Sobha Ltd
NSE:SOBHA
Earnings Call Analysis
Q2-2024 Analysis
Sobha Ltd
The company achieved its highest ever quarterly sales value of INR 1,724 crores and a sales volume of 1.69 million square feet, marking the ninth consecutive quarter of pre-sales outperformance compared to the previous periods. This growth was driven by robust sales in Bangalore and Kerala, with the latter exceeding its previous full-year results. No new project launches occurred, emphasizing the strength of the existing offerings. A pipeline of 15 million square feet is set to be launched over the next two years, signaling sustained growth potential.
Cash inflows climbed to a historical high of INR 1,450 crores for the quarter, primarily from the Real Estate business. Substantial Real Estate construction investments were made, with comparative figures highlighting a significant Y-o-Y increase. This resulted in a net debt reduction and a debt-to-equity ratio of 0.58. The profit and loss side showed a total income of INR 774 crores for the quarter and INR 1,713 crores for the first half of the fiscal year, with a notable EBITDA margin improvement.
The company remains centered on residential projects amidst favorable market conditions. Existing commercial projects, such as Sobha City Mall and One Sobha Bangalore, are not earmarked for sale and will continue to be developed according to the master plans. Despite past concerns about land deal disclosures, the company indicated that the issue was a nominal fine for the previous auditor and not directly related to the company's current operations.
The company plans to progressively release inventory with the aim to unveil new towers based on continued sales growth. This strategy includes launching approximately 2.5 to 3.5 million square feet of space, with substantial contributions from Bangalore and potential projects in GIFT City and Gurgaon. The remaining pipeline is projected to materialize in FY '25, and is expected to be distributed evenly across the quarters, ensuring a consistent development rhythm.
The company is past its worst phase concerning profit margins, with a clear outlook for margin improvements driven by better project yields post-COVID. As more revenue from higher-margin projects are recognized, along with catching up on delivery milestones, margins are expected to reflect positively on financial results. Investments in areas like GIFT City have begun to yield dividends, with plans to launch new projects in the coming quarter.
In targeting an aggressive launch roadmap, the company intends to maintain a balance between debt reduction and land acquisition. The majority of investments remain directed at consolidating the existing land bank, while a smaller portion is allocated to new deals. The executive team foresees a robust cash flow that will support both debt reduction and further investments, indicating a shift towards prioritizing new business development over debt concerns.
Growth is anticipated from both existing market strongholds like Bangalore, NCR, and Kerala, and new market explorations in cities such as Pune and Hyderabad. With a good project pipeline in place, the company is confident in achieving 15-20% growth over the upcoming 3 to 5 years. This approach will involve leveraging land banks in strategic locations to maximize growth potential.
You don't have any saved screeners yet
Good evening, everyone. On behalf of ICICI Securities, I'd like to welcome everyone on the call today. Today from Sobha Limited management, we have with us Mr. Jagadish Nangineni, the Managing Director; and Mr. Yogesh Bansal, which is the Chief Financial Officer. I'd now like to hand over the call to the management for their opening remarks. Over to you. Thank you.
Thank you, Adhidev. Thank you for the kind introduction and organizing this call. Sobha team and I, are happy to interact with you for financial results of Q2 FY '23-'24. As you all do in every quarter, the investor presentation can be accessed from our website, sobha.com. In this call, we'd like to briefly touch upon our last quarter and the half yearly performance and provide a brief outlook for the remaining 6 months of this financial year. First half of the year was best ever for us with Real Estate sale value achievement of about INR 3,188 crores and 3.08 million square feet. In this quarter, we achieved the highest ever quarterly sales value of INR 1,724 crores and 1.69 million square feet. This is the 9th straight quarter where the presales have been better than the previous quarter. Achievement in this 1st half is more remarkable considering that no new project launches have taken place. Bangalore touched quarterly sales of 1.01 million square feet, crossing the 1 million square feet mark again this quarter, and a value of INR 932 crores. Kerala also has done remarkably well, achieving a higher sales in the 1st half of this year, than what we did in the entire last financial year. This was aided by two new tower launch releases in Marina One and Sobha Metropolis in Thrissur. In GIFT City as well, the demand scenario has been positive with increased visibility and action on the ground. We have crossed 100,000 square feet time with a sale value of about INR [ 89.5 ] crores. NCR continued to witness excellent demand, contributing to about 20.6% to the sales in this quarter. We have a robust pipeline of about 15 million square feet to be launched in the next 2 years. From this pipeline, We have already launched Soba Neopolis, one of our largest projects in Bangalore with 1875 units and 3.44 million square feet in the first week of October. We expect to launch anywhere between 6 million to 7 million square feet in this financial year, including this Neopolis launch. Aided by the excellent sales and milestone achievements in the projects our operational cash flow, cash inflow has also been steadily growing. Our focus on cash flow management has been steady, and the results of the same areas are for us to see. For the 12th straight quarter we have generated positive cash flow and reduced our debt. We expect the demand in residential sector to be robust in [indiscernible] economic environment and an interest rate cycle, which is close to its peak. With this, I request our CFO, Mr. Yogesh Bansal, to take you through the financials and open the floor for questions.
Good evening, everyone, and thank you for joining us today. I will quickly take through some of quarter highlights. With highest quarterly sales along with faster achievement of construction linked milestone. [indiscernible] invested in history achievement in terms of cash inflows reaching to INR 1,450 crores for the quarter with a substantial portion of INR 1,260 crores being contributed by Real Estate business. In the first half of the fiscal year, our performance remains strong with total cash inflow of INR 2,805 crores, out of which Real Estate collection contribute INR 2,388 crores. We maintained a strong commitment to Real Estate construction, deploying projects INR 68 crores in F1 '24 and INR 536 crores in Q1 '24, which represent a remarkable increase compared to the previous year. We generated less cash flow of INR 129 crores in Q2 24, leading to a continued reduction in our net debt. Our debt equity ratio is 0.58. Operationally, it is evident that we had a remarkable strong quarter. On the P&L side, Total income for the quarter reached INR 774 crores, with a cumulative figure of INR 1,713 crores for the 1st half of FY '24. We have handed over in INR 0.67 million [indiscernible] and 1.76 million [indiscernible]. In the quarter, our EBITDA amounted to INR 108 crores with a margin of 13.9% for the first half of the year. because to a INR 204 crores with a margin of 11.9%. Our quarterly [indiscernible] recorded a figure of INR 13 crores. As on 30th September, Delhi has an outstanding balance of approximately INR 11,186 crores in revenue yet to be recognized from all the all sold units. Thank you all once again, following your participation. And now we can open the floor for question-and-answer session.
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Puneet Gulati from HSBC.
And congratulations on good cash momentum and strong. My first question is on the pipeline. You alluded to the 3.44 million square feet new policy launch. Can you talk a bit about what kind of response have you received? And when you talk about 6 million to 7 million square feet potential launch pipeline? Is it over and above 3.44 or is it inclusive of 3.44?
Like I said, mentioned the launch is about 6 million to 7 million square feet. We launched in the first week of October. We released 825 minutes as a part of the launch, and it's been very positive launch that we did. And we are we think that, we are achieving about 11,500 plus as the realization in the [ 25 ] unit that we released, we have already sold about close to about 40% of those. And coming to the remaining, coming to the remaining launches, like I said, it's 6 million to 7 million square feet, which is including this. So we have another at least 2.5 million to 3.5 million square feet to be launched. Which would have part of it, which would happen in the first, in this quarter and remaining in the last quarter.
Right. And in that context, if I think about your collections to sales ratio, which is roughly about 81%. And I don't think you have much to sell from your existing area. So when you launched Neo, would it be fair to assume that the collection ratio to sales can go down substantially? Or it should not be that material of[indiscernible]?
Puneet, sorry, can you repeat the question? The last part of the question, please?
Yes. So when you launch new, you obviously will be collecting only at best 30% given that only 6.5% are remaining from the sales that you are likely to do, will the collection, and your existing inventory, unsold inventories is very little. So would it be fair to assume that even if you were to maintain the same sales run rate, the collection could actually be lower than what you experienced in the first half?
No. I think the collections come from two parts, which is one from the old sales and the corresponding milestone that we are achieving in the projects. And second is from the new sales. So in the new sale that we have just started. So we have been pretty aggressive in terms of our execution as well. And in this particular instance, we already started our construction for the phase that we already launched. So we expect to hit new milestones as well as quickly as possible. Having said that, the collections from the remaining sold and under construction properties also is going to be robust. So overall, I think in the 2nd half, our collection should be similar as what we are doing, in fact, can be better.
Okay. Okay. So that's helpful. Secondly, in your presentation, there was also a mention of commercial portfolio. So is there a change in thought process where you want to own commercial portfolio? Or is it just temporarily parking in the balance sheet?
Our focus has always been residential, Puneet. And currently, the, given the residential demand environment, we think that our focus should continue to remain in the residential. The mention of the commercial portfolio is because we have these in our, in our projects as incidental, and hence, those projects, we will execute as per the overall master plans of those projects.
So, for example, Sobha City Mall in Thrissur and One Sobha Bangalore, would stay in your balance sheet? Or would it be sold eventually?
We do not have any plans of selling out those commercials, which have already developed.
Okay. And similarly, the Soba City Athena, which is ongoing would also stay? it's a small one.
Yes. Yes.
And lastly, on some of the pending cases, while notes to accounts don't reveal anything new, there is also a new update on one of the auditors, which came in where [indiscernible] had penalized the auditor for lack of disclosures on terms of some land deals. Can you elaborate on what really is the problem there? And what is your response to that?
This was a matter related to there the, our previous auditor was fined for about a nominal amount of INR 5 lakhs. Which the way I think the representation based on the representations given by the previous auditor, NFRA has taken such a call. Post that, we do not have any further information on it.
And, okay. And any update on when should we expect you to start disclosing your land bank once again, you used to disclose it every quarter, but last few quarters, it's been the same?
Yes. We, what we would like to do, Puneet, is not just the land bank, but also the productivity of the land bank which we are in the midst of improving the overall productivity of that. And once that is done, we will surely start disclosing not just this pipeline but also the future pipeline as well. .
And since the last disclosure, has that pipeline materially changed? Or is it largely similar? Given that you're doing quite a bit of cleaning up there?
Yes. So our cash flow that we have dedicated for the new business development has largely been for adding new lands into the existing land bank, where we have large parcels and also some of the old payments that are due for making these projects go to a project stage. So, the overall pipeline roughly remains the same. But as we continue to evaluate new projects and we are signing up new projects to but it is not materially very different from what we earlier have in terms of the large land bank that we have.
[Operator Instructions] Next question is from the line of Parikshit Kandpal from HDFC Securities.
So my first question is on your policy, you said about 40% of the units are sold. So my understanding was about 1,600 units in this project ballpark. So we have launched something around 500 to 600. So have we released some more inventory here and this 40% which was sold, does it include the channel partner because my understanding was that largely it was initially being done by you directly and then maybe channel partner will be introduced. So how do you look at accelerating this project sales?
Parikshit, just to recap. So of course, the Neopolis project has 1,875 units. The sales that we launched has 825 units, of which they are saying that 40% have been sold. And you are right that we have given for the first time in our history of sales that we have given the opportunity for existing customers and who have directly have been reaching out to us to book their units for the first. And hence, for a brief period, we have sold these without any channel partners. And we have, once we achieved our goal of our internal sales goals. We have opened up the sales for the channel partners as well.
Okay. But how do you intend to release more inventory? I mean [indiscernible] what point of time do you think you will release some more inventory in this project by the year-end financial year end?
Yes. We have the entire, based on the, we have the entire year and subsequently to keep opening the inventory. So we have, as the sales continue, we will open up the new towers.
Okay. The other question was on the balance launches. So what are the other key launches until the FY '24 end. So what do you look at launching in Bangaluru and in Gurgaon or Kochi. Give some sense on where in terms of [indiscernible] other environmental approvals, where are we in this? And how confident are we launching this balance 3, 4 million square feet beyond the Neopolis.
Yes. Like I said, we have another about 2.5 million to 3.5 million square feet that we can potentially launch, of which about 1 million to 1.5 million can come from Bangalore. And they're in advanced stages of approvals. In addition to that, we have a launch in the GIFT City, which is possible in Q4 and other launch in Gurgaon, which is a commercial development. So that also is possible in Q4.
Any residential in Gurgaon launching? because this will not add up to, I don't think that will add up to 3 million to 4 million, balance for the year because 1.5 in Bangalore [indiscernible]. Gurgaon commercial also non a big launch. So is there anything which you were building in earlier out of this 15 million square feet almost most half this year? Something is pushing into FY '25?
Yes. So that the remaining will come in FY '25 Parikshit, but this is a little bit conservative because, as you know, the approvals are always tentative. If we can, we are aiming to do our best in terms of doing at least half of what we got, like I said, of about 15 million at least even if we can do 7 million that remaining can come in the next financial year. And those also in the next financial year, we have those launches seem to be lined up spread evenly across quarters.
This is the last question.
Sorry to interrupt Mr Parikshit, Maybe we please request you to rejoin the queue for the follow-up questions. Next question is from the line of Dhruvesh Sanghvi from Prospero Tree.
Yes. Just I was reading some of the articles about the promoters, which have come on some of the global magazines, where a broader comment was mentioned about India having a peak capacity for Sobha of approximately $1 billion to $1.5 billion. How should we read this when we have already 5 Indian Real Estate players crossing more than INR 20,000 crores or INR 25,000 or INR 30,000 crore [ leaks ]. Is that not the, I mean I feel that we are aiming to low and why is India, only $1 billion in our, in the promoters mind? I mean, what is the assumption going while saying something like this, if you can just highlight?
This is the market sizing is an ever-changing number as things grow, then definitely the, and as we start achieving our increased growth, last year, we were at about INR 4,000 crores, I mean, sorry, last year, we were about INR 4,000 crores. Last year, we were about INR 5,200, this year, in the first half, we already achieved 61% of what we did last year. And I think we can do, we'll definitely do far better than what we did. So as we are increasing our pace of sale and we continue to see the demand that's growing the understanding of the whole market and our ability to capture that market size will surely the crude. So it's not to be taken as a that's a fixed number, but that's something that continues to evolve.
And just one thing which I keep asking about margins. So just to keep the track of things. Can we say now have you hit the worst phase of the margin? Reported margin is over now because I think last 2, 3 quarters I've been asking, and you have been indicating that, yes, it should be. We are in the near end of the worst phase of the margin profile. So this is correct? And a supporting question to that is that, yes, we understand that we hit the lowest point right now. But when do we reach to 10% to 15% net profit margin after all costs, all taxes? Is it now visible in the next 4 quarters or No? That upper cap is still much beyond the 4 quarter time zone?
Yes, the revenue like in the CFO's note, we have seen, and in the investor presentation, we have seen, we have about INR 11,000 crores of revenue to be recognized of which about almost 80% of that would is, from the sale that we have done from FY '22. So and those, the margins of those are decisively better than what we had done previously. And like I said, it is clearly because of pre-coat sales and post-covid costs. So that, I think, as we start recognizing those projects, it should definitely improve. And in the beginning of the financial year itself, we had indicated that in the first 3 quarters from first 3 quarters, it would be roughly similar. And from FY, last quarter, we should start seeing improvement.
Next question is from the line of Himanshu Patia from BMS.
Congratulations on good set of numbers. My first question is relating to the margins only. We are a record integrated company. We do our construction on our own and even manufacturing of some of the things. What is the, and still our margins are pretty low, okay. Should not our margins be much higher over a period of time? And is there any scope to improve the efficiency and cost? And what are you doing to improve your costs or efficiency at the overall level? I'm not talking about this the last 4, 5 quarters. It's just a longer-term thought. How do you look at your margins? What can you do to improve it internally?
It's a valid question because like you said, we are backward integrated firm and our premium in the market is also good considering that it is natural for anyone to expect our margins to be better. However, the COVID period and probably a little bit post that, which is particularly 1.5 to 2 years, 1.5 years, where the efficiency of our own staff in a backward integrated model, which has high fixed cost has definitely taken part of the because of that, we have seen some kind of erosion in the margin. And we should start seeing better margins in [indiscernible]. And second is, from a long-term perspective, we, on a project basis, we typically aim rate anywhere between 35%, and that, I think, we have been able to do it in the last 2 to 3 years. And those will start showing up in the P&L as well.
Okay. But are we focused on...
Cost management, sorry, last part, Himanshu is the cost management and improving our efficiency as the scale of the organization increases. Our ability for our core management, which is in the construction and the other backward integrated divisions that we have. is certainly improving, and we can see that quarter-on-quarter, not showing up in the P&L, but that should come up as the scale increases and our pace of delivery certainly increases. Currently, it doesn't seem like that because our revenue recognition has been a little low, but the completions have not been in line with what we are doing in terms of sales. Like you see this quarter, we have completed about 700,000 square feet, whereas our sale is about 1.7 million square feet. So as we, in a mature model, we will have to do, we have to catch up for the deliveries with the sale. And as we do that, the margins would also definitely start showing.
Okay. Secondly, Ahmedabad has become an important market for us. We are seeing 4% to 5% of sales from that market. And the realizations are better than what in [ Tamilnadu ], the average what we see on the 10% higher and again, 10% lower than Bangalore. Is it a sustainable market and really like to growing a new market like that? Or you think it is only a one-off? And once the 77,000 square feet get sold, it is no longer a market for us?
Absolutely. It's -- we were one of the first to -- in fact, we are the first residential project in GIFT City. And the investment that we have done has really paid off, especially in the last 2 years plus. With the visibility of GIFT City and the traction that has developed in the core GIFT City operations. So we think that with the kind of focus that the government has on the GIFT City, there is an incredible interest in participating in the GIFT City story. And in fact, we are looking to add more the area to what we already have there. And hopefully, we should be able to do it, and we should start, we should launch a new project in the quarter.
Next question is from the line of Parvesh Qazi from Nama Group.
So two questions from my side. First, our I think existing inventory is really 3.5 million square foot, whereas our trailing 12 months, itslef sells for about 6 million square feet. So clearly, we do need to launch more projects. Now you have said that the H2 will probably see 6 million, 7 million square feet of launches. But on a sustainable basis, like say, in FY '25,'26 can we go closer to the 8 million, 10 million square feet launch, which is needed if we want to sustain our sales growth? That's the first question. And second, we have seen some bit of improvement in land related CapEx. So how do we see that number going ahead? And also our thoughts on the debt reduction quantum going ahead?
The, on the part of new launches, like I said, first, our focus is on to do the remaining 15 million, which we have clear visibility on those. And that, I think we have, even if you do about each, for the remaining 1.5 to 2 years, if we do about 7 million to 8 million square feet, I think within value of that about 10,000 plus that we are achieving and probably a little bit more I think we have a good pipeline right now. And in addition to it, like you have observed that we are doing certain CapEx in the sense in land investments to increase that pipeline. And from next quarter onwards, you can start seeing that the visibility of the pipeline, which has been steady at about 15 million for the last 3 quarters. We should start adding to those, and the pipeline will definitely grow.
And the answer on the debt reduction part?
On the debt reduction, in terms of the cash flow management, like we have seen, we continue to maintain a balance between both debt reduction and also the investment in new lands. Now that we have started launching these new projects, I think we will have a robust cash flow going forward, and we are fairly confident that we will be able to achieve both goals simultaneously. Both reduce debt and also increase the investment in line. However, given the current debt level, which is very comfortable for us, we, based on the kind of opportunities that we have, our reference will start moving towards more towards increasing our allocation towards new business development.
Next question is from the line of Pritesh Sheth from Motilal Oswal.
First question is again on growth. If I look at certain I mean, if I look at the contribution from certain markets like NCR, where we are now doing INR 1,500 crores of annual presales. Bangalore has also consistently now ramped up. Probably next 2 years, you have indicated a pipeline. But beyond that, if you want to maintain, let's say, 15%, 20% kind of growth, which markets are going to contribute that growth? Considering the pipeline that we have right now? And whether that will come from the existing markets, and we'll gain certain market share or new markets will also start contributing? And if you can highlight any specific new markets that particularly you are positive of ramping up in next couple of years?
The growth will definitely come from both from our existing markets and any new locations that we are going to be in. But the existing markets where we currently which is contributing the most to us, which is Bangalore, NCR and Kerala. They, the growth there is one in Bangalore is definitely going to be better because we have a lot of new land banks, which are coming into the project level. that should see a good growth. NCR, we have, in the last few years, we have built a good pipeline of projects. And those, which unfortunately could not be launched for several regulatory reasons, but now they have, they are getting them also online. So in NCR also, we have a good pipeline of projects drives part of the growth. And the next part of the growth is going to come from cities where we have been present for some time like Pune and in Hyderabad. We're actively looking for new opportunities there. And as and when things certified, we will add those into our pipeline and they should also contribute to our growth.
Sure. fairly clear. So with this 15%, 20% kind of growth can be targeted over the next, in the 3 to 5 years?
We would like to be consistent in how we would like to grow. And I think we have a decent pipeline for achieving that. So we should be able to target that number.
Got it. And just one last on margins before I jump back in the queue for follow-ups. Contractual business did see an improvement in margins this quarter. I think if I see the EBIT margins were around 14,15 -odd-percent. This is the way how we should look at this business now and then for the scale up in terms of margins will come from residential? And just one more there. Residential I'm not sure if I heard it correctly, but did you mention that we can clock 30%, 35% kind of EBITDA margin in the Residential business?
Your observation is right, Pritesh, That our, the contractual and manufacturing the margins have clearly improved because all the previous projects. Majority of the previous projects which we had been undertaking and where the costs have been higher we were, we completed those. And this, the new margins that we are seeing is some of the new projects that we have undertaken and in the last couple of, particularly in the last quarter, we managed to do a better job in terms of margins. These should be fairly steady from here on. And in Real Estate, this is, what I was mentioning was for any typical residential projects, whether it's today or in the previous time, it was all, we always aim for at least 30% margins, and we are seeing a slightly better than that 35% margins in some of the new projects that we have launched. And we'll continue to aim for that. And those will get reflected in the future is what I mentioned.
Next question is from the line of Mohit Agarwal from IIFL Securities.
So staying with the pipeline beyond FY '25, could you give a color on what could be the contribution from new project additions that you plan to do next quarter and onwards? And from your own land bank. So some sort of color as to be 50-50 from your existing land bank and new projects?
The pipeline that we have beyond this 15 million is largely from our existing land bank, because as focus in terms of capital allocation makes sense for us to make the current land bank more productive, and that would largely drive the new launches that will happen and the pipeline that we will create. And the new business development that we have just started doing in the last year or so, that will slowly come up, but the majority contribution will be from the existing land bank.
So the CapEx that you have been reporting quarterly, is that for betas you had earlier mentioned that you'll also be investing to consolidate your existing land parcels and investing in new projects. For the CapEx that you've been so far? Has it been towards consolidating land bank or towards new projects?
Majority is for consolidating land bank and any of the previous Qs that we have, for the existing land bank. And a small part of it is for the new deals that we have done.
Okay. Understood. My second question is, if you could elaborate a bit on the pricing behavior in the Bangalore market. I was looking at your Dream Makers project has been completed. It's a good example. You've doubled your price since 2015. So that's a high single-digit kind of a price increase. On a like-to-like basis, what has been that the realization number doesn't reflect because there's also a mix change over the last few years. So what is the like-for-like increase in prices that you have been able to take, let's say, in case of new launches and year-end subsequent phases?
If I may ask, so compared to what, in what time period you are mentioning Mohit?
Let's say, within a year, let's say, if you are launching a subsequent phase of an existing project versus the last phase, what kind of price increase have you been able to take for a like-to-like product, right? Let's say, it could be a year or I just wanted to understand the CAGR in pricing that we are seeing in Bangalore markets and your projects?
Okay. The project pricing the last 1 year has largely been nominal in terms of, for an existing project because there is a historical comparison of the project. And hence, when we increase the prices. That's relative to the old pricing. But for a new project, we are doing it much better pricing. So from a like-to-like basis, we, in a year, probably even if we had taken a couple of hikes, then it would be in the, it will be inflation plus maybe about [indiscernible] 3%.
Okay. Perfectly clear. And just one clarification, if I may. The 7 million square feet launch pipeline that you have for this year, could you share the GBV for that, the gross development value?
That would be at about, we can say at an average of about INR 11,000 to INR 12,000.
11,000 to 12,000. And similar for '25, right?
That would be the case, yes.
Thank you. Next question is from the line of Abhinav Sinha from Jefferies India.
My question is on, a, how much resi inventory left in Gurgaon now?
In, the resi inventory in Gurgaon is, in the existing pipeline, I mean, actually, we have just completed the project, which is Sobha City,sales that also has been completed in the last month. So we will have to do, in terms of inventory, it's all going to be new projects that are going to be launched. So that, if I see a visibility of that pipeline, there is a visibility of at least 4 million square feet.
No. In the international city, are we like completely sold out now or something is left?
International city is a villa project. And bearing completing Phase 1 and Phase 2. Phase 3 and 4 is a separate phase where we are looking to change the mix from the existing villas, and we are trying to see if we can change the mix. If we can do that, then probably we can achieve higher than what we had earlier in [indiscernible]. And once the clarity comes that we will add it in the pipeline. But the Sobha City, which is the apartment project, which was about 3.3 million square feet. That's the one which is completely sold out now.
Completely sold out now. Okay. So this may not contribute, I mean, still like, say, FY '25 when the next phase of in [indiscernible] starts right? So this will slow down now and then the second half of the year.
You are right. We are expecting to launch a commercial project, which we plan to do a sale model for part of the area, that should, if we are able to launch the project in the next quarter, then we will again see some pickup there.
Sector same?106?
Yes. Yes, yes.
Yes. Okay. And sir, in that context, are we on track or ahead of track of the 20% odd growth guidance that we were looking for?
Like I said, without any launches in the first half, we did about 60% of what we did last year, right? And with the new launches, typically the interest and the bookings should be definitely be better. So we have not changed, at least in terms of any kind of forecast here. But I think we should be, we are in a strong year in terms of achieving a much better number than that.
So fair to assume that 20% NCR will be made up by Bangalore and others broadly?
We hope to do so. Yes.
Right. Then my second question which I had was basically -- I mean, I think in one of the previous calls you had mentioned that promoters may look to do a rights issue or infuse some money in the company. Now with the pledging done -- flagging an away with basically, are we like closer to that in the next maybe 6 months or something?
The promoters and we are evaluating our capital requirements and the and also our ability to generate cash, further our future growth potential as we. So it's an ongoing discussion. And as things become clear, probably that at an appropriate time, we will be able to convey that. That's from a promoter interest point of view, in India, it still continues to be very high, and it's an active consideration for their capital allocation.
Next question is from the line of Kunal Lakhan from CLSA.
My first question is on our approach. So if you look at one of our Bangalore peers, had launched a very large project and launched all of the projects at once, and also so substantial in it. When I look at our Neopolis launch, like you said that 1,875 total units, but we launched about 825 units. And of which 40% sold, is it like a conscious approach to like launch in a phased manner? Or like is it like the demand is quite slow? I just wanted to understand, if you want to launch this entire project together what kind of demand you could get? And also like if you should, we should expect the same kind of a calibrated approach in the upcoming launches that you would do?
One have been following the approach of phase-wise launched in projects right from the inception. And that's how we have been seeing how our projects also have done well, while we are capturing some kind of increase in the pricing as well, right? So there are two points here. One is that we are slightly more premium in terms of the kind of volume that we can generate at a single launch is a little different from several other peers. Second is this approach has really helped us both from a project execution and also ability to capture slightly or able to realize slightly better pricing is, in both cases, it's been very helpful to us, and we continue to follow that approach. Second, while we are doing this, we are not ever to launching new phases as the demand picks up. In large projects nowadays, we have, we are, all the phases of the projects are approved. So as sales pick up we launched the new towers as well. So it's entirely dependent on the pace of sales that we can generate.
Sure. And also, like in terms of like when you said that 2.5 million, 2.5 million square feet to be launched in H2, which also includes some commercial development. I mean, again, like follow up on earlier questions only that are we being a little too conservative in terms of bringing in more supply to the market when the demand momentum seems to be pretty strong, and there are our peers are capitalizing on it? And so just wanted to understand. Your focus is slightly tilted towards value, but teams are also equally important to us.
We are conscious of -- we are really conscious of the demand scenario and our success would entirely depend on our ability to get the launches on as quickly as possible. We acknowledge that, and we are absolutely focused on doing it.
Sure, sure. Secondly, on our cash flow side, we did highlight that we're incrementally focused towards growth and debt is now manageable. So if you look at your cash flows, like after servicing debt, you're generating about INR 200 crore plus on a quarterly basis, so INR 900 crores annually. How much of this would you earmark towards your buying land on an annual basis?
So now we're allocating those towards debt reduction earlier. Now as we got comfortable, we have started doing it for the new opportunities as well. So going forward, it is entirely on two things. One is the quality of the opportunities that we get in terms of business development, both for consolidation and for new opportunities. And so that we can allocate there. And second is, if that's entirely not possible, then it will obviously go for reduction of debt. But I think our ability to generate positive cash flow will keep getting better as we, as we start launching these projects. which are specifically where we have invested a long while ago.
Sure. And my last question is on what's the status of occupation certificate on the [Sobha City project]?
So the status has not changed yet because we have contested what the [indiscernible] has done, and we are yet to see any change in the legal forum that we have approached has stayed the whole cancellation and that continues to be the case now.
Next question is from the line of [indiscernible] Desai from Total Capital.
So my first question is that the cities where we do not have land bank like NCR, Pune, Hyderabad. Considering where we are in cycle, do you think that if you acquire land at current prices, our threshold of 35% gross margin can be achieved? Or will that become a hindrance in terms of acquiring land bank?
Good evening, Panel. The NCR market, we do have a pipeline and a land bank there. It's not that we do not have, but given the demand environment and also outlook that we have, there is definitely scope for adding more to the current portfolio, and we are very actively looking at new opportunities.
So will it meet your 35% gross margin threshold that you are kind of working with.
Seeing opportunities there. We can do that, yes
Okay. Got it. And second, from, so just to understand the project economics for whenever you launch a project on your own land without [indiscernible] . Is it safe to assume that most of the land which is coming from your earlier land bank at historical cost, in the P&L, that cost will be less than INR 10,000, then your cost of construction would be around INR 4,000, INR 4,500. Is that a right number to work with?
Yes, that's a fair assumption.
Ladies and gentlemen, due to time constraint, we will take this as a last question for today. I now hand the conference over to the management for the closing comments.
Thank you, Adhidev. I express my sincere gratitude to all the participants in the call today. I hope we have answered some of your questions satisfactorily. In case of any further questions, please do reach out to us. We look forward to a good operational and financial performance in the next half of the financial '24. And particularly within optimistic outlook towards the economy and the residential sector. We believe Sobha is very well positioned to grow with the disciplined operational and financial model that we have built in the last several years. And we will continue to pursue our goals with passion. Wish you and your families advanced Diwali wishes and Thank you.