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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to the Godrej Properties Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I would now like to hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on Godrej Properties' Q1 FY 2019 Results Conference Call. We have with us Mr. Pirojsha Godrej, Executive Chairman; Mr. Mohit Malhotra, Managing Director and CEO; and Mr. Rajendra Khetawat, CFO of the company.We will begin the call with opening remarks from the management, following which we have the forum open for an interactive question-and-answer session.Before we begin this call, I would like to point out that some statements made in today's call may be forward looking in nature and a disclaimer to this effect has been included in the conference call invite e-mailed to you earlier.I would now like to invite Mr. Pirojsha Godrej to make his opening remarks.
Good afternoon, everyone. Thanks for joining us for Godrej Properties' First Quarter Financial Year 2019 Conference Call. I'll begin by discussing the highlights of the quarter, and we then look forward to taking your suggestions and questions.I'd like to start by discussing the important regulatory development during the quarter in the form of the new accounting standards applicable due to the introduction of Ind AS 115.Ind AS 115 has been notified by the Ministry of Corporate Affairs and is effective from April 1, 2018. Therefore, from the first quarter of this financial year, this standard drives revenue recognition. This has resulted in direct recognition of revenue based on the project completion method. Accordingly, GPL has applied the full retrospective approach and has restated the previous period numbers as well. The cumulative effect of revenue and profits recognized for incomplete contract has been derecognized from the opening network and the same shall be recognized in the future in accordance with the criterion mentioned in Ind AS 115.We believe the new accounting standard will lead to significant volatility in reported earnings, as the project completion milestone will create lumpiness between quarters in which major project completes, and others in which they [ aren't ] major project completions. That said, the new accounting standards do not affect the underlying cash flows of the business, so we will continue to focus our efforts on maximizing the present value of future cash flow. We would encourage our investors to track our quarterly operating performance through looking at our operating cash flows and new sales as the most important metric, as we believe the reported P&L will not be a very accurate reflection of operations for the respective period.We do believe the new accounting standards will have a positive effect on focusing GPL's efforts towards project completion, we have set ourselves the ambitious goal of reducing our construction time line by 25% to 50%, and this new accounting standard will help bring additional focus to this important strategic priority.Under the new accounting standards, for the first quarter, our total revenue increased by 19% and stood at INR 1,055 crore. Our adjusted EBITDA increased by 22% to INR 280 crore, and net profit decreased by 65% to INR 34 crore.After crossing the INR 1,000 crore mark for 4 consecutive quarters last financial year, we're disappointed to note that the total value of bookings in the first quarter stood at INR 820 crore. This was largely a result of all our new launches happening in the month of June and some of our planned launches getting pushed out of the quarter.At Godrej Elements in Pune, we sold about 200 apartments from the launch weekend with a booking value of INR 147 crore. Godrej Meridien at Gurgaon saw sales of 115 apartments measuring about 225,000 square feet with a booking value of INR 188 crore.Our new project in Thane, Godrej Alive, witnessed a subdued response in the launch quarter with payers of just under INR 100 crore, but we are confident of a pickup given the product and the excellence of [indiscernible].Given our exciting launch pipeline, we remain confident about the recurrent sales performance in the year ahead and hope to deliver another record-breaking year.In June of this year, we successfully raised INR 1,000 crore to a preferential issue. A GIC-managed investment firm invested the entire amount, and we are happy to have a high-quality investor like GIC take a significant position in our company.We will use the entire capital raised to fund the many growth opportunities available across India's leading real estate market. We hope to have a lot of exciting news on this front during the year.We've already concluded 3 new development agreements and 9 new term sheets in the current financial year, and we look forward to announcing more details about these in the coming months.On the execution front, we have set up our first precast factory at Godrej Golf Links in NCR here, which will help us to reduce construction time lines and deliver a superior quality product. Since precast is manufactured in a controlled environment, it is easier to control quality, and it is an important tool to help us achieve our goal of dramatically crashing project delivery time line.We hope to use this as a learning opportunity and eventually plan to implement this construction strategies across most of our project portfolio.After a year of disruption, the Indian economy is consolidating the gain from recent reforms. The government remains focused on the broader objective of creating a conducive economic environment to facilitate growth and job creation. This is also reflected in its efforts towards revitalizing the housing sector through multiple schemes, notably the credit-link subsidy scheme, relaxation of area norms for affordable housing, easier FCI into construction; along with more structural reforms, such as Real Estate Regulatory Act and the Goods and Services Tax.These policies will help drive growth in consolidation of the real estate sector in the years ahead. We believe our national presence, strong brand and robust project portfolio leave us well placed to capitalize on this opportunity.On that note, I conclude my remarks and would like to thank you all for joining us on this call.We'd now be happy to answer any questions, comments or suggestions that you may have.
[Operator Instructions] We take the first question from the line of Abhishek Anand from JM Financial.
My first query will be on the portfolio addition. Of course, we haven't seen any portfolio addition in the first quarter or [ fill ] date, basically. What's the outlook there? Have we intentionally gone slow on portfolio addition? Or this is just a blip in the portfolio-addition scenario?
Yes. Thanks for the question, Abhishek. Actually, as I mentioned in my remarks, we have seen some project additions. We haven't yet announced those because I think condition precedent that we expect the landowners to complete are underway. But we actually did have 3 new development agreements and 9 new term sheets so far this financial year. So I think the visibility of business development remains very strong. And certainly, as you know, this capital we've raised through our preferential allotment in the first quarter is intended to be deployed entirely for business development. And we hope to deploy much of that within the current financial year. So certainly, we expect a lot of traction here, expect a lot of announcements on this front. And I think from a visibility perspective, it's probably the strongest it's ever been. So I think we remain quite confident about this.
Pirojsha, the 3 contracts on the term sheet, which you have signed, of course, you won't be -- you can't share the exact details, but just in broad sense here, whether these are JVs or higher proportion of revenue shares? Or they are primarily DMF? If you would give some color on that, especially given the fact that we have raised capital, do we intend to increase our share in the projects?
So Abhishek, this is Mohit here. So we have signed actually definitive agreements on these 3 projects, as Pirojsha highlighted. The only reason we didn't announce it is because we have certain critical treaties, which we were waiting for, and they are at the final stages of completion. Just to give you a sense, 2 of these transactions are in very, very prime city-centric locations in NCR, in profit sharing -- high-deposit profit sharing structure. And one transaction is in Thane, which is an outright transaction along with the partnership with APG/GFM platform. So that's the kind of deal structures we are talking about but largely focused towards the capital deployment of the funds we have raised.
Sure, sure. So then my related question will be on the sales velocity we have for the -- for FY '19. We have done INR 820 crores. Do you think we will match the -- of course, that might be a bit forward looking, but do you think the launches which you have in the pipeline could match last year's number of INR 6,000 crores plus? Because most of the launch profile which I'm seeing is outside Mumbai. So last year, we were [ helped ] by both BKC as well as Trees sales. So how should we look at it right now?
Abhishek, I think as we get all the launches, we hope to get them during the year, I think we should have a good opportunity to surpass last year's number. Of course, I think knowing with any great accuracy, both whether all of those launches will happen and what the response will be is a little hard to project at this point. We're also -- I think, it's worth keeping in mind looking at some project from a business development perspective that are at reasonably advanced stages of approvals and so forth, so hopefully, we can also get some upside from that.
Sure. And lastly, Rajendra, if you could help us with the INR 744 crores of net worths, which has gone down, extra [ GA ], extra infusion capital raised. Bulk of it will be Trees, but other projects, which have been excluded, if you could help us...
Well, I don't have that...
It is visible, but as you rightly said, bulk of it would be Trees and then some of the BKC derecognition and re-recognition will kick in. And [ there's also other -- ] several other JV projects where -- which has not been complied with the 115 standard, which has gone into this INR 744 crores derecognition, which will come back as and when we are able to comply with 115 condition.
So the interest which we got from JVs, historically, which are under construction, that we've continued to recognize. That...
So that accounting remains same, Abhishek. That is purely basis on the cash flow deployed and cash flow received. So that accounting doesn't change. It's only the recognition of revenue and profit is what is changing.
We take the next question from the line of Puneet Gulati from HSBC.
Is it possible to get some update on which are the key projects you intend to deliver this year and the next year?
No. I don't think we would like to give any guidance on that. We've obviously got in our -- extra details on the project status in a quite a detailed manner. So I think that can give some idea about this. But I don't think we'd like to specifically mention exactly which project. Because this will now depend both on operational completion, receive the regulatory approval of OC. So I think we prefer not to give any guidance on that.
Okay. And if you can help us understand as to when you will really recognize this revenue? Is it at OC stage? Handover stage? Furniture position stage? How does it really -- revenue recognition work? At what point do you recognize it?
I think, for residential projects, we expect that OC is going to be the trigger, basically.
Okay. And would you wait for the payment, final payment, from the buyers? Or do you recognize it even before that?
So we will wait for the OC to come and intimation to go to the buyer. That said, we would be basically assessing with our auditors, who would be able to satisfy the condition of 115 AS.
Okay. Okay. That's fine. And secondly, is there any update on when does the developments on the rents of the Vikhroli land parcel start?
Puneet, I think we are working on that. We hope, as I said, to have something to announce there. We have 2 projects we've already talked about. Of course, one is on LBS Marg and one is on the Eastern Express Highway. So both of those are being worked on at the moment. I think our current assessment would be the launch for those would be next financial year.
We take the next question from the line of Tanuj Mukhija from Bank of America.
My first question was on the new precast factory being set up. So these first phase of Godrej Golf Links in Noida was launched in November 2016. So why are you setting up a new pre-leasing or precast factory almost 18 months down the line for the projects already under construction?
So it has been -- it's not set up this quarter. I think what we said it has been set up earlier. We are now seeing full stream construction going on. So therefore we have announced it this quarter, but it's not been set up this quarter.
Okay. And is this perhaps an indication that going forward, Godrej will look to add more projects in Noida and NCR and have a higher focus towards NCR market?
Well, I think the focus is on the top 4 markets in the country, so Mumbai, NCR, Bangalore and Pune. So certainly, within that, NCR is an important component of our strategy, and we are certainly looking to add strongly to our portfolio there. But we are looking to do the same in Mumbai, Bangalore and Pune. So I think all 4 of those, we hope to see a significant pickup in our current scale. And in all 4 of those, I think, the strategy will be to now look at execution, time line [ pre-crunch ], and looking at that more realistically. I think the NCR precast factory is the first one. And we hope to soon have one that can service the whole market instead of this one project. And assuming that there are happy with the progress and quality and other things, we see from this strategy we intend to then roll that out across the country.
That's helpful. And if I look at the new phased launches, your presentation in fourth quarter FY '18 versus, let's say, in the first quarter FY '19, there were new phase launches planned in Godrej 24 and Golf Links in the FY '18 presentation, which are not there in the 1Q FY '19. So I wanted to know your thoughts on why have you excluded projects in Noida and Pune? Is there any specific reason behind that approvals or lack of demand?
Can you just mention the name of the projects, again?
New phase launches were earlier mentioned in Godrej Golf Links and Godrej 24 in the fourth quarter FY '18 presentation, which I don't see on Slide #13 of the 1Q FY '19 presentation.
Godrej Elements is the new phase of Godrej 24. So that is soon launched in the third quarter, actually. And your second one, I think is Golf Links, we are definitely launching in...
We've already launched it.
We've already launched that also.
In Q2.
Okay, okay. And lastly, on the Ind AS accounting, you have given us the number effectively for the equity that is being [ written ] back. Can you give us what is the corresponding sales that has been [ written ] back?
I don't have this [Anuj] presently. I can send it across to you offline. Because you know we have to include JVs also in that. So that will take some time to calculate.
Sure. Sure. And if I can just throw in one more question. I think there were talks that the new DPR plan could lead to better -- could lead to maybe a delay in project launches in Mumbai. Because it might take time to understand the new DPR rules and regulation. So should we expect that the new launches in Mumbai should particularly pickup towards the second half of FY '19?
I think we'll have to look into project-by-project. I think some are affected but others are not. But now there is greater clarity. So I would expect that delay now to be mitigated. So certainly, I think, the second half, in general, will have more launches across all cities, but I don't see any major changes as a result of this.
We take the next question from the line of Abhishek Bhandari from Macquarie.
I had one question -- actually, I have 3. I'll ask one-by-one. My first question is on the Slide #12, and this question is more for Mohit, who has spoken in the past about sales from sustainabilities of the ongoing projects. If I look at this number of roughly INR 800 crores for this quarter, only 1/3 is what is coming from the ongoing projects. So is it a satisfactory level as per your plans? Or do you want to increase it? And if you had seen – or some kind of activation schemes you're thinking that some of your peers have been thinking?
So Abhishek, this is as per plan because we had planned sustainable sales largely towards the Q2. And right now, we are running a major sustenance sales campaign for Happy EMI on pan-India basis. So we're pretty confident that we will be able to pick up the pace in the next couple of quarters on this one. So no worries with that.
Can you elaborate more of this Happy EMI? Is it a subvention scheme or, like, a flexible plan or payment?
Basically, it's a part subvention scheme, where the [ picture ] is basically that you can own a Godrej Property home at INR 9,999 EMI. So -- and what we are doing is, the thing is basically that customers are paying the EMIs which are lower than their rents. So these are all marketing aspects of the project. From a financial perspective, the entire cost gets loaded on the price. And so for us, we don't end up paying anything extra from our pocket.
Sure. Second question, Pirojsha, this is for you, actually. Is it -- is the opening of the precast a signal that you like to vertically integrate a company and change your earlier strategy and just focusing on marketing and sales, and leaving the construction to people probably who are best at it?
No. I don't think that's the indication at all. I think one of the areas where we think the whole sector and us included is not really performing up to the mark is on project time line. And if you look at similar projects in places like Dubai and China versus in India today, you will see that the construction time lines in India even for the best company tends to be 50% to 100% longer than global benchmark. So I think one of the key strategic priorities that caused the driving is ensuring that gap is eliminated entirely. I think one of the ways we think that is best to do that is by looking at modern construction technologies like precast. The benefits are quite obvious. I think if executed well, there can be significant quality benefits. There can be significant construction time benefits, especially because the requirements for labor, which tends to be a little bit fluctuating in typical construction technologies, is very low for precast. So I think there are some obvious benefits. And in order to capture those, as the company scales and make sure that we can deliver greater consistency, greater quality, greater predictability and much faster deliveries, we think this is an important priority. In a way, the new accounting standard dovetails quite nicely with this, because you know, earlier there was little bit of a false focus on this kind of 25% construction methodology, which allowed us to recognize revenues, but really was in no way meaningful from an actual operations or customer standpoint. I think it is focused now on actual deliveries combined with our efforts to make sure that we bring those delivery time lines down. It should work well, I think both from a financial perspective [ in turning ] our capital quicker and generating better returns therefore, and also from a customer perspective, in terms of improved quality and lower delivery time. But obviously, I think we -- it's early days for us with this technology, which is easier said than done when we're talking about crushing time line by 25% to 50%. So I think we'll have to, over the next couple of years, demonstrate that we're able to actually deliver that.
I'm sure you'll enjoy the same success as some of your peers have done in south. The reason what I'm trying to understand is, are you going to -- going forward, forcing your contractors to use your precast? Or you will source this construction for these projects where the precast would be?
So Abishek, for that GGL projects, we have our own precast factory. We did it first. We wanted to learn the technology ourselves. Now there are 2 parts to this. One is the production and the other is erection. Even in GGL, [ direction ] still continues to happen through contractors. Production is something which we are doing in-house. And for some of the other geographies, we are evaluating different technologies, like tunnel form of precast. And then we would, obviously, want our contracting partners to go towards some of these technologies. And again, as I see the industry evolving, I see a lot of impetus by many players now in the direction of technology. So I think the industry itself revolves and go towards that.
Sure. And my last question, Pirojsha, have you formed up your investment plans for Godrej 2 commercial and the Taj Hotel in the Vikhroli land passings?
Abhishek, on Godrej 2, as you might recall, in the fourth quarter of last financial year, we partnered with [indiscernible] on a 50-50 partnership. So I think that structure is now finalized, and the project will be developed and leased, and only once fully leased, monetized. And Godrej Property's stake in that will be 50%. It has received a significant amount of cash in the fourth quarter from our fund management partners, who will now also bear 50% of all the remaining cost. And Godrej Properties will also benefit from fund development management fees and promote based on returns and so forth. So I think for that project, the financial structure is fully in place. For hotel, I don't really have any progress to report at this time. So we're still exploring different options.
We take the next question from the line of Tanuj Mukhija from Bank of America.
Just 2 very quick questions. I wanted to get your thoughts on the stress in the system. As compared to year ago, I believe that the stress has reduced. So is it now more difficult for Godrej Properties to find deals in the market? And have the negotiations or profit share reduced or increased, let's say, currently as compared to 12 months ago?
Yes. I don't think we would agree with that data you suggested. If anything, I think the pressure in the system is only mounted. I think a lot of designs and NDFC is now under significant pressures themselves to recoup cash. If you look at the industry sales figures, I don't think there is any evidence of improvement. I think the share of sales going through leading developers is more continuing to increase. So I see no evidence of stress in the system increasing. In fact, I would say, it's somewhat considerably increased in the last month. And I think the business development opportunities that we're seeing as a result are commensurate. So no real confirms on that front as of now. Certainly, I think, our sense is that the sector, as a whole, will see a pickup. Exactly predicting the timing of that pickup is what becomes quite challenging. But even once the sector sees a pickup, I think some of these trends of the sector consolidating and so forth are here to stay, because even in a better market, I don't think most customers are going to be willing to purchase from the vast majority of developers. I don't think many financial institutions are going to be very comfortable lending, given some of the excrescences in the last cycle. So I think some of the structural factors affecting the sector, including consolidations according to us, are very much here to stay. And I think the pace of that consolidation will be aided by the continued weakness that we're currently seeing.
Okay. And just one...
[Operator Instructions] We take the next question from the line of Mohit Agrawal from IIFL.
I have one question on cash flows. So on your construction and other outflows, we see that this quarter, the spend has been around INR 850 crores versus about INR 500 crores average for the last few quarters. So just trying to understand, is it like a structural upshift that is made to a higher number? Firstly that. And secondly on land CapEx also, if you could elaborate more on INR 311 crores of land CapEx, where it has gone? So clarity on that would be helpful.
So just to take your second question first, and also this is land in approval-related outsourced. Basically, it goes towards Trees' project [indiscernible] which is a commercial project. And then certain – our residential project in Pune. Those are [indiscernible]. So it doesn't include only land, it includes land and land-affected [ approval ]. So that's how the breakup factor. Coming to your construction also, definitely because as new projects are going into construction phase, there will be an increased outflow which will happen on account of construction also. Also, this time we have [ glossed ] up the entire outflows for all the JV projects. So what do you see is the gross inflow of all the projects minus the gross outflow of all the projects, where we are into minor city also. So it is a gross-gross, not considering only the net output.
Okay. So this would be a good number going forward for the next few quarters?
I think so, yes. Because as the peak of construction and new projects are going onto the floor, we would be looking at this number.
We take the next question from the line of Sameer Baisiwala from Morgan Stanley.
Can you, sir, help us with the 3 projects that you've signed? What kind of capital consumption would that -- will that require? Just a broad number. I'm just thinking how many projects can you onboard with INR 1,000 crores cash raise that you have done?
No. Sorry, I don't think we will get into the exact details, but there is reasonably high capital deployment that would happen, which I think are several hundred crores of peak investment. But we'll announce more details as these projects are actually announced.
Okay. And much of this deployment is in the form of deposits? Or is it some other form in which it goes?
Yes. Typically, with fundable deposits except, as Mohit mentioned, one of the projects is intended to be an acquisition through our bond management. That will be an outright payment, but -- yes, those will be refundable deposits.
Okay. And just what's the broad financials parameters that you use while deploying this capital? I mean, is it IRR? And any color on that will be great.
I think several different parameters that we look at, Sameer, I think, IRR is certainly an important one amongst them. But I think what we tend to focus on a lot more is the different scenarios and how these structures pan out under them. So our sense is that profit-sharing structure is probably the most risk-mitigated structure one can have. And under these kind of higher deposit profit shares, our share of upside from the project is also quite considerable. So I think that's probably our preferred model. But we look into lot of qualitative aspects in addition to the financial, what is the specific location, how do those micro-markets combine with our existing portfolio or cannibalize our existing portfolio? What is the upcoming infrastructure that can benefit location? So I think in addition to the financial metrics, where we focus on IRRs, equity multiple, we look quite a bit of risk mitigation opportunity in different scenario. And some of the more qualitative factors like the location and how we expect the location to perform.
Okay, great. That's very helpful. And second is how should we now think about the balance sheet and leverage progression as we go forward?
The way I think we broadly guided is that you probably know there is [indiscernible] the broad range of compass we have is anywhere from 1:1 to 1.5:1 from a hearing ratio perspective, and we think that is a good combination of not overly stretching ourselves, while at the same time making sure that we're remaining focused on growth and on capitalizing on the opportunities ahead of us. So I think, at a broad level, that remains the level we're comfortable with. And we've always said that it is not just any major problem that we temporarily go above or below that. But those will be guidelines for us to keep in mind. And as and when we go about it, we will think about come within it. And similarly, if we come below it, we'll think of how to make sure we're increasing our investment. So temporarily, we are, of course, well below that threshold because of the recent equity raise, although the impact of that was somewhat diluted with this Ind AS accounting switch. So I think we're personally and very eagerly looking to invest in capital where we think the balance sheet is currently certainly underleveraged, and we'll look to make sure we capitalize on any new business development opportunities as we can this year.
That's very helpful, Pirojsha. That means that by the time you consume the cash on the balance sheet, my guess is your leverage would reach 1:1? And that would still leave you some more room to lever up and get more projects in, if that's the correct understanding?
I think that's absolutely right. I think the INR 1,000 crore equity raise gives us at least INR 2,000 crores for investment, maybe a little bit more than that. We also have reasonable operating cash flows from BKC and elsewhere. So I think the number we'll be looking to invest over the next -- over this and next financial year is certainly much in excess of INR 2,000 crores (sic) [ INR 1,000 crores ] we have raised.
Just one final question from my side. Rajendra, you have recognized about INR 820 crores in BKC in the current quarter. So first you derecognized what was there in the first 3 quarters and then you have re-recognized that was there in the first 3 quarters? Is that the way...
First, I mean, there are conditions which are mentioned under this AS 115. So in commercial, we have to go unit by. Because the commercial, it operates on a different basis. It's not only OP, it's because our substantial money comes towards the end. So we have to see what position has been handed over to buyers. So those will be not recognized -- re-recognized and recognized. Wherever the positions has not been handed over or the substantial money is still pending to be recovered, those has been derecognized and will get re-recognized as and when those conditions are met.
So of -- I think INR 700-plus crores that you recognized in fiscal '18, how much have you derecognized that?
So that number I don't have, Sameer. I can send it across to you after this call.
We take the next question from the line of Abhinav Sinha from CLSA.
I guess I just wanted to ask on -- in the [ SD ] profits, which have been reversed. Broadly, how much time do we see these coming back?
Well, these are all under construction projects. So I think within this financial year and the next 2 financial years, all of this will be recognized.
Okay. And again, on here -- I mean, when -- I mean, are the lenders, let's say, looking at gearing differently because of this issue?
We may need to explain. This Ind AS would be new for them also. So we have to explain it. It's only a change of accounting. The fundamentals of the business doesn't change. The booking value and the cash flow doesn't change. So what lender is most concerned is that this isn't generating cash. That will be the prime parameter they would look at. So I think lender, more or less, would be able to understand their stand. There should not be any issue as far as the borrowing is concerned.
But just to add to that. I think that's absolutely correct for the leading developers where there is more visibility and understanding. But I do think this could create another trigger for consolidation in the sector because I think a lot of the smaller players who [indiscernible] gearing now will go out [ of whack ], will be under even more pressure from lenders. So I think that is something that we think could end up aiding consolidation in the sector further.
Right. Okay. On the new project launch front and what also you're acquiring. Is there something which is particularly from an affordable perspective or where you will get a tax benefit or something like that?
I think several of our existing and new projects we think we can get the benefit that is an extended or affordable housing. So as of now, we continue to think that a lot of the benefits are available for many [ similar ] housing projects, which is what we have described most of these projects as. So we're not thinking as of now of launching a separate affordable housing brand or anything like that because we think a lot of these benefits can be captured within our current setup, but we look forward to continue to keep an eye on this.
Sure. So just one more question on the invest part. So are the development management revenues recognition, is that impacted by it anyway?
No, it is not impacted. That remains same as it is because there, we are the service provider. And then when the service is complete, [ vis-Ã -vis ] it will get recognized.
We take the next question from the line of Saurabh Kumar from JPMorgan.
So first, only on this INR 311 crores land and approval related outflows, how much of this is for your existing projects? And how much is for new projects?
So for the new project, it is quite low, like Mohit and Pirojsha mentioned. We are firming up the term sheets and we have signed some deals so that outflows are still to happen. It's more often existing projects. Like I said, it will move towards the land and approval related costs.
So Rajendra, if you do that math then with their operating cash flow of INR 276 crores and interest in corporates of INR 118 crores. And this INR 311 crores, basically we are on an ongoing -- on our ongoing portfolio of cash negative in 1Q?
So, it is how -- if you look at on an ongoing basis, on a net cash basis, we are positive by around INR 70-odd crores. Because I think of this IND as 115 adjustment that it just will falls below the normal net cash flow. So not because of the JV share. However, if we exclude this land and land related because we classify, because these are all from capital outflows because we don't -- basically we'll not be able to start construction and generate revenue. That's why it is considered as a capital outflow. Excluding that, we are positive. We are including that, it's the -- if you consider that, it would be marginally positive, not a negative.
Okay. I'm getting negative and this remained negative on this basis over last 6 quarters, so -- okay.
So let's discuss this offline. I don't think we would be negative, including the -- then you have a look at that inflow number.
No, Raj. We were getting that math, because typically, for example, last financial year, we reduced debt by over INR 600 crores [ in debt ], while adding then [ 10, 30 ] projects to the company portfolio. So I don't -- I think that while that math isn't --
So let's reconcile it offline on this.
Okay. And secondly, on your -- on this net worth reduction of INR 770 crores, so what's the time frame to which it comes back into P&L?
So we just mentioned, we expect all of these under construction projects within the next 3 financial years, this one included. We think all of that will come back.
So Pirojsha, that's a bit high because if I look at INR 770 crores, that's essentially the net -- I mean, the profit of the company through fiscal '16 to '18 is like INR 750 crores under the old IGAAP accounting. So I would have assumed these are mostly advanced stages of completion, which would have come out on the next 2 years. I mean, considering that your project...
Look, I'm giving you [indiscernible] obviously, the different projects at different stages. For example, in Q4 of last year, we recognized [ global origin ] as the 3 virtually significant projects. I don't think that project will get [indiscernible] probably in the next financial year. So we'll go into that financial year. So I think it's accurate representation to say that it probably takes 3 financial years in total. But you might be right that a lot of it might happen next financial year.
Okay, okay. And just one last question on your gearing. So basically on this new network, you're all not getting target start -- stand? Or now that will change?
It's not a super specific level that we're targeting, as I said, it's quite abroad level of 1:1 to 1.5:1. Coincidentally, the equity raise, the Ind AS accounting is mostly cross each other off in some way on the equity side. And so I think that broad range remains, we think, at the appropriate level. Certainly, I think the company is focused for the current financial year in ensuring quick deployment because they're not specifically raising this capital and just reducing debt. Clearly, that wasn't the intention behind this. So our goal will be now to rapidly scale the portfolio. And yes, as we get to the higher end of that range, then we would obviously look at measures to stay within that.
Okay. And just one request from a disclosure perspective. Most of the competitors and Godrej has obviously been the best on disclosure historically. But most of your competitors actually disclose the cash flows they will get from their ongoing under construction portfolio. So if Godrej can start disclosing that, that will be well appreciated. But that's just a request. If you're going to look into that.
Thanks for the suggestion, Saurabh. We'll take a look and discuss internally.
We take the next question from the line of [ Manish Gandhi ], investor.
Pirojsha, I just want to know that -- you said that you're planning to reduce project timing by 25% to 50%. So I have just one question because we have 3 set of customers there: One who buys with their own money, ones do the housing finance and ones that are investors. So how investors and those who are buying with their own money, they will react to this? I don't know, so -- have you thought about it?
I think Manish, I think, overall, we expect the reaction will be positive. Certainly, the pressure on people's cash flows, et cetera, will be greater. But I think we will take care of that in terms [ of treating customers ], in terms of timing, payment plans and so forth. And of course, there is a big benefit to customers also in getting this recurrent delivery, including to investors who can then start getting rentals and so on. So overall, we think it's certainly a huge positive for customers and a big positive for the company. I think it's fair to say that as we get visibility of our ability to do this, there will be some amount of education and tweaking of current practices that will be necessary to make sure that customers are fully benefited.
Also Manish, the strategy is very clear. There are 2 kinds of projects in the portfolio. There are one project which are very city-centric and user-demand kind of project. And there are projects which are slightly more infrastructure-led projects, which could take longer horizon from an end-user perspective. So the choice of technology uses largely for end-user driven projects. Because end-users don't mind, they actually prefer houses to be delivered early. And if you see Sobha’s Dream Acres project, actually it has been a major USP for their sales. So we feel the customers actually are quite positive even -- if it's end-user driven market.
I completely agree with you, Mohit, but -- as you know NCR market more than me. But now what happens when there's a good cycle and people come to invest? So they look at their own IRR, right, at the time of investing. And they must be wanting to sell in 2, 3, 4 years without taking position. So I don't know how much that's portioned right now and the future? I don't know, but -- so I will just...
Right, Manish. So again, if you look at NCR market, you have the Noida market, which is a very end-user driven market and the construction phase and GGL has been felt significantly as we actually are not facing any challenge from customers. We are encouraging customers on site, we're explaining them the entire technology, showcasing them the new [ build operating ]. And it's actually quite appreciated. At the same point of time, I also accept your point that even a place like Gurgaon, especially our current project which are on the outskirts, some of these technologies could create challenge. And we would be very cautious in using some of these technology solutions in outskirt locations, which are more investor demand-driven locations.
Right. Fair enough. So I have one more question. So we have few projects, I will not take all the list, but Bangalore, Nagpur, [indiscernible] Delhi, very old Kalyan JV. So maybe few hundred crores are there invested. So as you have done with Ahmedabad, of course, you must be trying to solve something like this. It's a good capital and it's very valuable in today's time. So what are you thinking on that?
Well, I think we agree with that point, Manish. And our focus is really now building scale as we've talked about for some time in the top 4 markets of Mumbai, NCR, Bangalore and Pune. So I think the strategy on these projects and other cities, of course, Ahmedabad and Kolkata continue to be priority markets as well. They're not at the same level as the top 4. But outside of those 6 cities, I think we are looking at the best way to unlock capital from projects and hope to have some developments on that within the year as well.
And we take the next question from the line of [ Manoj Duaa ], individual investor.
We understand your top-down approach, your macro approach to our Indian real estate going forward. And you have explained to us in many forum also how we'll see a large opportunity going forward. I want to understand your approach. How much is in that location, how -- which segment we are mainly targeting, which bracket we are targeting? And with the more ammunition we have got from our fund raising, and congratulations for that, that -- now what is our little bit change in strategy? Earlier we were -- we want some higher profit growth? Maybe more strategic location? So how we are going for that and what are the little bit risks associated with our [indiscernible] capital?
Thanks for your question, Manoj. I think as you rightly pointed out, we are very bullish on the overall macro story for this sector. I think in a more micro level, there a few choices that we've made. The first is the geographies that we want to play in. And there, we've defined these as the top 4 markets, the data we've seen suggested about 2/3 of the value of real estate sold in India is sold in these 4 markets. So we can deliver leadership positions in each of these markets. We do think we'll be addressing a very large share of the overall market. Within those cities, I think there's many different things to look at. One is obviously the financial returns we think we can generate from a project. But as I mentioned earlier also, we look at a lot of qualitative aspects, including how does the new project fit within our existing portfolio? Is it likely to lead to cannibalization or is it likely to open up a whole new avenue of demand? We look quite closely at city-level infrastructure and how that's likely to impact various locations. So I think all of these are the main areas of focus. I think it's fair to say that the company has scale, both from a financial perspective and an operating perspective. We would like to see an ever-increasing return per square foot from what we are developing. And I think there is a preference and a priority towards looking at better locations within each of the focus cities. That doesn't mean that we won't be looking at other locations as well. But certainly, on average, I think we will like to move the company towards projects in better locations where we can generate a higher return per square foot as well. And we will also look to do that by deploying more capital in the form of refundable advances. I think the rate case, obviously, is that these projects get delayed or stuck for any reason that we will have more capital now deployed in some of these projects. But we do feel that, overall, the structures we're looking at are very risk mitigated. And also the best possible combination of upside return and risk mitigation. So I think we're quite happy with both and we'll look to continue that.
Question, and because the first time -- a tepid response, what project like Thane, what are your last summer project [indiscernible] you have done very well. So why there was this tepid response to that Thane project?
So, thanks for that, for asking the question. This is Mohit here. So there were some learnings which we had on this project launch, and I'll just share with you the 2 things. We actually typed it wrong, because by that time we got approvals and by the time we moved ahead, we were very close to the rains in Mumbai. In that kind of project, it was the first weekend when we were supposed to launch and we have communicated we had to cancel the launch because there was major rain expected in Mumbai for that weekend. The second weekend, we went ahead with the launch despite the rain, but the [ customers' walk-in ] didn't actually happen. So biggest learning was not to push a launch within the rainy season. And the second thing which was a feedback we received from customers was that the possession time line, which we were mentioning, was very long. This is largely because this project was RERA-approved and we didn't have [indiscernible] approval. So this was a past approved project. And customers were not happy actually with the longish duration given that end-user market. So they're learning now and the feedback has been taken. We want to get all the construction started on the site and then relaunch this. But I think we are very confident that when we bring it back to the market, we will see a very strong response on this one. Location is actually very, very strong.
Okay. Glad to hear. [ And there is ] one last question. What is the location of our NCR Noida project we have signed in last year apart from 105 and Golf in Noida? We signed one Noida project. What is the location of that?
So we have, in Noida, the projects in [ GGL ], which is at Greater Noida, a township project. And we have a project in Sector 150 in Noida. 2 projects actually there.
You have signed any new projects in Noida, new development lease, apart from these 2?
Yes. One of the 3 new projects we've mentioned is in Noida. And we would not like to get into the details of that until we announce it.
We take the next question from the line of Prakash Kapadia from Anived PMS.
Two or three questions. Of the booking value of around INR 6,000 crores, which we did, how much of that would be because of subvention scheme versus normal kind of plans? And any risk to these subvention scheme we foresee?
So the -- Prakash, we don't have too many subvention schemes in the previous years, numbers which you're referring to. Also, we have very strict policy of subvention. We are very, very particular about subventions and the amount of -- specifically, if you look at our subvention scheme, the investment by the customer is between -- it's around 15% to 16%, because 10% they have to pay from their own pocket and there is stand duty and registration, et cetera the 5%, 6%. Then there is -- the customer again has to invest another share of his capital somewhere during the middle. So we make sure that the risk gets hedged. We don't do those 1%, 5% subvention schemes in the market.
Okay. It will be what 10%, 15% or not even that when you're referring to...
Minimum entry for a customer today on a subvention is 10%. And then we take care that registration is done, which is another 5%, 6% from his pocket. So there is a...
INR 1,000 crores I was trying versus the value. I got to the point of 10% plus...
So the booking value last year was INR 5,000 crores.
But it would be very, very, very small number, less than 5%, but then Rajendra can confirm it for you later.
Okay, okay, okay. Got it. That is helpful. Any update on the Mumbai market of the depressed issue, any clarity? Is it all sorted?
Yes. I think there's 6 months with no currently open for approval. Beyond that, I think it will again be heard by the courts. So there's no final resolution of that yet.
Okay. So it is like a piecemeal, not a clarity or a solution?
That's right.
Okay. That's helpful. And lastly, you mentioned about some of the drivers to the bigger and organized players like us. So if you could share some trends in terms of your number of players shutting down or market share, which we've seen moving up from the very low single-digit to a mid-digit? And what was happening on the ground and some of our focused markets, [ if you have ] some sense?
As you know, today there's 10,000, 15,000 or more real estate developers in the country. So clearly, I think many of those won't exist -- or be still in business 5 years from now. The data we've seen suggests that over the last few years, we've seen the top 10, 20 players in each city double their share of the market. But at an overall level, that share is still quite low. So we think there's significant further room to grow. Certainly, our own experience is that now, from earlier, being most of our projects being in partnership with landowner, landowners today most of our projects are in partnership with other developers. So 80%, 90% of our new projects are actually partnerships with other developers. So I think that process is quite visible more directly in our own company's new business development as well as if you look at sales data by city for the top 10 developers or top 20 developers versus the rest of the field.
So it's fair to say over the next 2, 3 years we'll be like 8%, 10% of industry share? Is that the right way to look at it from a low single-digit?
I think that will be easier said than done. Today, our share is probably 1%. So I think it will be quite dramatic to move to that kind of level. But certainly, I think the opportunity is there for the share to continue to grow and grow quite strongly. And that's what we'll be focused on.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for their closing comments.
I hope we've been able to answer all your questions. If you have any further question or would like any additional clarifications, we'll, of course, be happy to be of assistance. On behalf of the management, thank you again for taking the time to join us today.
Thank you very much. Ladies and gentlemen, on behalf of Godrej Properties Limited, we conclude today's conference. Thank you all for joining us. You may disconnect your lines now.