Sobha Ltd Q2 2021 Earnings Call Hosted by ICICI Securities Ltd Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Kunal Lakhan - CLSA - Analyst : On Bengaluru, if you look at the sales contribution from Bengaluru was about 60% this quarter versus their normalized rate of 75%. Would you see this as a one-off or will this be a new trend that Bengaluru will contribute less than what it has been contributing in the past, considering like there has been a reverse migration of workforce out of metros like Bengaluru due to work-from-home. How do you see this contribution going ahead, sir?

Question: Kunal Lakhan - CLSA - Analyst : So, let me ask this a little differently. So, we did about 5 lakh square feet in Bengaluru, 540,000 odd, which is about say 30% lower than our pre-COVID run rate. When do you expect the Bengaluru run rate to come closer to our pre-COVID run rate?

Question: Kunal Lakhan - CLSA - Analyst : And just to touch upon a point on the market share. So, if you look at -- Bengaluru volumes are down almost 50% for the industry whereas we are down say about 25% to 30% and we have gained market share. How much of this market share gain will you sustain going ahead you think? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 09, 2020 / 10:30AM, SOBH.NS - Q2 2021 Sobha Ltd Earnings Call Hosted by ICICI Securities Ltd

Question: Kunal Lakhan - CLSA - Analyst : Just one last question to Subhash. The other income was slightly hired about INR24 crore this quarter. What was it about?

Question: Kunal Lakhan - CLSA - Analyst : Okay, which land was this?

Question: Kunal Lakhan - CLSA - Analyst : Okay, any details on the acreage?

Question: Puneet Gulati - HSBC - Analyst : A few questions, number one, your price realization was up this quarter. Would you attribute it to any price increase that you would have taken or is it largely product driven? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 09, 2020 / 10:30AM, SOBH.NS - Q2 2021 Sobha Ltd Earnings Call Hosted by ICICI Securities Ltd

Question: Puneet Gulati - HSBC - Analyst : But you are saying you have not taken any price increase. The reduction in discounts would have been to the extent of 3%. Is that the right way to interpret it?

Question: Puneet Gulati - HSBC - Analyst : My second question is to do with the new launches. While the new launch pipeline looks quite exciting, but over the last three quarters we haven't seen much. What is holding you from launching these projects and is there still a risk of being delayed by a few more quarters?

Question: Puneet Gulati - HSBC - Analyst : So, it should be fair to expect 3 million square feet kind of launch in this third quarter itself?

Question: Puneet Gulati - HSBC - Analyst : My third question is on the cash flow. So, while the cash flow did improve quite impressively and the land payments have also come down, is it fair to assume that land payments will remain at these levels or should we expect it to go back to INR20 crore to INR30 crore level again? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 09, 2020 / 10:30AM, SOBH.NS - Q2 2021 Sobha Ltd Earnings Call Hosted by ICICI Securities Ltd

Question: Puneet Gulati - HSBC - Analyst : Lastly on the margin front, can you give more color on whether these margins will likely go up from here or is there a risk of it going down at all given the way construction cost would have behaved in the near term with high level and other material prices and commodities also going up?

Question: Swagato Ghosh - Franklin Templeton - Analyst : One clarification -- in the first quarter, we had [1.9] million square foot of cancellations. I just wanted to understand if any of those canceled units have come back as sales in the last six months to the previous [balance]. I'm not looking for any exact numbers, but if there's anything significant or any relative comments it will be very helpful.

Question: Swagato Ghosh - Franklin Templeton - Analyst : Yes, yes. That is a very clear clarification. So, the second question is if I look at your presentation, you give this buyers profile. So, one takeaway for me is that the percentage of people who have taken bank loans is up significantly. It was 66% in last quarter's presentation, it was 73% now and, if it is 12 month rolling numbers, then I am assuming the last three months are heavily tilted towards bank loan customers. So, please help me understand if that is indeed happening, whether you are seeing more incremental service which are backed by bank loans?

Question: Swagato Ghosh - Franklin Templeton - Analyst : Right. And does it also mean that if you have more of these bank loan backed sales for us also cash flow uncertainty will be lesser?

Question: Swagato Ghosh - Franklin Templeton - Analyst : Right. The last question from a broader strategy perspective, from the forthcoming launch pipeline, you have quite a bit coming from non-Bengaluru markets. And this kind of goes back to your comments on the first question I asked, that you are seeing some traction on non-Bengaluru markets as well. But generally your performance in non-Bengaluru has not been as good as your Bengaluru performance. So, for these new launches what kind of differentiated strategy product commissioning you might have to have as good as performance as your Bengaluru market?

Question: Swagato Ghosh - Franklin Templeton - Analyst : Okay, so what I also wanted to understand, what have we started doing differently, if anything, in other markets that our performance has picked up there? Or was it more or less a market-wide thing that the entire market has picked up? And hence we are also getting a benefit of that?

Question: Sameer Baisiwala - Morgan Stanley - Analyst : On the first side, which is [actually] on the cash outflow side, if you look at the real estate project cost and contract project cost, we are still running at roughly about half of what we were doing pre-COVID. Isn't it at INR220 crore and INR160 crore? So, when all sites are operational, etc., then why are these costs still so low and what is the outlook on that?

Question: Sameer Baisiwala - Morgan Stanley - Analyst : So, how would this trend versus the number which was in Q2? Or -- so, how would the construction spend for real estate which is INR220 crore in Q2 and INR167 crore for contract business -- how would these two numbers trend as we go forward over the next two or three quarters?

Question: Sameer Baisiwala - Morgan Stanley - Analyst : Okay, great. And second question is when I look at your slide 15 ongoing, which is not offered for sale, roughly 7 million square feet, you have put the execution cost at INR27 billion, so roughly about -- or INR4,000 per square feet. Is that what you're construction cost? I thought it was more closer to INR3,000-plus sort of range.

Question: Sameer Baisiwala - Morgan Stanley - Analyst : If you look at the realization also is higher at 55 (multiple speakers)?

Question: Sameer Baisiwala - Morgan Stanley - Analyst : So, for these two minor ones, which I believe is Kochi and the International City in Gurgaon, what is your construction cost in these two projects?

Question: Sameer Baisiwala - Morgan Stanley - Analyst : Okay, great. But still the average is working out to INR4,000. That is the reason why I was asking this question.

Question: Sameer Baisiwala - Morgan Stanley - Analyst : Okay, I will take it off-line. The other question is on the forthcoming launches, you mentioned five projects for Bengaluru totaling 6.7 million square feet. So, I just wanted to check what is the size of the top two projects -- just to see if it is a single phase or multiphase projects.

Question: Sameer Baisiwala - Morgan Stanley - Analyst : These are the top two projects over there?

Question: Sameer Baisiwala - Morgan Stanley - Analyst : With your permission one final question. When I look at your customer profile and you have in the bracket of 1 crores to 2 crores and 2 crores to 3 crores, what is the affordability, is your best guess, with the customers over there? Do they earn INR50 lakh and therefore they can buy five times at INR2.5 crore sort of a rule of thumb affordability or are your numbers any different? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 09, 2020 / 10:30AM, SOBH.NS - Q2 2021 Sobha Ltd Earnings Call Hosted by ICICI Securities Ltd

Question: Sameer Baisiwala - Morgan Stanley - Analyst : So, your guess is affordability is actually less than five?

Question: Sameer Baisiwala - Morgan Stanley - Analyst : Yes, that is right. But what is that ratio between the income and the home value (multiple speakers)?

Question: Sameer Baisiwala - Morgan Stanley - Analyst : Okay, great. Thank you so much, sir. Very helpful.

Question: Abhinav Sinha - Jefferies LLC - Analyst : A few questions. So, you have talked about second-half sales could be better than first-half. Can you give us an idea how October has trended so far -- October and November?

Question: Abhinav Sinha - Jefferies LLC - Analyst : Good to know that, sir. Secondly, on the contractual business, I'm not sure if I followed the previous answer. So, do you think the current revenue run rate will also increase substantially or let's say back to last year's level in the next two or three quarters? Or you're just a little bit off from there?

Question: Abhinav Sinha - Jefferies LLC - Analyst : So, basically, [the tours] here will continue to lag substantially or at least the real estate side of the business in the (multiple speakers)?

Question: Abhinav Sinha - Jefferies LLC - Analyst : Understood, thanks. And just one last question, this is more on the accounting side. So, the notional interest part has come down substantially on a QoQ basis from INR903 million I guess to INR499 million. What explains this and what is the level we are looking at going forward?

Question: Abhinav Sinha - Jefferies LLC - Analyst : Okay, but you will see that the current quarter one is more of an adjustment of the previous one as well (multiple speakers)?

Question: Abhinav Sinha - Jefferies LLC - Analyst : One last question, please. So, on the CapEx and land price, any substantial payout which we can expect in the next let's say even four odd quarters that you can flag to us?

Question: Abhinav Sinha - Jefferies LLC - Analyst : Okay, and on the CapEx bit?

Question: Mohit Agrawal - IIFL - Analyst : My first question is now that we are tracking in terms of both inquiries and sales above the pre-COVID levels, would you like to guide us on what kind of volume we'll see in the medium-term? You will be doing INR4 million, so where do we go in the next two to three years?

Question: Mohit Agrawal - IIFL - Analyst : Sure, but broadly, like even if our guidance is broadly like a double-digit growth is easily doable you think going forward? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 09, 2020 / 10:30AM, SOBH.NS - Q2 2021 Sobha Ltd Earnings Call Hosted by ICICI Securities Ltd

Question: Mohit Agrawal - IIFL - Analyst : On the debt numbers, you said that second half you expect the debt to go down. Again, any desired level of net debt to equity that you target by the end of the year and then a medium-term target that you are able to do?

Question: Mohit Agrawal - IIFL - Analyst : Just a last one from my side that the share of premium projects are -- projects with higher realization have gone up this quarter. Could you share what proportion of sales could have come from NRIs? Is that possible?

Question: Mohit Agrawal - IIFL - Analyst : That's very helpful. Thanks a lot and wish you all a very Happy Diwali.

Question: Parvez Akhtar - Edelweiss Securities - Analyst : Just one question from my side. How is collection efficiency now especially after all the disruptions that we have seen? So, how is it likely to be in Q3 and in Q4?

Question: Mohit Agrawal - IIFL - Analyst : All the best for the future and Happy Diwali to everyone.

Question: Dhaval Somaiya - PhillipCapital - Analyst : I just have one question. Subhash, interim overhead continues to remain contained to the levels of around INR36 crore-odd. Can we expect the

Question: Dhaval Somaiya - PhillipCapital - Analyst : Thank you and Happy Diwali.

Question: Sreesankar Radhakrishnan - JB Arsen - Analyst : A couple of questions. The first one is new people who have actually bought the apartment, what is the ratio of the first time buyers in that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 09, 2020 / 10:30AM, SOBH.NS - Q2 2021 Sobha Ltd Earnings Call Hosted by ICICI Securities Ltd

Question: Sreesankar Radhakrishnan - JB Arsen - Analyst : Okay. The second question is, see, you mentioned about your raw material scenario. You have not seen much of an increase, but I see that -- if I understood clearly, that was the message that came about. But when I look at the cement companies and steel companies, etc., everybody has given us very strong quarterly number in terms of realization increase of the spread, etc. So, do you think this is going to have a further pressure on the pricing for steel and cement, basically your raw material? Or you think it is going to have a much more subdued outlook going forward?

Question: Sreesankar Radhakrishnan - JB Arsen - Analyst : Okay. Going forward, the kind of -- because you are more like a large buyer rather than a retail buyer, so probably would have got much more discount, right?

Question: Sreesankar Radhakrishnan - JB Arsen - Analyst : Okay. My last question is with regard to your inflation on the wage front. So, because of COVID probably -- have you seen many of your unskilled people actually leaving and for coming back you have to pay extra, etc., or it's fairly normal?