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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 Sobha Limited Q1 FY '24 Earnings Conference Call, hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Adhidev Chattopadhyay from ICICI Securities. Thank you, and over to you, sir.
Good evening, everyone. On behalf of ICICI Securities, I'd like to welcome everyone to the Sobha Limited Q1 FY '24 Results Call. Today from the management we have with us, Mr. Jagadish Nangineni, the Managing Director; and Mr. Yogesh Bansal, the Chief Financial Officer of the company.
I would now like to hand over the call to the management for their opening remarks. Over to you. Thank you.
Good evening, everyone. Thank you, Adhidev and team for your kind introduction and for organizing this call. So my team and I are happy to interact with you folks for financial results of Q1 this financial year 2023. The investor presentation based on the audited financial results adopted by the Board can be access on sobha.com.
In this call, I'll let touch upon our last quarter's performance and deeply on the outlook for the remaining period for this financial year. Q1 of FY '23 has been a good quarter for us, both in terms of sales and cash flows. We achieved record sales this quarter again in terms of sales value at INR 1,464.7 crores. We sold 907 homes comprising a total area of 1.39 million. We do not have any new launches during the quarter and hence, the sales performance is even more remarkable. Due to the shift in the mix of sales and better pricing, the average price elevation improved sequentially from previous quarter by 6%.
Going forward, the pricing seems to be stable and saw a margin increase as we launch new projects and delayed released existing inventory curtailments. The geographical diversification has paid off this quarter as well, with Kerala contributing about 16% after release of new towers in Marina One, in Kochi and Sobha Metropolis in Thrissur. NCR has been consistent and contributed 22% of the sales volume. Bangalore, GIFT City and other cities continue to be steady.
We had a healthy pipeline of about 50 million square feet expected to be launched in the next 2 years starting from next quarter. This combined with our existing inventory of about 1 million square feet provides us enough opportunity to capitalize the current demand scenario. In addition to this, we are, of course, working to bring existing owned land bank, current arrangements with the landowners and new opportunities to project level.
Our cash flow management focus continued this quarter also and has resulted in a net cash flow of about INR 70 crores, bringing down our debt. In this quarter, our margins, as you would have seen, have reduced largely due to higher costs in real estate deposits that have been delivered with pre-COVID pricing and post-COVID costs. This will improve as we start completing the projects that were sold post COVID, most likely from beginning of -- end of this financial year and beginning of next financial year. By that time, we would also complete some of our contractual projects, which are of lower margin in nature.
With this brief commentary, I would like to hand it over to Yogesh, our Chief Financial Officer, to give his commentary on the financial performance.
Good evening, everyone. Thank you for joining us. Mr. Jagadish already spoke about our business and operational growth. I will quickly go through some of our financial highlights and [indiscernible] questions. In Q1 for FY '24, we have delivered good cash flow. Total collection was up by 21% compared to Q1 '23, and our cash flow from operations was [indiscernible]. We have increased the pace of construction this quarter with outflow of high [ INR 332 crores ] on real estate project being highest ever. This will lead to faster completion and the revenue creation of our current projects.
Debt to equity decreased to 0.63 from 0.66 from March 23. Net debt was at INR 1,569 crores. Corresponding to our revenue estimation during the quarter, we have handed over [indiscernible]. Total income for the quarter was INR 9.39 billion crores. Our EBITDA for the quarter was INR 96.7 million crores with margin of 10.3%. As indicated, lower margins on account of the recognition of projects sold earlier than COVID period and subsequently [indiscernible] post-COVID as inflated cost scenario. I would like to thank you for your participation, and now we can open the floor for our question-and-answer session.
[Operator Instructions] The first question is from the line of Puneet Gulati from HSBC.
Congratulations on your good cash collection once again. My first question is actually on the cash flow part of Sobha. The first is the JV partner payment seems to have gone up this quarter versus the sequential previous quarter. How should one think about it? Are those payments also likely to go up? Or where would those trends?
Good evening, Puneet. Regarding the JV payments, yes, you're observation is, right, it's gone up this quarter because of certain pending payments, which we were -- which were accrued in the previous financial year but paid during this financial year, during this quarter. So hence, there has been an increase. And going forward, I think this is -- I mean, for this particular quarter, it seems to be a little higher because we were paying some of the pending payments. Otherwise, it should be back to normal based on the actual sales mix between own projects and the joint development projects.
Okay. That's helpful. Secondly, if you can comment a bit more on what launches and how much launches should we see for this year. You indicated that you should expect launch only now next quarter. So should I presume Q2 will also not see any launches and then Q3 onwards, something will come?
Yes. The 15 million square feet pipeline, you should see that -- we envisage that it should be launched in the next 2 financial years. And we had expected to launch projects starting from Q2 of this financial year. However, due to the changes in the government in Karnataka and because of the reshuffling of the officers and corresponding changes, there has been a slight delay in the approvals here. And hence, we think that there can be a little bit of delay.
We initially envisaged that we could do launches of about 7 million square feet this financial year. And I think with the current scenario, I think that might be reduced a bit, but we'll still try to achieve as much as possible.
Understood. That's helpful. Second, on the land monetization front, if you can give some more color around what progress have you made and specifically about patches of land should we see getting monetized or launched next year -- or this year.
There, particularly the land that we have in Bangalore and a small part in Thrissur, these are the 2 ones which we are continuously working upon. And we are making very good progress on both counts because we have been investing sequentially in terms of improvement, consolidation and any pending approvals that are required, approvals in terms of land or conversion and so on and so forth.
So those should come into the pipeline. We -- as and when they become -- they have such criteria to be a project and when we start our design and initial approval process, we will add to that inventory, and we should start seeing improvement in that in the -- from the next quarter.
So within Bangalore, if you can give more color. Is it Hoskote that you're talking about essentially that should...
There is -- yes, it is Hoskote, it is several of our earlier partnerships that we had in land, which we are closing out, which are in the due diligence process and certain commitments to be done by the landowners. Once they get completed, those will also be coming into the development stage.
Okay. And for those partnerships, those are not a part of land bank, and have you already paid for that? Or do you still need to pay for those?
So those have been a part of the land bank earlier. Some of them were part of the land bank. However, there were certain commitments to be fulfilled by the landowners and also certain activities to be done at the land level so that they can become -- come to a project development stage. So those activities are rapidly making progress and we should start seeing them -- which are currently not in the launch pipeline.
Understood. That's helpful. And lastly, your Dream Acres is pretty much coming to an end of dream run. What projects should we expect should replace the momentum of Dream Acres.
A good question. In fact, last month, we sold out the last unit of Dream Acres. We sold 6,262 units and -- which are of 1 bedroom and 2 bedroom. There is a small area that's still left out, but these are of larger consideration, which we will release subsequently. Our -- despite that -- despite the reduction in inventory in the Dream Acres, as you would have seen in Q1, we have still done INR 1,464 crores, which is slightly higher than the last quarter and still did better.
So the projects that are filling up that void are on path, which we have here and also 3 other projects that we launched last year, which is Victoria Park, Sentosa and Royal Crest. And we also have certain inventory in Dream Gardens. So all of those have started picking up very well. Because as you know, that the branches in Bangalore also have been delayed. There is a certain inventory -- there is some kind of -- the inventory is lower than what the demand seems to be. And hence, it is helping us push the other projects towards there. So that is one. That is for the immediate one.
For the future, immediate in the vicinity, we have new projects coming up. One of the large projects that we are expecting is in Panathur, which is about 3.4 million square feet. If that comes in within time in the next quarter, then that should take up the increased volume on...
[Operator Instructions] The next question is from the line of [ Rushabh Shah ] from [ o3 Securities ].
Am I audible? Hello?
Rushabh, yes, you are, but it is a little muffled.
Okay. Sir, my first question is our operational performance has improved quite materially in the last 3 years. That has reduced both in value on and also as a proportion of equities. But our credit rating has not improved. Can you elaborate why, sir, we are still at A+ only?
Good observation, Rushabh. The credit rating is a combination of, of course, debt and also margins. So given that even though it's the nature of probably the real estate being most unique, where the margins are showing up a little later, so that is not getting reflected in the current P&L, and that's one of the reasons. And I think as we improve on those funds, it will definitely improve.
So my second question is, if we look at the value of unsold cost, which is INR 4,251 crores, which is nearly equal to the sales in the last 9 months of the financial year '23. And it seems that new launches are extremely important to growth. So on the forthcoming launches of 15 million square feet, how much can we bring in the next 6 months? And the second part of the question is, are we thinking of raising prices more significantly as we have to -- so as we have sold low levels of inventory to sales force the time being? And if not, then why not so?
Yes. Like we have just mentioned, the remaining forthcoming launches of about 15 million square feet, we are trying to do about 6 million to 7 million square feet this financial year, starting from next quarter. If you specifically asked for the next 6 months, hopefully, we should be able to do about 4 million to 5 million square feet, depending on the -- of course, all of this is subject to our ability to get the approvals, and most of them are in the advanced stage of approvals.
And second question related to the pricing increase, the pricing would definitely improve with the mix of the new launches and the existing inventory. From the current levels, I think it's going to be stable or marginally increase from here.
We are backbone integrated company. So how big of a challenge can it be to take our real estate business from 8 million to 9 million square feet in the next 2 to 3 years?
Sorry, Richard, I could not get the question. Can you please repeat?
We are a backbone integrated company. How big of a challenge can it be to take our real estate business to 8 million to 9 million square feet in the next 2 to 3 years?
Okay. This is from a delivery point of view, right?
Yes, sir.
Yes. So backbone integrated model is where actually it is -- we are very much poised to -- very much structured to deliver higher volume as well. There are 2 things that have happened. One, of course, we continue to invest in our own people and ability to form more structured teams as the delivery volume picks up. Second is, as we are focusing far more on real estate, some of our contractual teams have also started contributing to the delivery of the real estate projects.
So both put together, I think we are in a good position to take up the delivery to the next level. Having said that, it is not as easy as what we can say. But we -- our continuous effort is to make sure that we deliver in the same model.
[Operator Instructions] The next question is from the line of Parvez Qazi from Nuvama Group.
Congrats for the excellent numbers. So 2 questions from my side. First, on the demand with -- so clearly, the trend which we are observing across the board is pretty good demand for high-ticket value items or luxury items, which is evident in your number's also. Just wanted to get your views about demand in other segments, especially the mid-income segment and what or how well our product mix change in future with regards to this change in user behavior.
Our sales mix for quarter 1, if you see the split of the ticket size, the more than INR 3 crores ticket size sales contributed to 37% of the sale versus the same thing about 8 quarters ago, which is about 2 years ago, it was contributing to less than 5%. So that's a big change, and that has really helped us in increasing our sales value.
And it is clearly coming from the demand side as well and which we could quickly capitalize on that. The demand for larger houses seems to be the trend. And hence, our inventory, for the future inventory and the current focus is going to be on that.
While the one side, there is a demand for larger houses, the second side, the ability to fund that by the customers also seems equally strong even at this interest rate regime. We -- hopefully, the increase in the interest rates are fast in nature. So hence, going forward, it should be even better as the incomes continue to grow.
Sure. Secondly, in terms of cash flows, obviously, the debt has declined significantly over the last 10, 11 quarters. And we continue to make positive cash flow at the net level. How do we foresee our cash flow generation and debt reduction going ahead, let's say, in FY '24 and FY '25?
We have -- consciously, we have reduced the debt, mainly from operations from the last almost 2 years, 2 to 3 years. And that conservatism in terms of cash flow would continue. The reason being that we think that the future launches and the corresponding cash flow that we can accrue, we can now clearly balance out between both growth and being fiscally prudent.
Of course, if the market continues to be strong and we start seeing far more opportunities, which we can capitalize on more, then we will start allocating more capital to growth as well. However, the trend for the debt should be down.
The next question is from the line of Pritesh Sheth from Motilal Oswal.
First is on launches, as you alluded earlier, so 6 million, 7 million square feet this year and 15 million square feet cumulatively in the next couple of years. How do we see the trajectory beyond that? Because every quarter you have been adding projects into the pipeline. Last quarter, it was 13 million square feet, now we are looking to launch 15 million square feet.
So what sort of pipeline you are closely working on, which can obviously get added to the launch pipeline in coming quarters and boost up our launches beyond just 2 years that we have guided for?
So like we have mentioned, we are continuing to work on bringing the existing land bank and the current arrangement with land owners towards the project development stage. But as and when we make progress there, we will continue to add. And that also is going very strong. Unfortunately, I will not be able to share the details immediately. But as and when we do that, you will see that coming in the pipeline.
Sure. Just broader idea would be to obviously increase this 6 million, 7 million square feet to eventually 9 million, 10 million square feet in next 2, 3 years because that's what we are planning for in terms of our sales growth as well, right?
Absolutely, you're right. We have -- last year, we did about 5.6 million square feet, and we are expecting to do better this year. And in the medium term, we would like to move towards 7 million to 8 million square feet. And in the long term, if everything works out well, then definitely, we should aim for about 10 million square feet. And correspondingly, the pipeline should reflect that, and we are working towards the same.
Sure. Got it. And secondly, on the land investments. So we had a small payment this quarter. Was it for any new land which was tied up? Or was it for existing land? And what is our target in terms of land investments this year, next year, given that debt is much under control now? So your comments on that.
Yes. This quarter, the land payments that we have done are largely for the earlier commitments. Going forward, I think in this financial year, we might end up doing anywhere between INR 250 crores to INR 300 crores in terms of land investments.
The next question is from the line of Biplab from Antique Stockbroking.
Congratulations on the excellent quarter. And my first question is on the contractual and manufacturing business. Sir, what would be the trajectory of contractual and manufacturing business? I mean what kind of growth and what kind of EBITDA margin should we expect in this segment going forward?
Biplab, the contractual and manufacturing business, we have been mentioning that the growth, what we are seeing there is in terms of the overall contribution to EBITDA and gross margin and EBITDA. So our current focus in this financial year is to complete the projects, what we have in the pipeline within the budgets that we already have and make sure that our margins are reasonably protected.
We are also looking at new opportunities very conservatively in terms of where we can -- where it is cash flow positive. That -- I mean, net working capital always been negative and also margins to be more than double digit -- no, sorry, in double digits. So those kind of opportunities, as and when we are seeing, we are continuing to take up those opportunities.
So but from a significant growth point of view, today, that visibility is not as high because the current order book we have is -- we would be exhausting that in the next couple of years. And we are working towards 1 or 2 serious bids in terms of civil contracts. If those come through, then we would be very steady. From a manufacturing point of view, manufacturing has been very steady and some of the manufacturing dividends are doing exceedingly well.
One of them is our glazing and metal works division, which has had the highest turnover last year. However, there also, we had challenges in terms of increased costs. So that, we are trying to manage. And again, there also, we are trying to see how we can take up new projects and deliver against the cost that we expect from that where we have with gross margins of over 20%. But in the overall manufacturing business, we continue to -- we should continue to see incremental growth.
Just on the land bank and debt that you have. Sir, excluding our forthcoming projects, could you give us some color on the key land parcels and what size and -- I mean, you have given some indications how we are trying to bring a few of those land parcels to development state. But can you give us some color as in what kind of land parcels on the key -- and what locations and what are your future plans on those monetization...
Yes. I understand the requirement of the question, Biplab, but unfortunately, right now, we are in the process of consolidating, in the process of making whatever is the existing arrangements work. And we would try to be a little bit more methodical in terms of disclosure also as and when they come for project development stage. That's when we would like to probably disclose. And hence, given the constraints, I'm not like -- I cannot clearly mention what the numbers are.
But like I had responded to Pritesh, our overall goal is to grow from the [ AVR ] in terms of sales run rate. And corresponding to that, there is a requirement for us to increase the inventory, and we are working towards getting that kind of inventory. And we think that an inventory of about -- overall inventory of about 30 million square feet for a run rate of sale of about 10 million square feet every year should be visible for us.
And currently, there is 20 million. And probably, we'll have to increase it at the right locations to make sure that DSPs are [ just right ]. So we have a model, and we have certain activities that we have undertaken to get to that level. But given the current stage where we are at, we will be able to keep adding to that pipeline as and when things progress.
The next question is from Mohit Agrawal from IIFL.
Congratulations to the team on 11 straight quarters of net debt reduction. My first question is on the collections. So the collections seem to be between INR 1,100 crores, INR 1,200 crores per quarter on a quarterly basis. While your sales gross sales have moved up to the INR 1,400-plus trajectory in the last 3 quarters. So when should we expect the collections also to move up to that level? Should it be like next 1 or 2 quarters? Or it could take longer?
Mohit, the -- as the construction progresses in these new sales that we have -- that have occurred, those collections also should improve. And I think the -- sequentially, these cash flows are dependent on -- not just on new sales, but also progress on the achievement of the milestones. But as we are increasing our real estate spend, then we should surely aim to achieve those collections as well.
Is there any time line on this? Any 1 or 2 quarters we could see this moving up?
Very incremental as we progress. So it's not very clear cut that there is in another quarter or a couple of quarters, it's going to improve. There will always be a little bit of lag because most of the sales that are happening are -- if the sales improve, a majority of the sales collection would come in -- I mean, the initial collections are not as high.
And so it is always a mix of new sales versus the old sales construction. So given that, it's a little tough for us to estimate how much would the -- relating it to the new sales. So overall collections should improve because we have accelerated the pace of the construction. But the timing of it, it is surely -- maybe even next quarter, next, next quarter. But directionally, it has to happen.
Sure. And sir, on your reported P&L, last quarter, there was a lot of discussion around why the margins are weak. Just wanted to get a sense when could we see the P&L EBITDA margins improving? And in what time can we see they're reaching that level where the desired level, which reflects the current margins that you'd be clocking in?
So we would start completing the projects, which we sold post COVID -- and not just post COVID, but in FY '22 also, from end of this financial year to the next -- starting from next financial year. That's when the mix would start changing towards those sales. And so hence, slowly the mix would still move towards the post COVID sales. As and when that happens, the margins would tend to improve.
FY '25 onwards, right?
Yes. FY '25 onwards, the mix of the projects that we recognize, the revenue, would start coming in. And hence, the improvement should definitely be seen.
Sure. And sir, just one clarification on the previous question on the Dream Acres bid that you've completed the sale of Dream Acres. This segment, the Dream Series has been clocking in steady 20%, 25% sales for you, the sub-1 crore segment. You have mentioned some projects which will replace that. But as a segment, as Dream segment, do you consider this contribution to continue at 20%, 25%? Or will the mix change towards more premium products?
Yes. Definitely, the mix has -- from the sale value, it has changed towards the larger ticket prices as you have seen in the overall split of the revenue over the quarters. But having said that, the sub INR 1 crore or near about INR 1 crore is a very important segment for us because that has been -- contributed to sales for the last several years. And that's a segment that we would like to continue to cater.
But at the same time, we are not envisaging a single project to have that. But we -- in each of our current projects that we are designing and we are preparing to launch for, though there are -- we have catered to those ticket sizes also in each of these projects. So we might not say it as a Dream Series, but from a ticket size and the market segment point of view, we will address those also.
And additionally, apart from Dream Acres, what we have, we currently have Dream Cities projects in one more project, which is called Dream Garden in Bangalore. That is also looking to do well. That gets us to the current market segment in that ticket size.
[Operator Instructions] The next question is from Kunal Lakhan from CLSA.
Firstly, on the volume side, when I look at your volumes, overall volumes have been quite steady over the last 4 to 5 quarters. But if I look at Bangalore, right, and in terms of absolute volumes, it kind of dipped steadily in the last 4, 5 quarters. Anything to read out there? Like now, are we seeing any kind of consolidation or slowdown in the IT hiding volume or say, [ hikes ] that we have seen in the past 2 years. So anything to...
The Bangalore volume this last quarter -- last financial year first quarter was the best in terms of volume. It's where we did 1 million square feet. And that's what I think we should go back to at least.
The main reason for the slight reduction in the volume in -- or the sales area that we are doing in Bangalore is directly linked to the launches that we are doing. And as the launches improve, the volume there should definitely improve.
So normalized back to like 10 million square feet...
Yes. At least that. We think that the market is larger than that. But given the -- what we have today, that at least we should do. And as we progress new launches and across the various locations in the city, it should get even better.
Sure, sure. My second question was on more clarification on the -- the allegation that's going -- in social media regarding the land deals with Farris. So I feel like -- I just wanted to understand, like what is the official stand on this matter? And secondly, like have we heard anything from the regulators or the government bodies post COVID compared to...
That particular article, we had contacted the article and we have filed a defamation case, post which we got a favorable order from the court and the author of that still, I'm corresponding linking articles have all been taken down. There is -- it has got nothing to do with any official regulatory or government bodies. It's an article published by independent journalists. And once we came to know about it, we have taken a step action...
So great. Just again, on one final thing, do these land parcels, if you are bought along with this aggregator, we wouldn't have any challenges in bringing these land parcels to the market in terms of new launches?
These land parcels are largely in Kerala and Tamil Nadu, which was bought in, in the year between 2006 to 2009. So those, we have been -- these lands have been -- we have been working on these brands to make them developable or find the right usage for it. And as and when we do that, we should be able to deliver. Right now, I don't see any challenge in terms of monetizing those lands from a legal -- legal title standpoint.
Sure. And just a follow-up, the same articles were citing that these land parcels could be to the tune of 1,500 acres. That sounds a little like but just wish if you could comment on that...
Sorry, Kunal. Can you please repeat the question?
Just a clarification that, to say, articles saying that these land parcels were to the tune of about 1,500 acres, which is a little high, but just your comments on that.
So that seems to be a little on the higher side for us, too. But we have acquired lands in Kerala and Tamil Nadu, both of which we see those -- under a very low cost in nature, considering the locations where they are present, those should be in the range of about 800 odd acres. But we can come back to you with the exact details.
The next question is from the line of Abhinav Sinha from Jefferies.
A few questions. So given the changed sort of view on new launches, what is the presales guidance we should look for the year? I believe earlier, you had said that if we can do 6 million, 7 million square feet, then 15%, 20% is possible. So are we still hoping for double-digit growth?
We continue to aim for it for -- despite a little blip in the launches.
Okay. And secondly, the margin trajectory, I just wanted to check. So this quarter and even if we look at last quarter, we started hitting and crossing the 10,000 per square feet level. So what is roughly the margin we should be expecting in this portfolio today? I mean the 1Q performance we saw in P&L was pretty weak. So what should we hope for?
The new sales that we are doing at the current pricing, Abhinav, we should expect gross margins of 35% less.
Okay. So INR 35 versus what we're seeing today is of 15% to 20%. Is that a right number to look at?
Yes. It's about 20%.
20%. And what will be your stake in this pipeline now on average?
Sorry, Abhinav...
Is it like 70%, 80%, I mean -- or is it like much lower?
So the remaining revenue that is going to be recognized?
No, no, no. So on average, what is your ownership of these projects that are...
In the near pipeline? In 15 million square feet?
Yes.
That would be...
Or even 1Q. Or even what we sold in 1Q. Any number, yes.
I mean so the forthcoming projects, which is about 15 million square feet, our share on a blended should be about 80% plus...
80%. Okay, okay, okay. And thirdly, on the net debt reduction. So again, it's been a great job to see how it has moved. Is there a gearing target that we are hoping to hit, let's say, 0.5x or something? Or we are, by and large, going by as the quarters are...
We do not have any specific target in mind, but we believe given the nature of the business and what we have already invested for -- since inception, and we have in this large land bank, right, so I think we should be able to feed in our growth from all the pipeline that's going to come in. And hence, the debt that we are looking, we do not have any specific number. But like I said, the trend is down. And ideally, for the real estate mature business, it can go to 02.
The next question is from the line of Parikshit Kandpal from HDFC Securities.
So my first question is on the launch pipeline of 15 million square feet. Just wanted to understand how much of this is our own land, captive land? And how much is a third-party land?
Like I was just saying, blended of that would be about 80%, 20%.
No, no, that I understand. So once you've acquired the land, so it's your land. But I'm saying pure, pure, that was a part of your land parcel. So out of this 15, you would have bought some land also, right, which would be right now on your name. But last 2 years, [indiscernible] acquisition, is that excluded in this land? Or is it just 15 million or 80% of that is entirely historical land bank?
It's largely historically. And any new land that we have acquired, that's not yet part of this -- or not yet part of this pipeline.
How? Because, I think, I understand last year, you did about INR 300 crores of CapEx on -- and in this period. I mean something would have happened last year before that also. So those land parcels, so what could be beyond this 20 million? I mean 15 million 5 earlier months. So what could be potential which should be right now residing on the balance sheet, but yet to be brought in, in terms of the launch potential?
Like I was saying Brexit, we are still working on it in terms of when we can -- once this comes into the projects deliver -- project development stage, we would add it into the pipeline.
But how much time it will take for you to -- when you buy and bring it? Because I think these new land parcels outside the group should be having a very short term or maybe 1 year -- within a 1-year time frame kind of launch, right? So I mean you would be broadly having some sense on what would be potential sales in the year...
Yes. Yes. That's right. For the smaller land parcels, that's right. I mean we could quickly get in. But for a slightly larger land parcel where it's being jointly aggregated or where there is some sort of cleanup which is still required, we are not yet bringing that into the development stage. So hence -- probably in a quarter or 2, we will be able to start declaring those as well.
But that will also be significant, right? I mean we are thinking the large parcels can add significantly to the current portfolio of 20 million, right?
Yes. Yes. Yes. And that's exactly -- I'll reiterate. I said we have to build in a pipeline of -- we have to get to a run rate of -- initially to -- from current, about 6 million to 7 million to 8 million. Correspondingly, the pipeline has to -- the inventory also needs to go up correspondingly.
My second question is on if I see the credit rating of the parent company, last year -- they've done last year, [indiscernible] INR 24,000 crores in rupee terms presales. And this year, I think in 5 months, they've already done INR 14,000 crores, some number, I think this, annualized itself, will cross INR 30,000 crores, which is -- like no one does that kind of scale in India.
So just given that kind of scale and I think the EBITDA margin what they have projected, the rating agency is about INR 3,000 crores of EBITDA. So what does it mean for us in India, given that current industry probably is actually doing well in Dubai kind of scale they have demonstrated? So how can we get some touch of that in Indian operations? How do we envisage are there any financial systems or any scaling of the current strategy, on the scaling of the current India business? So how do we learn from that?
So the good news there is that the Dubai business is doing extremely well. And that gives enough cash flow for the promoter group also to have a choice of investing in India as growth capital. And that could happen as and when it is necessary and the right opportunities come by.
It's still -- the sales have happened there also, but I think the cash flow, et cetera, is going to take a year -- couple of years. So as and when things improve there, definitely, we should see a positive repercussion in terms of ability to probably contribute from them in case we go for a capital raising here.
Okay. So if anything does happen, so if capital raising sort happens with a listed entity at all, I mean, they cannot obviously come directly at the entity, I mean, at the project level. So they will do some kind of maybe -- out some kind of capital raise or something like that from the parent. It can happen?
That's the current thinking. As and when things improve or change, of course, we will we will let you know.
The next question is from the line of Dhruvesh from Prospero Tree.
Sir, so basically, 1.5 million is very easy, right, in terms of third quarter. So 6 million can be a minimum guidance that we can take?
Dhruvesh, like I've been saying, it's largely a function of the new launches. And in the first quarter itself, we have seen that there has been a little bit slip in the launches. But we're still aiming to cover up that.
And from a volume -- or from a value point of view, we should do better than, of course, last year, and that's what we are aiming to do. From a sales area point of view, we are looking at a much better improved pricing from last year as well. So if we can do better in the area as well, nothing like it.
Okay. Okay. And sir, you said possibly we are targeting -- I mean, not targeting, but if things work out, it can even become a [indiscernible] company. Would you rather not say that we will aggressively then bid up for the land or projects or no, that is completely dependent upon what kind of markets we are in and what kind of opportunity comes?
Yes, Dhruvesh. That is a very, I mean, far off scenario right now. So hence, we can deliberate upon it as and when things progress in that scale and the kind of opportunities and the markets that we would be in.
So we -- as far as debt is concerned, right now, our thinking is that we are in a much better situation, hence, our ability to decide based on the requirement is very flexible. And hence, like I said, there is a possibility of 0, is there a possibility of just continuing to maintain the same debt level. So both possibilities exist based on the external environment opportunities, how we execute against our plans, all of those.
Best of luck. Please to hear the kind of performance updates that you have been sharing. It's lovely.
Thank you, Dhruvesh.
The next question is from the line of Vivek Kumar from Bestpals Research & Advisory.
Jagadish, you just mentioned back on the call that in the medium term, we will go to 7 million, 8 million and then from there, we have to go to 10 million long term. So if you can put a time line -- I'm not asking that guidance, but in your -- what is long term, what is medium term?
And related question to this is, if we have to go to 10 million or like you have to grow 15% or whatever is your internal target, 15% to 20% every year, so do you think that -- I'm assuming -- if I'm wrong, please correct me. I'm assuming that a lot of growth has to come from [ resorts ] in Bangalore, but Bangalore can't keep being a large part of -- if you really need to grow in the long run.
So which cities do you think you are more positive on where you're increasing your business development activities. If you can throw light on how a 10 million mix and from there, which cities you think are more aggressive when you are putting your next set of investments? So these 2 related questions, if I've made myself clear.
Thank you, Vivek. We -- Bangalore itself, we think that the potential is larger than what we are already doing. But that said, the other potential markets where we are already present and where we think that the scope for growth is, is NCR. The other 2 markets where we are present but in a very small manner are Pune and Hyderabad. We will try to see if we can increase our scale there.
It is also now becoming increasingly difficult and tough to take calls given that the land costs also have gone up quite a bit. So given that environment, it is -- from a capital allocation point of view, it's -- we are seeing -- we are choosing to invest where we can get our best returns.
And given that the mix -- right now, it's -- whatever current mix we have, I think that would probably continue in the sense from -- in these large locations, which is Bangalore and Kerala, Pune, Hyderabad and NCR, of course, Bangalore being the largest and NCR being -- coming second and third and fourth being the Pune and Hyderabad.
And you've said 8 million in medium term and long term. So can you -- upper limit of the time, I'm not asking the exact number of years...
Well, Vivek, as we get confident in terms of the inventory and the ability to launch, we will definitely share that. But that's our aim right now.
The next question is from the line of Puneet Gulati from HSBC.
Yes. Just you also alluded that one of the reasons your margins show poorly is because of the old sales which were done, which are getting reported. And last year, you also evaluated your accounting changes. What are your thoughts on moving to a percentage completion method from a project completion method that some of the other developers have done? What stops you from doing it?
I mean I will have Yogesh respond to that. Yogesh?
Largely, people have moved in Mumbai, right? One or two developers [indiscernible] POC?
Correct. Correct. But they also have projects across...
Across, yes. So basically, they are following POC and they are entering into [indiscernible] kind of agreement itself. This can reward [indiscernible] transfer to the customer. [indiscernible] risk and reward is getting transferred once we complete our obligation and receive entire margin. So we continue with the -- as of now, we are continuing with our completion methods.
There are 2 parts to it, Puneet. Actually, one is, of course, technical, which is what Yogesh has just mentioned. And we have been following a percentage completion method several years ago before the Ind AS regulation has mandated us to change this. We -- for an ongoing real estate business, I think the COVID and the cost inflation, which was dramatic, is something which is there, I believe, is like a black swan event.
Other than that, whether you follow POC or whether you follow the revenue generation at the completion, both on an overall -- on a run rate basis, it should not matter too much. But currently, what we are doing is we are just laying out whatever is the actual right now. If I follow POC, probably, I mean, some of those things get, again, averaged out. So in the long run, I don't think it should matter as much.
Thank you very much. That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.
Thank you. I express my sincere gratitude to all the participants in the call today and for your patience herein. I hope we have answered some of your questions satisfactorily. In case of any further questions, please do reach out to us. Your queries and views have always helped us to improve. We look forward to a good operational and financial performance in the remaining quarters of FY '24, with an optimistic outlook towards the economy and the industry. And as I've been mentioning, Sobha is very well positioned to grow with a disciplined operational and financial model while we think it is being set up for building and scaling in the long term.
We will continue to pursue our goals with passion. And thank you, everyone. I wish you all a good evening. Truly appreciate your support.
Thank you very much. On behalf of ICICI Securities Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.