Arihant Superstructures Q3FY18 Concall Summary

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 Financial Highlights

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  •  Revenue  in Q3 is Rs. 410 million while EBITDA is Rs. 84 million
  • PAT of Rs. 26.65 million, which is a drop of almost 50% from Q3 FY 2017
  • The total unit sales in Q3 are around 283 units with 275,000 square feet; having a value of Rs. 125 crores
  • After implementation of the GST in2nd quarter, sales have started picking up in the 3rd quarter
  • This is happening predominantly inthe affordable housing space

Dynamics at Navi Mumbai

  • Navi Mumbai is on the top in terms of developmental activities
  • Prime Minister Mr. Modi is going to inaugurate the foundation laying of Airport on 18th of February
  • The airport has already opened up avenues of development across and employment growth
  • While majority of the developers would be looking to have a position in Navi Mumbai market, Arihant has a good position in this market since last two decades
  • The company has been able to maintain its position as is seen by the successful mega events being taken across project after project
  • Some mega events- Arihant Anaika, ArihantArshiya, Arihant Aspire, ArihantAnchal
  • In Arihant Anchal, the company could record around 700 plus flat saled
  • The company is riding high on the flavor of Affordable Housing at very low cost
  • The company has been able to maintain the efficiency in terms of maintaining the construction cost and the time limits
  • The major ticket sizes have been between the brackets of Rs. 25 lakhs- Rs. 50 lakhs per flat
  • 80% contributed to this segment; 20% of the total sales of 700 contributed to ticket size of Rs. 75 lakhs
  • At the start of the Q4 in January 2018, the company launched Arihant Anaika Phase II in Taloja, Near Kharghar
  • Within 10 days, the company got 175 flat sales in Anaika Phase II
  • At present, sales events are going on at Khopoli
  • Though FY 2017 was a bad year in terms of sales realization, but the sector has seen an attraction in terms of funds
  • This opens up the new avenues for further development

Dynamics at Jodhpur

  • Q1 was very good in Jodhpur
  • Q2- Q3 have slowed down
  • The company did a sales event in Jodhpur in the first week of February 2018
  • 250 families visited the event
  • Matching of the aspiration of the client as well as the pricing or the company‟s price tag has to be there. If it goes well then there is good sales
  • The company has witnessed that all other developers have stopped their constructions
  • Arihant is the only company whose constructions are still going on and possessions are also going on
  • The company enjoy today almost 35% of the market share
  • In coming days, it would be a non-compete zone for Arihant as major players will be leaving
  • Though Jodhpur is not on the top charts of real estate across when compared to  the metro cities, but strategically it is good

Arihant Aspire

  • During the Q3, the company spent around Rs 20 million for the promotion of Arihant Aspire, which gets accounted in the P&L – an indirect expense
  • Arihant Aspire would be an approximate margin of around 30% - 35% of PAT margins
  • This project qualifies into no tax on the earnings being 60 square meter and below into Affordable Housing
  • The project is divided into three phases- the RERA registration has been done for one phase
  • 1st phase is around three buildings and that would be to a tune of 1,000 flats out of which 650 flats are opened for sales

Capacite order

  • The company did the first launch of Arihant Aspire- project at Panvel, Palaspe spread across 3 million square feet
  • The company touched upon total sale of 290 flats out of the 650 flat of 2 buildings, which have been opened for sales
  • The contract was outsourced to Capacite infra projects limits for Rs 825 Crores
  • This project classifies as an Affordable Housing Project with 100% tax exemption under 80IB act under the Income Tax Act and subject to fulfilling of the pre-conditions of the act
  •  The company is progressing towards the acquisition of new lands and projects in MMR region
  • The company has made up the mobilization advance of Rs. 5 crores to Capacite
  • Their first billing cycle will start from the month of February- the bill would come up in March
  • It is a 42 -storied building
  • The company has engaged up with construction finance, which is at the concluding stage of agreements being signed
  • The agreement is to the tune of Rs. 200 crores of construction finance at a cost of 10.40% per annum
  • The company expects percentage composition between low ticket size and high ticket size as around 60%-40% (presently 80%-20%)
  • The high-ticket projects have already started-ArihantAalishan and Arihant Aspire
  • These projects are half a ticket size of Rs. 75 lakhs to Rs. 1 crores
  • Ready inventory with the company is around 175 flats
  • The company has ready possession at ArihantArshiya, Khopoli- around 75 -80 flats
  • The company has received an occupancy certificate for Phase-I of ArihantAmisha. where possession has started off- around 70 - 80 flats

Drop in company margins

  • The margins in terms of QoQ will increase due to the contribution by product line
  • The expected product line is of bigger ticket size- around 50 lakhs and with higher margins
  • Aanchal was around Rs. 2,100 square feet and other projects at Navi Mumbai are something around Rs. 4,000-5,000 square feet
  • In per square feet terms, it is generally 15%-20% margins
  • On Rs. 2,000, margin is around Rs. 300 per square feet; Rs. 4,000- Rs. 600-700 per square fee

Company outlook

  •  Q4FY18 may see total sales of 400 flats
  •  Company would be targeting both Navi Mumbai and Rajasthan in Q4FY18

Sales target

  • The company admits that it will miss the 1800 flats sales target
  • The revised target is around 1,100 - 1,200 flats
  • In Q1, the RERA and GST really pulled down sales for almost four months
  • RERA started on 1st of May 2017 and up to GST registration till 31st July 2017- 3-4 months were washed out

Future cash flows

  • Normally, it takes 6-9 months for a sales to get converted into a full mode of cash flows
  • The company think the sector, still, is a preferable sector
  • The sector pulled the largest funding from  banking as well as private equity sector
  • It tells  the potential of the sector and the favorism by the Government to push Affordable Housing and Housing for All agenda till 2022
  • In Q4, 175 flats sales have come from Arihant Anaika II where the construction had just started off
  • The company hopes to perform well with more launches
  • Around 6 million square feet (out of 13 million sq. ft.) where the construction is going on, the company expects positive cash flows in the next financial years

Debt strategy

  • The company has been able to reduced the secured debt from Rs. 127 crores to Rs. 99 crores after servicing andrepaying offthe debt
  • In Q3, the revenues were contributed by project Arihant Anachal which isa around .2,000- Rs.2,100 per square feet ticket size  product
  •  The secured as well as unsecured debt totally must be to the tune of Rs. 270 crores
  • Cost of funding is not going up. The company has repaid Capri, which was at 17%
  • All the engagements, which the company has done with earlier construction financers, are to the tune of 13.5%
  • The new engagement with the banks had come out 10.40%
  • The company has engaged as per the new engagement only once in February 2016
  • Old engagements would phase out within out within 1 year - 1.5 year

Capital for new projects

  • Working capital from the existing total capital in the form of capital as well as debt will not increase substantially
  • The company will work according to the  business model of doing the projects from sales proceeds
  • Some amount would be required to bridge the gap between the customer's payments and the vendors’ payment to act as a catalyst to speed up the work
  • For doing up the next Rs.500- 600 crores of top-line, an addition of Rs. 200 crores would be sufficient to go ahead
  • The company is open to both debt and equity
  • Majorly for the existing projects, it would be in the form of construction finance
  • The company is open to even the option of private equity
  • The company is planning of infusing Rs. 300 crores towards the land funding
  • This could be to the tune of the almost equivalent size of construction, which is there in hand
  • This would enable the company’s total size from 13 million to around 25 million sq. ft.
  • The company has lined up more sales events in Q4
  • The company presently has around 1,900 to 2,000 flats, on the shelf, open for sale
  • The target for the next year would be to achieve sales phase-by-phase
  • The company would be opening up the new phases also
  • The company is already eyeing new lands for new projects

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