Arvind SmartSpaces Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Record bookings, margin optics lag: Best-ever quarter for booking value and collections, but 9M EBITDA grew only 6% despite 71% revenue growth because recognition concentrated in two low-margin projects and sales promotion costs are expensed upfront.
• Normalized margins seen at 22–25%: Management is not worried by the current 18% print; fresh-sales MIS shows margins beyond 22–23% and more like 25%, and the lag is expected to taper as the growth base stabilizes.
• Demand depth called unprecedented: Momentum is driven by first and second home buyers, not bulk investors, and management says it has not seen a cycle with such great depth in more than a decade.
• Pipeline build signals aggressive growth: ₹800–1,000 crore of land addition capex is expected in coming months, translating to 8–10 launches over the next four quarters, with a target of one or two project launches every quarter.
• What to watch next quarter: Whether Sarjapur launches within Q4 FY23 as guided, the pace of Platform 2 deployment with HDFC, and any sign that the small demand tapering noted this quarter becomes a trend.

Bookings & Revenue Recognition

• Booking value hit a record: The quarter delivered the highest-ever booking value and collections, driven by a strong operations cycle spanning new sales, construction and delivery.
• Revenue recognition lagged bookings badly: 9M revenue grew 71% but EBITDA grew only 6% because the top line was concentrated in two low-margin projects, Aavishkaar and Oasis, which carried specific interest-cost capitalization.
• Accounting mismatch amplified the gap: Sales and promotion expenditure for fresh bookings of ₹600–800 crore is expensed immediately under accounting standards, while only ₹50 crore of that flows to the top line in the same period.
• 9M fresh sales already exceed the ₹550 crore mark: At ₹558 crore for 9M FY23, fresh sales compare against ~₹600 crore for all of FY22; management says the 9M trend shows 25–30% YoY growth being achieved.
• Sales volume grew, not just value: Volumes rose 14% QoQ and 17% YoY for 9M; an analyst confusion arose from misreading 0.73 as 0.07.
• Average realization variability is mix-driven, not a price signal: The portfolio spans horizontal projects selling between ₹6,000 and ₹30,000 per sq ft in Bangalore alone; prices have been increased in most projects over the last couple of quarters.

Singal: "Yes, very comfortably between 20% to 25%. In fact, we keep analysing these numbers for the fresh sales that we do. And if you were to draw that MIS for ourselves, I think we'll be very comfortable beyond 22%, 23% and more like 25%."

Demand Environment & Consolidation

• Demand depth called a once-in-a-decade cycle: Momentum is driven by first and second home buyers rather than bulk investors, which management views as more sustainable; some small signs of tapering appeared but momentum remains strong.
• Organized-player shift is a structural tailwind: Even if the total market slows, volumes are shifting from unorganized to organized and corporate players, a trend management calls clearly visible and playing out.
• Horizontal bets paid off: A very significant portion of overall investments went into horizontal projects over the last 4–6 quarters because management spotted a strong post-COVID consumer preference shift toward horizontal early, and that led to decent dividends.
• Home-loan penetration reflects buyer profiles: Vertical projects see 70–80% home loan share; horizontal plotted and villa projects see ~30%, and banks now fund plotted-property purchases comfortably, disbursing the entire money within 12–14 months versus far more stringent norms a few years back.

Singal: "In my experience, last one, more than a decade, we haven't seen a cycle like this with such great depth."

Margins & Profitability Focus

• Current 18% margin is a fluctuation, not a reset: Management expects normalized margins comfortably between 20% and 25%; fresh-sales MIS already shows beyond 22–23% and more like 25%.
• The margin lag will taper: Once the growth cycle stabilizes and the base becomes more reasonable, the accounting mismatch between upfront sales promotion costs and delayed revenue recognition will narrow.
• New BD prioritizes profitability over top line: A ₹3,000 crore top line from a horizontal mix can deliver the same or better EBITDA and PAT than ₹5,000 crore or even ₹8,000–10,000 crore from a vertical mix, because the capital efficiency and margin profile differ sharply.
• Horizontal vs vertical returns quantified: ₹300 crore invested in horizontal products yielding ₹800–900 crore top line is expected to deliver higher bottom-line EBITDA and PAT than the same ₹300 crore invested in vertical products.
• ROE already in double digits on a presales tracking basis: P&L-based ROE may not reflect ground reality in real estate; management aims to be fairly comfortable and lead most peers on ROE through product mix, structuring and a low-equity focus.

Singal: "An INR 1,000 crore investment can give you a top line of INR 10,000 crore, INR 5,000 crore or INR 3,000 crore. But what is equally important is what is the bottom line that each of these numbers can give us. INR 3,000 crore can give almost the same or better bottom line than an INR 5,000 crore or even INR 8,000 crore to INR 10,000 crore."

Project Pipeline & Launches

• Greatlands Phase 1 sold out in hours: Launched at Devanahalli, Bangalore, and almost the entire launched inventory was sold within 10 hours.
• Two near-term Bangalore launches: Sarjapur is at the very last stages of approvals; if the RERA process starts in the first week of February, launch is targeted by end of February, though the timeline is tight and could slip a couple of weeks. Greatlands Phase 2 approval is expected within 1–2 days, then RERA, then launch, and will happen in Q4 FY23 for sure.
• Doddaballapur and North Bangalore expected in Q1 FY24: The Doddaballapur Road project, now 34 acres with a topline of ~₹315 crore after a ~7-acre addition under HDFC Platform 2, is likely to launch in 3–6 months.
• All 4–5 pipeline projects should hit the market in 3–6 months: On average, 4–5 months is the expected range for the pipeline to convert to launches.
• South Ahmedabad aggregation underway: The 16th project in Ahmedabad, an 84-acre plotting development wholly owned, carries an estimated topline of ₹150 crore and has potential to increase size by 2–3x subject to technical due diligence; management is not in a hurry to launch and will take more time to consolidate the overall area.
• Platform 2 deployment to ramp up: ₹300 crore of the ₹900 crore HDFC Platform 2 is committed across two projects so far (Fruits of Life and Doddaballapur); management hopes to ramp up deployment in coming months and says this quarter should be a good quarter.
• Land addition capex of ₹800–1,000 crore expected in coming months: This translates to 8–10 launches in the next four quarters, which can be further boosted by JDs with lower capital requirements; management is confident of creating a visible gap between fresh sales and new additions very soon.

Singal: "We don't want to add projects just to add top line. We have to have a very rational mix of projects, which makes sense in terms of not only top line, but also bottom line."

Land & Capital Strategy

• No land banking: All acquired or definitive-stage land is disclosed and is either launched, on the verge of launch, or already sold; the idea is to acquire land and hit the market in the fastest, earliest possible manner.
• Bangalore land acquisition reform is a structural unlock: In the last 1.5–2 years, the company can now buy land directly from farmers in Bangalore, develop and sell; the previous hindrance requiring farmer registration has been removed.
• Corporate advantage in land deals is widening: Sellers increasingly understand who can close a deal and honour promises, creating a tilt in favour of corporate organized players, which management sees as an opportunity.
• ROE will be balanced against contingent liabilities: Management does not want to chase volume through JDs that add disproportionate contingent liabilities without adding a corresponding, rational bottom line.

Singal: "The idea is to acquire land, not for creating a land bank. Its idea is to hit the market the fastest possible manner, the quickest in the earliest possible manner."

Geographic & Product Mix

• Medium-to-long-term geographic target: 40% Ahmedabad, 40% Bangalore, 20% MMR and Pune; MMR share may increase once a foothold is established.
• MMR entry targets the suburbs: Focus is on Thane, Kandivali and Dahisar macro markets at ₹15,000–20,000 per sq ft carpet area, not the ₹50,000–1 lakh per sq ft markets.
• Pune and MMR teams are in place: Energies are being devoted to both markets; management expects to be able to start a few things in the coming months.
• Product mix to rebalance toward verticals: After a heavy horizontal tilt in recent investments, management is now looking very aggressively at verticals again and expects an equal proportion of horizontal and vertical over the long term.
• Portfolio breadth absorbs micro-dynamics: The mix spans luxury, mid-price, horizontal, large villas, small villas, large plots, golf and non-golf projects; management says the good news is that it is all getting balanced out.

Guidance & Commitments

Key Metrics