After Godrej Properties announced its Q1FY23 results, analysts said cash flow generation is going to be crucial for the company. The company’s net debt went up by 490 crore in the first quarter as its generated just20 crore of operating surplus and spent Rs 540 crore on land buys. It also recently announced that Gaurav Pandey, CEO of the north zone, will take over from Mohit Malhotra as the MD and CEO from January 1, 2023. In an interview with Raghavendra Kamath, Mohit Malhotra discusses the company’s strategy to boost cash flows and the outlook for the sector.
Generation of cash flows was weak in Q1FY23. Please share your plans to boost cash flows and reduce debt in the current and coming quarters.
We are keeping a close eye on our cash flows but we should expect volatility in quarter-on-quarter (q-o-q) cash flows as certain quarters will have limited milestone achievement (due to seasonality or absence of payment milestones). On a full-year basis, we expect to significantly improve on operating surplus as we focus on occupancy certificates (OCs) and deliveries resulting in a higher collection from the existing customers. On debt reduction, we are clearly under-leveraged with net debt to equity at 0.1x. With more than Rs 4,000 crore cash on books, we will look to deploy the cash first over the next few quarters which will result in a net debt increase.
The management has given FY23 sales guidance of over Rs 10,000 crore. It expects to grow the same by 20% over the next 2-3 years. How do you plan to achieve this?
We have a robust launch pipeline for FY23 (Ashok Vihar, Pune Township, Worli) which will help us achieve these aspirational targets. We are also in a very advanced stage to sign some large projects. With our cash on books, headroom for higher debt and internal accruals, we are well-placed to achieve the desired booking value growth.
How are the land prices behaving now given that sales have picked up in recent months?
While land prices have somewhat responded to the higher demand in residential projects, we continue to be one of the few developers who have the balance sheet strength to quickly close transactions. In addition, we only look at assets which we can launch as soon as possible. With commensurate price increases in the sector, we see the limited impact of change in
Will the company limit land acquisitions if cash flows do not pick up as expected?
We are very hopeful to improve operating cash flow going forward. With respect to land acquisition, as of now, we have Rs 4,000 crore of cash to be deployed for new business development. We can leverage the balance sheet if required for new business development activities. We believe the real estate sector is on an upward trajectory and business development will remain a key focus for us.
How has been the impact of rising interest rates on your sales in Q1 and Q2 so far?
As of now, there is no impact on demand. Our best-performing zone (Mumbai /Thane) witnessed not only a rate increase but a stamp duty hike by 1%. Despite the headwinds of interest rate and stamp duty, our projects in Mumbai and Thane saw exceptional demand.
What is your outlook for residential sales for FY23 given that rates are expected to go up further?
The residential market is doing good and absorbing the gradual price increase. Most of the customers are genuine end users, so the outlook looks positive going forward as well. In the last upcycle, during FY10-13 the home loan rates were in the range of 9-10% which is still significantly above the current rates. While we remain optimistic, we will closely monitor any change in buyer behaviour going forward and respond accordingly.
Will you tweak your apartment sizes, project size, and ticket prices if you see slackness in demand going forward?
We are designing products based on market study, demand and absorption. We offer various ticket sizes of products based on individual needs.
Many start-ups have been downsizing and corporates are talking about hybrid spaces. Have you seen the impact of these trends on your residential sales and office leasing?
Residential demand has not been impacted by the job cuts in the startups. We feel hybrid spaces add to the
requirement of higher unit sizes in apartments. Office leasing has also picked up gradually.