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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 now hand the conference over to Mr. Anoop Poojari of CDR India. Thank you, and over to you, Mr. Poojari.
Thank you. Good afternoon, everyone, and thank you for joining us on Godrej Properties Q3 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 start, 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 for Godrej Properties' Third Quarter Financial Year 2019 Conference Call. I'll begin by discussing the highlights of the quarter, and we then look forward to taking your questions and suggestions.I'm happy to report that the third quarter of the financial year was the best ever quarter for residential sales in GPL's history. The total sales for the quarter stood at INR 1,528 crore, which represents the quarter-on-quarter growth rate of 89% and a year-on-year growth of 25%. We have strong launches across Mumbai, NCR, Bangalore, Pune and Ahmedabad. Godrej Reserve, our first ever plotted development project in Bangalore, received an excellent response. And we sold 750,000 square feet, with a booking value of INR 247 crore during the quarter.At Godrej Golf Meadows in Panvel, we sold more than 400 apartments, measuring 417,000 square feet, with a booking value of INR 254 crore. Our NCR team successfully launched 2 projects simultaneously in January with a very strong response. Godrej Air in Gurgaon and Godrej Nurture in Greater Noida cumulatively sold more than 600,000 square feet, with a booking value of INR 338 crore.In December 2018, we launched a new phase at Godrej Garden City in Ahmedabad after a gap of almost 4 years. We sold approximately 230,000 square feet, with a booking value of INR 76 crore and expect to see continued sales in that project in the current quarter.Since both of these launches had happened in December, we do expect that the fourth quarter will continue to report good sales from these projects. Under the new project completion accounting standards for the third quarter FY '19, total income increased by 58% and stood at INR 473 crore. Adjusted EBITDA increased multifold to INR 145 crore and net profit increased to INR 42 crore. For the 9 months of FY '19, total revenue increased by 30% and stood at INR 1,996 crore. Adjusted EBITDA increased by 62% to INR 525 crore and net profit increased by 116% to INR 96 crore.We successfully delivered 1.7 million square feet across 4 cities in third quarter. We delivered 0.66 million square feet at Godrej Central in Mumbai, 0.43 million square feet in Godrej Prakriti in Kolkata, 0.38 million square feet at Godrej Prana in Pune, and 0.2 million square feet at Godrej Summit in Gurgaon.In the third quarter, we added 1 new project through a joint venture agreement with Hero Cycles and Godrej Fund Management to develop 1 million square feet of prime office development on Golf Course Road, Gurgaon. The visibility on business development is the strongest we've ever witnessed, and we hope to have numerous positive portfolio enhancement announcements in the current quarter. The liquidity crisis in the nonbanking finance company states has further weakened the prospects of many relative developers who are reliant on financing from these NBFCs, but at the same time, has strengthened the opportunities for stronger developers able to invest in the current economic environment.We expect to close this financial year on a strong note as our launch pipeline looks robust and business development momentum is strong. We expect to further scale our sales momentum in the coming quarter, given our exciting launch pipeline across the country, as we believe will be a significantly enhanced with new project additions in the coming quarter.We are well positioned for continued growth that are differentiated in scalable business model and strong execution track record.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 discuss any questions, comments or suggestions that you may have.
[Operator Instructions] We have the first question from the line of Abhishek Anand from JM Financial.
My first question is on the P&L/BS seeing a good INR 42 crore of profits from JV projects, my take is that these are from the completions we had during the quarter. If you could share some more details on them, maybe the top line, which they recognized during the quarter, that will be really helpful.
So Abhishek, this was from the JV project, basically from our redevelopment central project and some of our summit buildings, where we have received an OC. So as you know, all my profit sharing are accounted under liquidity method of accounting. That's why you see that one line item coming in.
So, Rajendra, if you could share the top line. Is it possible for you to share the top line number of these...
I can share it with you offline. So right now -- we can discuss this offline only.
Sure, that will be helpful, actually. Secondly, Pirojsha, if you could help us understand the progress of the 5 million square feet that you have shown in the slide. At what stage these are at? Have we already launched, since we are already a month almost through this quarter. Have we launched the projects in the pipeline, the 5 million square feet, which we are showing in the slide?
Sorry, can you just highlight to us, Abhishek, which slide figure you're referring to.
Yes, I would provide that. So the slide where we show the project tracker. This is, I think, Slide 13.
The Launch Tracker?
Mamurdi, Godrej Platinum, Godrej Aqua, Godrej Seven as the new launches. Now -- plus Sarjapur 3, what's the progress here? Have any of these been launched over last 1 month? How confident are we of launching all these 5, 6 projects?
So we have already launched the Godrej Aqua in the month. We have got RERA approval, and we started activation for that. And the other launches, which I mentioned here, like Mamurdi, is something where we are at advantages of approval, so we're pretty confident on that one. Godrej Tranquil, again, we are at the fairly advanced stages of approval. So I think that is, again, something which we should be on track for this quarter. Godrej Reflections, we have all approvals. It's our choice whether we want to launch it or not. We are taking a call depending on how Godrej Aqua and Reserve is still going very strong in the market in spite of doing such a large sale. So I think some of these are fairly at a clear good stages of approval. Those are something where we are still working on, but can't comment right now.
Sure, that's fair. Then finally, one last thing, on the portfolio addition. Pirojsha clearly mentioned that you're seeing some good flow. So just trying to understand whether things have changed over the last 3 months. So we had a call almost 3 months back and you were mentioning that you expect to see certain deals come through. Are you seeing now some changes in the valuation, the quality of deals or the quantity of deals? How -- are you seeing any changes the way it will be -- the portfolio is getting added to the Godrej pipeline?
Yes, Abhishek, I think the environment frankly was already quite attractive 3 months ago. If anything, it's probably further improved from there with all these NBFC issues and other liquidity challenges facing this sector. So I think we recognize the announcements year-to-date that aren't matching with the commentary, but we certainly hope to bring those 2 into alignment in the current quarter. But yes, I think deal flow, certainly from an internal perspective, is the best it's ever been. And I think that's quite a lot at the threshold of being ready to be announced.
Sure. But anything, any comments on the valuation you are getting for these deals? Are you focusing -- where exactly is Godrej focused at this point of time? On the quality of deals? Or put -- mix of quality valuations? Where should we look at it?
Yes, I don't think it's either overall. So of course, Abhishek, we need obviously, the right deals and the right quantity of deals. What I think we said historically is that even on previous deals, we've always been looking at ensuring both that our returns are suitable, but also that the joint venture partners aren't making disproportionate results through our efforts. So I think the term is to -- the extent to which the terms of any deal can be improved do have their natural limit in ensuring that the direct joint venture partner does also do well through the deal. And we have always believed, therefore, that the quantity of deal and quantity of value it can add to the company is greater to the scale of deals we do. That said, certainly, I think market conditions have further tilted bargaining power to our benefit and I think there are deals on the table now that 6 months ago perhaps wouldn't have been possible.
The next question is from the line of Abhishek Bhandari from Macquarie.
I have actually 3 questions. I'll take them one by one. First, if I look at your other income, which has been a meaningful contributor to both EBITDA and PAT, if you could help us break down that line a little more, what constitute this other income in your P&L?
Yes, Abhishek, the other income, basically, there are 2 buckets in that. One, is our JV interest income, like I have explained in my previous calls also, because of the accounting now of interested break 1 into 2 parts, it is grossed up. Whatever we point to the JV project, the income what we earned is shown as a part of other income. And whatever that we pay on account of all that many borrowed, we show it as a part of our financial expenses. So majorly income is a -- of the interest income comes into this other income bucket. And the second is on account of mutual fund income, because since we've raised, we are yet to deploy the full money, so those are parked into mutual fund. So that other income -- that's the second bucket which contributes to the other income.
So basically, it's all interest income which comes into other income?
Yes.
Okay. My second question, Pirojsha, is you guys have had probably one of the best presales we have seen in the sector in last 6 to 9 months. I understand brand plays a very important role. Do you think there are any other things which might have helped you, especially around marketing your projects well, learning from some of the experience of not-so-great launches, especially in first half of this year? Or is it just that you guys probably had a better location to launch with? And if you could probably give some more details, it will be helpful.
Yes, I mean is this, obviously, the brand helps, but there are a lot of good brands in the real estate sector. I think the team obviously has developed quite significant capabilities that are executing launches and executing them well. And I think the process of learning is, of course, ongoing both from not-as-successful-as-we-hoped launches, but also from the good launches and understanding what worked for those. But really I think we've hopefully established good credentials to be able to successfully launch new residential projects across the country. And I think if you look at even for sort of a 4, 5 year track record on this, the vast majority of these projects have done well. I think the thing that's what probably made this quarter very successful is that we were able to get a lot of the regulatory approvals that have been pending in the first half approved. And therefore, we saw a bunch of launches come at the same time, which is what we really hope to see every quarter, as I mentioned, in previous communications. We'd like to at a base level ensure that we have 1 launch per zone per quarter. And this is one of the few quarters where we have achieved that and I think thus the results then speak for themselves. But I think the combination -- also I'd like to point out, that despite these several launches on-going, I think the team's done a great job in making sure our sustenance sales of existing inventory continue it on a healthy clip. So I think that combination and getting that price is what we've been working on for the last couple of years. Now I think a lot of [ testimonials ] have been seeing that it all comes together this quarter.
But are there any specific marketing campaigns run around these projects, especially the ones which were launched now. Or were they were just like normal launch, what you would have otherwise.
So Abhishek, for all our project we have a USP, we have marketing campaigns which are based on consumer research. So I won't say anything extraordinary has been done in this quarter. It follows the regular process and as Pirojsha highlighted, most of our launches for the last 4, 5 years have been -- seem very successful launches across market. And this quarter has been, again, a similar trend has shown.
That's helpful, Mohit. And my last question is around your progress on your CapEx projects. I'm not asking about the Hero commercial project, which was signed very recently. But some of your other Godrej 2 and the hotel, has there been any progress in finalizing the total outlay? And how are you going to finance it?
Yes, I think Godrej 2, as you may know, we've entered into a partnership with the Godrej Fund Management, where we have sold our 50% stake in the project. So the approval for that will largely fund most of GPL's equity commitment to the project. And we'll get a construction loan to fund the rack. So I think that is quite clear. And the building is halfway completed from a construction perspective. On the hotel, we are yet to finalize, where we finished the design for the project. We're in the regulatory approval phase. I think the exact way that it will be financed or whether it will be kept on GPL's balance sheet or not is something we haven't yet decided.
Okay. Pirojsha, if I can ask one last question. Are you guys really happy with your EBITDA margin, excluding your other income? The reason I'm asking is some of our projects have reached a mature phase and are probably selling at higher than the launch prices. So ideally speaking, your EBITDA margin should be trending upwards over last few quarters, but there has been a lot of volatility on this line item.
Yes, Abhishek, obviously, I think that there will continue to be quite a lot of volatility. I think, the actual EBITDA margin we reported last quarter is 30%. But I think in all fairness, there will continue to be volatility. We have I think some accounting standards that, frankly, don't give a very accurate reflection of underlying operations or importance. For example, where bookings are very high, you will -- by the nature a high marketing cost that will be expensed out in that quarter, whereas really what you are accounting for, from a revenue perspective, is projects that may have been launched 3 or 4 years ago that are coming up for completion. So I'm not sure how accurate a gauge of margin direction one can get by following just one quarter to the next. Obviously, over broader time frame, there should be evidence of things improving. Certainly, as we look at things internally, we do see the structures we're working with improving. And, certainly, I think some of our major projects like The Trees, set for a new recognition next year. I think there will of course be good trend in margins as a result of that as well.
The next question is from Tanuj Mukhija from Bank of America.
Firstly, congrats on the excellent presale numbers for the quarter. My first question is at the broader company level -- or at the sector level, I would say, rather. At the sector level, are you seeing liquidity crisis or -- tied to developers resulting in pricing pressures in the micro markets where you currently are present?
Nothing very significant as of now. Tanuj, I think we've obviously seen over the last couple of years markets like NCR show price reductions. I think price enhancement in almost every market hasn't really happened in the last 2, 3 years, but I think if you're asking if this NBFC issue resulted in big price cuts that we've seen in the market, at least as of now, we haven't seen -- come across anything like that. And certainly, all our own projects have -- there's been no price reductions and no -- even deviations from kind of what some of the newer projects [indiscernible]. But clearly there is stress in the market. I think a lot of developers that were reliant on NBFC fundings are very much being forced to sort of look at other options to monetize their project, all of which we think is quite beneficial for us, actually.
And secondly, if I look at your project-wise sales, are you seeing more number of projects offering discount schemes now as compared to maybe a year back?
No. Are you saying, sorry Godrej Properties project? Or are you saying industry-wise?
This is specifically for Godrej Properties' projects.
No, I don't think, as I mentioned, I think in all of our asked projects we had asked for pricing, we were in previous phases or a couple of prices of the project have been underwritten here. Were there any specific projects you had in mind?
No, just needed a broader comment across the market.
No, we are not seeing any price reductions in our portfolios now.
Okay, great. And lastly, how should I look at the sustainable EBITDA margins for the project of Godrej Properties? I understand that the accounting standards make it difficult to gauge the EBITDA margins, but if you could elaborate at your current project EBITDA level margins.
No, again, it depends a lot, Tanuj, on the structure of the project, whether we are talking about profit-sharing projects, whether we're talking about the margins as compared to the booking value or like our accounting revenue, so I think it will be probably easier to do this in a little bit more detailed manner, maybe Rajendra and I -- Rajendra can meet you offline to discuss.
Sure, I will take it offline in that case.
The next question is from Puneet Gulati from HSBC.
Congratulations for good presales. Just trying to understand what is really the bottleneck in closing the deals which you've been talking about on the business development side?
No, I don't think there is any huge bottleneck, which is why our commentary is remaining as bullish as it is. I think a couple of things that we've decided or -- and one change that has happened over the last 12 months versus previously is that now we have, in many cases, waiting for certain, what we would call, typically conditional precedence to be completed before actually announcing the deal. So there are some that have actually been already signed and agreed to, but we feel we'd like to see some movement on those CPs before we announce them. But if you're asking what is the constraints to closure or what is the challenges that we are facing? Again, I don't think we have a good answer to that. I think we acknowledged this so far, the commentary and the actual announcements aren't underlying, as I mentioned earlier in the call, we do hope over the next few months to fix that. And again, we haven't seen any of us who've been working on this for a while in the company, we haven't seen this kind of momentum and this kind of deal availability ever in the company's history.
Okay. So can you give some more color on the conditional precedence that you mentioned?
So the project-by-project approval related issue is getting the project to a stage where we feel very confident that there won't be long delays in the regulatory approvals, essentially, and that which regulatory approval it is typically varies project-by-project.
Okay. So will it be fair to assume that when you announce the deal, the time to announce and the time to launch will be much shorter than what we saw previously?
Yes, I hope that is the case. I think a lot of these projects, things like design work, et cetera, is at a reasonably good stage. So yes, I think directionally, that should be the case. Obviously, there can still be exceptions where unexpected delays in regulatory approvals and so forth happen. But yes, I think this extra time that we're taking before announcement is not time where operations are at a standstill. These projects are being worked on in a way that should reduce the time taken for planning forth announcement.
Okay. There is also talk of lot of stressed assets coming into the market. Would you be open to looking at that from portfolio perspective? Or not really?
Do you mean sort of -- what do you mean by stressed asset? I think the more every...
Stressed developers, maybe something like an Amrapali hypothetically.
Right. So without getting into any individual case, I think ethically we're open to it. Of course, historically it's been a sector where M&A as such has been very limited, if at all, because of the difficulty of kind of understanding fully what's coming with the company. So I think most of the M&A have been kind of project level. And certainly, there we are very active. I think so we are very open to opportunities to do bigger platform kind of structures or even entity levels acquisitions. But I think we would be reasonably cautious about the other risk that might come along with it.
Okay, okay. Lastly, while there was an exceedingly good sales, it didn't quite show up on the cash flow front. If you can comment a bit there.
So I believe -- this is Mohit here. So because most of these launches actually happened later in the quarter -- 2 of them happened in November and most of them happened in December, so the cash flow then start impacting Q4 onwards.
Okay. So basically, you announced this, then the customer books by paying a booking number or full 10% or 30% or whatever?
So typically, we follow a norm that customer has to pay 5% of the amount on bookings, only then we announce it as a fee.
Okay, okay. So the balance 30% for example, in case of the Mumbai, which you will need for registration. Could come in...
That is 10% now, Puneet.
10%.
That's the right idea, 10% now.
Yes, yes 10%, correct. Okay. So that's right, lastly, Rajendra I couldn't quite understand on that other income part. You said there is an interest income that you earn from the JV projects. So the other income is a net number or a gross number?
It's a gross number. The expense part, what we borrow to fund that, is fitting into financing.
Which is expensed-out in various projects?
Yes, correct.
The next question is from Sameer Baisiwala from Morgan Stanley.
Firstly, I just wanted to check, what is your current cost of construction? And I asked this especially in lights of couple of ASPs for the new launches, like I think Ahmedabad was INR 3,200 per square feet, Bangalore, if I'm not wrong, is INR 3,500 per square feet. So just to understand the margin profile in these projects.
Yes, of course, it varies quite a lot, Sameer, but I think the important thing to keep in mind is for the Reserve in Bangalore, it's a property development project. There is no construction other than the basic infrastructure [ there ]. So the construction cost there will be exceptionally low, which is why the selling price is lower in an absolute sense. But if you compare it to market, it's actually about 50%...
50% higher.
50% above market.
Okay. And for Ahmedabad?
Ahmedabad has always been kind of low price, low construction market. And if you recall, we restructured that project also to make it a development management fee project. We actually don't now have exposure to the construction cost on that one. But the cost -- construction cost in Ahmedabad is considerably lower than other cities.
Okay. Fair enough. And just on Panvel, I was looking at the selling prices, I remember when you initially launched in fiscal '15, if I'm not wrong, it was around INR 5,700 per square feet. And now we have launched the latest phase at INR 6,100 per square feet. So 4 years down, practically no inflation in this market, right?
Sameer, I think you could probably say that about almost any relative market, prices are up about 10% higher. I guess, the good thing is we're very happy with getting -- regaining momentum in that project selling over 400 units at admittedly not that much higher price, but certainly higher. But yes, I think if you look at the market, most micro markets would not be more than 10% above their price 3 years ago. And I think that's reflective of just the general sluggishness the sector has seen. As you know, I think prices have been flat in most markets and some markets like NCR, you actually have seen prices go down 25%, 30%. So I think our strategy is always to price at the best price where we can successfully launch a good number of volume. I think that project also we expect the areas there to be quite significant, so this year the market further picks up, which we think it will with commitment of new airport and the new bridge. I think there, hopefully, can be room for improvement in prices there.
Yes, sure. And just on the Gurgaon, the latest commercial project that you've announced. So 1 million square feet, I guess, Hero for 40% stake brings in the land. And then how do you -- how will this be funded, the CapEx? And second, will this be on the rental or on the sale model?
So this Godrej Properties has a 30% equity stake in this, so its funding will be limited to that extent. Of course, a lot of the funding for the construction, et cetera, will be through a construction loan. So I think the total investment from GPL should be in the range of INR 200 crore to INR 300 crore. Again, which would also be in addition to its equity returns fee, earning a development management fee. And this will be done on a lease model, so there won't be any presales on this project.
Okay. And the balance 30% is with the platform, if I'm not wrong.
That's right.
Okay. My guess is that the CapEx here would be about, what, INR 400 crores -- INR 4,000 per square feet?
Construction, yes, might be even a little bit more than that, but in that range, yes. It will be a very high-end of this development.
Okay then, in that case, INR 200 crores to INR 300 crores commitments from GPL looks a little...
Not just that, it's also approvals, getting, buying the equity stake any approvals cost and construction costs, right? Not just that.Yes. We can give you more details if you'd like, separately.
Yes. Sure. I'll take it. And just the -- just question on the sales channels' pressure here. Over last 2, 3, 4 years, how have the sales channels changing for us, if at all, between direct walk-ins, broker-driven or online? Anything that the company has to do extra to really get the sales done?
I think, by and large a lot these are levers we've been using for quite some time. It's built a fairly strong international sales capability, which we built on over the years, including through opening an office in the U.S. last year. I think we had earlier been quite focused -- I am talking about 6,7 years ago on a fully internal sales strategy, which we shifted over time to a more balanced kind of position. We're working quite extensively with travel partners as well. So I think nothing that comes to mind as a major change structurally that I'm observing. I don't know about you guys.
The next question is from the line of Abhinav Sinha from CLSA.
Firstly, on the presales have been quite good, but Mumbai seems to be a bit weak this year so far. So I mean, some different trends here? Or is it just the launch pipeline which is acting up a bit?
No, I think we're very happy with -- we have 1 launch in Mumbai during the quarter and in Panvel, where we sold 400 units. I think actually is the highest booking value of any individual project during the quarter, despite it being a second phase. So fairly happy with that response. I think I probably agree that we would have ideally liked to have more launches in Mumbai this year than we had, but I think, quite satisfied with the response. Of course, there was 1 launch in Thane where we've had kind of moderate performance. But other than that, including the launch in the last quarter, I think we're very happy with the outcome.
Right. And the next phase of Trees or within that area, your Vikhroli land, when should we expect it now?
I think, obviously, we take a look at that and see whether that can be -- certainly the hope would be to do that in the next financial year, and I think that is an important priority for us.
Okay. Sir, second question is on your net debt trend. So we had a bit of an increase during the quarter, about INR 2.6 billion. Now with the higher sort of BD activity that we're looking at in the near term, so where should we see this settling?
Now I think that we've always said that our optimal levels for this is in the range of 1:1 to 1.5:1 and that really hasn't changed, despite the equity raise. I think the purpose of the equity raise was really to enable further investment for our growth. Our sense is that a counter-cyclical investment strategy is a very sensible one in a sector like real estate with kind of long cycle time. And certainly, we see this as the calendar year 2019 is a very, very important period for us to be looking at investments. And I think we're actually -- be quite disappointing if our gearing level during the year stays at this level or reduced, because I think that would indicate that we are not investing as much as we should be. And certainly, I would expect that to move into that range of 1:1 to 1.5:1.
Okay. And sir, last question, Slide #20, the consolidated cash flows. I just wanted to check now, in 9 months' period, we've seen that the construction outflow as percentage of operation is about half of it. And total margin, you're looking at is around 25%. So is this a fair reflection of where the portfolio is right now, in terms of margin?
You can't collate the cash flow with the margins, Abhinav. So cash flow is basis whatever the actual outflow happens on account of construction. So -- and the margins would be coming in stages. So this is for all the projects which are at various stages of construction.
The next question is from Saurabh Kumar from JPMorgan.
There's 2 questions. One is what expense that collection dropped this quarter? And secondly, on your balance sheet, the other current liabilities, which sets -- that INR 2,000-odd crore number, this is -- how much of this is before accruing?
So on the first question, I think has been answered in the previous queries. The collection drop is particularly the launches, which has happened towards the end of the quarter, so we have collected is a very small amount, like 5%. So bulk of the collection deficiency will be made good into the coming quarter. So that would...
That's why I [indiscernible] in previous quarter, quite a lot of interest in commercial-related collections that was [indiscernible] are in that also part of the reason.
And to your second question on the other liability advance on customers from pieces around [ INR 115 -- 50 crores ]. So like -- because of the change in accounting, now whatever the customer collection fits into as an advance in liability, and we will get caught up as and when the completion happens.
So 3 years, [ 15 50 ] on this?
Yes. Yes.
Okay. And just one last question on Slide 20. So just on the other question of project margin deal, there -- the settlement on profit, which you have through your JV partner, that happens in this other project-related outflow line, right?
No. So it's a top line share. Whatever the top line share is happening, it is in the part of an operating cash outflow.
So other project-related outflow, right?
Yes.
Is it part -- or is it part of the construction-related outflow?
Yes. It's a part of that project-related outflow. You're right.
Okay. And the land and approval-related outlook, a part of it also relates to the under-construction projects, right? It's not completely for new projects?
Right. So if there are [indiscernible] payments, which is related to the land and approval, is forms part of that.
The next question is from Manish Gandhi, who's an individual investor.
So I had one more. Really appreciate the way the whole team has designed, in last 1 year, many projects. So inevitably, like whether it's Aqua or Air, or Noida Security, or [ rezo ]. So I would come to you and understand every detail one to one. But I am really impressed with the design. So my first question is on Ahmedabad. So are you guys happy with INR 76 crore of sales after launching full year's and with pent-up demand and many innovative design like air circulation and 7,000 trees. I would've expected more. I just want your answer...
Yes. Manish, thanks for the compliments, but on Ahmedabad, actually, we had a very limited time in Q3 because after 15th of December, specifically, there were no sales because there was an [ efficiency ] we already started, which continued until 15th of January until now, we have seen the sales pick up. And we are very confident that the number should improve.
Okay. Fair enough. And I just want to understand why would we do new JV for commercial, when we have lots of opportunity and advantage. And we have taken a lot of pain in building our competitive advantage to the level at what we are seeing in residential. So I just fail to understand why do this -- and our management energy and time. Is it worth to do it, even if it is greatly done?
Manish, thank you for your question. I think it's a very fair one and a good one, particularly given some of the past experience on -- of too much capital deployments in commercial. Clearly, I can quickly explain our thinking behind it. I think 2 or 3 reasons made us think this was an interesting opportunity. First of all, if you look at it at a net GPL level, we're not actually committing additional capital to commercial. Through creating this platform, we're projecting through, which was a key asset for the fund. We actually unlocked more capital from commercial than we will be putting into this project. So I think if you look at it on that basis, and we have got 2 things that we're growing [indiscernible] needs to have a strong bookings return that is important to that. I think from a combined investment perspective, there's actually no land investment to get this project. Secondly, I think this is a truly outstanding location, and I think, in addition to creating a very good commercial building, we would like to put our own NCR team headquarters in that building. And I think as a real estate developer, we do feel that's while it's a little hard to explain numerically that there is a big advantage to being positioned in a building that you've developed of high quality. I think, for all of us working on business development and other things, we've seen that being present [ according to our quarters], which people have appreciated as a good development, is quite beneficial to the business. So I think with a small investment, we get kind of a longer-term strategic advantage that is not only commercial at that project level. And lastly, I think, with the way the deal is structured, with only a 30% equity investment from GPL, but also a strong development management team, but are also managing the project, we do think that commercial logic is quite strong, with not very significant investment, and quite strong outside potential, both financial, and as I mentioned, the softer aspects.
Yes. Fair enough, Pirojsha. And one more last question, more on the market. So can you just please share your views on overall market scenario, when 2 recent report, Knight Frank and one on the PropTiger, though they both say that decreasing inventory last 2 years, it varies from 8 lakhs to 4 lakhs, 70,000. So how should one look at the inventory? And even in Knight Frank report, if you see the affordable -- affordability in most of the CTVs under 5. In Pune, it's even 2.6. So with 1 year, it is very difficult to price going up. So after 1 year, the affordability even increase. Can you just throw your view on the market regarding this data?
Yes. I think the market, obviously, has been quite weak. But I think if you look at affordability, now not that I've seen the exact reports you're referencing, but broadly speaking, if you look at what's happened to affordability in the sector over the last 5 years, you will see that interest rates have reduced by about 300 basis points over that period. I think if you assume an average Indian's income or an average property buyer's income will be increasing in the range of 7% to 10% going on over those 5 years, you're starting to talk about a 50% kind of higher income that the person has now as compared to 5 years ago. And as we discussed earlier on the call, in most cases, property prices over that period have barely appreciated, maybe a 10% kind of appreciation. And in some markets, actually, a reduction, in places like NCR. So I think the combination of those 3 factors, that is 300 basis points lower interest rates, much higher income, and flat prices, it's quite powerful on the affordability of real estate in the country. And I think all the data we've seen suggests that affordability is now the best it's been since about 2002, 2003. And I think that period between 2002 and 2008 was obviously one of the best periods this sector has gone through. It's very hard in this sector, we think, to predict the exact timing of a turnaround. But we think anyone who believes, let's say, for 5, 10 years, the sector is not going to do well, we would take very strong exception to that line of thinking. It is a very cyclical sector. There has been a prolonged down cycle. And whether it happens this year or next year, it's hard to predict. But certainly, I think -- we think the strong turnaround is around the corner.
The next question is from Prakash Kapadia from Anived Portfolio Management.
Most of the questions are answered. I just had one question. In the near term, how do you tackle the biggest deterrent of your 12% GST for under-construction flat? Because for a buyer in today's time, where product prices continue to remain muted, that seems to be a big cost.
Not much we can do at the individual level as far as seeing, if anything, the government does to relieve this burden. I would say that the taxation environment in the sector today is, in my mind -- to my mind, quite unreasonable. I think the combination of GST plus tariff duties plus various municipal charges, add up to a pretty significant demand, and are not conducive to really driving affordable housing in the way that the government wants to do, which I think, is of course, a very important priority, both for the direct advantage of creation of affordable housing stock. There are shocking statistics like Mumbai having more than 50% of its residents living in slums. So I think it's a very important direct objective. But in addition to the direct objective, I think it's probably one of the most important levers the government has in its disposal to improve economic growth in the country, given the kind of number of important ancillary industries like sales demand styles, [ paints ] and so on, that really do depend on the growth of the real estate and construction sector. And lastly, and equally importantly, I think, real estate and construction jobs are often cited as the largest source of employment in the country behind agriculture. So I think, it's again, one of the best employment-generation opportunities for the government. So I think they have to balance their requirement and mandate to increase revenues from the sector with this argument of really providing for better economic growth, better growth in the sector, better employment generation, which of course, over the medium term will, in fact, also do a strong job of enhancing revenue. So I think the government should take a careful look at this.
The next question is from Ritwik Sheth from Deep Finance.
Sir, first question, what is the inventory at Kolkata, Chandigarh, and BKC, the commercial building?
So for BKC, we have around 50,000 square feet of inventory left out to be sold. And Chandigarh and Kolkata, all put together, is around [ 6-flats percent ].
Okay. Okay. And sir, just taking a step back after demand, calendar year 2017 and 2018 has been phenomenal for us and others have been struggling, estimates for almost 10 million square feet in those 2 years. So we've been exceeding our own estimates, I think. So what -- when do we expect a significant strong cash inflows from all these annual -- from all the previous effort that we're putting in the sales as well?
So the operating cash flows have actually been very strong, if you look at it over the last couple of years. I think, in financial year '18 -- I'm not trying to call in the exact number, but it was well over INR 1,000 crore of operating cash flow generation. This year, year-to-date, is 900...
INR 800 crores.
INR 800 crores. So I think that's a couple of thousand crores of operating cash flow generation in that period. Of course, a fair amount of that was capital levels invested in BKC getting unlocked, but even on the residential side, I do think operating cash flows have been very strong. But look at this, this is a capital-intensive sector. We are pursuing a growth strategy. I think there will be requirements for continued investment. So I don't envision us -- and I think it will be a bad sign, frankly, if we started becoming a business that was throwing up a lot of free cash beyond what we could invest in business development. And frankly, I don't see us getting to that stage for the next few years, because we do believe that both the sector and also the company at a very initial stage of what we believe will be very rapid growth over the next decade. And that growth will, despite our best efforts, to make sure our strategy is as capital-efficient as possible, will require our investments to secure new growth opportunities.
Okay. Okay. Great. And sir, you mentioned earlier on the call that you're expecting another launch on the Vikhroli land in FY '20. So what is the kind of volume that we're looking at -- area that we're looking at?
We'd like to come back with more details on that once we're ready. I think, hopefully, it will be a reasonably sizable project, but I think we'd hold back comments on that for now.
The next question is from [ Manoj Dua ], who's an individual investor.
In the last few years, in the apartments, we have seen that much change has happened that people have created more open areas and the recreational things. But if you've seen the last 2 years, you have created something new regarding what is required in the local area. For example, in Godrej Noida, you provided 5-tier securities. In [ gorbama ] in the Godrej air, you have promised to reduce pollution. In Bangalore, you have done Godrej Aqua, which is meaning you can drink the water from the tap directly. So I want to understand, can you throw some more color on it? What has been the experience? How you are able to create a new thing, which is to completely untapped for that. I don't think there is much competition, and the way you are doing these things. Can you throw some light on it?
Sure. If you note, Mohit talked a little bit about it earlier. Maybe I'll ask him to comment on it again. But I think that -- I think we had just heard a big thought that we're launching things in a very professional manner, make sure that market research is a part of all our projects. And I think, the more it's a particular and interesting on very clear and defined, unique selling point for each project, which I think has been working well, and the results are there to see. But maybe Mohit wants to add something.
Sure, Manoj, for us, for any project, when we sign, we do a consumer research. And we do something called a pain point study for a micro market, and this is the outcome of that study. We look at the project, the layout, the land shape, and what can be done. And based on that, we come up with a -- for every project there is something called a UFC, which is the key component which we are offering, differentiated in the market. And this is that study we have arrived at -- security was a major concern in Noida, so we came up with this positioning. And then, once the positioning is decided and we have a strong reason to believe and through design, through product development, we kind of achieve that objective for the consumer. So this is what has been the process. Now, the process is pretty strong. And because of that, we have some unique set of opportunities, which are coming up in each micro market.
The next question is from [ Himanshu Saveri ] from [ Drew Securities ].
What is the progress on the precut factories as if we need to expand fast, we also have to deliver equally fast? So are we planning some new factories in Mumbai, Bangalore, et cetera? And if we expect to construct one, we set up these precut factories there, the construction in 4 years, what they are doing, should that go to 2.5 or something?
[ Himanshu ], Mohit here. So we have -- as you are aware, we have started our precut factory in [ beta ] Noida and our own project, and that was, basically, more like a test pilot to understand the technology. Now we have gone -- got confidence in both setting up the plant, and also how it works out. We are actually evaluating across cities, does the strategy on precut on operations. It's still work in progress, but we should be able to come back on that soon.
The timeline should come down from around 4 years to 2.5 years, once you are through with it?
Yes. Absolutely.
Okay. And what other construction cost for projects in Bangalore, like air Reflections and the other ones in Bhugaon, the air in [ gaulfinx ] and [ Bhugaon ]. Is it closer to INR 2,000 a square feet?
The construction cost is a function of the product, which we are offering. It's very difficult to generalize the construction cost for a real estate project. Every project, depending on the design specification, it changes. So very difficult to say, on a stand-alone basis, the construction costs, [ Himanshu ].
Okay. And one more thing, if you take out the trees, which are coming up for revenue generation next year, but I want to know like what are the long-term EBITDA we are looking at? Because a project like trees, I know, obviously, the EBITDA is very high. But January now we have signed quite a bit of deals, 25 million square feet in the last 3 years. So can we now say safely that we'll go to that 10% to 15% net profit margin in the next couple of years, or 3 years, or something?
Well, look, obviously, I think the structure we've adopted between the outside purchases and partnership with frontline, and fund management arm, the profit sharing structures, the air model, all have slightly different characteristics based on different margins. But clearly, are all, we think, margin enhancing as compared to some of the older structures or revenue share. We hesitate to try to put out any guidance on this for a couple of reasons. One, again, there is a lot of difference from project to project. And two, I think, exactly, how we're looking at margins in the new accounting standard is also something that needs to be clearly understood. We had, a while ago, talked about having adjusted EBITDA margins of [ 30% ], which we've been typically at or close to. But, I frankly don't think that, that necessarily is the best guideline in these new structures. It could, actually create a higher margins, but lower revenues, depending on the project structure.
Okay. And last question then, what is the news on our -- that Godrej Fund, which we have like -- are we going to launch another fund? And if we launch it, shouldn't we have like a higher share, like 50% or something, with some advantages. As of now, we are confident on selling the [indiscernible] area.
Yes. I think, we'll obviously come back when we have anything to announce on that. But yes, I think, directionally, as you've seen, I think the company's focus now is on taking larger shares and projects through higher deposits, profit shares, and so forth. So I think, what you said is reasonable. But obviously, we'll come back when everything is finalized.
And Alive -- Godrej Alive project is, like, is there any good response or still is it a slow like before?
There's been a decent response, I think, we've sold a couple of hundred crores. [indiscernible]...
The next question is from [ Nico Veshna ] from [ BD Investments].
And in this morning's data, can you give me a project-wise income for 2Q FY'19 and last quarter?
Sorry. Project-wise?
Project-wise income.
Sure. So I can give you a broad number. And also, for this quarter, project-wise income has come from 3 major projects, which is Godrej Property, around INR 150-odd crores; Godrej Summit, around INR 105 crores; then, there's the commercial projects across the northeast portfolio, which is around INR 50 crores. And obviously, there are several small, small projects, and the end, always wanted to include the last INR 340 crores.
Okay. And for last quarter?
So last quarter, major awards on account of BKC, which was down INR 170-odd crores. And then, obviously, there were several small, small projects, which contributed up to INR 267-odd crores. So this was for the last quarter. And for the last -- yes, so what I gave you was for the last financial year of Q3.
Okay. Just your income clarification, in Q3 FY '18 last year, you reported revenue of INR 670 crores. And after this new accounting changes, you stated INR 267 crores. So is there some...
These are the resetted numbers.
And sir, what about the remaining amount? Have you added to scale, like can you give some clarity or something in the...
What I said, when you do a readjustment on the India advancement side, so whatever OC has been received during that period -- reporting period, gets accounted as a revenue and cost. What's remains for individual OCs is not there, will get reported as an end-of-OC fund. So subsequently, if you'll see, Q1, Q2, Q3, there has been an incremental revenue and cost, which has bogged down our contract reversals, which has happened in the scenario of 115A.
Okay. And my next question is related to Kolkata market. Are we facing some slowdown in terms of sales? Because in some projects, we are getting revenue, but time frame in between is around 6 quarters. So what's your thoughts on this?
Sorry. Can you repeat the last bit?
Sorry?
Can you repeat the last one? The Kolkata market, is that the little slowdown and what is it?
Slowdown in terms of sales, as we are getting revenue, but time frame is -- we are getting revenues around 6 quarters.
I think there's some confusion. That actually was related to the completion of the project under the new accounting standard. So I think...
So not much is left out into Kolkata for in terms of sales. So [indiscernible] we launched further, the revenues will get reported as inventory completes.
Okay. Very clear. And lastly, can you give me a tax rate what will follow?
Sorry?
Tax rate.
The tax rate, the general margin there is 34%. So that is the standard tax rate. Obviously, there are certain adjustments on account of BBA and other stuff.
Thank you very much. We'll take that as the last question. I would now like to hand the conference back to the management team, for closing comments.
I hope we've been able to answer all your questions. If you have anything further you'd like to ask or if you need any additional information, we'll be happy to be of assistance. On behalf of all of us, I once again, thank you for taking the time to join us today.
Thank you very much. On behalf of Godrej Properties Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.