In an interview with CNBC-TV18, Irfan Razack, CMD, Prestige Estates Projects, spoke about the company's third quarter earnings and the fact that the company will all but miss its fiscal year 2016 launches and leasing guidance.
Below is the verbatim transcript of Irfan Razack's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: It is a very disappointing performance and seems like you won't meet your FY16 sales and launch guidance. What went wrong this quarter and how is demand expected to shape up in the quarters to come?
A: Nothing went wrong. Basically we had a few projects which were under completion. On percentage completion method [of revenue recognition], when the project comes to the end, we have to pick up all the expenses, so that is what happened because we keep booking the profits quarter-on-quarter but when it comes to an end, we either have an extra profit or when there is a cost overrun, it has to be picked up, so that is why the hit that we took this quarter.
As far as sales are concerned, though we have done Rs 1,900 crore totally in the last nine months, I know we have a sales guideline which was quite aggressive. The launches didn't happen primarily because our approvals didn't come through as expected, not only in Bangalore but also in cities like Chennai and Hyderabad. So all put together, it's been something which was not in our control but having said that we have done some good launches this quarter, in the current quarter and sales have been nice and robust.
Latha: Would you want to revise your guidance. Your fresh launch guidance was 12 million square feet; so far you have done less than 4 million square feet in nine months. Would you want to relook? What could the guidance now be?
A: I think we will definitely not do 12 million as planned because we have got two more months to go. However, we will be launching roughly about 2 or 3 million square feet more during this quarter and that is the target that we have plus there is a plan to launch a commercial project. We have not launched any commercial so far, so that will be another 1 million square feet. So all in all the current quarter will be quite good but in spite of that we will not meet our sales guidance also and we should land up somewhere between 3,000 and 3,500 for the year.
Sonia: What about the leasing guidance. You have achieved about 60 percent of your leasing guidance about 0.93 million square feet. Will you be able to complete your guidance by the end of the year or will you have to scale that down as well?
A: We have done leasing pretty well because the market for commercial property is good and we are almost in completely leased out position, so hence there is no need for us to revise that downwards, in fact we have got a problem of the other kind. We do not have stock to lease but anyway we are trying to produce something and we are also looking at doing some large pre leases. So that will boost us and commercial property is doing extremely well.
Latha: Is there any problem with demand in Bangalore and other southern markets because Sobha also disappointed in terms of its sales and realisation. Is demand below what most of you estimated?
A: The demand is there. Of course we need to address where the demand is coming from. I do not see any drop in demand at all but mid income group is still doing well. The luxury properties are a bit slow but having said that all in all it is rounded and it is a question of how much inventory you have to sell. However, at the moment it is only a question of not being able to offer too much to the clients and that's why the drop in the sales.Latha: You mean you have a lack of inventory?A: That's right.Sonia: Why the average realisations have fallen so much. This time it has come in at sub Rs 5,900 per square feet versus about Rs 6,500 that you did same time last year. Do you think this would be the norm about sub Rs 6,000?A: Last year was around Rs 6,100. When we do a new project, obviously depending on which location it is, but if you look at the average, it is about Rs 6,100-6,200. So that will be the norm; Rs 6200 should be the average realisation but sometimes you start at a lower number and then you hike it up as you go along. So in a Bangalore market that is the strength of the Bangalore market, we are able to offer good products at a reasonable price and that is how we are able to get even these numbers and demand is there from this side.Latha: If you have inadequate inventory and if demand is good, you should be able to get a higher price, isn't it?A: It all depends on which micro market I have. In the last quarter we launched a project in Kochi called the Hillside Gateway. Kochi won't give Rs 7,000-8,000 per square foot; it gave Rs 4,000-4,200 a square foot, so it all depends on which market I am addressing and which is my target audience, so I believe prices do not have to go up, in fact we worked hard to see that we do not increase the prices too much because then that is counterproductive to us.
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