Arihant Superstructures Q2FY18 Concall Summary


 Financial Highlights

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  • Q2FY18 has been slow, from the point of view of construction
  • There has been lower booking of the revenue compared to the last quarter
  • On YOY basis, the company has achieved a growth of 28%
  • The constitution and the product mix of the revenues aremore in affordable segment
  • Affordable segments has a lower margin
  • Ona QoQ basis, the EBITDA margin has reduced
  • The reduction is purely because of the product mix
  • On YoY basis, the interest has been higher in Q2 compared to the same quarter last year
  • The more interest is because of the additional borrowings happened during this 12-month period
  • Q2 PAT is Rs.3.03 crores against Rs.3.9 crores last quarter
  • Sales have been encouraging from amanagement perspective this quarter
  • The company sold about 166 units
  • The project ‘Arihant Anchal’ at Jodhpur is triggering revenue for the first time in Q2
  • Revenue in Q2 increased by28% compared to Q2 last year
  • Revenue has reduced compared on QoQ basis
  • The EBITDA margin decreased by 16% over YoY basis
  • The PAT has decreased by 18%

Category-wise protect profile

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  • 66% low-cost affordable housing between Rs.2000 - Rs.4000 per sq. ft.
  • This price is as per maintenance area which is allowable as per RERA regulations, also where the common areas can be added for maintenance to an individual
  • In this segment, the price is from Rs.20 lakhs onwards and something touching below Rs.45 lakhs
  • Sector wise, the price is from Rs.25 lakhs to Rs.50 lakhs
  • A buyer, who is under the low-income group or mid-income group, the housing finance companies provide Rs.2.67 lakhs as subsidy from the NHB or under the Pradhan Mantri Awas Yojana
  • It is a 10% discount on the selling price of Rs.25 lakhs home

Capacite order

  • The company has given an order, recently to  Capacite for Rs.825 crores
  • This is more than the total revenue that the company has earned in the last 7-8-years
  • The project size is 3 mn.sq.ft. which is around 20% -25% of the total size of the company
  • The project has received approval in the last month before Diwali
  • The contract needs to be awarded to a good company, which can execute the project in time and with the quality and specifications
  • The company has been practicing in-house for the low price projects
  • Giving a project to another company would enable the company to have more concentration on sales and revenues
  • The company has not done projects of such big size
  • The company is confident enough that it would do well in the specified scheduled manner
  • The construction company has been given a target to hand over the project in a completed form by five years from now, that is around September 2022
  • It is cheaper to construct in-house
  • Companies (like Capacite) have better engineering standards, systems and processes
  • The main approach is that the product needs to get right, correct and with RERA, it has to be guaranteed by good companies
  • Capacite has guaranteed the company with respect to RERA
  • The company has minimized risk by awarding the contract to Capacite
  • Expected revenues that the company can generate from the project in the next 5 years is Rs.2, 000 crores
  • The margins on this project would be somewhere around 20%-25%
  • This project also qualifies into the category of tax exemption, ATIB, subject to the terms and conditions of the notification and the regulation
  • The cost would be on a higher side, but the company will have an advantage in terms of age of the project
  • The company would focus on the sales part
  • If there were any variance in the Capacite project, it would be towards the Arihant side
  • The contract given to the cap side is of Rs.825 crores
  • The total cost to the project would be around Rs.1050 crores
  • It includes the elevators, the interior designing, and the site concept from Singapore, which is doing the horticulture part, etc., that part are not a part of the contract
  • Rs 200 crores more as land cost; some admin cost, sales and marketing
  • ROE or ROC of the company will go higher because of this project, because of being asset-light and outsourcing construction
  • Outsourcing does not help to increase the ROC on direct manner, but given that the management can concentrate on sales and other parts of subject, when handed over to good companies; it can lead to efficiency as well

Demand & Supply in Navi Mumbai

  •  Navi Mumbai is still topping the charts in terms of development and projects
  • The major part of Navi Mumbai ‘Panvel’ has around 2234 under-construction projects
  • These projects have launched after August 1, 2017
  • The totals ongoing projects inventory in Panvel is around 25,000 houses
  • The tenure of these projects is around 4 years-> around 8000 in 1 year
  • Registrations in this area are already crossing about 9500-11,000 in FY 2018
  • The demand and supply ratio seems to be equal
  • The area is going to be developed by three major special planning authorities
  • 1st one is Naina, which is under CIDCO; 2nd one is Panvel Municipal Corporation; and 3rd is MSRDC
  • All the three planning authorities have not yet come out with their master plans
  • It seems that at least for the next 2 years, the final approvals in terms of master town planning, master plan and development plan would come across
  • For the next 2 years, there is not going to be very abundant supply
  • The supply comes across over a period of 2-3 years slowly
  • In 2-3 years, the airport and the MTHL link are expected to be completed. In that time, there would be high demand, and there would be high supply
  • The company has around 5 projects going on in Navi Mumbai region as Arihant
  • These projects comprises of around 2,400 units where construction is ongoing
  • The company has a market share of around 5.63% in terms of number of units in the region and 4% in terms of saleable area
  • In urban metro cities and adjoining peripheral areas, the company has relatively better market share

PMAY scheme

  • The scheme shows that the government is eager to support the purchase of an individual
  • The carpet area has increased for the interest subsidy
  • For MIG, the carpet area has increased from 90 to 120 sq.mtrs., which means something around 1200 sq. ft.
  • For the other MIG-II group, the carpet area has increased from 110 to 150 sq. metres
  • In Mumbai or metro cities, this is very high size of apartment
  • In Tier-II cities, people are more comfortable living in larger houses
  • Tier-II cities would have now the advantage of getting the subsidy when they buy a larger apartment
  • The company has projects like Arihant in tier-II cities like Jodhpur
  • There are other cities where the company does not have operations
  • In cities like Indore, Bhopal, Nagpur, the size of houses is big
  • In coming days, the company expects that government would give good windfall benefits to the buyer as well as the developers

Arihant Aspire

  •  The total realization of the project would cross something around Rs.2, 000 crores
  • This project is in the category of (MIG) Middle income group
  • The average realization would be something around 6,000 plus per sq. ft.on the maintenance area
  • The ticket size is targeted to be niched out and preferable to get the size
  • The construction will start where the demand lies, once the company got approvals
  • The excretion has been done to an extent of almost 75% to 80%
  • The speed of construction, after the mobilization of the construction company, would take upin good pace
  • The launch of the budget would be scheduled up in the end of November or the first half of December
  • The Arihant Aspire qualifies under the ATIB scheme- whenever the statutory consultant would be offering the project for revenues to the tax department, at that time the offerings would be done
  • The total project is designed for studio apartments and two bedrooms, hall, kitchen that are around 57-58 metres
  • The average size of maintenance area is 1100 sq. ft., because it has contribution of 775 and 1205
  • At present, the rules applicable are that the flat size has to be less than 60 sq.mtrs., which is there
  • In addition, during sales it has to be monitored that no one single family can buy two houses and the company will take care of it
  • The company is right now not offering benefits on the grounds of ATIB to the clients
  • The company is going to compete with respect to the products and on the grounds of pricing and factors of design and quality
  • The company would like to take an edge out of the benefits
  • The company plans to have a better market share than its share (+4.5%)
  • MAT would be an asset in the balance sheet, which can be set off against the projects, which would categorize for the next seven years eligible for taxes

Increase in company margins

  •  In last 4 years, average realization in flat is around 3500-3800 sq. ft.
  • But margins have moved from 20% to 35%
  • When the company took up all projects and bought lands between 2010- 2012, it was fully paid-up
  • After that, the projects came into approval in a case-wise manner- that increased the administration cost
  • Revenues had been less in the year 2010 and thereon it gradually increased
  • The investment into the infrastructure as well as the organization and systems and processes were proportionately high, hence the margins have changed over years

Market outlook

  • There is a clear shift from unorganised sector to organised sector
  • The sector calls it across filtration by the end of year ‘18

Company outlook

  • For the next 2-3 years, market share would increase
  • Once the master plans and the development plans come in,3-4-years from now,the company has a good tune-in period of 2-3-years
  • In this time, there is less competition and that can result in an incremental market share

Company strategy 

  • Business development has good proposals in terms of asset-light model
  • Business development has good proposals in terms of asset-light model
  • The company is focused on implementation and sales from existing projects
  • The company will not like to burden up the sales team with new projects at a very fast pace
  • For joint ventures, the company is still evaluating the options for a few months
  • The sector is seeing disruption- there is not going to be any rush or a lost opportunity
  • In FY’18-19, that is April onwards, the company expects to make deals largely
  • Against the ongoing projects, Rs.400 crores of construction is pending
  • The amount receivable is around Rs.150 crores
  • The company will not have to raise any money for the existing projects
  • The Company hopes to sell extra flats and get the amounts from there itself to construct and complete these projects

Changing market trends

  •  Equity markets and SIPshas been a good shift
  • Coming to an asset class on personal portfolios, majority of the Indian population, still today, understand better in terms of gold and properties
  • This trend is not going to go away- there would be a phase where people would halt, but the direction to move in is going to be the same
  • Around Rs.400 crores is required to complete the 8-10 ongoing projects

Projects to be launched

  • ▪A redevelopment project on asset-light model, very premium category of Ashish Sector 17
  • It is under approval stage and it has moved one level up for approval
  • The company expects that being a product of a higher ticket size, the right time would be around 3rd\4th quarter of calendar year ’18
  • Around Rs.255 crores is the net debt
  • Secured debt has been reduced marginally by around 2-3% from Q1 to Q2
  • That would be the management movement in the coming years
  • These funds were tied up in the year ’12-13 where the engagements had happened between a range of 13.5%-13.75% with HDFC, ICICI,etc.
  • The company can avail new term sheets, which, once some of the debt is phased out, and some other projects would add to the list
  • The company would get a largely reduced rate of interest in the near future
  • The company has already bought some debt at lower interest rates

Cyclicity of Real estate sector

  • It is always on a peak-to-peak and bottom-to-bottom in a span of 10-years
  • From 1980 to way back, real estate was defined by rise in markets
  • In ‘92-’93, it was Vashi, Navi Mumbai and Gurgaon, which saw the major development
  • The next to 1992 was 2002-03 and thereon 2012-13
  • The company hopes the next peak would happen at around 2020-’23
  • The bottom also is a five-year downward trend
  • 1988 was bottom, 1998 was bottom, and 2008 was bottom during Lehman Brothers Crisis
  • 2017’-18 is also a rock bottom period
  • Thereon it would spring back gradually up to around 20-23
  • Things would start moving in 12-months in upward direction.
  • In Jodhpur, where the ticket size is around 2,200, in terms of margin percentage it would be almost gearing
  • In value terms, it always goes down related to construction.
  • The company operates in a bandwidth of 22%- 28%, the average works out to be 24%

GST Impact

  • The sales were reduced largely due to GST
  • GST is 12% and then 6% to stamp duty registration; it looks out to be heavy for an individual to take a call during under construction stage
  • The company hopes that the government would consider it as this sector supports around Rs.255 crores ancillary industries
  • Real estate is the second largest employer after agriculture
  • The company expects a comfort to be given to the end user from the government side

Effect of Demonetisation and GST on Sales

  • The sales at company level had hit hard largely during demonetization time- November, December ’16 and January ’17
  • It picked up during the months March ’17-May ’17
  • After GST,it again dropped down
  • Similar effects were there on company as well as on sector