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Sunteck Realty Ltd
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Ladies and gentlemen, good day, and welcome to Sunteck Realty's Earnings Conference Call for Q1 FY '24. We have with us today, Mr. Kamal Khetan, the Chairman and Managing Director of the company. Mr. Prashant Chaubey, the Chief Financial Officer; and Mr. Abhishek Shukla, the Vice President of Strategy and Investor Relations.
Please note, this call will be for 30 minutes. [Operator Instructions] This conference is being recorded, and the transcript for the same may be put up on the website of the company. [Operator Instructions]
Before I hand the conference over to the management, I would like to remind you that certain statements made during the course of this call may not be based on historical information or facts and may be forward-looking statements, including those related to business statements, plans and strategy of the company, its future financial condition and growth prospects. These forward-looking statements are based on the expectations and projections and may involve the 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 would now like to turn the conference over to Mr. Khetan, the Chairman and Managing Director of the company. Thank you, and over to you, sir.
Very good afternoon to everyone for joining us today, and thank you for taking the time to participate in our company's earnings conference call for the first quarter of the financial year 2024. We have marched into financial year '24 with strong footing. Our pre-sales grew by 16% year-on-year to INR 387 crores and collections to remain strong at INR 288 crores. This gives us confidence that we will achieve 20% to 30% growth in annual pre-sales, considering the new launches planned for the second half of the financial year '24.
Our operating cash flow continued to remain strong as we cross INR 1,000 crore mark over the last 3 years, this reaffirms our faith in the robust business model built by us, which resulted indeed operating cash flow surplus yield of 22% on the Networth for the last financial year. I'm happy to report that due to the strong cash flow, our net debt today stands at less than 1/4 of the collection at INR 264 crores. Our net debt-to-equity ratio is among the best now at 0.09x. After our last launch of Sunteck Sky Park Mira Road, we have now 5 large projects as growth engines, which will continue to deliver strong cash flows and profit margins. In fact, our Mira Road project has achieved fastest monetization from acquisition to launch in just 6 months.
Going forward, we are planning to launch 2 more large projects, as growth engines. One at Kalyan, with the total potential GDV value of INR 9,000 crores and second, at Nepean sea road with a total potential GDV value of INR 2,500 crores. These -- all these 7 projects will then have a total gross development value for the company at INR 30,300 crores, which will provide strong visibility of cash flow and profit margins in the coming 7 to 8 years.
We are creating annuity income also and expanding our rental portfolio, with 2 projects at BKC Junction, one which is at -- one, which is Sunteck BKC 51, is already pre-leased, and we have already got the occupation certificate for the same. Our average annual rental from this project shall be INR 36 crores during the tenure of the lease. The second commercial project, which is Sunteck Icon, another -- at the junction of BKC is near completion, and we are expecting this also to be pre-leased at the same and a similar rentals.
On the business development front, our goal is to have an optimum balance of growth and profitability. Within this framework, we have a strong pipeline of deals under consideration, and we intend to conclude a few deals in coming quarters. Execution in all our ongoing projects is in full swing, our ability to execute continues to be rooted in our exceptional people and the unique in-house construction model which allow us to control on quality and cost. We believe all of this is making Sunteck business model generate asymmetric risk-reward.
In conclusion, now Sunteck Realty today stands at a much stronger footing than ever before, with increasing number of large projects as growth engines to give the company sustainable growth over the next few years. As you know, the company follows the project completion method of accounting. Going forward, we will see incremental projects getting completed year-on-year, and we will start recognizing the revenue from this year onwards and the same will be reflected in the financial statements.
So it is important to understand that due to the project completion method, it is better to evaluate the P&L numbers on an annual basis rather than quarterly basis. We remain excited about the future opportunities, and we remain committed to capitalizing on these opportunities in value accretive and disciplined manner.
I will now hand over the call to Prashant Chaubey, our CFO, for more information on the earnings performance in Q1 FY '24. Over to Prashant.
Thank you, sir, and good afternoon, everyone, and welcome to the earnings call for the first quarter of financial year 2024. The financial and operational numbers have already been published on the stock exchanges. I believe all of you must have gone through the same. Let me give you some of the brief highlights of the financial performance.
Our pre-sales stood at INR 387 crores in quarter 1 of FY '24 compared to INR 333 crores in quarter 1 of FY '23, a growth of 16% on a year-on-year basis. We achieved strong collections of INR 288 crores in quarter 1 compared to INR 285 crores in quarter 1 of FY '23. Additionally to this, I'm happy to share our pre-sales and collection CAGR since FY '21 has increased in tandem to 25% and 27%, respectively. We have also generated an operating cash flow surplus of INR 76 crores in quarter 1 of FY '24. On the P&L front, the company follows project completion method of accounting and have reported a revenue of INR 71 crores with a core EBITDA margin of 43%.
With this, we can now open the forum for questions from the participants. Thank you very much.
[Operator Instructions] We have the first question from the line of Adhidev Chattopadhyay from ICICI Securities.
Sir, first question is on our Kalyan launch and whatever Nepean sea road next year. let us know what is the status of the approvals here? And how confident are we of the time lines which we have given in the presentation? That is the first question.
So Adhidev, we are very confident on Kalyan launch. Our -- the approvals at what stage we are, we are expecting that we should be easily launching in next 3 to 4 months.
Okay. So somewhere post-Diwali you're saying, right? If you are right -- or before?
I would say on the outer limit, it should be close to 3 to 4 months, say either in Q2 or Q3.
Okay. Okay. Sir, on Nepean sea road, if you can help us understand what is the status there on the approvals?
Nepean sea road, obviously, we are going very aggressive now. We are -- if we talk about that project, we should consider minimum 9 to 12 months timeline.
Okay. 9 to 12. Okay, fine. So, sir, and second question is on the accounting. Now we have seen peers shifting to a mix of project completion and percentage completion for the new projects? So is there any thought in our mind also in talks with our auditors and all that something similar could be done so that the financials reflect the performance more accurately of the company?
So Adhidev, in fact, we were on the percentage completion method before the Grant Thornton came as an auditor on the board. We debated that with them, they insisted us, obviously, this is -- for them as per the new norms gain is, in fact, we shifted to project completion method.
So as of now, I don't think we have anything in mind that we should be shifting back to percentage completion method for -- in near future, anything unless and until auditor ask us to change it. So they are pretty confident and comfortable with this matter, and they, in fact, want us to be in this matter.
Okay. Okay. Now that question is mainly because a lot of our projects are -- it's not reflecting right now in the P&L. So yes. yes, yes.
But that's the reason last 2 years, I think, Adhidev, they not so any good P&L numbers. But that's what now going forward incrementally most of the projects will get completed. And that's why we said that year-on-year, you will definitely see now good numbers -- financial numbers in P&L, and it will be incrementally seen in the -- it will be reflected in the P&L numbers.
Okay. Sure. Sure, sir. That's very helpful. Yes.
And that will start from this year onwards, we expect the way the projects are on the final stage of completion, how we are seeing that.
We have the next question from the line of Pritesh Sheth from Motilal Oswal.
First is on Slide 16. You have mentioned certain opportunities that you haven't considered in your growth engine calculation. Borivali West is one where, obviously, we have communicated to the market. But Sion and Jaipur, I mean what are these projects are. Are these projects like under consideration, under discussion or under -- when are we going to execute those?
So the idea is we have not taken anything into consideration, which are -- which -- where we are not seeing a visibility in the next 12 months of the launch. These are all projects, which are old projects. We are just saying that these projects are there, obviously, with Sunteck, it's in the public domain you know about it. Everybody knows about it.
We are not taking them into any intrinsic value approach. And that's what, that's all it is. We are not saying that it will immediately -- we are trying our best to launch as early as possible, even those projects, but we don't see that anything can be launched in near future. So that's why we are not taking into that, visibility is not that, that's the reason we are not taking into it.
Sir, I'm not particularly aware about...
Sorry?
Okay. And I was just asking, I'm not particularly aware about Sion and especially Jaipur project. If you can just share some details.
I think we can -- you can discuss with Prashant. I think Prashant can share with...
Yes, Pritesh, we can discuss these projects which are there, can you call us offline.
Sure, sir. No worries. And in terms of the rentals that you have signed up from upgrade, when can we expect them to start generating rents for us? And whether the INR 36 crore also includes the TAM income or that would be over and above that and some details on that.
So occupation, as I mentioned, that occupation certificate has already come. So we have given them a possession. So we should expect the rentals to start obviously from next month onwards. And this does not include CAM. This is net income. This does not include CAM.
Okay. And so they've done with their fit outs and all and we should start seeing rental income start...
We already gave them a soft possession earlier for doing the fit-outs and all, and they have almost completed all their fit-outs. In fact, since the occupation certificate has come, I think they will be operational -- full-fledged operational in next couple of days or a couple of weeks. That's all.
Got it. That's it from my side. All the best.
We have the next question from the line of Vasudev from Nuvama.
So the first question is on the pricing front. So how is the pricing scenario looking like? And have we taken any price hikes in Q1?
Vasudev, Prashant this side. So FY '23 was a good year where you saw some amount of price inflation in the projects. In the first quarter, we have not taken any price hike per se. Whatever price inflation had happened, it happened in the last financial year.
Okay. And for the new launches, what kind of pricing are we looking at?
New launches -- this is Kamal Khetan here, Vasudev. New launches, obviously, the prices will be as per the market, whatever -- what do you mean by new launches, the new launches like Kalyan or the existing projects where the new launches will happen.
Yes. Sir, in Kalyan, if we will be charging the market rate -- decrease and...
Wherever we have launched...
What kind of price hikes have we seen there?
Your question is not clear. Hikes means price hikes means, Vasudev, we -- wherever we have launched, you have seen we command a premium as a brand. And there also, when we launch whatever the market is there, obviously, we will have a premium -- Sunteck premium when we launch there. So we will take that premium when we launch the project in Kalyan.
Okay. And my second question is how much is the current unsold inventory in the ODC -- and other projects that you can share.
Vasudev. This is Prashant this side. So in terms of ODC from the already launched projects I'm just talking about, from the already launched projects, we have close to around INR 500, INR 450 crores to INR 500 crores of unsold inventory in ODC. In Naigaon, I'll just give you the number, in Naigaon the unsold inventory that we have from the already launched projects is close to around INR 300 crores. And from Vasai -- from the already launched projects, we have an unsold inventory of close to around INR 400 crores. This is only what we have launched. Over and above, we have the GDV.
Okay. And sir, I was just -- any number for Mira Road...
Sorry?
If you can give the same numbers for Mira Road, what is still remaining to be sold from the launch?
So in Mira Road also, Vasudev, we have close to around INR 400 crores unsold inventory from the already launched phase.
We have the next question from the line of Murtuza Arsiwalla from Kotak.
Just a quick question. You put out that GDV of about INR 30,000-odd crores from projects to be launched. What would be the cost around this? Number one, as well as you talked about launched projects where in the previous question, you talked about the unsold inventory. Can you also give us the amount of receivables from launch projects sold and cost to be spent to complete those projects. So both for the future launches, what is the cost? And for projects launched, what is the recoverable from sales already made as well as the cost to be incurred to complete these branches?
Murtuza, Prashant this side. So I'll answer your question in 3 parts. So first thing that you asked is what is the receivables that we have from our already launched projects. So the receivables that we have from our already launched project is close to around INR 2,100 crores. That is the number, okay?
Now apart from that, for this launched projects and ongoing projects, the estimated cost, which is yet to be -- which I have to spend is close to around -- close to around 1,000 -- close to around INR 1,100 crores. That is the amount that I have to spend against this receivable that I'm getting. And over and above this, I have the inventory, unsold inventory that we spoke about in the last question. So that is the number. And for the upcoming projects that we were talking about of INR 30,300 crores of GDV, for that, the amount that I have to spend on construction per se, is close to around INR 5,500 crores.
It seems very little, INR 5,500 crores, but anyway I take it?
Sorry Murtuza. Sorry. INR 5,500 crores plus -- so Murtuza INR 8,500 crores to INR 9,000 crores. My bad, I'm extremely sorry Murtuza.
No, no, no worries.
We have the next question from the line of Sarang Gupta from Briarwood Management.
So you mentioned on the opening remarks that you plan on doing business development to kind of grow the business and have us few deals under consideration. I'd love to hear a little bit more about just the medium-term outlook of the business development in the next 2, 3 years and then as how you're thinking about things really differently from the last 1, 2 years, whether you're less active and what's changed in the market to quite you to be more impressive today than the past, if that's the case?
Yes. So Sarang, we have -- obviously, we are in the pipeline. So it will be difficult for me to name the projects which we are negotiating and are in pipeline. I can say aggressively, as I said in my opening remarks, that we are negotiating at least 4 to 5 deals, which we are confident of closing at least 3 out of 10. And whatever we are looking now are all large projects, we are -- mostly, we are looking only large and big-sized projects. That's what is a strategy going forward for a company it is.
And so that's what I can talk about for going forward project. And regarding annuity income, we have already started building up that we have leased out one commercial assets at the junction of BKC. Again, I can confidently say the second BKC asset and the junction is at the advanced stage of negotiation for pre-leasing because the best advantage, I think we have today, the vacancy level -- vacancy level of the offices in BKC is almost negligible, I would say. There is no big, large spaces which are available, we will take full advantage of that by leasing. And that's why we're tying up the lease for like 10 years, 15 years or more than that.
In fact, the first lease, what we signed was in BKC 51 with 29 years. And that's how we want to take it forward. And obviously, we are looking to monetize, again, looking at the good market, we will also looking to start very soon the commercial development at ODC DC also Goregaon West, and there also we'll try to create a big annuity income from there as well.
Got it. Very helpful. And then just one last follow-up question on the pipeline of new projects. Is that -- are you looking at only JVs? Or are you also considering the outright land acquisition these 4 to 5 deals...
So out of the 5 very, I can say that 3 JDA model, 2 what we are negotiating are the buyouts, but I can say whatever we are buying like how we build up on the Nepean sea road on a similar model where we are seeing a good value that we created out of it and good IRR can be maintained. So that's where we are looking to buy out, only those projects.
That all makes sense. Congratulations on the strong quarter and good luck excited to see these joint ventures over the next few quarters.
We have the next question from the line of Prem Khurana from Anand Rathi Shares.
So just to kind of continue on this -- the rental transaction that we've done. So I mean, if you could help us understand your thought process for this business. Now the idea would be kind of retain these assets or the idea would be on a monthly I mean you have a tenant in place and then you could look at monetizing these assets.
And also, I mean, for ODC, you said this large plan of almost 2.5-odd million square feet of area on commercial side, avenue 5 and 6. Would you want to continue with the same thought to it? I mean, you would want to have 2.6 million square feet of combination of commercial or retail or -- the area has changed over the years now. I mean it has been brought down and the residential component has gone up?
So what we are looking to develop 5th avenue as definitely a combination of commercial and residential, because what we see the value -- because residential is selling at today INR 30,000 square feet plus, which gives us more value to the company immediately and it gives immediate cash flow, which gives a better return and better ROE for the company. Nevertheless, but to monetize as quick as possible, we also want to start simultaneously the commercial asset also, which is close to another FSI of 2 million square feet, which is there close to 2 million square feet, which is the area that we can construct in 5th avenue over and above 1 million square feet of residential.
So even that, we would like to start simultaneously. When you asked the question whether we want to -- so what kind of returns I can just give you an example, from what we have leased out recently, the BKC 51, Prashant would like to share the number, what...
Prem, this is Prashant this side. So basically, on our invested capital in BKC 51 was close to around INR 125 crores. So against that INR 125 crores, we are making an average rental of close to around INR 36 crores. So that gives us a return on invested capital of 30%. And this is what we are targeting in our commercial projects. We want to do commercial projects, but with this kind of return metrics.
Sure. But then the idea of we're going to retain these assets because, see, I understand avenue side, because it's a large asset revenue can have it in your portfolio and kind of continue to see rental escalation, let the rentals grow and create more value. But when I look at BKC or, let's say, for that Sunteck I can -- these are smaller assets not sure.
I mean if you want to have these assets continue with you? Or you could also look at monetizing once these are leased out because with the maximum value that you were supposed to create, right, I mean in terms of INR 125 crores that you've invested, that has already multiplied. And now onwards it will be mostly adjustment because of the rental escalations that you get to have. So to kind of unlock this capital and look for more growth opportunities or let the asset appreciate over the years?
So yes, good. So first of all, when we have tied up the BKC FX also, it's escalation is there year-on-year. So the rentals will be increasing year-on-year. It's in the agreement that every year, the escalation is 4% to 5%. So that is there in the agreement, and that will give us the escalation. When you say monetization definitely, we will see today, it is not that if we can monetize because of that, if you monetize the growth will be faster or slower. I don't think Sunteck has a very strong balance sheet. We are always disciplined in our balance sheet when we -- it's not that we are holding any acquisition because Sunteck balance sheet is weakest not strong or something like that.
But nevertheless, if we feel that we should monetize and create more value. And when we see that value creation will be more when the interest rate cycle reverses. And only then, obviously, we would like to see to monetize, not at this stage where interest rates are high. So -- and what we are seeing looking at the current economic situation and the interest rates, how it is behaving. I think we are only heading after a few quarters, maybe we will start seeing interest rates coming down. And when the interest rate starts coming down, only that is the time we should give a thought that whether we should monetize or we should retain the assets. That's what it is.
We have the next question from the line of Pradyumna Choudhary from JM Financial.
My first question is regarding the presale growth. Basically, both presales and collections on a Y-o-Y...
Can you start -- it was -- we could not hear you properly. Can you start once again.
Can you hear me now?
Yes, yes. It's now better.
Both presales and collection in this particular quarter on a Y-o-Y basis was slightly slow -- on a slower side. So any particular reason for that? And on the same part, like are we confident of achieving INR 2,000 crores of pre-sale in FY '24? And what would be like -- could you give maybe some sort of a project by split where this INR 2,000 crores would come from?
Pradyumna, Prashant this side. So this pattern that you are talking about in terms of growth in pre-sales and collections, that is basically, if you look at the last 3, 4 years of Sunteck. Our first quarter is generally the weakest quarter and that is seasonal in nature as well in Mumbai. And going forward, as the second quarter, third quarter as the festive season comes into play, you start seeing robust sales and collections. And construction activity also increases at that point in time. So that is the reason why you are seeing it's nothing to do with anything else. It's just that. And new launches are also going to come going forward.
So the second question that you asked about INR 2,000 crores of pre-sales, so I would just like to tell you that if you look at our growth rate from FY '21 to FY '23, we have grown a 25% CAGR. So we are targeting 20% to 30% growth in our pre-sales year-on-year. So that is what our target is, and we will try to deliver on those targets that we have set for ourselves.
No, like my question was -- this INR 2,000 crores of pre-sales, some growth split of -- what projects would contribute to them?
So Kamal Khetan here, Pradyumna. So obviously, now if we launched Kalyan, we will have 6 growth engines, what we've called 6 projects. So that INR 2,000 crores will easily come from all these 6 projects. And these are 6 large projects. I can't give you what will come exactly from there, but we can take it average of INR 300 crores to INR 400 crores from each project.
Understood, sir. Last question...
It will be achievable, just to give you an idea. It is like less than INR 100 crores, INR 75 crores per quarter from each project.
Understood. And second question, like there was a slide mentioning the value of INR 30,300 crores of product development. But realistically, how much do you think is achievable over the next, say, 4 years -- 4 or 5 years, how much of the gross development value can we look at achieving on a realistic basis?
So Pradyumna, this is not, first of all, I would like to correct, it's INR 50,000 crores, it is INR 30,000 crores. And we said this is the GDV value. These are all large projects. And I said in my opening remarks that INR 30,000 crores all these GDV value, which will be achieved over a period of 7 to 8 years across all the 7 projects.
Okay. Understood. All the best.
We have the next question from the line of Nikhil Chandak from JM Family Office.
I just had one question. In the slide, I see Signature, Signia project at BKC for GDV of INR 1,500 crores. Now what I understand is that this project is long completed, and I'm just curious, if it is ready inventory, why are we not aggressively trying to monetize this and sell this off, given that the market is buoyant right now? And why hold up this inventory for such a long period of time?
Yes, Nikhil. Kamal Khetan here. I think we are -- we want to sell it, obviously, ASAP, as early as possible. We are trying our best to exhaust this inventory. We all know that we have been -- last 1 or 2 quarters, we have not done good sales. But I can assure you, after the Q1, there is a lot of deals on negotiation at a very advanced stage, you will see a pleasant surprises in Q2 and Q3.
Okay. Perfect. Perfect. Because I mean this is like ready inventory. So it's just that the timing just makes it so much better if you get the cash inflow right now from an overall company perspective, that is the logic which I was asking for.
I appreciate it, Nikhil. Definitely, we are on to it, and we are confident we'll try to monetize now earlier than what we were anticipating, like where we are not...
Which is also there on BKC on the residential side in these projects?
No. So currently, not -- there is nothing new residential nothing is there in BKC projects.
Okay. Okay. And my second question was on the overall capital structure. I understand the gearing is -- the leverage is very low and which is very good. But I'm just thinking if you were to get more aggressive in new project acquisition or contracts, would you look to change this thinking on the debt structure? Or would you still prefer to keep it like at a low level at what it is right now? Or can you increase the borrowing to kind of get more aggressive on new project acquisition to have a longer growth trajectory?
So I've said that we will be very aggressive. We didn't say that we will -- ever I said that we will not be. But at the same time, very disciplined with our cash flows. So we will always acquire looking at our strong cash flows. And looking today, what is our current cash flow, we are almost like negligible debt. So without building the debt, we will continue to be aggressive and more aggressive.
So if you see during the COVID period, when we, in fact, we started doing acquisitions, we did some crazy acquisitions, 4, 5 big acquisitions. And in spite of that, we brought down the debt, so that will be our -- philosophy is not that always we'll be able to bring down the debt because debt is already very, very low. But we'll like to deploy the cash flows, which are coming strong cash flow, which are coming to acquire aggressively more new projects.
We have the next question from the line of Sri Karthik Velamakanni from Investec.
You've launched the Uber luxury project at Nepean sea, which would have a pricing close to INR 1 lakh or more than INR 1 lakh per square feet. In addition, you also carry inventory in BKC. So what would be our go-to-market strategy from a reinvigorating the sales channel given that we've not been able to do any pre-sales in the BKC project?
So Sri Karthik, so we have not launched, just to correct the question. We have not launched Nepean sea road. We are looking to launch over in next 9 to 12 months. The micro -- we have to understand the micro markets are different -- the micro markets are totally different. One is at BKC and that is at Nepean sea road.
And the inventory, when we talk about BKC, it is at 3-tower, each tower is like 0.5 million square feet. And then 3 towers worth like -- it was more than 1.5 million square feet and which is a large inventory in the BKC. When we are talking about the Nepean sea Road, it is just close to 2 lakh square feet. So there is totally different -- totally a different micro market and different sizes. And just to tell you that BKC, we have already sold more than 80% of the inventory. It is this large 10%, 15% of the inventory, which is there with us. And that inventory, you have to understand and appreciate that when we started BKC, we started at INR 15,000 a square feet was the micro market price.
In fact, Sunteck created the value in BKC for residential only after the Sunteck project came into that micro market. Otherwise, Bandra East was always considered for low-income group or mid-income group. In fact, Sunteck could change the perception of the low-income group location to a high income group. And today, every developer or anybody or everybody would aspire to create a luxury project and -- in and around BKC. In fact, there is nothing which is available in BKC, so its in and around BKC.
So there the inventory was very large and here, the inventory is much slower, so in that micro market, how much is the absorption, it's much more in Nepean sea -- that micro market has a higher absorption of luxury than the micro market of BKC. That's how it is.
I have a question to Prashant on the core EBITDA margin calculation. If you could explain what are the direct attributable costs that you are assuming in arriving at a 45% EBITDA margin? And in this context, when you are -- when you're selecting your EPC contractor, I know some of the construction you do -- most of the construction you do on your balance sheet. But in case if you are selecting a contractor, what would be the margin at which you are signing those contracts?
Sri Karthik, Prashant this side. So basically, the intention was -- see this time is that to bifurcate between attributable costs and non-attributable cost. What we mean by that is that the projects which we are getting recognized as revenue in the P&L against those projects only how much cost was getting attributed. So that direct cost included both cost of construction, it included employee benefit expense and it included other overhead as well. But these are directly attributable to the projects which we are getting recognized in the P&L.
So this gives us a better understanding of the margin that has been made by that project, which has been completed. So this is what we wanted to show this time in our presentation because we follow a project completion method of accounting. And as per accounting standards, the other indirect costs, which is like advertising brokerage, these were earlier getting deferred, they were treated as deferred revenue expenditure, but now they have to get amortized in the quarter in which you are spending irrespective of whether you are recognizing the revenue from that project in the P&L or not.
So that is the reason why we wanted to show this bifurcation and help people like you understand that the projects which are getting recognized though the amount is small. But the kind of profit that we are making on that is huge. So we wanted to show that the objective was to show the margin.
And this would also include your head office costs that you would attribute to the specific project side?
Absolutely. Absolutely, Sri.
And lastly, let's say, in this quarter, there is a INR 40 crore indirect cost number essentially from what I understand. All of this pertains to potential to sales and the advertisement and stuff that's going on outside the projects where you recognize revenue? Is that the right -- is there anything else that is part of this indirect cost?
No. Absolutely, Sri, you are absolutely right on that understanding.
Understood. And the second question on potential margins at which you are basically signing contracts to any of the EPC contract.
Kamal Khetan, Sri. We don't give any third-party -- I mean we are -- total construction is in-house Sri Karthik. There is nothing which we are -- that will be small, small maybe contracts, but those -- like obviously, any contractors margin would be like 10% to 15% or highest in any specific small contracts or something would be 15%, 20% max, max. But that is the advantage that all the construction, Sunteck does it in-house, so we can maintain a better quality and better margins.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I would now like to hand the conference back to the Chairman and Managing Director, Mr. Khetan, for closing comments. Please go ahead.
Thank you all for taking out the time for Sunteck earnings calls. In case if any of your queries have been left unanswered, you can get in touch with me or my team. We look forward to your continued support. Thank you. Thank you, everybody. Thanks.
Thank you, members of the management. Ladies and gentlemen, on behalf of Sunteck Realty, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.