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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, ladies and gentlemen, 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 afternoon, everyone, and thank you for joining us on Godrej Properties Q4 FY 2018 Results Conference Call. We have with us Mr. Pirojsha Godrej, Executive Chairman; Mr. Mohit Malhotra, Managing Director and CEO; and Mr. Rajendra Khetawat, CFO of the company. We will begin the call with opening remarks from the management, following which we'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 e-mailed to you earlier. I would now like to invite Mr. Pirojsha Godrej to make his opening remarks.
Good afternoon, everyone. Thanks for joining us for Godrej Properties fourth quarter financial year 2018 conference call. I'll begin by discussing the highlights of the quarter and the financial year, and we then look forward to taking your questions and suggestions.We've just completed the best ever year in GPL's history in terms of the value and volume of real estate we've been able to sell. For the first time in our history, GPL has delivered sales of more than INR 1,000 crore in each of the 4 quarters of the financial year.Also for the first time, we have emerged as amongst the top 3 developers by value of real estate growth in each of our home-focus markets of Mumbai, NCR, Bangalore and Pune. In the financial year, we were the largest developer in NCR and Pune based on the numbers we've seen, although these are still to be totally finalized for our peers, the second largest developer in Mumbai and the third largest developer in Bangalore by the annual real estate score.I'm happy to note that we have sold more than 1.25 million square feet with a booking value of over INR 800 crore in each of our focus markets. This has largely been possible by combining our traditional strength in new launches with a strong improvement in sales from existing inventories which stood at INR 2,780 crore in FY '18, representing a growth of 164%.The total value of bookings in FY '18 stood at INR 5,083 crore which represents a 152% year-on-year increase. As a result, we are likely to emerge as the largest publicly-listed developer in India by sales value in FY '18. We are especially pleased with the sales performance given the sales for the industry as a whole declined during the financial year.Our sales for the fourth quarter stood at INR 1,054 crore which represents a year-on-year growth of 210%. We had a strong launch in Gurgaon with sales of 250 apartments, was approximately INR 245 crore and were able to combine this with robust sales from existing inventories across our project portfolio.Coming to our financial performance, our total income for the fourth quarter was significantly bolstered by revenue recognition at Godrej Origins; the first sales of our flagship development inventory; and also by a new Godrej Fund Management with projects at 50% stake in Godrej Two, our second commercial building inventory. As a result, our revenue in the fourth quarter increased by 79% and stood at INR 849 crore. Our adjusted EBITDA increased by 85% to INR 241 crore and net profit increased by 126% to INR 142 crore.For the full financial year, our total income increased by 38% to INR 2,397 crore. Adjusted EBITDA increased by 28% to INR 660 crore, and net profit increased by 14% to INR 235 crore.
Sorry to interrupt you, sir, this is the operator here. May I request you to come a little closer to the phone because your voice is muffled a bit?
Apologies for that. Let's try again. This has also been the best ever year for GPL in terms of collection, with our collections having increased by 54% to INR 3,891 crore. As a result, we have generated INR 1,868 crore net operating cash flow in the financial year which has allowed us to reduce our debt by INR 653 crore while continuing to rapidly grow our company's development portfolio.Financial year '18 has also been the best ever year for business development in terms of the number of new projects added. GPL added 12 new projects with saleable area of over 23 million square feet this year. More than 80% of the area added is in partnership with other real estate developers and all the projects added are in the 4 largest real estate markets in India.In the fourth quarter, we added 4 new projects, including a project in Gurgaon with a saleable area of 0.75 million square feet. The Indian real estate sector has undergone a lot of disruption in the past couple of years starting with demonetization in 2016, and then continued with the real estate regulatory act and GST being introduced in financial year '18. These measures are all helping drive consolidation in the sector. A weak property market and increasing consumer preference for stronger developers has created an unprecedented business development opportunities for developers with strong customer franchises and development capabilities.We believe GPL is well-placed to capitalize on these opportunities in the business development space. We also believe the Indian real estate sector is at the cusp of a demand revival that will be aided by the fact that affordability is the best it has been in 15 years and also by new regulations that have improved governance in the sector and will lead to improved consumer confidence.Our launch pipeline looks robust with new launches planned in the current financial year in all our focus markets of Mumbai, Gurgaon, Bangalore and Pune, as well as in Ahmedabad and Kolkata. We strongly believe our focus on building presence in high-return markets with a deep focus on execution across our projects portfolio puts us in a strong position to benefit from a recovery in the sector and improve market share in the years ahead.I'd like to also take this opportunity to update you on an important recent development. Today our Board of Directors has approved a resolution to issue 1.27 million shares at a price of INR 783.5 per share aggregating to INR 1,000 crore on a preferential basis subject to shareholder approval. We intend to use the entirety of these funds as growth capital to further accelerate our scale within the country's 4 largest real estate markets.On that note, I conclude my remarks and I would like to thank you again for joining us on this call. We'd now be happy to discuss any questions, comments or suggestions that you may have.
[Operator Instructions] The first question is from the line of Abhishek Anand from JM Financial.
So my first query will be of course on the growth capital we have raised. So if I understand correctly, does this growth capital means that we will be more looking for outright land or profit share as against a DA model, is my understanding correct, because [ BM ] of course doesn't require much capital?
Thanks Abhishek. I think it's not that we won't look at BM projects, we'll continue to do those, but, yes, I think it's fair to say that what we're looking to do is accelerate the scale of expansion of the company, both in terms of number of new micro-markets we're able to enter, as well as economic interest in these new projects we participate in. I don't think we're looking to shift the model to an outright purchase model by any means. I think we are very happy with the partnership structures we are currently using, but we are interested in looking at bigger, higher-value projects and at looking at higher stakes for GPL within those projects.
And any timelines you see for deployment of this INR 1,000 crore? So I understand that this won't be used to rebate it in any way, so I think it's a pure business development capital you have to use. So any timelines we should estimate for deployment of the same?
Abhishek, it's obviously dependent on timelines for various deals to actually conclude and us to be able to put it to work, but I think certainly the team's main goal this year is to deploy capital in business development as rapidly as we can. We certainly hope to deploy this full amount within the financial year, but the exact timing will obviously ultimately depend on when deals close and so on.
Secondly on Godrej Two, if, Pirojsha, you can give us some more details, Pirojsha. I think 50% has been sold, but if you could give us some more details of maybe what was the valuation of the transaction and how much was booked during the quarter?
Yes, Abhishek, we're not at liberty to give the exact disclosures on the amounts because there's obviously another party involved in this. But I think what I can say is that from our perspective, we're quite excited about Godrej Two and the value creation opportunity, at the same time with the desire to deploy a huge amount of capital in new residential development. We got a structure where we remained strongly invested in the project, but weren't responsible for putting in the full capital invested needed for a large project like this was the ideal balance. So that's what we've pursued here with this project. I think obviously the other income going up gives a general idea of the kind of valuation, but we're not at liberty to disclose the exact details.
And how much will be the capital now required in the project from our side in Godrej Two?
So the total capital required for Godrej Two is in the range of around INR 1,400 to INR 1,500 crores. So 50% of would be GPL's contribution.
But of course we'll get -- it will be a little bit lower than that. One, we've already gotten some capital. Secondly, we'll get some development management fees et cetera, but that's approximate numbers.
And finally one last one, Pirojsha, we understand the cash flow has been pretty good. But if I look at the construction spend year-on-year, I think it has declined from INR 1,400 crores to INR 1,100-odd crores despite us adding significant amount of projects, launching significant projects. So are we -- is this a one-off or is that the run-rate we are looking at INR 1,100-odd crores annually?
No, I think you would see it sharply increase actually, Abhishek. Is there a reason? But no, we just need to just check the exact numbers mentioned, but I think one of the reasons is that BKC was completing at the end of the previous financial year and the finishing cost and other things there were of a relatively high nature. So that slightly skewed those numbers. But I think certainly you should expect to see that number growing quite strongly in line with overall sales growth, et cetera, in the years ahead.
The next question is from the line of Tanuj Mukhija from Bank of America.
My first question is now that Godrej Properties has raised INR 1,000 crores of capital, will it be deployed purely for business development purposes. And you added incredibly 23.5 million square feet in FY '18. So what's the target of project additions that you have in mind on an annual basis?
So Tanuj, I think it's not something we prefer to give guidance on and honestly we're not that focused on that million square feet number, I think it's more on the future profit we've locked in is how we're really focusing on it, so according to the business plans we're making, how much future profit are we locking in. And obviously if you do deals, say, in an attractive location in Mumbai, you may not have the same kind of area numbers, but will certainly look at the value sharply increasing. What I can say is that we're looking at this in a fairly exponential way. So I think looking at the capital we actually deployed in business development last year, I think we're looking to do at least 3x, 4x of that this year. I don't think that necessarily will again be reflected in terms of the area that is added to the company's portfolio, but hopefully will be in terms of the future profit locked in.
And just one small question, Godrej Properties added a project in Sector 3 Gurgaon on a model of 95% revenue share. That's incredibly high percentage of revenue share and I think we have moved away from revenue share to profit share. So can you elaborate on the terms and conditions for this project and why the issue...
Hi Tanuj, this is Mohit here. So this excess we did is -- in our statement is actually a purchase deal. We were just structured it with a part revenue share because of certain -- various reasons. But you should look at it almost like a -- frankly an outside deal, and it was very much -- the deal was very hard for us to take that project on our own balance sheet.
So what is the advance paid for this project? I'm -- it's such a very high proportion for this project.
This is not an advance, this is almost treated like we have paid. Rajendra can give you the exact number, but we have paid the money as a non-refundable deposit which is almost like a land payment and a 5% to 7% of top line growth to the owner eventually.
I think one of the relevant -- it's somewhere in between our typical partnership structure and an outright because the payment is slightly staggered and there is a small upside through the stake. So that's certain. And given the fact that we think this can be turned around very quickly and is a small size, we do think that it turns out and came to a joint venture kind of project.
And lastly on this quarterly results, can you help us reconciling what is the recurring EBITDA and are there any one-offs that you booked in the expenses?
Yes, there are several one-off both on the income side with Godrej Two sale. There's also actually about a little over INR 150 crore of write-off we've taken during the quarter. Well, we won't share the exact breakdown. I think the majority of that is in our older commercial projects in Kolkata and Chandigarh, and the rationale here was that we've been making best efforts to sell those projects. I think the pricing we think clearly needs a bit of a haircut for us to monetize those as fast as we like. So I think the goals we've taken now is to clearly monetize those projects 100% within the current financial year and to help do that, I think we've looked at what pricing we think would allow us to achieve that 100% sale and taken a write-off accordingly, a few other line items as well.
The next question is from the line of Puneet Gulati from HSBC.
Just two questions here. Number one, if you can share what is the other income attributable to Godrej Two in this quarter?
Again, Puneet, as I mentioned earlier, we're not at liberty given the confidentiality in the agreement to disclose the exact amount. We will get a rough sense from the total other income, but we're not able to give the exact number.
And secondly, in 4Q you have this advance to JV partners going at almost INR 146 crores. You've also raised money recently. Should we think that the advance number would also be at a higher run-rate from now on or is it just one-off this quarter?
No, I think it will be a disappointment if it's not at a higher run-rate. Again the whole purpose of this capital is to fund business growth. So you should see that reflecting in our investments. As I said, we'd like to see this year over last year that number growing by 3x or 4x. So hopefully we can make that happen.
Yes, because over last 3 quarters you've been adding 3 to 4 projects anyways with 5 million square feet to 12 million square feet of area and you've been paying out almost INR 30 crores. This was almost INR 146 crores.
Yes, I think, again, Puneet, if -- you'll have to look at the share of the project, the structures and so on. But the reason we think that we can increase it is by taking sort of higher value projects that can generate more absolute return in a shorter timeframe and again not necessarily exactly correlated with the size in terms of million square feet.
And lastly, we're now one year post RERA. Are you seeing significant changes even now in terms of better valuation for these JD projects or has it remained where it is over last one year?
So, Puneet, I think the market obviously is quite tough and the RERA consolidation story continues to be playing out. So we see a good correction in the valuations when we are talking to the landowners for both partnership and also on the land purchase.
So it has only improved since then or...
Yes, it has.
-- because -- it's improved, okay.
The next question is from the line of Manish Gandhi. He is an individual investor.
So my first question is now the new DP is out, so do we have a clarity on Godrej Three, the commercial...
Manish, actually the final new DP is not actually out. So while the government has obviously made some announcements about it last week, we're still awaiting the final document. If there is no changes from the last one, Godrej Three should be a possibility. However, we don't actually have the document yet, so it's not possible yet to confirm that.
So we should be knowing within a month or two?
Yes, as soon as the government...
I was just wondering in new launches this year, why that Vikhroli Two JVs are not shown, so -- because now the dumping rule has been relaxed, so -- yes.
Yes, I think that the dumping, obviously we lost and the DP we've not been able to make adequate progress. So once I think this has the dumping ground hopefully is resolved at least as a temporary respite and the development plans, we'll have to see exactly what -- when it comes finally. And the approval process in Bombay, now that you have to also get RERA's approval, you have to get full environmental clearance and things. We think it's quite likely that these launches actually get pushed into FY '20. Obviously we'll leave no stone unturned to try and pull them into this year. But from a guidance perspective, we thought it was appropriate to keep it out of this financial year.
And the last one, Pirojsha, so how do you look Mumbai market because last 2 years, there have been dumping issue and many deals were stuck because of that? And if I see as you said that you might have many opportunities in -- larger opportunities to deploy capital in Mumbai, and even if I see one of the competitor, Oberoi Realty, is changing its stance talking about increasing volume and market share. So I guess curious to see what is happening in Mumbai?
Yes, I think obviously Mumbai is the most vibrant, dynamic, probably competitive market in the country. I think what's happening in Mumbai and around the country is that the sector is consolidating. So the largest 5 or 10 developers in each of these cities are significantly gaining market share. I think the data now nearly shows that if you compare top 2 developers market share changes over the last 4 or 5 years. I think Mumbai is very interestingly poised because with some of this DP kind of lack of clarity moves something that we can move fast and if this dumping ground issue is sorted out, I think there are a lot of positive factors going through Mumbai including the [ practice ] now have been relatively stagnant for a few years. So affordability, which has historically been a big issue in the city is at least better than it has been in the past. I think if you look at the kind of infrastructure development being planned in Mumbai whether the metro, the new airport, the road network, I think you're going to see a dramatic benefit to the real estate sector from all of these. So we remain extremely bullish on Mumbai, but really our focus in all 4 of these top markets will be to very quickly interact many of the new micro-markets as we can and certainly Mumbai is a big priority amongst those as well.
And I'm very happy that we're raising all the INR 1,000 crores of the growth capital. So it's a great opportunity and I think I'm very happy about it, yes.
The next question is from the line of Mohit Agrawal from IIFL.
So, Pirojsha, just a clarification. At the start of the call to a question, you said that the growth capital will be used to enter into new markets or is it new micro-markets within the 4 key focus areas that we have. Could you just clarify that?
Yes, absolutely Mohit, that's totally new micro-markets, so definitely not looking at entering any new cities. So almost all of that investment you should expect to see going into Mumbai, NCR, Bangalore and Pune, but within each of those 4 major markets, there are a large number of micro-markets in which we don't have a presence. So I think the whole focus will be on entering as many non-competing micro-markets as we can.
Secondly, this is the -- and I see this is the third probably consecutive year that you have not paid dividends, you have not decided to pay dividends. I just wanted to get a sense of what is the benchmark and when do we decide -- or what is the strategy? If you could just refresh that for us, that will be helpful.
Sure, Mohit. I think the company we think is poised at a stage where there is an opportunity for rapid growth. There is an opportunity that's not going to be available forever for very significant deployment into business development. And I think we think any capital that the company can source will generate a much higher return for shareholders being deployed in this manner than being paid out as dividend. Also there are, as you know, some tax inefficiencies with dividends. I think the question on when the company will start paying a dividend is one that really will depend on how this balance between opportunity and capital availability looks. So I wouldn't expect honestly for the next 2 or 3 years that we would be changing this policy. Obviously the board will review this every year and take a call, but certainly it seems to us that we are in a stage of the industry and stage as a company that there is a lot of opportunity to deploy capital and that the best results for shareholders will be to redeploy any capital we are earning into new projects. Clearly at some stage with the opportunities seem less exciting or at a stage where the company is throwing up enough cash that it can both capture those opportunities to the full and also pay a dividend, this will obviously change. And over the long term, clearly we hope to be strongly cash-generative company that does pay meaningful dividend, but certainly it seems very clear to us that in the near term, this is the correct strategy to maximize shareholder return.
The next question is from the line of Saurabh Kumar from JP Morgan.
So I have 3 questions. Firstly on this, your cash flow statement, so this land and approval related outflow which is there, is that for ongoing projects or is this for new projects?
It's for both.
So I can figure out.
So it's for both like it's total approval-related things. It is for the existing projects like Three commercial projects, and therefore the new projects which are -- which we have tied up. So we have a base of them in [ region ], other category payments. So it's for both existing as well as new.
I'm actually trying to figure out what is the net operating cash flow from your existing projects. So I have this arithmetical sum of volume for this of INR 4,000 crores collection and roughly INR 2,200 crores of construction. And how much of the INR 650 crores you think would have been for the existing ones or...
So, Saurabh, we can take this offline. Right now it will be a little taking longer time to explain you the full thing on the call. So why don't we meet some day and just take your queries over there?
And secondly just on this underwriting for these new projects, the way you were thinking about it, so how much -- I mean what is like Godrej Properties' economic interest of this INR 5,000-odd crores you sell? How should we think about it in terms of PBT or however you want to define it?
Can you just repeat that question, Saurabh, for the new project?
Mohit, so basically I'm just trying to figure out how much of this, the INR 5,000 crores, you're selling, how much is our economic interest in the profits you will make -- I mean so the INR 5,000 crores generation ex profit and what percentage of that basically belongs to Godrej Properties?
Going forward you think?
Yes. What should be your economic interest of this INR 5,000 crores?
Basically it is -- the strategy is obviously to maximize our share of profit plus 50-50, and to summarize it in a simplistic manner. Now exact numbers are based on the situation, probably the micro-markets dynamic, but from whatever we are currently earning, it would be significantly higher because the capital deployment will be much higher for the same set of transactions.
So the capital deployment will be better on this. Okay, good. And just one last question, so basically on this INR 5,000 crores, the way I understood it just to -- for my understanding, the land is already paid out, so that is not -- I mean that is not part of the free cash which Godrej gets, right, so it is netted off on that. So it's only the incremental approvals against land, so sales minus incremental approvals under construction, and that balance profit is what is shared with the...
The land is paid off, so whatever the balance land payment which we have to meet on account of these projects has been paid out to in the last financial year. So there's no additional land payment on account of Three, and other than that, like I said, the -- most of it is a joint venture and our advances get linked to certain milestones. So there may be certain milestones for which we may -- some advances will be paid out in the future.
So basically this -- so basically if I look at your cash flow statement, so INR 4,000 crores of inflow less INR 2,000 crores of outflow, you get about INR 1,900 crores of free cash, operating cash flow for the year which is effectively a 30% -- I mean depending on how you treat this INR 50 crores. But basically you have a 45%-odd operating margin of this INR 5,000 crores and this belongs to Godrej, right?
So this is for the entire project, no? So it includes also...
Yes. So I'm -- yes, so basically you're capturing about 45% of the entire project free cash. That's a fair assumption or...
Sorry, come on in, Saurabh?
I think Saurabh is -- asked the cash flow can be sometimes something like --
And that BKC or something with maintenance, we expect collecting 100% of it to the company. So I don't think there's a -- you can [indiscernible].
[Indiscernible] with the correlation with...
I think that correlation may not work at a portfolio level.
Okay, I'll take it offline.
We can take this offline.
Yes, we can discuss it offline and we can explain you in fact, sorry, what kind of project that is.
The next question is from the line of Manish Jain from SageOne.
I just want to know in Mumbai when can you start doing the BD deals given the dumping issue is still there or if you were in talks with someone, you can start closing the BD deals?
So, Manish, first of all, when we're saying Mumbai, we look at Mumbai, even Greater Mumbai like Thane and some of the other areas, and we feel those are very interesting micro-market. But strictly coming to Mumbai, we are looking at opportunities where there -- some of the opportunities where that approval are at advanced stages and things like that, some of the redevelopment opportunities. And we are finding interesting opportunities within the Mumbai City as well today. And there is advanced talks with couple of people.
And you can go ahead and close these with the issue resolved now?
Yes, given there's a window of opportunity right now, I think projects which are at, say, the advanced stages of approval are somewhere we can enter and turn it around within the timeframe.
But this also we would -- if any major capital deployment would be affected by this, we would link this to the disbursement of that capital.
And 2 housekeeping questions for Rajendra. First is this India's 115 revenue recognition issue. What's exactly going to be the impact on new projects revenue recognition from 1st April '18?
So, Manish, we are studying this impact. So there is a standard which is effective from 1st April. It is dependent on certain conditions. So we are discussing with our auditors, so exactly if it is nuances, we are working out and we are talking to several other industry player. So it will be premature for me to comment exactly what would be the impact. So as we get more clarity, we would be in a better position to give you the impact.
And my last question is on Godrej BKC, we had the money to received. Have you received the entire money or still something is to be received?
We received half of the outstanding amount in the fourth quarter. I think the half is expected this quarter.
The next question is from the line of Adhidev Chattopadhyay from ICICI Securities.
The first just to understand how is Godrej Two. You said it's INR 1,500 crores of CapEx growth and you are also building the 5-star hotel there on the Trees. So combine these 2 projects, what is the total committed cash for the next 3-4 years which we will have to look from our balance sheet?
Hotel, again, we have not decided the exact capital structure as such. So we've just figured out what we do, that we'd like to do it through this route. The hotel is obviously a much, much smaller project than Godrej Two. Godrej Two is a 1.2 million square feet development. The hotel will be a fraction of that. I don't have -- I don't think any of us have the exact details, but the hotel total investment is, I would imagine, in the range of INR 400 crores-INR 500 crores. And this -- our share of future investment will be another INR 500 crore-INR 600 crore.
Secondly, just -- this is again for Rajendra. Just again an accounting question now. If I see through your balance sheet under financial assets, both on the current, non-current, investments has run up quite a bit in both current, non-current, plus our investment in joint ventures and associates. So is that the cumulative figure which is there in the JVs?
So there is -- there are -- because of the India if it gets classified, because if the equity parts gets classified into investment due to joint ventures which is non-current asset and since the non-equity budget classified into financial asset. So like we do investment, like Godrej Two, ours is a 50% stake, so half of the equity portion has gone into whatever has been funded through debt, it will come into the investment in a non-current asset. Similarly we have done certain deals for Pune. So it gets split between the 2 depending on the structure of the transaction.
And then going forward next couple of years, do you expect more projects to come in, JV to hit the revenue recognition because currently I believe all the projects are not getting captured where we are doing a lot of sales and I think...
[ For JV ] because these are like the existing accounting standard of the guidance nor it required certain conditions to be fulfilled before you start recognizing. So, no, if we continue into the same standard, definitely we'll see lot more recognitions coming into the coming quarter.
But one of the thing is this -- which we have to now understand in this is new 115 which is -- is it 1 or --
One.
-- 115, that it come about -- suggested there might be a slew of project completion method accounting which clearly would then delay some of those RERA recognition, but I think whether that is applicable, which cities it would be applicable, what it means...
[Indiscernible].
-- all of that is being -- currently being understood.
And just last, the question on your balance sheet. Now obviously with your, what is it, INR 1,000 crores you have raised now, debt equity is pretty comfortable now in terms of absolute ratio. So going forward now, again are you looking at debt at a absolute level or again as a like 1:1 or 0.5:1, what is the sort of ratio that you would be comfortable with?
Yes, I think we would stick with the guidance we've issued on the severance side which is that -- to us, seems the profit range is probably about 1:1 to 1.5:1. I think one of the strategic advantages the business had is our ability to access capital at attractive cost. So our average borrowing cost today is only about 7.8%, taxes are upward of a 5% source of capital. Given our outlook for the industry, given our outlook for the total opportunity, we think it would be not sensible of us to not take full advantage of the 5% source of capital, while obviously also maintaining overall prudence and making sure that we don't let that become a drag on business performance as has often happened in this sector. And we think that the range at which those things are balanced continues to be in that 1:1 to 1.5:1. Any time we are over that, we will look to steps to generate more cash flow and bring it within. Any time that we are under that, as we are now likely to be at the end of the current quarter, it's clearly a signal that we are looking to deploy more capital as fast as possible.
The next question is from the line of Abhinav Sinha from CLSA.
On the new capital that you have raised, just wanted to check if the deployment of this is almost sort of set for you in that it will be, let's say, a large portfolio that you acquire or couple of large projects or you are still pretty much flexible on this one?
Yes, no, the plan, I think that in stone, we have a large number of kind of opportunities that are under the evaluation and negotiations state, but it's not that we have identified this for a specific thing and the deployment will happen tomorrow, anything like that.
And on the Godrej Two development, so from here on, are we likely to see a buy -- sorry, a lease and hold model for this or you...
Yes.
Yes?
Yes.
Or you will prefer to follow the BKC model where you lease and then sell out to the private equity partner?
No, I think we'll definitely lease this. I think in all likelihood it will be a lease and hold, but it could be a lease and then once fully leased sell as a full development. So I think whether to hold it or not post-leasing is something we'll evaluate, but I don't think we will have address it as we did in BKC.
And just on the launch pipeline that you've given for the next year, so can you give an idea of what we can expect in the first half or what is likely to happen near term?
Yes, I think so much uncertainty on the regulatory approvals that are -- even the full year guidance is ready to give, but I think we hope to launch in Mumbai the project will be [indiscernible] and a couple of other projects we'll launch this quarter. But I think better not get into too many details on this for now. But I think we were quite happy last year to start the year off with a very strong momentum. I think our residential phase was realized in the first quarter. So we hope to start the year with momentum again, but frankly it will depend on the final approvals, et cetera.
And given that we don't have Vikhroli inventory available with us significantly this year, do you think last year is a fair benchmark to compare FY '19 sales?
For Vikhroli?
Vikhroli inventory is much lesser for you because...
I don't think we'll be -- unless we get a new launch, we won't be able to do the same value as last year. With last year, we sold about INR 700 crores-INR 800 crores worth of space in Vikhroli. I don't even see how that's -- I'm not -- I'll have to check, but I don't even think we have that much inventory.
Sorry, I meant from a company's perspective, will you be able to hit INR 5,000 crores again?
Nice roundabout way of asking for guidance, which we tend to try not to give. But, look, clearly the goal of the company is not to de-grow in any year. So at the same time it can happen if things don't go according to plan and things get delayed or we're not as successful as we hope to be. But my feeling at the start of the year, our aspiration is not to de-grow from last year.
So then just one last question on the -- I mean on the NCR market itself, we have 3-4 launches planned this year. Is it looking better now, the market itself?
Abhinav, market is looking very similar to what it was in past. You don't see much change actually in any direction actually.
As we've seen with our project in Noida now with the most recent project from Sohna Road, I think we're very happy with the volumes we're achieving despite the market.
The next question is from the line of Samar Sarda from Kotak Securities.
Pirojsha, firstly many congratulations on an amazing quarter on sales as well as FY '18 as a whole. I just had a couple of questions on the financials and then on the launch pipeline. On the financials one, if you just explain -- or Rajendra, if you might explain why the gross margins are particularly low this quarter?
So as Pirojsha said, we have taken certain write-off, one-offs, so -- into Q4. So because of that the gross margins are depressed.
What is the quantum of the write-offs?
In cash INR 150 crore-plus.
And I'm sorry, this will be against?
This is [indiscernible] as we had said at the start of last year, the goal was to monetize our commercial portfolio completely in FY '18. We see the progress on BKC last year being very satisfied and while we have not fully monetized, I think -- we think most of it is monetizing. Clearly, the rest will go at current price in this financial year. However, we also saw that in Chandigarh and Kolkata, the pricing we had, we weren't really able to move much stock and they had very, very low sales in those projects during the year. So we once again set ourselves the target of fully monetizing those 2 projects this financial year and the question to the team was that -- well, whatever we've tried to do so far hasn't adequately worked. So if we take a cut on the price, we think that can allow us to do this. So this was largely reflected in writing down the fair value of those 2 assets.
And could we assume this Sector 3 addition in Gurgaon is an outright purchase because 95% revenue shares seems pretty high?
Yes, I think it's like some we're expecting. Samar, it came to us outright purchase, so I think that's a fair way to look at it. But I think just a couple of caveats I would add to that; in terms of returns that we can generate, we think are quite similar to a JV because some of the payments are staggered unlike the full outright purchase on day 1 and the owner does feel that there's some upside potential from this small revenue share they have which also helps evaluation. So I think with those 2 caveats, yes, I think it's more akin to an outright purchase than a typical joint venture.
And just one query on the launches, like somebody just asked it, but 10 new launches for FY '19, I'm pretty confident that a lot of business development or businessman activity goes into it. Some part of it is dependent upon approvals and we've seen that in the past that the launches have been delayed. What is the confidence of -- and most of these projects are large projects for FY '19. What is the confidence that like even 70%-80% of these launches will go through in FY '19?
Obviously the confidence is reasonably good or we wouldn't put it there, but at the same time as you look at the slide, we put up really prominently displayed disclaimer talking about the kind of risk of regulatory approval. So there's 2 ways we could do this which is only good things which we're relatively certain about, but the fact is that any project where we have the approval, we tend to immediately launch. So at the beginning of the year, there's not a high degree of certainty on almost any project. So is it likely that 10%-20% of these for some reason or the other that we can't anticipate right now slip out of the financial year? If I had to bet on it, I'd probably say yes, that is likely. At the same time, we think currently based on the information we have that most of these are very likely to be launched. We also in most recent years have been able to add some new projects to this late -- during the year, so hopefully we can also do that.
And if I could just squeeze in a last comment, it's mostly on your accounting of course, like we'll wait what happens with the 115, but are you sure most of your income from the joint venture projects as a part of your other income from an accounting standpoint, so it becomes a little difficult to track it. So any thought process to make some changes towards it or make it a little easier for analysts or investors to track it?
No, I think we were happy to discuss this and understand better. Obviously our first priority is on making the system work for ourselves and our JV partners in terms of sort of present value of the cash flow, but certainly happy to help simplify if there are ways we can do it without affecting that.
The next question is from the line of [ Himanshu Zaveri ] from [ Dhruv Gems ].
I wanted to ask though our profit has come good, but is it safe to assume that except Trees, we have not been able to scale up the profits as much as we would like to. And then wouldn't it be a good idea to have 3 or 4 higher margin projects like the Oberois of the world where they buy a couple of big lands and then sell them at a healthy profit of 40% to 50% net like they are doing in Borivali and Thane, that [ axo ] land which they bought currently.
There's obviously relative advantages and disadvantages to different strategies, but I think it's fair to say that we would like to see the profitability of the overall portfolio move upward from here and I think our business development strategy is tailored around that. We don't believe that means that we should shift to an outright purchase model, but certainly the share we are able to get in our profit-sharing partnerships and the locations we select could be geared towards the improving profitability and we certainly will look to do that.
And as we have raised this new INR 1,000 crores, so can we now take that next big leap of launching couple of -- or 3 new projects per quarter and then along with that other project phases which we can sell with that, so then we can sell like 2.5 million square feet -- 2.5 million square feet easily per quarter, so we reach that 10 million square feet easily per year?
Certainly that's what we'd like to do. I think obviously saying it is easier than doing it, but I think first, the near-term target I think Mohit stressed the same and maybe he can talk about it some more, is that in every one of our focused markets we should have a launch at least every quarter which would then obviously lead to a number even higher than what you mentioned. I don't know if you want to add anything.
Yes, Himanshu, that's the overall vision and that's how we are driving the business, but as Pirojsha said, to build that pipeline and to get those projects and approvals in place I think it's a matter of time and we will get into that cycle.
And regarding the Mamurdi project, is it that DM of 11% and plus the profit sharing of 26% both as -- I think we have never find kind of deal like this before and what advance have we paid over there?
So Mamurdi is a deal where we have bought the land with a fund. And the funder paid us 11% DMP for the development.
The project.
The project is paying us 11% DMP and even it fits the perfect, the way of doing an outright purchase, but then structuring it as the profit share is between us and the fund. And you're right, it's the first time we have got DMP of that magnitude from the fund partner.
This is the same fund, that Godrej fund which we have, or is there some other fund?
No, it's some other.
And how about the Godrej fund which we are doing, the money is like exhausted or still we have like quite a lot of money to be deployed over there?
No, we do have a little bit of additional capital to be deployed. And also certainly we are looking at this both from our fund management business and from GPL as kind of a long-term opportunity and strategy. So as and when this capital gets deployed, the goal will likely be to raise another fund to do this. I think in the future fund, one of the things we'll likely do in line with the overall business development strategy we have mentioned is try to increase our share in the fund economics, so that we're continuing with these JV structures which we think definitely generate higher returns than outright purchase. But then within those JV structures, we are taking up our share of profit.
We'll take our last question from the line of [ Ritwik Sheth ] from [ Deed Finance ].
Sir, most of the questions have been answered, just a couple. So what is the value of inventory for Kolkata and Chandigarh after this INR 150 crore write-off?
So it will be around INR 275 crore to INR 300 crore or so.
And area on the books would be -- the inventory?
So area would be somewhere around 8 lakh square feet to 9 lakh square feet.
Eight lakh square feet to 9 lakh square feet, both combined?
yes.
And, sir, once we get this INR 1,000 crores capital, promoter holding will go down from current 75% around. So any plans going forward to bring it back to 75%?
No, nothing at the moment.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
I hope we've been able to answer all your questions. If you have any further questions or would like any additional information, we'd be happy to be in touch directly. On behalf of all of us, thank you again for taking the time to join us today.
Thank you. On behalf of Godrej Properties Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.