May add Rs 100-200cr debt for smart city project: Omaxe

Realty firm Omaxe on Thursday reported 40 percent rise in its consolidated net profit at Rs 16.83 crore for the June quarter.Read more at: Omaxe Q1 net profit rises 40% to Rs 16.83 croreSpeaking to CNBC-TV18, Mohit Goel, CEO of Omaxe says construction expenses will increase due to a strategy shift — the company now focuses on built-up area against plotted development in tier-2 and tier-3 cities.The company will realise total revenues worth Rs 650 crore from Chandigarh and Lukhnow housing projects by next year, he says.Omaxe’s debt stands at Rs 1000 crore which the company is repaying timely from its internal accruals, he says, adding, it will take an additional debt of Rs100-200 crore for future smart city projects.Below is the transcript of Mohit Goel’s interview with Sumaira Abidi and Nigel D'Souza on CNBC-TV18.Sumaira: Construction forms almost a quarter of your revenues but if I see now in your profit and loss (P&L) it looks to be margin dilutive to me. Is that going to be continued to remain focus area for you? Are you going to increasingly shift more focus towards real estate?A: Absolutely, so why you see the construction expense going up in our balance sheet is because of the fact that we have completely started focusing on built up area before that we were focusing on plotted development where construction used to never happen. However, now because our average rate of realisation is also gone up from Rs 3,000 - 4,500 per square feet and we are focusing more on construction. As we are in tier II tier III the cycle of tier II and III on any township project it starts with plotted development and it actually shifts to the built up area. Now this is the phase of those particular projects where we are in; where we are selling most of the buildup units and is the reason the construction expense have gone up. You will see that in future to go up further.Nigel: Focusing on one of the bright spots of your numbers; your total area sold if I take a look at it in million square feet that has bumped a good 150 percent. The value of the booking is higher by close to around 230 percent. Give us some clarity, your total value of booking is around Rs 650-660 crore when exactly does do these numbers hit your revenue recognition and will they reflect in your profit and loss account?A: This quarter we majorly launched two projects. One is in Lucknow and other one is in Chandigarh and both of them are group housing. Those are the two major contributors to Rs 650 crore. If I talk about Chandigarh; Chandigarh would be hitting a revenue P&L account in this year itself or in the next year maximum and Lucknow for sure next year. Sumaira: As of the end of this quarter your debt still stands little over Rs 1,000 crore if I am not wrong and you have in excess of about Rs 400 crore in terms of repayment coming up over the next few months. Do you have the money already for these repayments and also what is the plan to bring your finance cost down lower still? What is your debt repayment looking like?A: As we have already said we have been doing it with our internal accruals. We are very comfortable in terms of our debt level. Rs 1,000 crore it brings our net debt equity ratio to around 0.83 which is like more than comfortable. If you see our net debt it is around Rs 800 crore because we have around Rs 250 crore in our cash balances so I am not seeing in fact reducing my debt this year. There is probability that I am going to increase my debt say from 10 to 20 percent depending upon the opportunity. As you would be seeing, there is lot of opportunity will be thrown to this sector in the terms of smart cities by the government. So, there is a probability if we find something interesting we would raise debt to get hold of that particular opportunity.Nigel: Let us get this number straight, you are around at Rs 1,100 crore in terms of total debt, you have a payment of around Rs 400 crore and after that yet you are looking to raise sum debt because you have lot of construction that is going on? Am I getting that point, right?A: Absolutely, it is not the construction activity I will be raising debt for. I will be raising debt for future developments. Nigel: You were talking about your average realisation per square foot. That has bounced up Rs 1,000 you were telling us break that up for us commercial as well as residential that is one and the second point do you see it move from around that Rs 4,200 by 10-20 percent what is your take on that?A: The major reason why it has gone up from Rs 3,000 –Rs 4,500 because on an average all our tier-II and III cities are giving us an average rate of realisation of Rs 3,500. The project which we launched in Chandigarh average rate over there is around Rs 4,500. Plus the commercials which we have sold the rate is around Rs 7,000 on an average if we see and that is the reason our average rate of realisation had gone up. If you see for future it is not going to be 10-15 percent jump in these numbers but around 5-10 percent I can say it is going to jump year-on-year. Nigel: I wanted to ask you about your effective tax rate. It appears to a layman if you just look at it that the tax outgo is rather high because if you look at it on your tax paid on your PBT could you give us some clarity about that where exactly should this tax rate stabilise going ahead as well?A: You will see it stabilising end of this financial year. This is only because of the 80 IB we went in the past. We were taking 80 IB benefits and that is the reason you did not see our tax rates high in previous financial year. Now we have stopped taking benefits of 80 IB because we finished all those clauses which were under 80 IB. So tax rates which you see is going to stabilising at the end of this financial year.