Q1 Review: Mixed June Quarter For Prestige Estates
#Q1WithBQ | Prestige Estates' CMD Irfan Razack decodes earnings and shares growth outlook for the company going ahead. #BQLive
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00:00 Hello and welcome to BQ Primo. Very good morning to all the viewers. I am Heeral Dadia. One
00:05 stock that is in focus in today's session from the Real Estate Pack is a Prestige Estate,
00:10 which reported numbers. Let's quickly take a look at the highlights. The revenues have seen a
00:15 marginal dip of around 13%. Operationally, the margins have come in at 31% versus a 24%.
00:21 And the profits have gone up around 30% for the quarter. To decode more, joining us on the show
00:27 is Irfan Razak. Mr. Razak, good morning and welcome to the show. Good morning.
00:33 Mr. Razak, my first question coming to you is, how has the quarter been according to you? Has
00:38 it met your internal expectations? No, no, the quarter has been brilliant
00:43 because we have clocked in almost Rs.4,000 crores worth of sales during the quarter. And that has
00:50 really boosted the entire expectation that we had. And that too without too many new launches.
00:58 Only in Bangalore, we had one single launch. And with this, I believe that there's a lot more
01:04 potential. And we had given a certain expectation guidance for the whole year. And we are on course
01:11 to exceed that. Right. So overall, if you have to see in terms of the kind of margins that we've
01:22 seen, what has led to the expansion in margins this time around? No, no, certain times margin,
01:29 see now, there are two types of accounting system. One is the operational, where we have the sales
01:35 as well as the collections. That is what we need to focus on. Because under Indias, the real estate
01:42 companies have a different method of recognizing revenue. So certain times, certain revenue gets
01:51 recognized only after the delivery happens, after possession has been handed over to the customers.
01:58 So in effect, in the company today, we've got almost 50,000 crores worth of revenue that has
02:05 not yet come into the books in terms of recognition for the P&L. So that will keep coming as we keep
02:12 producing, keep and keep delivering the product over the period of years. So when I say almost
02:18 50,000, it's sales of three years. And these three years sales, obviously have not come into the
02:25 P&L or balance sheet only for the reason that it's work in progress. And the day the work in progress
02:32 gets consummated, and the product gets delivered to the customer, that is when the recognition
02:40 comes in. And of course, margins, sometimes what happens is you also have some exceptional items.
02:47 So that boosted up. But net, I believe, PAT margins will remain in that between 10% to 12%
02:55 after all expenses. And we are quite happy with that number.
03:01 Right. Overall, in terms of ongoing, we have, you know, the company has 54 projects,
03:06 75 million square feet of development, between residential, commercial, retail,
03:10 as well as hospitality. From these segments, what is expected to drive growth? And what's
03:17 the target timeline to achieve, you know, execution on all of this?
03:20 Yeah, see now as far as residential projects are concerned, like last year, we did almost
03:28 13,000 crores worth of sales. The previous year was 10,000. And the previous year was some 8,800.
03:35 So now all these three years sales have, as I said, haven't yet come into the books, they just
03:40 the sales are there. The collections are coming, the production is happening. And of course, this
03:45 first quarter, we've got the 4000 crores. So all the sum total, we have to look at it. And if you
03:51 say what is driving growth, residential, yes, we have a churn, we sell, we produce, and then the
03:57 cash flows keep coming in. That's how if you see collections, collections are pretty robust.
04:02 Last quarter, we've got 2700 crores worth of collections. And that churn keeps happening.
04:09 And we have a lot of internal accruals and free cash flows. Now, where do these cash flows go to
04:14 our way we are producing for annuity, that is office, retail as in malls and in hospitality.
04:22 So this additional cash flow either goes into buy more new land, which is which is raw material,
04:28 or it goes into produce annuity assets. And the annuity assets, of course, there's a certain
04:34 contribution that comes in as equity, and the rest of it comes in like debt. So that's why
04:40 certain times you also have the lumpiness and debt goes up. But I believe once the asset is
04:46 produced and starts yielding, you're enter lies it and it becomes a self liquidating debt. So
04:52 the really no cause for concern. Right. So overall, how have the realizations spanned out?
04:58 And are you seeing an uptick in terms of prices?
05:01 Yeah, realizations have gone up. And if you look at this quarter, we've got an average realization
05:09 of almost 10,000 rupees a square foot, which I believe is pretty healthy. And, and that if
05:16 you look at that interpolation is that the margins also will be pretty healthy as we go along.
05:22 Of course, then we've got a new market, new geography in Mumbai. So Mumbai prices are higher.
05:28 So that also adds up and averages up and gives us a more healthier look.
05:34 Right. And then overall, from a residential perspective, you know, what are the segments
05:39 which are coming in as growth drivers? And where are you seeing some bit of stagnant, you know, view?
05:45 Right now, everything is selling. But according to me, the baseline is always mid income.
05:53 Mid income is where we need to focus. We have to look at the affordability barrier,
05:59 we have to look at where people can afford, where people can get a home loan and buy and
06:05 it's the mid income will keep driving the sales. Yes, there's a premium and luxury at certain times,
06:12 you have a good demand certain time that gets slowed down. And I said today, both all segments,
06:18 mid income, premium and luxury selling. And so the party is on but at the moment, as a baseline,
06:26 I believe if we focus more and more on the mid income, that is where the revenues will come and
06:31 it'll be pretty steady. Margins may be a little lower, but then at the same time, that's what
06:36 will keep you going. Right. And, you know, I think this quarter, Mumbai almost contributed 500 crores
06:43 in terms of the top line. How significantly do you see the contribution increasing from here on?
06:52 Yeah, Mumbai last year gave us about 2500 crores in total. And this year, also, we are looking at
07:00 Mumbai contributing between 3000 to 3500 crores. We have some significant launches in the pipeline.
07:08 And I am very confident that we'll exceed that number. But if you ask me on a long term, I look
07:15 at Mumbai giving the company a minimum of 10,000 crores. Of course, it's not going to happen today
07:21 or tomorrow. But it will happen eventually. That's what we're looking at. Bangalore is giving us 10,000
07:27 crores. Mumbai should give us 10,000 crores and Hyderabad should give us 10,000 crores. And that's
07:32 our game plan. Right. Overall, Mr. Razak, the other income has seen a significant increase this
07:38 time around. What does that pertain to? No, that's why I said, see, certain times we have
07:44 certain exceptional items and this is the other income. And that is the valuation on the
07:52 REIT that we had invested in Blackstone. So we have to account for that differential between
08:01 cost and the current market. So it's a notional thing. So that's what's brought in that additional
08:09 profit. Right. And from a debt profile perspective, a debt to equity in terms of the company is 0.61
08:16 times. Is that a comfortable number and any chances where it might go up from here on,
08:23 taking the kind of construction activity, the projects that are in the pipeline?
08:27 Our endeavor always is to see that we try and minimize borrowing to see that we get our
08:35 internal accruals and cash flows. But like I said, if I am concentrating on building malls,
08:41 hotels and office for rental, I definitely the differential between equity contribution and the
08:50 additional money that's required to produce and hold these assets has to come in the form of debt
08:56 or it has to be come in form of some equity contribution I get from some fund or the other.
09:04 So but that is always a balance that we keep working on. Our endeavor is to see that our
09:10 debt doesn't get so spiralingly high, which we can't manage. And at the moment, we are in a pretty
09:18 comfortable position and very easy to service what we have already borrowed. Right. And my last
09:23 question coming to you overall is, what's the overall land area that the company already has,
09:30 and how much of it is already under development? It's a dynamic situation. See, as a company,
09:38 we don't really believe in buying land and holding on to it. Our psyche always has been once you have
09:45 acquired land, it should get converted into a project almost immediately. So it's a dynamic
09:52 thing. You keep acquiring land in various geographies, you work on getting the design
09:58 development done, getting the approvals and bringing it to the market in terms of launch.
10:03 So it keeps changing. And so there's no fixed number that I can give on that. But things keep
10:10 moving. Of course, certain times you're when you're aggregating land to do a larger development,
10:15 that takes a little bit of time. And so that stays on the balance sheet for a little longer.
10:20 Right. And lastly, will this be as strong a year that we've been seeing the last couple of years,
10:27 you know, perform? Will that be similar to that? Or will it be better?
10:30 I'm very, very confident that will be much, much better than the past two years.
10:36 Right. So that's going to be an interesting one to watch out for. Thank you, Mr. Razak,
10:39 so much for joining us on the show. And congratulations once again, and good luck
10:44 for the coming quarters. Lovely talking to you.
10:47 Always a pleasure to speak to you. So that's the management of prestigious states. In fact,
10:51 it has been a good run for the real estate players as a whole. And it's interesting to see how
10:56 the coming quarters also pan out, taking into consideration the kind of sales that we've been
11:03 seeing that have been picking up in various regions as well. That's all that we have on
11:07 this session. Lots more lined up today on BQ Prime. Please stay tuned. Thank you.
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