Kolte-Patil is all gung-ho about its latest venture in the Pune realty space. Speaking to CNBC-TV18, chief executive officer, Sujay Kalele, says the company is only awaiting the environmental clearance before launching its project on the newly acquired 34 acres land in Wakad, Pune.
Also read: Kolte-Patil Q3 net dips 33% to Rs 20.4 cr on lower revenuesIn an interview to Sonia Shenoy and Latha Venkatesh, Kalele says the project to develop 2.3 million square feet has a revenue potential of Rs 1600 crore.
The project that cost the company Rs 350 crore has been accrued by taking a loan of Rs 60 crore. However, all of it has been factored in the earlier quarters and hence, there is no incremental loan for the company, explains Kalele.
The project will be launched in H1FY15 and its revenues will be recognised once it hits the threshold of 25 percent, adds Kalele.
As the project is mix of retail and commercial plans in a very prime loaction, the average realisation, Kalele expects will be higher than the current rates, thereby pushing margins.
Below is the verbatim transcript of the interview.
Sonia: Give us more details on the residential project that you plan to develop in Pune. When will it come out and what kind of revenue generation potential would this have ballpark?
A: We are awaiting the environmental clearance for this project; all the other approvals are already in place for us. The total developable potential is close to 2.3 million square feet and we expect the revenues to be in the range of around Rs 1,600 crore from this particular project.
Latha: Did you have to take any loans for this. How much does this increase your debt?
A: We have taken about Rs 60 crore odd of loan for this and this has already been factored in our earlier results. So, there is no incremental loan that we had taken. There was a blip in our debt to equity for a quarter or two but then we are back to 0.16 as of December 31, 2013.
Sonia: When you said Rs 1,600 crore of revenue potential, by which fiscal year do you think that could show up? Will it be in FY15?
A: Because of the revenue recognition threshold the project will definitely get launched in FY15. It remains when we hit 25 percent revenue recognition threshold for the revenues to get recognized but definitely the project will get launched in first half of next fiscal year.
Latha: You are talking about putting in Rs 350 crore for this project. Typically what is the internal rate of return (IRR)? What is the kind of return that you can expect?
A: It is a development project so the IRRs have to be above 30-35 percent for us to put in. I may not be able to disclose the exact IRRs but definitely it is more than 30-35percent.
Latha: Overall does this push your operating margins on a secular basis. You are already at 30 percent; up from 27-28 percent that you were. So, do the margins by the time these sales start showing on your profit and loss (P&L), will the margins also kick up?
A: Yes and especially given the fact that the location of this parcel is so strong and given the fact it is a mix project with retail as well as commercial component, average realizations will be tad higher pushing up our margins also.Latha: And within retail is it premium, affordable, mid income?
A: There is no per se retail mall plan so this is more of high street retail and showroom spaces, largely commercial.
Sonia: Can you give us some estimate of what your FY15 sales could look like. The last time you told us that you will manage to achieve the FY14 2.5 million square feet but in FY15, what could the sales run rate look like?
A: The environment committee in the state of Maharashtra has just been commissioned. We are waiting for environmental clearance for about 10 million square feet of our projects, so as of today I am not able to give any guidance of FY15 probably closer to Q4 earnings we will be able to give some visibility on those numbers.
Latha: What will FY14 end with, for the nine month period revenues are up 15 percent, for the latest quarter it is down 15 percent? So, how do we gauge the quarter, how do we gauge the year?
A: As I had commented sometime back that we are estimating our revenues to be in Rs 800 crore-900 crore ballpark and if you look for nine months then we are already at Rs 602 crore and the profit guidance was Rs 110-120, again we are already at Rs 80. So that remains for FY14.
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