

Yes. The average realization we are expecting should be similar to what we are currently doing in Bangalore, about roughly between 10,000 to 11,000 square feet.

[Parikshit Kandpal, analyst]

This on top of this already 22-odd million which you have given in the presentation, take the total to about 42 million square feet, so these kind of numbers are we looking -- what kind of numbers on presales are we looking for the next year?

[Jagadish Nangineni, executive]

The planning for the next financial year has started preset that we will be able to sort of disclosed and give a guidance probably in the next call.

[Parikshit Kandpal, analyst]

Okay. Just the last question on the 3 million square feet of launches which you said will happen during this quarter, which could be back ended around March. So if you can give a broad breakup in which locations are these launches and what could be potentially the sales which will be opened.

[Jagadish Nangineni, executive]

Sure. I mean, these -- although and we are saying it's 3 million square feet. We have a possibility of launch of about seven projects, one project in Bangalore, two projects in Chennai, one project in [indiscernible] and a couple of projects in Guam and one project in [indiscernible]. All of these are possible to be launched very soon. But given the uncertainty sometimes as fee in the launches even if you can achieve half of these launches, then I think we should be able to do about perfect.

[Operator]

[Operator Instructions] The next question is from the line of Dhruvesh Sanghvi from Prosperity.

[Dhruvesh Sanghvi, analyst]

Yes. Congratulations to you, the entire team Sir, any thoughts on why we are doing with the rights issue. Of course, it was suggestion from multiple investors like us, but it was the suggestion around then the price was probably INR 400, INR 500 and INR 600. It would be one of the few promoters in the history who would have sold at 500 and probably now buying at much higher rates in the rights. And that is why I just wanted to understand what is the rationale that they think and they want to put the money. If you can give us a broad indication, that is one. I mean I have a couple of questions after that, and I'll try to sum it up in the next one.

[Jagadish Nangineni, executive]

Sure, it -- there are a couple of things we expect to the likely have been indicating, right? First, with respect to towards our fiscal -- I mean, financial management, we want to be lean in terms of debt. At the same time, we would like to capture the growth prospects that are available in the Indian residential sector and which we think are long term in nature. To a financial goal, which is less burdensome in terms of debt. So in that context, there are several services.

One of the sites, of course, the big issue wearing the promoters also can contribute towards this fund. And the visibility of this funding from the promoters has come in, in the last few months. And hence, their outlook is also very positive in the long term. And hence, they're given their long-term nature in terms of continuing common capital deployment point of view. So price is not the biggest matter, but the ability to deploy the capacity is far more [indiscernible].

[Dhruvesh Sanghvi, analyst]

And a small related to this is by when we will have the contacts of the rights issue available? Any sense? I mean, is it going to be a couple of weeks or it will take 2, 3 months?

[Jagadish Nangineni, executive]

We are working the details out, and I think it should take another month or so to finalize those.

[Dhruvesh Sanghvi, analyst]

Sure. So -- and one last question about. The overall growth because this is the first time we are hearing such big project lineup, including the vote is it now safe that the bottom range for us should be 8 million, 9 million square feet and that 2 million within the grasp of 1 to 2 years for the year. the presales, 8 million to 9 million square feet. Is that a fair estimate now?

[Jagadish Nangineni, executive]

So we will not be able to clearly say how much is the sales in future. But we clearly have seen in the last few years, we have consistently grown they have done to about 4.9% FY '23, we at 5.65% and FY '24, we are already about 7 million square feet. So these numbers have been steady and we can increase price realization as well. So our focus has been for a steady growth.

Now the One of the important things that we need to remember here is that the tailwinds for the sector has been really put in the last 2 years. So I think the long -- I don't know about the shot furnish if they're going to be any pitch. But in a long term from a gold point of view, yes, we should at any for those numbers that what we mentioned. If it's going to happen in the next couple of financial years, and we work towards it and if there is a macroeconomic environment supports it, then we should be able to aim for those numbers.

[Operator]

The next question is from the line of Puneet Gulati from HSBC. .

[Puneet Gulati, analyst]

My first question is on the margins. Look, there was an expectation that margins will now started turning around by the second half of this fiscal. What is the new guidance now? And what's still holding back the margins?

[Jagadish Nangineni, executive]

On the margin front, one, this particular quarter, yes, you're right that we have guided that towards the end of the financial year, we will start looking at slightly EBITDA margins than what we did last financial year in the first 2 quarters. However, the one of the significant reasons for this particular quarter is also because of inability to recognize some of the projects where we have completed, but we have not achieved the because of certain delays in the bands. And this is not a tariff current assets in terms of delay, but it so happened that the forcing got delayed. And hence, which we could recognize far higher revenue and margins we could not. And as you know, as the revenue recognition is the overhead and the other costs are largely in test in nature, and hence, the margins seem to be lower. But I think those will still catch up from some this quarter.

[Puneet Gulati, analyst]

Understood. That's helpful. Secondly, you guide for future projected cash flow. Are those cash flow calculations assume the current price realization? Or are they still based on what you've historically done maybe in previous quarters? Have you revised those numbers up?

[Jagadish Nangineni, executive]

We are talking about the marginal cash flow that we have located in our investor presentation.

[Puneet Gulati, analyst]

Correct, correct. 4.7 billion of potential future number.

[Jagadish Nangineni, executive]

We -- typically, when we do that, then we are a little bit conservative in terms of our pricing and all, we take our current pricing. And if there is anything upside that will come in at once the cost gets launched. .

[Puneet Gulati, analyst]

Just lastly, one again on the rights issue. Your balance sheet is quite decent at almost 0.5x net debt to equity.

You're largely going to launch your own parts of land next year. What's the need for equity?

[Jagadish Nangineni, executive]

As you know, the majority of our land bank has been concentrated in few cities. That particularly in Bangalore and Kerala. And so hence, if we are aiming growth in multiple other cities as well. And for that, we will need certain upfront capital, and that's what we are planning to use it for. The city that we would like to focus going forward, apart from, of course, our manure, which contributes the most even today. Our where our NCR, in Pune and Hyderabad, like we have been saying we do not make -- have good traction there because, again, the requirement of capital for growth there is reasonably significant. .

So balancing growth and investing had certain limitations. And that limitation would relate to overcome by having an equity capital with us and seek opportunities in these cities. And also while we are doing this, we would like to also export some new cities as well. So given the nature of our outlook, not just from the existing operating cities, we're also enhancing our resins in our other non-range cities and in cities, we think that this equity carry will really enhance our capability to focus on long-term growth.

[Puneet Gulati, analyst]

Okay. And you think NCR Kona has ever would not be more JV will be more land purchase transactions.

[Jagadish Nangineni, executive]

Well, the nature of the transactions will continue to be mixed. Wherever we think that we can find good opportunities in an outright buses or on development. We will continue those. I don't think the outlook of how we pursue the opportunities will change. But of course, this larger capital base available for us if something makes sense for us to do outright. We will -- that we currently do not have real will be available to us, and we will exercise it based on the opportunity and the economics around it.

[Operator]

The next question is from the line of Parvez Qazi from Nuvama Group.

[Parvez Qazi, analyst]

Congrats for the numbers. So a couple of questions from my side. When we look at this 3 million square feet proposed launches in Q4 or the 16.8 million square feet of projects in the launch pipeline, what would be our share in the project.

[Jagadish Nangineni, executive]

Both put together in the for the 16.7 million square feet that we have that -- our share would be roughly about 81%.

[Parvez Qazi, analyst]

Okay. Sure. and including the 16.8 million square feet and the 20 million square feet projects that we are working on. What is the kind of let's say, approval costs, et cetera, which we might need to incur over the next 1 to 2 years to bring these 3 million square feet project to the launch.

[Jagadish Nangineni, executive]

The details of those, we are still working on for this. But largely, the land is paid for us. And if I have to clearly -- for incremental investments we have to do and proudly acquire more land in around where we already have, then it might incur additional outlook. But otherwise, these requirements for approval or any sort of consolidation of remaining payments that need to be done for the -- for land and for the partners. So I think we'll be able to cover from our from our operating cash flow.

[Parvez Qazi, analyst]

And lastly, I mean, you mentioned we are looking at maybe increasing the land spend and entering new cities or go into cities other than Bangalore you have any number in mind as to our annual land gases and maybe it will be about INR 2 to INR 12 crores in FY '24. Are we looking to, let's say, call it up to [ INR 500 crores ], INR 600 crores on an annual basis going ahead? Is that the number in your mind or it could be even higher?

[Jagadish Nangineni, executive]

So that I'll not be able to give clear numbers at this stage. But if we have to grow in outside cities, outside Bangalore City. And if you have to look at a higher volume of projects, higher volume of sales, then clearly, we will need more investment in land going forward. And I think we. It should be about that number that what we have mentioned. .

[Operator]

The next question is from the line of Abhinav Sinha from Jefferies.

[Abhinav Sinha, analyst]

Congrats to the team. A couple of questions. Firstly, the 3 million launch, I think you mentioned for fourth quarter. So does this include Karma [indiscernible]? And what is the product that we are looking at there now?

[Jagadish Nangineni, executive]

We -- like I mentioned, just the tedious question, we have about seven projects that we can launch in the next couple of months. So some of them might come in this quarter, some might or the next quarter. So one of them is an and Karma, specifically, we are going to launch an apartment project on 31 acres, and it's a golf course project and that's about 2 million square feet.

[Parikshit Kandpal, analyst]

And this was supposed to be a billion project, right? What is the factor now?

[Jagadish Nangineni, executive]

The structure of the planes to be the same, which is the development management .

[Abhinav Sinha, analyst]

Okay. So ex of this, all the other projects would now be largely owned, right? Because if this is a 10%, 12%, then the remaining and you are saying 80% of your stake in the total pipeline? So...

[Jagadish Nangineni, executive]

Yes, that's largely correct yes.

[Abhinav Sinha, analyst]

Okay. Sir, second question is on the rights issue. So what are the time lines you're looking to deploy the money?

[Jagadish Nangineni, executive]

Like I said, specific rights issue matter, we are still working on details in terms of the number of branches in which we can -- we would like to raise the capital and also deployment and requirement specifics. So we will be able to share those details in the next -- over the course of the next month or so. .

[Operator]

The next question is from the line of Pritesh Sheth from Motilal Oswal.

[Pritesh Sheth, analyst]

Just firstly, on the forthcoming pipeline when I see not many cities being mentioned there, but we have had a very successful project launch in Cison Sobha Metropolis. But I don't...

[Jagadish Nangineni, executive]

Hello?

[Operator]

The line of British got disconnected, sir.

Okay. SP1 We'll take the next question. .

The next question is from the line of Mohit Agrawal .

[Mohit Agrawal, analyst]

Are many congratulations to our team for showing consistent growth in presales and also debt reduction. My first question is on your pricing. So if I look at the average realization over the last 2 years that has moved up by from INR 8,000 average to almost INR 11,500, INR 12,000. So if you -- can you give some color on what you mentioned about this premiumization of project, so that is one. And the other is the like-to-like growth that you would have taken the pricing growth to take projects. So could you kind of bifurcate broadly what would have been the like-to-like growth annually and the premiumization impact?

[Jagadish Nangineni, executive]

Thank you, Mohit. Like you said, the price -- the volume growth -- sorry, the pricing growth has been from about 8,000 about 2 years ago to -- I mean, this particular quarter is about 100 that we do but first 9 months as 10,800. So the main -- the reason for this increase is really changing the mix of the project. As we are launching new projects, we were able to launch at a price higher than the replacement inventory if you make also. And that has yet to be increasing the pricing mix for us. So hence, to give a like-to-like comparison, it is very tough because the change in the mix is not from the same project, but from new projects. But if you have to take it a specific study of certain projects. The -- like for example, we started selling one of our products [indiscernible] Broklyn and Manhattan. Both of them, we started around 6,500 to 7,000 and today, it is about 9,000. So that's still an increase of 30%. So similar would be the case in -- similar to the price increases we have seen for a similar location project where we launched completed the new one. So from a like-to-like -- from a pricing point of view, I said it's similar from INR 8,000 to INR 10,000. And the volume has been. Volume growth has been roughly about again. On about 4.9 million , 5 million square feet to this year. If all goes well, we can probably do another about plus to [ 316 ] square feet.

[Mohit Agrawal, analyst]

Sir, my second question is on business development. We've been talking about adding more projects. My question is are you comfortable with the valuations being offered. You mentioned that you want to expand to heater, especially markets like Gurgaon, Hadaraba. Any thoughts on if you're going for outright or JDA, what has been the landowner expectations? We keep on hearing about land prices going up. So any thoughts on valuation? And do you think on these prices, you'll be able to make healthy IRRs.

[Jagadish Nangineni, executive]

Good question. when the market is up and very optimistic, the land prices are also in also have there has been a raise in the land prices too. So that is where, I think, having capital with us and ability to chase opportunities where we can we can pursue opportunities which are not a competition will be where we'll have an advantage. Whether we will be able to achieve the kind of financial objectives that we have whenever we do a transaction. That is something we think that we are optimistic, and we for that our bus development process has to be far more robust and we take a lot of conservative estimates.

It's a tougher market for us to do new deals. And that's why we -- I think we need to be a little bit facient. That is where probably our advantage comes wherein we already have a good pipeline of projects lined up. And hence, the additional to that having operational cash flow and capital through the sites issue. We will give us a last test of kind of capital to and patients to pursue opportunities which will be profitable.

[Mohit Agrawal, analyst]

Understood. And sir, just a last clarification. In your initial remarks, I heard you mentioning that spends on construction are likely to increase going forward. So does that mean that your operating cash flow margins currently on an average, which is around 20%, could that see a change? Or will higher collections kind of take care of the higher outflows as well?

[Jagadish Nangineni, executive]

So our focus is going to be a higher cash flow, okay? So higher cash flow on so we get cash flow that only we are going to spend on construction. So our operating cash flow is going to be some better.

[Mohit Agrawal, analyst]

Sorry.

[Jagadish Nangineni, executive]

I had an outflow also from a cash flow.

[Mohit Agrawal, analyst]

So margins will remain stable, right?

[Jagadish Nangineni, executive]

What if I could paraphrase it. So essentially higher outflow in construction will lead to higher inflow because of the milestone achievements. And particularly in the last couple of note, but it is last year, whatever we have launched the construction outflow for those will start coming in more in terms of structure completion.

Those, we will be -- and some of the other projects where we will start doing initiate. So a combination of that, we think that more outflow will lead to higher billing for us for the sales and lead to higher cash inflows. So it's a positive cycle of spend leading to billing leading to cash inflows and so higher cash outflow, higher cash inflow.

[Operator]

The next question is from the line of Pritesh Sheth from Motilal [indiscernible]

[Pritesh Sheth, analyst]

So first question is on your forthcoming project pipeline, while we have mentioned quite a few cities. But being a pressure where we have had a very successful project launch. It's kind of missing from that -- I mean, the -- next project is not mentioned here, while I assume we might have some land in the pipeline in pressure as well. So what's your plans in that market?

[Jagadish Nangineni, executive]

Specifically in pressure?

No. We have two ongoing to there on is late in the second or three projects, leakage, ever estate and metropolis. So we have just released last quarter, we have launched the Phase 2 of the metical. So we have a good set of inventory there. And I think it might take a few quarters for it to be continuing. And while that is happening, we are looking at other opportunities in Sisal. Sure.

[Pritesh Sheth, analyst]

So we do have more land in that market, right?

[Jagadish Nangineni, executive]

The current developable land currently we do not have. But there are certain land banks, which we are trying to get approvals upon. If that do not tactify, we are looking at other opportunities in issue has been our home market for a long time, and these have developed one of the most iconic projects forest there. which has both retail apartments, wheelers and one of our retail portfolio in that project. So we have a great brand name and designation. So we will look forward we will continue to look for opportunities in having a presence there.

[Pritesh Sheth, analyst]

And this 20 million square feet of upcoming pipeline, you mentioned there is house code, which is included there. Is there wholesale project also included in that pipeline? And if yes, how much would be the size in the first phase?

[Jagadish Nangineni, executive]

Good question. Hosur, we are in the last leg of obtaining their permissions there or resolving one of the issues which has been long ending if we are able to resolve that, then we should be able to launch later development in our wood line, remaining parts of the wholesale land holdings, we don't think that they are in development stage. So as and when we find the opportunities we will we will monetize that. But otherwise, the remaining land that we have, which is a small core, which is about 60-plus acres that we will do it as a market development.

[Pritesh Sheth, analyst]

Sure. Got it. And one lastly, on the contractual margins in this quarter. So last quarter, we had seen that improvement blocking 14% EBIT margins, 14%, 15%. It's come down to 13% now. How should we look at that going forward, this quarter was just in the appetition or there might be some quarters where we still might go through the same sort of margins.

[Jagadish Nangineni, executive]

It's more of an accounting treatments that undergone this quarter. So where in some of the revenue that we have recognized earlier had to be reversed because of short closing of the PO or not continuing the product because of the ambiguity in the scope of the project. So that, I think, has led to the reduction in the margin. But the Overall, in the contractual and manufacturing business, the manufacturing business continues to look very good in terms of opportunities and in terms of the margins that we can achieve through these opportunities. In contractual projects, the ones which we are -- which we had got in 2021 or so, those are still under leases. But otherwise, which we have started in the last financial year and this financial year, we look to have a good margin. I recognize the revenue and close out the older projects, there will be a little bit of stress, but I think large is over.

[Pritesh Sheth, analyst]

Sure. Got it. So sustainable margin should be somewhere between 10%, 15% for this time?

[Jagadish Nangineni, executive]

It should be.

[Operator]

The next question is from the line of Himanshu Upadhyay from [indiscernible].

[Himanshu Upadhyay, analyst]

I have this question on capital allocation strategy for us, okay? And again, the capital is what we want to do. I have three points and a question following it. Our network is around INR 2,500 crores, okay, which is the total capital on which this company has been built. And we want to raise something like INR 2,000 crores of incremental capital, which we changed quite large based on what historically we had used capital the first one. .

Secondly, in the last cycle also, we invested huge capital in land bank and which led to high debt, low profitability also means, okay, we may not use high debt but the profitability in IRR may be low. And we have not used that land also completely what we built in the last cycle that was point two.

And third, how do you ensure that capital, which will be raising now? Will it get used more cautiously than in past? And what will you not do with this capital being.

And finally, the timing of this capital raise because what we understand or where is that prices of land have gone up significantly in the last 3, 4 years.

Can you give you complete idea on these four points? And how are you looking at the things? And how should I understand it then outside investors in the company. In the last cycle also, we invested Buchanan landbank. And the debt capital land bank is also not fully utilized is what we understand, okay? It also led to poor profitability in bad years. So the question is, how do you ensure that the capital which you'll be raising will get used more cautiously than in the past. And what will you not do with that capital, okay? And finally, on the timing of this capital raise, what we understand earlier is that prices of plan have gone up significantly in the last 3, 4 years. So how do you be confident that this large chunk of capital will be able to deploy in let's say, in the next 2 years, where we can get high IRRs or decent IRRs. So this is the question.

[Jagadish Nangineni, executive]

So Himanshu, to answer your question, the we got the gist of the question. So coming to each point, you are right that the -- our equity is about INR 2,500 crores, and we are raising the capital of about INR 2,000 crores, which is more than double of what we had raised from all the capital raises that we have done in the past. That -- in fact, that shows the or the ability to scale the company from the PR today. So I think that's a very positive kind of development wherein with that kind of equity base where we have reached and from this new capital base, the growth opportunities that are present for us seem to be far more and considering that the current sustainable positive economic environment we should be able to put this capital for the best use in terms of opportunities.

Second is -- yes, we did raise capital in the last cycle. It's not -- I'll not say last cycle, but last [indiscernible]. As a company, we have been operating for the last 50 years. And collectively, we have gone through at least 3 real estate cycles. And therein, there have been multiple lessons that we have done. And one of the biggest things that we have done, particularly in the cycle where in 2008, was that we stopped -- we were earlier allocating capital for land banking. And that's something that we have said we will not undertake in future. And when you ask 1 of the questions, which is what you're not going to do, and decide what we have not been doing in the past 10-odd years.

And in the last 10 years, our ability to lease capital and actually gain or convert the investments in the projects and in a profitable investment has been really good. And fortunately, in some of the -- in the last cycle, which was the 2014 to '18 growth segment. And after the post owed, the cost increase also had played a big role in terms of margins. But otherwise, we have been deploying our capital judiciously. And going forward also, we'll follow the same principles of prudence and make sure that the capital investment is done to achieve multiple objectives, both organizational and of course, financials.

[Himanshu Upadhyay, analyst]

And one thing, would you like to build your commercial portfolio significantly over the years?

[Jagadish Nangineni, executive]

That's also a good question. We have -- our focus has been largely residential, and that's what we are good at. And we would like to maintain that focus in the medium term. The reason being we think that there are enough opportunities for us to continue to pursue in residential. And at this juncture, where there is a clear visibility of good opportunity. I would rather focus on that but then moving to another asset class which we are not as good. But at the same time, we will start experimenting a bit if the right opportunity comes by in a small scale. And if it makes sense, then we will look at it once we see through this residential opportunity set.

[Operator]

The next question is from the line of [ Sabyasachi Mukerji ] from [ Bajaj Wins of AMC ].

[Unknown Analyst]

First question is on the -- in your initial comments that you said that will do a 20% growth on -- in FY '24 on the FY '23 number of INR 5198 crores. 9-month FY '24, we are already up by 38%. Do you expect a very soft Q4 in terms of bookings?

[Jagadish Nangineni, executive]

This quarter sales is largely, again, like I said, is dependent on the -- our ability to do new launches and considering that the new launches are a little bit back ended. So I think that they can -- there is a possibility for us to not repeat the same sales numbers. But like I said, that it's completely dependent on our ability to launch. And that's where we would like to guide or we would like to keep all the investors informed. So that's something which is -- which can cause area. Not that it is going to impact the medium term or short-term sort of objectives of the company. But when it comes to quarter-on-quarter, these are things which can come in or not. So that's an that still has to the core.

[Unknown Analyst]

Got it. Just a follow-up here. So does it mean that probably launches will get spilled over to next quarter?

And is it a fair assumption that 25% also FY '25, we'll see a decent growth in terms of sales, 15%, 20%? Do you have guidance over there.

[Jagadish Nangineni, executive]

Sorry, [indiscernible], currently for the next financial year, we don't have -- neither have a guidance or we have planned it out in detail. As and when that. We do that, then we'll be able to discuss that.

[Unknown Analyst]

Okay. Last one from my side is in our last quarter earnings call, you said that probably in the next 7 or 8 quarters, we have a launch pipeline of 15 million square feet around. So does this remain intact? I mean, how are you planned in terms of launch pipeline, let's say, for the next 1.5 years, let's say?

[Jagadish Nangineni, executive]

Yes. I mean the last quarter is pipeline was about 15.3 million square feet. And this quarter, that has increased to [ 16.77 million ] despite launch of about 3.88 million square feet. So I think that's what I was mentioning in the initial remarks, we should -- we are aiming to launch majority of pipeline in the -- by the end of next financial year.

[Unknown Analyst]

Majority of the pipeline by end of, let's say, FY '25 that you are mentioning?

[Jagadish Nangineni, executive]

That's right.

[Operator]

That was the last question for today. I would now like to hand the conference over to the management for closing comments. Thank you, and over to you, sir.

[Jagadish Nangineni, executive]

Thank you, [indiscernible]. I express my gratitude to all the participants in the call today. All the factors contributing to residential demand, which is high growth economy, drop centers migration to cities, higher income levels, optimism for the future needs for living in larger communities, steady interest rates would continue to play out in the long term. And we, as a company, has very strong foundation built by [ Tecate ] team, which pursues the organization goals with passion. And hence, this got those, coupled with our brand, operational and financial model, we are positioned to experience steady growth. And I hope that we will work towards it. and we are pretty optimistic about our future. While we continue to pursue our short-term goals, we have a very clear view of the long term as well. So with that, I thank you. Thank you, everyone, who have participated in the call. I hope we have answered some of your questions at bay. In case you have any further questions, please do reach out to us. Thank you.

[Adhidev Chattopadhyay, analyst]

On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.