Expect Rs 750-800 per sq ft from the new project: Nitesh Estate

With regards to the recent memorandum of understanding (MoU) signed by Nitesh Estates for residential apartments in Bangalore, the ticket size of ewach flat is supposed to be less than Rs 50 lakh, says Ashwini Kumar, ED and COO of the company.

In an interview with CNBC-TV18, he said that margins worth Rs 750-800 per sq ft is expected from this project and the revenues from it will be recognized from the second quarter of FY17.Below is the transcript of Ashwini Kumar’s interview with CNBC-TV18's Mangalam Maloo and Reema Tendulkar. Mangalam: The first thing I want to know from you is that what is the average ticket size of all these residential units considering if we just do a simple division it comes up to around Rs 43 lakh per unit. So, is that a fair assessment and are these residential units luxury in nature or affordable housing projects? A: This is going to be priced at the lower end of the market suitable for mid income segment. In terms of the ticket size we will price it around a little less than the Rs 50 lakh bracket bulk of the unit so that the customers can take advantage of that additional Rs 50,000 tax incentive which has been given during the recent Budget. So, that is how our strategy will be in terms of the pricing for this particular project. Reema: So, the ticket size of each flat or unit will be less than Rs 50 lakh but could you tell us from a consumer point of view yes, there will be a lot of tax savings but for your company when you build houses, residential projects which cater to the low cost or affordable housing how will the margins be? Can you tell us the margins of this particular project versus your average margins? A: We will be able to get margins of roughly about Rs 750-800 square feet and if I look at it in terms of - let us say - on Rs 130 crore turnover which is our economic share we should be able to get about Rs 40 crore worth of contribution for this and the allocated costs are not going to be significantly higher because here the percent of addition is not significant. So, that is how it will be. Reema: But Rs 40 crore on total revenues of Rs 130 crore would be margins of close to about 30 percent at the earnings before interest, taxes, depreciation and amortisation (EBITDA) level? A: That is right. Reema: So, that will be far superior to the average company margins which hover in the range of 20-22 percent. So, this is more lucrative for you? A: What has happened with the existing projects is that currently if I look at it from our current portfolio which is under revenue recognition that is far lesser than the actual amount of activity which is happening. So, as the revenue size starts going up then we will find that even the EBITDA margins will start going up. Mangalam: In that case could you tell us what the unrecognised income is or unrecognised revenue is, at the same time what is the kind of inventory you are currently sitting on? A: Our current portfolio is roughly about Rs 4,600 crore. In that we will have roughly around Rs 3,100 crore worth of revenue which is still not recognised and that will come through the past through the P&L over the next four years. Mangalam: Could you also then tell us what the debt on your books is considering that last time we spoke to you it had risen substantially to about Rs 390 crore to Rs 800 crore. So, what is the debt update there? A: The debt is currently at the same level and I had explained that the debt levels had gone down largely on account of the acquisition of the Pune Mall. At that point of time the debt had gone up, that was one. There was also reason related with the fact that there were certain compulsorily convertible debentures which then were retired. So, that did see the interest cost at one point. That also impacted the profitability of the organisation. So, that also had contributed to the rise in the debt levels. Reema: How has Q4 shaped up to you? This January to March quarter in terms of revenues, sales, new offerings? A: Q4 will be somewhat around the same levels as what we had seen in the previous quarter. That is how I expect that will pan out and as we get into the next year particularly Q2 onwards then we will have newer projects which will fall into revenue recognition. So, that will start then increasing the revenue recognition. Mangalam: There is an expectation of the passage of the amended real estate bill going forward for the real estate regulator. What kind of impact do you think will there be on companies like yours because it is more pro-consumers? So, will that be a negative? A: We will have to prepare ourselves in terms of the new processes. So, it is going to be the internal process of the company that will have to be entirely overhauled so that we are able to meet the new requirements. So, after this becomes actually enacted then after that the government will also have to put their structures in place. Each of the states will have to have regulator and then they will determine also the processes. So, some of those things we will be able to know only at a later stage but we are fairly well prepared internally in terms of the fact that yes, we will have to modify our processes and we feel that it will be better for organisations which have a better brand equity in the market. Right now if you look at in Bangalore itself there are more than about 300-400 developers. So, some of them may not be able to cope up with their requirements and the number of developers which are there in the market might reduce actually.