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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 now hand the conference over to Mr. Anoop Poojari of CDR India. Thank you, and over to you, sir.
Thank you. Good evening, everyone, and thank you for joining us on Godrej Properties Q2 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 would like to begin the call with opening remarks from the management, following which we'll 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 emailed to you earlier. I would now like to invite Mr. Pirojsha Godrej to make his opening remarks.
Good afternoon, everyone. Thank you for joining us on Godrej Properties Second Quarter Financial Year 2019 Conference Call. I'll begin by discussing the highlights for the quarter, and we then look forward to taking your questions and suggestions. Under the new accounting standard for the second quarter, our total income increased by 36% and stood at INR 473 crore. Our adjusted EBITDA increased by 23% to INR 106 crore and net profit increased to INR 21 crore. For the first half, our total revenue increased by 24% and stood at INR 1,529 crore. Our adjusted EBITDA increased by 22% to INR 316 crore (sic) [ 386 crore ] and net profit decreased by 45% to INR 55 crore. On the business development front, in the second quarter, we've added 2 new projects with a saleable area of approximately 3 million square feet. We have further expanded our footprint in the Noida market with the addition of the centrally-located project in Sector 43 with a development potential of 2.2 million square feet. This is GPL's fourth project in Noida and 13th in the national capital region. The second project is an outside land project located at Ghodbunder Road in Thane, measuring 700,000 square feet. This is the fifth project under Godrej Residential Investment Platform II, the USD 275 million fund which was announced in March 2016. We expect the pace of project positions to accelerate in the second half of the financial year, as we have exceptionally strong business development pipeline, with 2 projects that have already been concluded, a large number of term sheets already in place and an extensive series of discussions underway. In keeping with our goal of establishing a leadership position in our 4 focus markets and avoiding projects in cities where we haven't launched a project, we, in the second quarter, exited the Hyderabad market. The capital we received from this exit will free up opportunities to invest additionally in the top 4 markets. Current market conditions where there's been an increase in funding costs as fewer financing lines with smaller developers, present ideal conditions for well-capitalized developers like us to expand our business development portfolio. The availability of funds for our recent private placement and low gearing ratio give us an outstanding opportunity to disproportionately scale our projects portfolio over the next 12 months and that will be company's number one priority over this time. The total value of bookings in the second quarter stood at INR 807 crore, which represent a flat quarter-on-quarter performance, but a year-on-year decrease of 14%. We are disappointed with our residential sales performance in the first half of the financial year, but are confident in delivering a much stronger second half. From a new project launch perspective, we had a subdued first half as many of our planned launches were held back due to delays in regulatory approval. Our substantive sales performance was once again quite strong in the second quarter. We are happy to note some traction in the monetization of our commercial portfolio in Kolkata, with sales of approximately 100,000 square feet in Godrej Genesis. We now only have about 240,000 square feet of inventory left to monetize in this project. With the rupee we've seen significant depreciation against the dollar in recent months, we are witnessing increased interest from nonresident Indians. We have a strong international presence to our marketing offices in Dubai, Singapore and the U.S., which we believe, will help us drive international sales, especially strongly over the next few months. At Godrej Property, we have made significant efforts to integrate sustainability into our business strategy. I'm happy to share with you that this year Godrej Properties was ranked 4th in Asia and 8th globally by the Global Real Estate Sustainability Benchmark, which is an industry-driven organization that assesses environmental, social and governance performance of real estate companies globally. Additionally, our headquarters building, Godrej One, was selected as one of the finalists by the World Green Building Council for the Asia Pacific Network Award 2018 for Leadership in Sustainable Design & Performance. In the current liquidity environments that NBF -- NBFCs are facing, they are reluctant to continue to aggressively fund real estate developers as has been happening in the past several years. Well-established developer with consistent delivery track record still have ample access to capital through both debt and equity, many developers are facing significant liquidity pressure. If this liquidity environment persists, we believe the pace of consolidation in the sector will further accelerate. In the past 2 years, the government has taken several steps to increase transparency and accountability in the real estate sector. Earlier this week, the World Bank rated India on the ease of doing business in terms of construction permits at #52 in the world, a jump in rank of 129 positions from #181 in 2017. While the benefits of this is in terms of faster pace of launches and value creation will take time to become evident, it is very positive that this major constraint to the industry's growth has been tackled head on by the government. This will greatly help credible developers to differentiate themselves on the basis of consistent performance and delivery. Given our brand, our national presence and our strong human capabilities, we believe we are well placed to capture 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 very happy to discuss any questions, comments or suggestions that you may have.
[Operator Instructions] Our first question is from the line of Abhishek Anand of JM Financial.
My first question to Mohit. Mohit, we had seen a very good business development last year. But in the first half, we have seen a little over 9 million square feet of projects being added. Just to understand from your side, is this an intentional going slow on portfolio additions? And you may have a strategy of seeing some lucrative deals ahead? Or there is some change in strategy on that side? Just trying to understand why there has been a marked slowdown in addition to portfolio.
Thanks, Abhishek. So I think couple of points. Even the traction remains very strong. We have signed a very large number of term sheets even in the first half of the year. Now typically, transaction sometimes, given the closure, takes a slightly longer time. Even these 2 deals, which we've announced, actually have signed well in Q1, but we were waiting for certain critical CTs to get completed before we could actually announced them. So we have said some other deals also in pipeline which we are waiting for some CTs to get completed before we can formally announce them, but we have -- the agreements are all stitched together and completely signed between the parties. So there is no -- I personally don't see any slowdown at all. In fact, we are seeing a massive traction on business development trend, thanks to the liquidity issues, thanks to all the challenges in the environment. I think the only difference which we are also looking at is that we are looking at deals which have a deeper investment opportunity then also the greatest profitability potential in the future. So I don't think we are necessarily facing volume or we are basically looking at deals which can make a material difference from a long-term perspective. And you know, we are actually having very good visibility on that front as well.
If I understand this correctly then, which means that you are planning to have higher stake in the projects, higher profit share. Is that correct? Is that understanding right?
We are already doing that, higher stake, higher profit, but I think we are taking bigger bets also. So some of these bets are -- one project could be equal to 4 or 5 project profitability kind of things. That's the big opportunity which we see today, especially with the land prices getting corrected and the liquidity pressure the developers are facing. So what are -- actually, we have overloaded with business development work internally.
So are you already seeing a correction in land valuations? Or is it a bit of an expectation? How are you seeing the market now as compared to maybe, say, 6 months or 12 months back?
Market-to-market developer-to-developer phenomena, people who have taken NBFCs that, obviously, are under stress and want to liquidate. I think people have realized that taking debt is not a great option anymore. So I think, clearly, that phenomena is visible. Some of the markets like north you are already seen price correction quite sharply. So I think it's a very specific situation. You can't make a general statement on this.
Yes, I understand. And on the launch pipeline, Mohit, how should we look at the second half of financial year? Do we expect the launches to go up? I think Pirojsha mentioned some regulatory issues. Have they been sorted out in the project pipeline?
Yes. So we have a very, very strong pipeline of launches in Q3. And you know, we have already launched our project at Panvel. We have received -- we are at the fairly last stages of -- so we have actually received approval for 2, 3 other projects where there are -- approvals are going on. So we are very positive about a good launch -- launches happening in Q3.
And any update on the Mulund-Thane project, the Mulund, the end project, Godrej Alive, you were talking about change in strategy there. Are they doing something there to increase the run rate of sales?
We are evaluating all options for that project. I think this environment is -- that project incidentally had NBFC debt on it. And it's -- I think the environment is giving us some unique opportunities to look at all options in that project. I think sales front, we are seeing a natural, good, sales happening without any marketing support. Not too much worried about it.
Okay. And last one for my side. Any change in the Mumbai development potential post the new DP rules?
In our projects?
Yes, in our project, yes.
We are evaluating it. I think we can give an offline comment on this in a detailed manner.
We'll take our next question from the line of Puneet Gulati with HSBC.
First of all, you completely exited Hyderabad market. Have you also received the entire money? Or do you still have to get some more?
We have received most of the money. It's just a small amount, but we have received bulk of the money. It is being accounted also.
Okay, okay. And if I look at the Godrej Fund Management, how much money would still be available in that fund?
There is -- I forget the exact percentage of deployment, but there is some amount still available. But I think the focus, given that now from a bordered properties perspective, we'd like to have a higher economic interest in all the projects that we're doing. So I think any further out of this residential investment platform you'll see a GPL stake in the investment being significantly higher. But there could be another couple of investments from the existing fund.
Okay. So you are planning to raise another fund in this -- apart from this?
No, nothing final has been decided, but we -- if we do look at that, this is again at a higher investment proportion to Godrej Properties.
Okay, okay. Lastly, if you can comment a bit more is on the margins. There are still 17% EBITDA margin here. How should one think about these numbers?
I think, honestly, my view is that the margins are very little correlation with actual operations now because you are accounting for projects that were launched on -- often many years ago, you are accounting for current marketing cost. So I think quarter-to-quarter margins, I don't believe are telling us a whole lot with the new accounting system. Obviously, as the scale increases to a point where things are, relatively more stable, you'll see some of that volatility reduced. But I do think it's a while before that happens.
Okay, okay. And are your project plans on track, the new launches? Or is there a risk of any delay or new project getting added over?
Well, frankly, until final approval is received there is always some risk, but as of now, we estimate that our launch schedule is on track and we hope to launch each of the projects that we guided at the start of the year. There are couple of projects in the business development stage or in the portfolio that haven't been on -- that aren't on the list that we are still hoping to launch. But again, I think -- no guarantees of this until final approvals come through.
Okay, okay. Lastly, you also mentioned that you are thinking of taking bigger bet. Does that mean bigger size of projects or just higher stake?
I think higher stake, one of the other aspirations is for more core locations within city centers where values can be a little bit higher. So I think a mix of both taking a higher stake in project and, generally, trying to improve the locations of project.
Our next question is from the line of Mohit Agrawal with IIFL.
Just one question. So over FY '16 and '17, we have seen that you would have completed projects of almost 4 million to 6 million square feet every year. Over FY '18 and FY '19 first half, we haven't seen that base continuing. So just wanted to understand your thoughts as to -- has something changed? And do we see a lumpy kind of a completion going forward? And how -- your thoughts on that?
I think you'll see the pace of completions generally picking up substantially over the next few years. But given that these are often quite large projects, there will be inherently some lumpiness because I think the year in which a project completes, can coincidently be a bit lumpy. But overall, certainly I think the speed of execution in the company has increased over the last few years, and I think that will reflect over the next few years in consistently growing delivery volume.
So do you see anything significant coming of this? If you can guide something coming up in the second half, because that will also impact your P&L numbers. So anything significant coming up in the near-term completions?
Yes. I think we do have some projects. There's one of our redevelopment projects in Mumbai, we think is coming up. There are others that we hope to get off these more quickly. Probably in the first half of next year, we'll have some big deliveries in The Trees first 2 phases. So I think, there is a decent visibility on significant project completion, and I think maybe in the next quarter, we can provide some guidance on that for investors.
Our next question is from the line of Adhidev Chattopadhyay of ICICI Securities.
There were recently some news items that you are looking to buy the RK Studios land in Chembur. Could you just clarify on that? And are we looking to do some more outright purchases going forward in our 4 focus markets?
We wouldn't like to comment on any market speculation at any given point. We are, obviously, looking at a very large number of deals. As soon as those deals reach a point where definitive agreements are entered into, we immediately announce those projects. But I think commenting on projects before they reach that stage is not something we think makes a lot of sense. I think the focus of the company is to continue primarily in joint venture projects, projects through our investment platform. That said, that decision is largely driven by the fact that we think these structures offer us the opportunity to generate higher returns. So when we see projects that might be available for our client sales, where we think similar results can be generated either because we can turn the projects around very fast from an approval standpoint, or the size of the project allows us to complete it very fast. Or in case there is liquidity concern in the broader market further and we see very interesting valuations. It's certainly, nothing against purchasing land that we have from a principal standpoint, but we would like to make sure that the risk-adjusted results are similar to what we can achieve through our existing models, which we think are working very well.
Okay. Second question, we have done some activation schemes during this quarter. How was the response to it, if you would quantify on the quarter's total sales, how much would be from this activation? And going forward promoting forthcoming launches and existing, do you foresee that you having to continue to do activations to drive sales? Or do you think market is now more receptive to just good launches by all the leading developers?
Are you referring to the Happy EMI scheme which we had launched?
Yes, yes, yes.
So that -- we got a very, very positive response to that scheme which we had launched. In fact, we're still completing that scheme. So overall, extremely happy with the results. The whole idea of doing that was to do a very large sustaining sales activation because it was within our cash flows. And so I think, overall, extremely happy with the way it has happened, and we would like to continue with these kind of engagements maybe once every 6 to 9 months or a year.
Our next question is from the line of Sameer Baisiwala of Morgan Stanley.
First question is on the ongoing credit squeeze in the market. Are you seeing the homebuyers also getting affected in terms of their ability to get mortgage borrowings?
Sameer, I think, so far, we haven't seen anything like that. And we track our own customer base. First of all, it's a relatively even split between customers who are taking mortgages and those who aren't. And for those who are taking mortgages, it tends to be from the largest institutions like HDFC and SBI, which have a disproportionate share of our customer. So I think, we haven't personally seen anything yet. And our sense is that for the better developers with established projects and credentials and the customers purchasing that, I think we anticipate somewhat less of an issue even if it this does blossom from here.
Okay. And second question is on the [ fund ], well, how's been the response for this? And any update on the airport -- on the new Mumbai airport?
I think the response have been excellent so far. We'll, obviously, come back at the end of the quarter with more details. But I think that we're very encouraged with that launch. The airport, I think that it, as far as we know, certainly happening. There is some initial work now going on. So I think the delivery timeline they're talking about is 3, 4 years. I'm going to assume that could be, perhaps, a little bit further delayed. But certainly, it seems very likely that, that will happen in the near future.
Great. And just last couple of more from my side. Why exit Hyderabad, given the fact the way there is economic momentum and the whole IT space is growing over there? And the second one is on the outlook for the prices, especially for Mumbai? And all the interest rate subvention schemes, even the larger -- even the most high pedigree developers are now increasingly coming out with these schemes, which means that there is a 10%, 15% implicit discount in the prices. So how do you see this pricing thing unfold in Mumbai going forward?
Yes. On your first question, Sameer, I think the reason to exit Hyderabad was less about the specifics of Hyderabad, but about our overall strategy. I think our learnings from entering markets that are not amongst the leading 4 markets that we have selected is that the ability to scale our operations there from a market absorption perspective we think is relatively limited compared to these cities. We've also had learnings on the ability to create fairly world-class teams that can effectively compete with the best developers in each of these locations. And our sense is that we have a huge opportunity in the 4 cities that we are targeting. The data we have seen suggests that 2/3 of the value of real estate sold in the country is sold in these 4 cities. So I think our bet is that by maximizing our focus on these markets, doing the best we can to deepen our presence in these, we're much likelier to create value for the company then by spreading ourselves a little bit more thin, as I think we have in our opinion guilty of doing in the past. So Hyderabad is a market that certainly will -- we'll keep an eye on. And as we get to a point in these 4 markets where we feel we are coming to a point of relatively substantial scale. In all absolute, I will say, in the next 5, 7 years is probably a market we will likely reenter. But I think the entire focus on the next 3 years is on executing in these 4 cities and doing our best to achieve significant growth in these markets. On your second question, Sameer, prices in Mumbai and, frankly, elsewhere, will obviously be affected by a lot of different things over the short term. I think one of the things to keep an eye on is generally this NBFC situation and how that affects developer liquidity. I certainly wouldn't rule out some kind of price correction, but at the same time, I think you've had now for many years of very sluggish real estate sector performance, which to us indicates a relatively high amount of demand buildup in the system, a lot of pent up demand that we think is waiting for a positive figure to come back into market. I think, it's a question of when that exactly happens. There, obviously, had been the sense that this was about to happen and then there tends to be a new setback or a new development that has postponed that, whether it would be monetization, the new development plan; now, potentially, this liquidity squeeze. What I would say is while obviously it will affect short-term performance in some areas, perhaps pricing, perhaps ability to really carry booking value as much as we want, overall, we don't think that the current market conditions present a bad operating environment for us. In fact, if anything I think the relative advantages to the stronger players in the sector only increase as the difficulty in terms of liquidity and other things increase. So while there might be some pressure on bookings and prices, there will be huge opportunities on business development. And I think in any case, our focus is primarily on that part of the business for the next 12 months, because that's really where we see a lot of opportunity. I think the individual schemes different developer launch, I think you have to look them at quite closely. Many times the leading developers, the team does have a price components to compensate for any disadvantage in terms of timing of cash flows and other things. So I don't think we're seeing the major developers who are most apt to take any of those price cuts unless on a project level there is a broad priority to more quickly monetize and so on. So I think not that we're seeing concerns us greatly so far, but certainly, there is enough reasons to be concerned over the next few months in terms of the liquidity situation that we will be closely monitoring it, which is also why the company's strategy is not been to build -- build up a huge completed inventory portfolio or anything like that. We have been selling as we develop. I think the cash flows from last in sales across almost every project, fully fund the construction in those projects. And there will be a lot of opportunities drawn up by these conditions as well.
Our next question is from the line of Kunal Lakhan of Axis Capital.
Quickly on the exit from your non-core markets. Do you already -- you also have some projects in Mangalore and Kochi, so how should I look at? Like gradually look at exiting these markets as well?
Yes. I think that it's fair to assume. In Kochi, is a similar situation to Hyderabad where we haven't launched the project. In fact, there we don't even own the land, it's a joint venture. So you won't see us launching that project, it's a matter of when we agree on terms to exit. The DM is that is very fair to assume. On Mangalore, it's a little bit of a different situation, because the project is underway. The first phase is complete. I think, we are in discussions to figure out how to handle the subsequent phases and whether GPL will develop those. But certainly, we don't see beyond this project any continued presence in Mangalore over the near term. So I think really the focus markets are very much the top 4 cities, and beyond that, of course, we do have a presence and will have a continued presence in cities like Ahmedabad and Kolkata as well.
Sure, that's helpful. Also if we look at our portfolio, right, there are couple of projects, more so like one project, which is your Bhugaon Township project, which has been laying there past 6, 7 years now. What is the thought process there? I understand it's -- we don't have much of a stake over there, but it's just been laying there for a long time now. Is there any plan to launch it, get it on stream? Or how should we look at this? It's a sizeable project, like almost 13 million square feet.
I think some of these projects have ended up getting kind of extremely delayed on a regulatory approval front. Some of them, the structure no longer make sense given the company's current priorities. So I think, we have had some success renegotiating some of these projects, including a project like Ahmedabad. I think if we were to continue with Bhugaon project, something similar in -- not necessarily the same structure, but a similar renegotiation would have to be successful. So I think, please be assured that we are very much monitoring our existing project portfolio in each case. We are trying to structure the project where it can move forward. Often regulatory approvals are the concern for any of these projects, which haven't launched for a long time. And our efforts are certainly to achieve closure on those.
Sure. And when did we look at launching the Mamurdi project?
Mamurdi, we are at fairly advanced stages of approval. So we would launch it as soon as we get approval.
All right. And last one from my side. So looking at our balance sheet, now it's pretty healthy. You're sitting on some INR 1,500-plus crore net of cash. And with liquidity prices that we are staring at in the industry, will we look at acquiring some of these projects on an outright basis? Or own model of acquiring via JD or JV? I'm trying to -- there’s a lot of opportunities -- a lot of land owners or stock projects that may make sense. Would we look at those assets?
Yes. As I mentioned earlier on the call, at least you know we are open to it. And if we see valuations getting to a level where we find them very compelling, or other aspects of the specific project we think allows us to generate the kind of risk-adjusted returns we think are possible through structures like profit sharing, we'd certainly be open to it. Broadly, I think it's fair to state that the company is very, very focused on business development whether it be outright profit sharing or other structures and does fully agree that now is a very unique opportunity to really scale the business development efforts, given the liquidity environment, given the tough nature of -- from a customer receptivity perspective from any other developer. And given the fact that we've just raised some capital and unlocked further capital from our commercial portfolio and very much keeping all of that capital with the idea of putting it into business development over the next 6 to 12 months.
Our next question is from the line of [ Manoj Dua ], an individual investor.
From investor perspective, we are tracking presales and cash flow. And now we sell lot of amount in the launch phases itself. So presale itself depend upon how many lunches we are doing. Definitely, it's depending upon the market conditions and approval, now we are concentrated on 4 cities. Can we assume that with the consolidation going on, we can launch approximately 4 launches in a quarter in every 4 locations or 16. So can we are in the position to launch approximately 0.8 million to 1 million in a year, new launches so that we can sell approximately 50%, 5 million from new sales?
It's interesting. I think we've said that in our -- in the very near term, our goal is to make sure that at least, on a consistent basis, we are doing 1 new project launch for a region that we're focused on per quarter. We haven't necessarily hit that, for example, in the first half of the financial year, but certainly, that is something we'd like to do. But that is clearly a very near-term objective. I think we need to go much beyond that over the next couple of years, and I think we do have to build capabilities to have pretty soon new launches every month in terms of these regions. Because our aspiration is to be in a leadership position in each of these 4 markets, and there are players in each of the markets who are at a significant scale. So I think while we'd like to get to the 1 per region per quarter launch situation you described, I think we'd like to move beyond that also quite quickly.
Next question was coming from that because we have put a lot of business development signed and even signing 3 million seems less to the people. So if you are planning approximately more than 10 million. So we -- our launches should be much higher going forward. This was basically my question.
Yes. I think, look, if we are just going right at first half number, I think we be the first to say that most concluded business development announcement and the bookings numbers delivered are disappointing. I think that's happened for a couple of reasons. On the business development front, as we mentioned, we are not particularly concerned. I think, internally, the visibility is exceptionally strong on concluding the financial year with, by far, the best year for business development that we've ever had. So I think we remain confident of that. On the sales front, it has been largely because of a delay in new launches. I think, if you look at our subsequent sales over the last 18 months, there's been a very dramatic improvement, which is also evidenced in the very strong operating cash flows we've reported over the last 18 months. And we remain confident that as these launches come through, you will see bookings numbers scale quite significantly. That said, I think we're, obviously, working hard to get to a point where there is more consistency and that we are able to drive 3, 4 new deals every quarter, have 3, 4 new launches every quarter. And we, certainly, see that as an achievable objective.
Apart from approval, we've seen that the market condition is ripe for us for these kind of launches, approximately actually 1 per quarter for every region.
Yes, definitely, as a company, it's still not gotten to a point where there is any project where we are fully on a -- we have all the approvals and we are not launching the project. So I think, we're quite confident of our ability to sell in these markets. In fact, residential sales most of the data shows that the industry have actually improved a little bit over the last 6 months. And when they were probably at their worst, which was last year, we saw our bookings grow 150% last financial year because of the number of launches we did. So I don't think that we're in any way feeling nervous about the market and our ability to launch new projects successfully. I think it's just a correlation of when the regulatory approvals on a project-by-project basis come through.
One small question. How much area we launched in Bangalore this quarter? How much area we open for the sales within Bangalore?
I don't have the exact detail. We sold about 200,000 square feet, but I don't have the exact details on the launch volume. We can get that to you offline.
Our next question is from the line of Abhinav Sinha of CLSA.
Just firstly on the sales momentum that you were talking about. So October seems to be doing okay? Or there is some impact on the market already?
Yes. I don't think we are seeing anything as of now at least, but we will have to keep an eye. But no, I think there is no evidence. We're in the midst of one launch and funding is going well, but there is October where we're pretty strong. So I think no evidence as of now, at least in our own portfolio.
Okay. And on the funding cost or incrementally, how are things looking like?
As reported average borrowing costs, last quarter, was still under 8%. But Rajendra, do you want to comment?
Yes. The cost has been increasing, but we have taken certain products and long calls, and that is helping us to maintain our average borrowing cost. So obviously, we -- it cannot -- we cannot be completely insular there. So as the earning cost increase, so we will see increase in our funding cost also. But however because of some long call taken, our average borrowing cost would be quite low as compared to the market.
Okay. But like-to-like will you say that 100 basis points sort of increases there for you?
Not necessarily, because if you see from March to September, we are -- we were at 7.80, we are at 7.88. So it's an 8 bps increase in 6 months. So I don't think that will be a 100 basis point increase in -- end in March.
Okay. Sir, secondly on the cash flow front, the net debt reduction that we saw during the quarter. So is it primarily because of Hyderabad exit?
Yes, primarily because of that and also because we received the money from our BKC project. So there are some pending collections to be made. So we received some money over there also.
Right. And the construction spend also seem to be a bit slower on a Q-over-Q basis?
We have the -- as more projects in -- as approval comes and these constructions gets heated up, you will see those construction spend also improving. If you see that particularly it has been on an increasing spend. But normally, Q2, we know because of the rains and all, monsoons and at all, it's always a little slow, but that will -- it takes a pace in Q3 and Q4.
Our next question is from the line of [ Manish Jain ] from [ Garner One MLP ].
My first question was on our capability set, given our aspiration to grow disproportionately in terms of our market share. Operations, we have started pre-cast and things like that to do a faster delivery of the product. On the funding side, we are very well taken care of. You just mentioned that you will have a strong pipeline. So if -- on a capability set, over the next 3 to 5 years, if I see a challenge as a leader, what will that be in your view?
That's a great question, Manish. So we see -- but I think the capability set of the people and the functions to see where the challenge is. And it's a constant effort, it's a continuous job. So every quarter, there is an assessment done on the capability front, and we keep thinking of second line of leaders and we keep -- because at the end of the day, what happens is that as we keep scaling up, the same set of individuals have to scale up their skill set to go to the next level. As there is lot of training programs which happens internally, so it's a very continuous effort which is put in for -- if you look at capability development.
So you don't, right now, let's say, sales are -- I'm just -- because -- let me take a live example, NCR. Do we plan to get entry into a newer micro markets like Ghaziabad or a Faridabad? That will entail scaling up the existing teams in NCR furthermore.
Yes. So we are looking at some of these geographies which you have mentioned. We always look at our structure because our entire strategy is on scale, so we don't have the ability to scale up for future. So even the teams, the way they are designed, there is enough bench strength built in to get some of these projects and launch them successfully. Also the way we have structured the team is that the launch engine was very different. We are separating production and sales. We have a self-sufficient site structure now rolled out, which kind of takes care of project level issues. So we keep thinking about, Manish, new ways of rendering our structure to take care of future growth.
Perfect. And one last bookkeeping question was on Godrej BKC, you still have a 50,000-odd square feet pending. If you have to take a guess 12 months, 6 months, 18 months, what would that be to exit depending...
Well, Manish, since you asked for a guess, we will give you one with no more than a guess. I think, clearly, we certainly like to finish it on this financial year. But it's not that we have an imminent deal or anything. But I think that it's not a very large amount of area. So I think we're all sort of something clicks within the financial year.
Just on the extension of the real questions, I'm actually looking at every single parameter of capability set that you all have been building over the last 5, 6 years. It's an ideal time frame. So I'm just actually visualizing what is it that will lead to my -- me as Godrej Properties not been able to capture that because of some weakness. Because the chain is as strong as the weakest link. That's really what I'm really focused on right now.
Well, Manish, honestly, I think you're right, and we agree with the opportunity is there. So I think the environment that we're in, the overall growth visibility we expect to see for the real estate sector over the next 5, 10 years, the relative advantages the company has to its geographic presence, the team we have now, the challenges others are facing from a customer attraction perspective, from a financing perspective. So I think we fully agree that we're in a relatively-unique space from those kind of opportunity that we're facing. And it is up to us now to execute against that and I think the only limit to our growth really is our own execution. Honestly, we have been doing a lot of capability building. It has been -- the main focus of the company over the last few years is making sure we have the teams that are capable in each of these new geographies of delivering the kind of goal we set out. That said, I think we have a long way to go in many different areas, which is also, as we see it, an opportunity. So I would say, we don't think, for example, today GPL is doing as well as it could on delivering lowest cost solutions for each of our projects. So I think that's something, an area where we're working on. As you know, we moved to precast in an effort to dramatically change the project timelines that we're delivering today. So in each area, I would say, we have a long way to go before we think that we're in any kind of "as good as we can get" position. So I think whether in the way we service our customers, our sales reach, our construction capabilities, the kind of design standardization objectives we have. So I think it's very much a work in progress along each of these, but that presents part of the opportunity as well that I think if we can continue to execute better and can continue to deliver improvements in these areas. We're starting from a relatively strong base in terms of the types and capabilities of people we have within the organization and with the opportunity we have. But certainly, it's an area where given the kind of growth we'd like to achieve, we have to keep investing and keep improving and it's more of a journey than in an end state.
Our next question is from the line of Prakash Kapadia of Anived BMS.
Given the headwinds which you've been talking in the sector which have accelerated of late, are we seeing smaller builders shutting shop or desperation coming from landowners in terms of trying to sell at a lower price? And what could be helpful, say, on an annual basis, if you could give us some trend, say, I think last quarter you mentioned we are hardly 1% of the residential segment or real estate segment in terms of market share. So if next 2, 3 years, if we execute our current projects, at least on an annual basis, if you could tell investors or analyst this is what the sector is and this is where we are in terms of market share that would the helpful. And secondly, on the stock projects, are we ready to explore stock projects if they are available in focused markets?
Thanks for the question and for the suggestion on this market share guidance. I think let us discuss it a bit internally and come back on a -- in a future forum. On the stock project, I there are many projects that we have looked that are fully approved that have either being launched or developers not able to execute. But in other projects we've already done such projects. We tend to be quite happy to take such projects on if we are confident of the design after we do the vetting of the project. But often times, there can be a little bit messy if the launches happened a lot of existing customers, the design isn't ideal and so forth. So I think, as the projects cycle -- project analysis that needs to happen, but in principle, I think, we are open to the idea of taking on projects that are at a more advanced stage of development then just kind of bare land. And I think, obviously, those projects can also offer a lot of opportunity if we are able to successfully turn them around, because timeline disclosures of such projects can obviously be quite fast if we can successfully execute them. So in principle, we are okay with them. But I think at the project level, we will, of course, have to exercise a fair amount of caution and a -- be quite confident that the project makes sense at the individual assets level.
Understood. And you mentioned the word, NRI interest. So as of now, that would be a very small percentage of, say, our last 4, 5 quarter bookings?
Well, I don't have the exact data in the last couple quarters, but it has actually, at times, been a very meaningful part of our overall bookings’ earnings. At the peak, it's even better than a quarter of our overall company level bookings. So we can get you a data for the most recent quarter. But it's not such a small part of...
Oaky. So there has been spouts and sharp jumps also historically.
Yes, yes.
We'll take our last question from the line of Puneet Gulati of HSBC.
Did I hear you right when you said that this year could see the highest level of business development in any year?
Yes. I think -- with regards -- caveat that with the fact that we're talking about future profits from the company through business development, which may not necessarily correlate with area added to the company's portfolio. But yes, I think with some attritional future profit being locked in, we would be very disappointed if this year isn't the best year for business development.
Okay, great. Secondly, you also mentioned that the sales were slow because of slower launches, which is probably because of regulatory hurdle. On the other side, India has moved up ease of doing business ranking. How does one weigh these 2 things?
It's a good question, Puneet. Maybe over here didn't get that, but I think, our best assessment is that the ranking jump of 129 or whatever it was, was probably a little bit generous. But I think the directional interest of government in resolving this as is I think something you can see through the introduction of the Real Estate Regulatory Act, the introduction at the city levels of a lot of expectations in terms of turnaround time were very efficient. Now all of these haven't actually, unfortunately, been fully implemented yet. But I do think that directionally, the ease of doing business in the sector has been improving. It's not improved as fast as we would like. And certainly, there remain a very large number of issues on the ground that prevent kind of faster traction. But I think the environment has improved from a governance perspective tremendously, and we hope to see that now also translate into faster turnaround time in the quarters ahead.
Okay, that's helpful. My last question here is how do you balance between now your quest for increasing share in the projects as well as being asset light at the same time?
Well, again, I think the point is that we would like to be asset light, we would like to do the vast majority of our projects in partnership structure. But I think we're willing to put in a little bit more capital at the original status, as long as we're very confident of being able to recover that quickly and therefore the return not changing from the times where lower capital was being invested. So I think just that -- given that the scale of the company has increased quite a bit over the last 4 or 5 years, it is important that the scale of returns we're generating from individual project also see some shift. And we think this is an appropriate way to do that. So I don't think that a major shift in sort of the strategy of the company, which continues to be asset light and trying to source land in the most capital efficient way as possible. But it does mark, hopefully, a shift in our ability to invest more given the company's scale and balance sheet and the desire to improve the overall profitability of the company and the kind of quality of locations that we're in.
Okay. But there is a direction towards making it slightly asset heavy than what it was previously.
I think that's fair, yes. But within the broad concern I don't think you'll see us at all moving to kind of a full land purchase strategy or anything like that. That, we don't think is something that would make sense for us. But yes, I think it's fair that directionally, you will see more high deposit profit share kind of structures than say development management fee structure.
I would now like to hand the floor back to the management for closing comments.
I'm hopeful that we've been able to answer all of your questions. If you have any additional questions or would like any other information, we'd be happy to be of assistance. On behalf of all of us, I'd like to thank you again for taking the time to join us today and wish you all the very best of the Diwali, best still ahead.
Thank you, members of the management. Ladies and gentlemen, on behalf of Godrej Properties Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.