Demand likely to rise again after the lockdown opens: Atul Goyal, CFO, Brigade Enterprises Ltd

Atul Goyal, CFO, Brigade Enterprises Ltd., talks about Q4FY21 numbers, sales in the residential segment, ongoing and upcoming projects, segmental projections and change in consumer preference among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:

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Q: The company has turned profitable from the losses and it has achieved an all-time high pre-sales of 4.6 million sqft in FY21 despite business being significantly affected by COVID-19. How did you manage to convert losses into profits during the pandemic?

A: Currently, the accounting standard on real estate is Ind AS-115. And the revenue you recognize is on the basis of the registrations and possessions. So, this time - because registrations were low amid the lockdown – we have emphasized that more registration happens and we can recognize the revenue. Besides, other sectors and businesses have also done well. I think, the office business has been stable and retail revenue has been good because consumption level stood at 95% and footfall stood at 75%. Even hospitality has also given an operationally profitable seen. So, I feel, overall numbers have been good, of course, pre-sales numbers were highest in the case of residential around 4.60 million sqft, which is highest in the history of the company. If you will have a look then last year in spite of a quarter went in a lockdown, we did 4.60 million sqft and we did 1.66 million sqft in the fourth quarter, which is the highest record for the company till date. I think, there is a demand in the market and lockdown is a temporary abrasion. I feel, once the lockdown opens up the economy will return with vengeance.

Q: What is the status of the construction of projects at present? How are you managing the workforce as there has been a concern related to migrant labours?

A: There is a slight decline in labours but if you compare it with the first lockdown it has not decreased like that. So, there is a slight impact on construction but it had not been impacted a lot because it is not a sharp decline in the numbers of labours. What has happened that those who went back at the time of Holi were willing to come back and are coming back, now. I think that labour reinstatement will happen after the lockdown opens. So, I do not think that such an impact will be there on the construction after a couple of months.

Q: You have witnessed robust sales in the residential business along with continued stability in the commercial business. Do you think that the momentum will remain intact?

A: It is difficult to say but will definitely try to achieve and exceed these levels. But the basic thing is that there is a demand in the real estate and this demand will continue amid the low-interest rates, consolidation of developers and the ongoing work from home. And, when people need big houses due to which I do not feel, in case of residential, that demand will decline. In fact, despite the lockdown, we are making online sales and people are interested and those willing to make a site visit are waiting for the opening of the lockdown. So I do not feel that the real estate demand will be impacted.

Q: Kindly throw some light on your ongoing and upcoming projects? Also, tell us about the new launches that we can see and has there been any pushbacks due to corona? You are mainly concentrated in the Southern part of the country. So, do you have any plans related to going beyond the South, if yes, what is going to be the geographical play?

A: We made 6 million sqft new launched last year as demand was quite high and we felt that I feel we will take another six months to finish those launches. This year, we have kept new launches of 1.2 million sqft and are not delaying any launches, i.e. the launches will be made on time. Even ongoing projects are also sailing well and I don’t see any issue in it. If you will have a look at our sales ratio then it is 65% from ongoing and 27-28% from the new launches and the rest is from the completed inventories. So, sales are good almost everywhere. As far as there is a question related to moving beyond the South, we do not have any such plans and cannot say anything about the future. Currently, we are increasing our land bank in Hyderabad and Chennai and would like to make more launches there. We are already very strong in Bengaluru. Thus, we will like to stay in the South itself.

Q: Which out of the three segments, Real Estate, Hospitality and Leasing, is performing better? Going forward, which of these will be the best performer?

A: No doubt, the residential real estate includes commercial sale and residential sale, and we have to focus on it. There is a demand and good sale there. I think, in segmental, around 75% of our business comes from the real estate sale. So, we will focus on the same. As far as offices are concerned, there is stability as 99%of revenue from the rental is coming to us but we are facing some challenge sin new leasing, and we feel that it will also improve gradually and is a matter of a quarter or two. Retail has also reached to 95% consumption level but is likely to go back a bit due to the lockdown and I feel that retail will also improve in the next two to three months. Hospitality is a challenge and we have dealt with it through cost-cutting. That is why we are showing a positive GOP and occupancies are going up but ARRs have decreased. We have a focus on hospitality as well and wish that any hotels remain operationally profitable across the year and we will achieve it, as we have done in the last two quarters.

Q: Tell us about how consumer preference has changed in the last one year and what is your reading? Also, tell us the ticket size where more demand is visible?

A: There are two reasons after the COVID. Firstly, the couples who are working and have children have felt the need for a big house. This is one conversion Secondly, those who were living on rentals also felt that having our own house is better and they are buying new houses. And, interest rates are quite low due to which EMIs have reduced considerably and with tax breaks your overall cost turns up to be 4-4.50% and this is attracting the customers the most. Thirdly, if you have a look at the segment then mid-income housing is selling the most. At this point around 60-70% of our inventory is present in the mid-income and 22-24% is present in affordable housing, which is below Rs 45 lakh. It is also showing good sales. Rest comes under the luxury and a good sale is visible even in this segment but we have a main focus on mid-income housing at present.

Q: Tell us about the current debt structure and how will you ease it further? Also, what is your CapEx requirement and how will you meet it?

A: On the basis of last year, the net debt stands at around Rs 3,800 crore. And, you will see that the cash, cash equivalent have increased a lot this time and it has brought down the debt. In fact, we have made repayment of Rs 2,200 crore debt because sales and cash flow were good. If you will have a look at the overall debt then 75% is our leasing portfolio of which 50% is backed by rentals (LRD), so, it is not a major reason for concern for us. Definitely, we have a focus on debt reduction and in residential we will have a focus on reducing the debt to the level that we can. In fact, we are trying to make sure that if we launch any project then it should be without any debt and complete those projects and sell them. We have done it in many projects and have been successful in those. SO, we wish to maintain that working capital cycle. In hospitality, there are some challenges, and debt has increased there because we have taken some debt from Emergency Credit Line Guarantee Scheme (ECLGS). I feel, in the next one year, when the hospitality sector will come online then we will not find any difficulty in it. If you have a look at the CapEs, then we have just one big project of Twin Tower, which is in progress and we have a CapEx of around Rs 200-225 crore in it. But we have taken bank financing in it and we find no finance in it.