Will earn Rs 4000cr from Mahalaxmi proj in 4 yrs: DB Realty

Q: As early as yesterday your project DB Orchid Heights in Mahalaxmi got a commencement certificate from the municipal corporation. Take us through what the progress will be on that particular project, how much do you plan to sell in the next 6-12 months, how much money is expected to come in and what are the kinds of average realizations that you are seeing in Mahalaxmi area?

A: A real estate project has four dimensions of growth path in its phase of unlocking the value for the shareholders in the company – (1) line of direction when the management targets an opportunity (2) virtual certainty of the project once the floor space index (FSI) gets crystallised on that which is when couple of our projects got in December the High Court order wherein the FSI get concretised (3) the certainty when we get the intimation of disapproval (IOD) for the project from the municipal authorities that you can go ahead with the project, so the final stage and the project when it attains the finality or the reality stage, which is the last of the phases is when you get the commencement certificate (CC) of the project.

We have received CC under the modified development control rules (DCR) and now we will go ahead on this project from hereon. So, it is basically how fast the management will be able to unlock and what strategy it will adopt to encash this project from hereon.

This project has about 14 lakh square feet and we target about reasonable 30,000, which is what we are estimating for the project average sales value, so we will have about 4,000 crore turnover from this project. We have not recognized any revenue from this project till date and the entire targeted revenue would be in the books of accounts over the next four years.

Q: This Rs 4,000 crore of turnover that you will recognise from this project, none of it will come in up until the next four years. So you are not expecting anything until FY18?

A: The revenue recognition is a mathematical formula prescribed. If you complete the project by up to 30 percent in physical and if you sell 25 percent, so you can recognise 6 percent of the revenues. So while we have sold almost 50 percent in this project till now upon once we receive the IOD, so now it depends on how fast the construction happens whereas there are limitations for the construction happen, is the physical activity and depending on that we will do it but definitely in ’15-16 we should book the revenues in this project.

Q: What will the revenue trajectory look like by the end of FY16 because in the first half of this year you have done about Rs 150 crore of revenues? Give us an estimate now that you have got many projects that have been cleared. By FY16 what could the revenue trajectory be?

A: For the year ’15-16 we are targeting revenue recognition from two of our projects which had received CC in the last couple of months – one is in Prabhadevi and the other in Mahalaxmi, which we received recently. These two projects where we already have 50 percent sales achieved and construction is very close to 30 percent mark, so definitely from these two projects we should have the revenue. The total revenues from these two projects are in the region of about Rs 7,000 crore, which will get recorded over the period of next four years.

Q: What about from the Bandra Reclamation project. You did mention the last time that work will start in FY16. When can we expect revenues from that project?

A: That should have revenue recognition only in the subsequent year of FY16-17. I mentioned the four dimension path of unlocking value. So the other two projects have attained the line of direction to virtual certainty with the FSI getting concretised. So we have to move to the IOD stage and then CC stage which we will definitely achieve in the next financial year, which is ’15-16 and revenue recognition should be in ’16-17.