Looking at entering Mumbai, Pune markets: Prestige Estates

Ekta: We do understand that you have given quite a lot of guidance to the analyst community in the week odd where you are targeting around 60-100 percent operations scale up over the next 3-4 years and pre-sales of Rs 5,750 – 6,000 crore in FY16 versus Rs 5,000 crore in FY15. Can you tell us what the plan entails and where are the pre-sales coming from?

A: The pre-sales, like previous year, has a strategy. We have a slew of launches planned for coming quarters. All these will add up to the numbers that we are looking for because we have got some good launches planned in Chennai, Kochi and Bangalore. We need to do a full fledged launch for our two projects in Hyderabad where the show units are getting built. 

So I believe a lot of inventory will be generated that will give us sales. The market is robust again. There is demand and there is off take. All this put together should make us reach the target which we have set for ourselves. In FY15 we closed at Rs 5,000 crore sales. This 15 percent increase is not a blind number but I believe there is a strategy and we should be able to reach it.

Latha: This 15 -20 percent increase that you are expecting in FY16 itself, should we assume that is also the revenue growth or would revenues do even better because of realisations?

A: We already have something like Rs 8,000 crore worth of sales already done for which the revenue has not been recognised. Now this revenue will start getting recognised in the next few quarters. So hopefully we should do much better on the revenue growth and the numbers should be much more than that 15-20 percent because we already have that much sales in the pocket.

Ekta: You did a revenue growth of 34 percent in FY15, how much more do you think you can scale it up in FY16? 

A: We are looking at anywhere between Rs 4,000-4,200 crore topline revenue recognition in this financial year. I believe that is easily doable and can reach that.

Latha: We understand that you have other plans as well, some micro location entry in Bangalore as well as buying out the stakes of your partners? Can you give us some more colour on this and how that might impact profit & loss (P&L) and when?

A: We have a ready asset which is fully matured, which is yielding. It is a lease property which is in an SPV one of our stakeholders, partners are planning to exit. The intent is to buy that stake. It is on offer for everybody and ultimately the idea is that we also pitch in and at the right price at the right term we also would be interested in picking that up. 

It will give us rental yield. Since these assets are already created, the idea is to hold it and at opportune point even lower it.

Ekta: I don’t think you are present in the Mumbai and Pune market as yet. You have plans of entering into those two markets and if so how and what would be different in terms of Prestige Estates as oppose to the others?

A: We are looking at these two markets and looking at opportunities there. We have also been given some properties which are on offer. The only differentiator that we would like to bring in is the same type of work ethics that we are following in the markets that we are present in.

I believe at the end of the day it is delivery and the trust that customers have in us matters. We have to see that the trust is retained and to that extent we believe we should be able to be quite successful in these markets. We have to do it in a measured manner; we can’t just jump into those markets without knowing the nuance of it. Intent is there, intent is very clear that now it is time for us to look at these markets. 

Latha: When should we expect you to take your first financial step in Mumbai or Pune and what will be the order, Pune first or Mumbai first?

A: It could be either or both together. We are evaluating some proposals. Once my business development team is able to come with something really concrete and the financial commitment happens, I believe one should then take that one step forward and start something, Then one will lead to the other. However, the opportunities are there and quite available at the moment.

Ekta: One of the criticism with regards to the operational guidance that you have provided for FY16 while it looks great and achievable there might be even a risk in the next 3-4 years on your balance sheet and may see your debt increasing on account of the capex that you have planned. What is your current debt and what are the plans in order to possibly fund the capex that you have and what is the risk that we could see on your balance sheet in order for you to achieve it? 

A: Coming to debt, we are in a comfortable debt equity ratio of about 0.45 standalone and 0.75 as a consolidated debt. If you compare it to our peers we are much better off. But the idea at the end of the day is to try and garner as much cash flow as possible by selling more and more of our residential inventory and completing it.

The end game should be to see that there should be less reliance on debt. If required at some point of time to get that additional growth we will do it. However, whatever debt we have, 60-70 percent of it is on lease rental discounting model where I don’t have to look for cashflows to either service the interest or payback the debt.

So there is no stress on the balance sheet though I believe if you take out the lease rental discounting, the rest of it is operations and growth. Ideal scenario I would also like to have in the company is not to have any debt at all.