Arihant Superstructures Q3FY18 Concall Summary

Financial Highlights

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