Project Cost likely to increase by 8-15% across the industry: Abhishek Kapoor, Puravankara Limited

Abhishek Kapoor, Chief Executive Officer, Puravankara Limited, talks about the demand trends, reason for the decline in PAT in Q3FY22, Kochi project, price hike, land bank and current residential portfolio, geographical locations of the projects and investment plans among others during an exclusive interview with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: What kind of overall demand situation is there on the ground and what kind of growth guidance you would provide for the coming quarters? From the perspective of demand, can we say that this is one of the finest times for the company?

A: Before talking about the demand, I would like to talk a few lines about the economy first and then the sector and the company. In the context of the economy, there is a buoyancy in the economy and government spending is high and private investment is also improving. As soon as it begins, more employment is generated and now you can study in the news articles that employment and salary levels are improving due to which there is an improvement in overall demand. We go into a cycle where there is an improvement in demand, employment generation takes place and investment from both private and government investments creates a positive cycle. 

Now, let's move to the sector, if the interest rate is at the same low levels then ready to move inventory in terms of residential has reduced a lot - we will also talk about the other asset classes - and demand has increased, new launches are coming due to absence of ready to move inventories. So, overall, there is a buoyancy in the market, however, this buoyancy is in the consolidation mode because the demand is limited to a few developers. Going forward, as the growth will happen and price appreciation will have an impact and will create a positive cycle for home buying. 

But, there are certain negatives and challenges in it. There are two to three challenges in our sector the war has led to a rise in the commodity prices due to which we have to increase the prices as our cost has increased. At the same time, there are certain talks in terms of GST, i.e., if the minimum GST slab is increased then it will have a huge impact. There are talks related to an increase in stamp duty in Maharashtra. So, these actions will have a huge impact of cost on the customers due to which it is a negative issue and the government should consider the input tax credit or should bring some relief in terms of GST for the real estate sector. This is at the sector level. 

As far as the company is concerned, we today as a company is already into the construction of 24 million square feet and we will be launching another 18 million square feet in the next 12 months. So, we are focusing mainly on monetizing the available land bank and improving the return on capital employed. This means we will take more and more inventory to the market, clearing our investment and returning back to the investment cycle. Its advantage is that your overall cash flow, overall business, goes on a growth mode and you start getting new opportunities for acquisition. In addition to this, we as an organisation have done two to positive things like our board is very strong today and the governance is very strong. New board members have been added. If you will have a look at our organisational structure then we have entered into a P&L model where we have made a clear definition for every P&L, where we are focusing on delivery. So, the new launches need bandwidth. We have introduced SAP in the system processes, due to which the system processes are ready for such growth. As soon as we launch the 18 million square foot, I think, it will have a very positive impact for us next year. 

Q: There has been a massive decline in PAT if we have a look at the quarterly numbers. The net profit stood at Rs 1.63 crore in December 2021, which is almost 90% down from Rs 13 crore posted in December 2020. Let us know the reason for this decline and the concern will be in place in the future as well or we will reach the Rs 13 crore numbers in the coming quarters?

A: The revenue you see on the paper is dependent on delivery due to which the revenue you see on the paper in the case of the real estate will be different, the profit will be different and the business performance will be different. So for business performance, we must have a look at the sales numbers, cash flow as well as the new launches. This is a parameter for business performance. It reflects in your P&L only when the delivery is made. Due to the COVID, there have been certain delays in deliveries in the last two years, which has had an impact on the sequence of launches and deliveries. This is one reason that we didn't make those many deliveries in the last quarter due to which the numbers are visible like this. Secondly, the entire expenses of the new launches, including the marketing, sales etc, is being booked in the cost today and will recognise the revenue later on but I am booking that cost today because we are in an investment cycle.

Q: What is the current status of the bookings of your latest project in Kochi? What is the pricing trend and what is the expected target revenue from the current Kochi Project?   

A: This project is based in a very good location in Kochi. It is in Panampilly. The response has been good, I cannot disclose the numbers until the launch is formally announced and the sales booking numbers are not announced. But the response is good, the location is very good. Overall, I believe that the project will give us a revenue of more than Rs 3,000 crore and the total investment stands at around Rs 1,500 crore. The revenue booking will happen in the next 3-5 years. But you will start seeing sales numbers and cash flows from next year in this particular project.

Q: So, should be considered that the margins will not be impacted as you are increasing the prices in the same proportion? Also, don't you think that it will have any impact on the demand as well?

A: No, there is not much effect on demand. In fact, the prices have been moving up since the last year. If you will have a look then it is increasing across the industry. It is a positive cycle because even people can see that their investment is appreciated. There is no significant effect on demand. In fact, people are getting back to work and there is an improvement in the job market because people who moved back to their respective cities are coming back due to which the investment cycle for the buyers of the real estate is improving. As there will be an improvement in the job market, I think the demand will increase.

Q: But would the prices can go up from these levels, if yes, what can be the quantum and by when?

A: Definitely, it will increase because there is an increase in the cost, for instance, the cost of crude and steel have gone up. I think, the prices will increase between 8-15% project-to-project, micro-market to micro-market and developer-to-developer. 

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Q: Your current residential portfolio is 12.07 million sq feet. What is the expected residential portfolio in the coming year and how much more will be ready?

A: I would like to correct the numbers as today the total under-construction project stands at 24 million square feet in residential. We will add another 18 million square feet next year of which 13 million square feet will be ours, the developers share. Our total potential including commercial and residential stands at 48 million square feet. This 48 million square foot stands only for Purvankara. In total, we have 58 million square feet of which 45 million square feet is our share. So, we have a robust pipeline of launches and the launches will continue next year and the next year after that.

Q: Can you please let us know about its geographical locations and timelines for projects including the number of projects that will be launched in FY23 and FY24 and so on?

A: Geographically, we are based in the South and West. 65% of our total inventory is based in the Bangalore market and the balance is in other markets. Going forward, the launches are also in the same proportion as 68% of launches are in Bangalore and remaining in other markets. But, as far as acquisitions are concerned, our deployment strategy is focusing on the West and we are moving in a direction to increase our work in Pune and Mumbai. As far as value is concerned, I think, value-wise, there will be a time when our West business will possibly start matching with the South Business of ours. This is our goal for us and it will be done in the next four to five years. Our key markets include Bangalore, Hyderabad, Chennai, Mumbai and Pune, and we will have a constant focus in these markets to go deeper. As we will get deeper, our volumes will increase in these markets. As of today, these are the immediate focus markets for us.

Q: Reports suggest the company plans to invest over Rs 3,500 crore. What is the roadmap for this investment of Rs 3500 crores and how will you raise this fund? Tell us about your land bank, and are you planning any further land acquisitions? 

A: I will update this in two parts:

(i) Our ongoing current projects. 

(ii) The new launches. 

In the new launches, we have a land bank that is paid for and it will require investments for approvals, launches and clearances. So, this is one. 

The second investment will be related to construction, where the investments will be made to construct these projects. As far as new acquisitions are concerned, it has three sources: 

(i) Internal accruals: As told earlier, our investments will get free with every launch and the same capital will be redeployed. So, as soon as the internal accruals are made capital will be added to our investment cycle. 

(ii) Plus external platform level transactions: Today, we are talking about business assets with different people and it is different for residential, plotted and commercial. So, we are creating a separate equity platform, so that we can acquire businesses in the future.

(iii) Our acquisition strategy is not the creation of a land bank but it is about increasing the volumes and increasing the value. i.e., increase in the shareholders' value and for the purpose, how soon can we take the land to the market and it is important. 

So, as I have said, first we have to unlock our investment in the next one to two years. In the same period, we will also focus on acquisition because if everything is launched then what we will have in our hands for launches after three years. So, the acquisitions of this year will turn into launches after two years.