Moneycontrol
Last Updated : May 17, 2016 03:54 PM IST | Source: CNBC-TV18

Targeting Rs 20k-cr cashflows in next 4 years: Indiabulls RE

The acquisition and subsequent consolidation of Indiabulls Property Investment Trust and upcoming projects will complement Indiabulls Real Estate's earnings in the next few years, says Joint Managing Director Vishal Damani.

Indiabulls Real Estate's acquisition of Indiabulls Property Investment Trust (IPIT) will augment the company's earnings, Vishal Damani, Joint Managing Director, Indiabulls RE, told CNBC-TV18 in an interview.

Indiabulls RE has increased its stake in IPIT to 51.18 percent from 47.51 percent. The financials of IPIT will be consolidated with India Bulls RE's financials from the first quarter of FY17, he said.

The executive said that the company is targeting a cashflow Rs 20,000 crore over the next four years, including upcoming new projects and from IPIT consolidation.

Over the next four years, "a lot of our projects will hit the revenue recognition and cash collection road", he said. We expect all of these projects to generate cash flows.

"We are expecting a cash flow of Rs 20,000 crore," he said. "The outlook here is positive and the direction from here on is northward."

Over next 6-12 months, the company will launch its Imperial and Mint projects, he said, adding: "We will be launching a 7-acre project in Thane and another one in London. So, in FY17 we will be launching four projects."

During the fourth quarter ended march 31, 2016, Indiabulls RE's revenue increased 9 percent to Rs 669 crore against Rs 614 crore in the corresponding year-ago period.

The company's EBITDA surged 63 percent at Rs 177.2 crore while operating margins were up 26.4 percent against 17.6 percent in Q4FY15. The realty firm's profit after tax (PAT) in the quarter, however, slumped 37 percent to Rs 58.9 crore against Rs 93.1 crore in the corresponding period last year.

Its FY16 revenue stood at Rs 2,677.3 crore while PAT was Rs 305 crore.

Below is the verbatim transcript of Vishal Damani’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.

Sonia: I want to first start off by the announcement you made about the acquisition of the Indiabulls Properties Investment Trust (IPIT). Tell us once the consolidation and the merger process gets over what will this do to the merged entity in terms of revenue growth as well as the debt situation?

A: As you know we were acquiring stake in the Indiabulls properties project IPIT which is based in Singapore. We, because the float has become less than 10 percent we have tendered an open offer in that market and the delisting process will probably get completed in the next six months.

What this would do to the earnings is that the earnings will get augmented in two ways. First, the rental income, so our flagship properties of one Indiabulls Center, Indiabulls Finance Center which is about 3.3 million square feet of grade A office space in Mumbai was part of this IPIT asset. This generates about Rs 500 crore of annual revenue for us. It is about 85 percent occupied. This will get added to Indiabulls Real Estate (IBREL). Second thing that would happen is from a development assets perspective if you see our profit after tax (PAT) has grown by about 29 percent compound annual growth rate (CAGR) in the last three years to about Rs 339 crore in the last fiscal.

What would happen is projects in IPIT like Suites and Forest will also come up for revenue recognition in the current fiscal year. What this would also do is, aside from the IPIT consolidation the overall projects in IBREL will also generate a positive surplus cash flow over the next four years of about Rs 20,000 crore.

What this has also done to our net debt is in the last fiscal year our net debt before the consolidation was about Rs 4,600 crore in the last year we have reduced our net debt by about Rs 863 crore. With this consolidation the rental assets will take over the net debt of about Rs 2,800 crore.

All in all we feel that debt levels are under control because of the positive cash flow that we expect over the next four years; we feel very confident going forward in the market today.

Latha: Can you give us a little more colour then on whether you will pare down more debt? How will your debt look like end of FY17 and therefore how will interest outgo decline? At the moment it is at what around Rs 298-300 crore a year, what will that decline to?

A: If you see our trend for the last year, in the last fiscal year we have reduced our net debt by about Rs 863 crore. From our debt situation our cash flow from our existing projects are pretty strong where we have been able to reduce a net debt on that. We are pretty comfortable with this level of debt. What we do expect to see is with the development assets we expect the PAT to grow up because the company fundamentals are strong and the suites and forest will get added to the IBREL balance sheet. Also from a rental standpoint because we have net annual cash flow of about Rs 500 crore and that our market capitalisation are 6-8 percent that gives you the idea that we sit in a very comfortable situation at the moment.

Sonia: What exactly is the unrecognised revenues from IPIT that will come in to your books and in FY17 what could the growth be on the topline? You are sitting on a base of around Rs 2,700 crore for Indiabulls Real Estate in FY16 what could the growth be in FY17?

A: The two projects which I mentioned which is Sky Suites and Sky Forest, they will come up to revenue recognition. We follow the revenue recognition philosophy where the 25 percent construction has to be done in order for these projects to be recognised for revenue. So, these two projects will come in for revenue recognition and from a sales standpoint, we definitely expect to see more growth from where we are today just because of the two consolidations which I mentioned earlier.

Latha: Still broadly what would be the extent of revenue and EBITDA growth that you can expect? I mean after all the real estate market in Mumbai is over supplied so therefore a realistic assumption of estimate of EBITDA growth as well?

A: If you see our projects, we are focused on three key micro markets. One is Mumbai and Mumbai Metropolitan Region (MMR), Second is National Capital Region (NCR) and third is the asset that we have in London. Over all yes, over the last three years there has been markets stagnation or price correction in certain micro markets. However, our projects have marquee locations and hence they have a key micro market advantage. For example Blu which is a 10 acre property in the heart of Mumbai Worli is an unparalleled product with very low density and hence it commands a significant premium over the peers in the market.

Similarly the London project for which we received the permissions has an integrated residential and hotel development. It is right in the heart of London, which is Mayfair which is one of the most sought after neighbourhood over there.

Sonia: I want to know what the pipeline is for next year. You were looking to launch a new project in Gurgaon near the Dwarka Expressway, what is the status on that? There was an expectation of the launch of Indiabulls Imperial and Indiabulls Mint in FY17 as well. Just take us through what the pipeline looks like over the next 6 to 12 months?

A: If you look at the key pipeline we have projects in Dwarka Expressway because of the government policy changes, the floor space index (FSI) changes the launches were put on abeyance. However, now the development control rules (DCR) and policies are all cleared so in the FY17 we will be launching both the projects that you mentioned. Along with that we will be launching the project in Thane which is again in the heart of Thane right in Majiwada junction, a 7 acre parcel of land. Along with this the London project will also be launched in the current fiscal. So, we are looking at four launches in the current fiscal year.

Latha: In your analyst presentation you said about Rs 9,000 crore of balance revenue is yet to be recognised given existing projects. When will that be recognised? Should we expect all of that in FY17?

A: What we have given in the earnings presentation is over the next four years a lot of projects will be hitting revenue recognition and the cash collection. From a revenue recognition stand point we are looking for all these projects to start showing up along with Suites and Forest. As far as the cash flow is concerned we do expect all of these projects to start throwing significant cash flows and over the next four years expect around Rs 20,000 crore to show up over the course of the next four years. So, the outlook over here is positive and direction is northwards from here.

Sonia: I also wanted your thoughts since you are the part of the industry which is reeling under so much pressure, wanted your thoughts on what happens once the new development plan (DP) comes on board? There are talks of the residential FSI being increased to 2 uniformly but we know how much supply there is already in the market. So, once the new DP comes up what do you think the impact could be on companies like yours?

A: The new DP is also step in the right direction. Government is going to give FSI as against premium so overall this is a development which has been going on for a while and we hope that in the next couple of months it comes to fructify. As far as the supply is concerned there are two kinds of supply. One is a supply which is on paper which is not yet seen the light of the day and second is supply which is closed to completion.

If you see Indiabulls Sky it is complete and it is one of the rare projects in this part of the town where there is no competition at the moment for this completed project.
Similarly, Blu is in very advance stages of construction. So, the supply that we are talking about, yes, it will be there on paper but it will take a long time for that supply to become ready to move in apartments.

Latha: What is the appetite you are seeing? The big problem really is demand, where is the demand, in which cities, which suburbs and which income levels?

A: As far as the demand is concerned if you look at the commercial segment it has definitely turned around and we see that the vacancy levels have dropped down to the lowest level in the last five years. That is a pre cursor to the residential demand, the overall macro environment is also very positive. We have seen interest rates coming down steadily. As far as the government policies are concerned the ease of doing business is also coming through with the new DP plan that Sonia just mentioned.

So, overall from an industry standpoint it looks like the worst is behind us. Definitely, the improvement and the outlook is positive from here on. Mumbai which is the financial capital of India will continue to be the torchbearer in terms of growth. Delhi which is the political capital of India also will continue and this will flow into the NCR segment. So, we expect these two micro markets to definitely give strong positive growth in the next fiscal years.

Sonia: I wanted to know in this quarter’s numbers your new sales went up by almost 15 percent. How much of it came from your Worli Blu project and what is the expected quarterly run rate from Blu?

A: Blu has been a stellar performer for us just because of the unique and premium product that is. It has one of the lowest density. Yes, a significant contributor was Blu and we expect Blu to continue to contribute to our quarterly earnings. We expect the other projects which are going to be launched in this fiscal year to also start contributing with the construction coming through. The existing projects also the revenue recognition which we mentioned in the earnings update will all start giving the positive momentum in this quarter and this fiscal year.
First Published on May 17, 2016 10:47 am
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