Arihant Superstructures Q1FY18 Concall Summary


 Financial Highlights

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  • Revenues was Rs.576 million in Q1FY18 while EBITDA was Rs.109 million
  • PAT in Q1FY18 was Rs.49 million and Minority interest was Rs.39 million
  • The company’s target was to sell 1800 flats annually (1.7 to 1.8 million square feet)- 450 per quarter. The company could sell 361 flats
  • Rs.100 Crores sales for 361 flats (333000 square feet)
  • Distribution of 361 flats- 225+from Arihant Anchal, Jodhpur; and rest from Navi Mumbai
  • From Q1FY17 to Q1 FY 2018 basis, there is no improvement 
  • From Q4FY17 to Q1FY18 there is a decrease
  • The project in FY 2018 is Arihant Aloki Project, which is sub Rs.3000 per square feet of product line
  • Projects  in Q1FY18 were from group of lesser margins, like ArihantAloki as well as Arihant Adita where the margins has been relatively lesser than the 25%
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Two different baskets of projects

  • There are two baskets of projects with different behaviour of profit of margins and revenue
  •  Some projects are with margins of 15% and below and some of them are 25% and more
  • Where the project is on area sharing basis to the landowner, it is on asset light model, the margins are comparatively higher
  • In an area sharing or in JDA or in JV or in where landowners, the topline for the sales from our side remains the same, but the expenditure goes down totally to the project
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New members in Company’s Board

  • Two respected people in the industry joined the company's board
  • The additional independent director- Mrs. VijayalakshmiIyer, who is a former Chairperson,Bank of India; and the independent director- Mr. Raj Narain Bhardwaj, who is the former LIC chairman

Effects of RERA and GST

  • There had been a slowdown in real estate sales
  • From the RERA, the after effects at Jodhpur was not that much as the customers were less affected with RERA coming in or not
  • The company completed the second phase launch of Arihant Anchal, which was priced at Rs.22 lakhs
  • The no of flats in second phase was around 400 flats-the company could sell 206 flats in the first 15 days starting from May 1, 2017
  • In Navi Mumbai, people had been vigilant about RERA- the customers had been in a wait-&-watch mode
  • At present, around 4% rebate is being given to old and new clients
  • It appears that it is a matter of only 2%, which they try to get it bargained from the price point of view and be satisfied with the purchase
  • There is a huge burden of GST, as it is being passed on by the developer under anti-profiteering clause

Cash flows

  • Cashflows due to GST had been good in the month of June- People paid up a large amount of due amounts to get benefited from 6% of the total cost from service tax and VAT tax vis-à-vis to the 12%
  • At present, the correction cycle has moved out to around 60-90 days, even 100 days in some projects

Future effects

  • Uncertainty from the customer side how real estate pricing would be post GST,that is after the first quarter and post RERA registration
  • GST as well as RERA effects will fade in the next two quarters
  • There will be a completely different scenario in real estate- in terms of sales as well as implementation of the projects
  • From the point of view of collection cycle, the company hopes there would not be a large lagover

Registration of Projects under RERA

  • The company has registered all the projects, which fall into the category of regulation of RERA
  • Total 14 projects across Mumbai as well as Jodhpur fall in the category
  • The projects, which falls into completion category in Jodhpur as well as in Navi Mumbai are not registered as that was not required after getting the occupancy and the completion certificate once
  • The company has made all the applications on July26, 2017- the last project, which was registered under RERA
  • Registration certificate is being received on daily basis
  • Around 70% to 75% certificates have been received in Mumbai and other are to be followed up in the next 10 to 15 days

Change in process under RERA

  • The RERA regulator used to take seven days initially
  • At present, because of online process, one can give his file where the approval stage has moved across
  • Maximum of the applications of Maharashtra- around 10000 has been filed up in the last one week of July, so it would take little more time than one week
  • RERA is very fast to process up the applications- doing up 10000 in one month

Changes in company procedures post GST

  • For the implementation of the GST, the new chart of masters has been prepared and accordingly the book keeping is being done and accounts are being maintained
  • To pass on to the benefit of the GST input credit, the company has worked out on real time basis on project basis
  • Sale price and construction cost are the two factors, which maps out the total benefit to the company in terms of input credit
  • The company has already written letters to all customers of different projects with the outcome of the maps
  • 3.5% to 5% of input credit to be given as GST discount
  • The method of passing of the discount is not on rate basis
  • The bill format’s example- Say 1 lakh is the bill amount and 12,000 is the GST, so the bill amount would be 1,12,000; GST payable by customer is 8000 and GST payable by developer is 4000
  • Under anti-profiteering act, the company has taken up the right measures, where the department as well as the customer can identify that this is what has been passed to us

CLSS Interest Subsidy

  • The CLSS interest subsidy has to be availed by the flat owner himself directly by doing an application to the housing loan bank
  • People have filed up their cases with SBI Jodhpur where they fall into this category of availing the interest subsidy
  • The company does not have information on the numbers
  • The company has got some of the housing loans disbursed and some are still in process
  • People have applied for the benefits and it takes some time for the process
  • In the next quarter, one people get this benefit, the housing loan would be disbursed to the company

Input Credit

  • The company has kept 0.5% input credit benefit not to be passed- that would be additional cost towards the management setup and consultants and all the administrative work

Company strategy

  • The business development and land department have already got a good pile of projects, which the company are filtering out
  • The company worked on increasing its strength in the last quarter, in workforce for sales, admin and management
  • As of now, around 70 to 75 people are there both in Navi Mumbai as well as Jodhpur
  • People are getting ready for the increasing demand for the affordable housing as well as to cater to the projects, which have kick started marketing/sales as well as engineering
  • The management’s basic principles- affordable housing would be taken on outright basis by purchase of land
  • The company would prefer any project, which is above Rs.5000 per square feet
  • The projects will be taken on an asset-light model, where the company has to shell out less cash for the land payments

Company outlook

  • Company is hopeful of making up the shortfall of 20% in coming quarters
  • Blended EBITDA margins as per projections and the business plans,  is 33%, around 1-2% plus minus,
  • The projection is on the total project and total project cycle
  • This year the company expects to achieve EBITDA margins of say 27%- 30%, which would come to know more clarity only after Q3
  • The company is looking forward for project sales from new launches
  • Arihant Akanksha as well as ongoing Arihant Aalishan, which are within little higher ticket
  • size with higher margins and Arihant Anshula with higher margins

Industry outlook

  • Those companies which would adopt to the regulator and the processes set by it, they would always be in a good position
  • Those companies, which had been doing things not in a proper fashion and did not have any attitude towards servicing their clients, they will face some issues
  • All small companies will go off and the big would remain.
  • Undoubtedly the bigger developers would consolidate and strengthen the position because they are adhering to the act and the regulations

Annual Cycle

  • Real estate season, in reality, starts from October and last till March
  • April, May, June are always vacation period
  • July, August something seasonal,
  • This time due to RERA and GST, it would take one more quarter to get the momentum up
  • The company’s call centre at Navi Mumbai has generated something around 6000 to 7000 leads in the last 1-2 months