Arihant Superstructures Ltd Q2 FY2023 Concall Summary

Key Takeaways

• Sales resilient, margins flat: H1 sales value rose ~10% YoY to ₹367 Crores despite rising mortgage rates, but Q2 EBITDA was essentially flat YoY at ₹20.19 Crores.
• Launch pipeline is the growth engine: Two launches totalling ~640 units are slated for Q3, with four more in Q4, and management sees good revenue visibility over the next two years from ongoing projects.
• Debt strategy pivots to self-funding: Management stated no construction debt will be raised for current businesses going forward, with cash flows from 17–18 running projects funding growth and a group-level debt reduction targeted over the next four to five quarters, though debt for land acquisition could be considered for a great opportunity.
• Aakarshan project on hold: Construction and sales halted pending an environmental study, though the company holds all regulatory clearances; management expects bookings to continue once the project restarts.
• What to watch next quarter: Whether the heavy Q3 launch slate converts into bookings that close the gap to the full-year target, and whether easing raw material inflation actually lifts margins.

Sales & Operational Performance

• Topline grew, profitability stalled: Q2 revenue grew 37% YoY and H1 revenue grew 21.9% YoY, but Q2 EBITDA was flat at ₹20.19 Crores. H1 EBITDA margins stood at 18.66% and PAT margins at 10.68%.
• Monsoon and rates bit into momentum: Heavy monsoon and a fast-track increase in mortgage rates dampened sales as buyers took time to absorb higher interest costs. Pricing was kept almost similar to Q1, with only a 2–3% increase.
• Collections kept pace: H1 collections grew 11.7% to ₹227.9 Crores from ₹204 Crores, tracking the sales growth.
• Customer base is broad and local: Clients are predominantly salaried workers earning around ₹30,000 a month, coming from nearby neighborhoods, with a mix spanning IT, small businesses, and industrial zones. Management cannot point to any single sector driving demand.

Chhajer: "In the Q2, we had a heavy monsoon and we had quite a lot of increase in the mortgage rates which indeed had some effect on the sales momentum as it takes some time for people to digest and consume the increase in the interest rates when they are deciding to buy or purchase their property."

Launch Pipeline & Project Updates

• Q3 launches are imminent: Arihant Aaradhya at Kalyan Annexe (~440 units) launches this month (November), and Arihant Aayan at Titwala (~200 units) is expected in Q3 once approvals and RERA submissions are complete.
• Q4 and beyond: Four more projects are lined up for Q4: Arihant Aspire (Panvel), Arihant Anmol (Badlapur), Arihant Aloki (Karjat), and Arihant Arshiya (Khopoli), covering a mix of affordable and mid-income segments. The Shilphata JV launch is scheduled for Q1 of the next financial year.
• Construction commenced at Vashi: Arihant Advika started construction in Q2 and is seeing strong execution progress. At Kalyan, two buildings are already at an advanced stage, giving an advantage at launch.
• Project life cycles are short: Shilphata, a high-rise, has a ~4–4.5 year life span, while Titwala and Kalyan phases are expected to complete within 3 years.
• Jodhpur poised for a pickup: OC was received last week for one building at Adita (Juvana), and management expects ready inventory to reduce significantly over the next two quarters, after which new buildings will start on the balance land.

Margins & Cost Environment

• Raw material costs were mixed: Steel prices came down considerably in Q2, but cement prices rose, leaving overall construction costs similar to May/June levels.
• Inflation easing is the margin thesis: Management pointed to softening global inflation and October CPI prints as signs that raw material prices and broader inflationary pressures should ease in the next quarter or two, which would help margins. Rate hike concerns on home loans are also expected to peak out.
• No quantified margin guidance: When asked what margin improvement to expect, management declined to quantify, citing dependency on raw material movements and product mix.

Balance Sheet, Debt & Cash Flows

• Debt strategy has shifted decisively: Management was explicit that no construction debt will be raised for current businesses going forward. Cash flows from 17–18 running projects will fund growth and construction. Debt on a land stage could be considered only if a compelling opportunity arises.
• Group-level deleveraging underway: The company is looking to reduce debt at the whole group level over the next four to five quarters, and could see a reduction within this financial year itself. Incremental debt this year will not be large.
• NCDs deployed for land: The ₹45 Crores of NCDs raised in Q1 were mostly used for new acquisitions, including the Shilphata JV land and Titwala land.
• Inter-subsidiary land transaction unlocks value: Arihant Abode Limited sold ~12 acres at Panvel to Arihant Vatika for ₹69 Crores. Since ASL holds the same shareholding in both entities, the transaction is neutral at the holding level but strengthens Arihant Abode financially and allows faster development of the land parcel without taking on considerable debt.

Chhajer: "For the current businesses we would not be requiring any kind of construction finance going further so no kind of construction debt would be raised... the company is at a whole group level looking to reduce debt over the next four to five quarters."

Aakarshan Project Halt

• Environmental study triggered the pause: A government agency has sought a study of the total region around 2 kilometers. As a responsible corporate, the company halted construction activity until the study is completed, which could take maybe around 4 to 5 months. Management stressed that all NOCs and clearances are in place, including the commencement certificate, RERA certificate, environmental clearances, and consent to establish from MPCB.
• Sales also paused, but not lost: Sales have been halted alongside construction. Management expects that once the project restarts, those bookings will continue. No timeline was given for resolution.

Guidance & Commitments

Key Metrics