Embassy Developments Limited — Q4 FY22 earnings call

Call held 27 May 2022

Management summary

Indiabulls Real Estate (IBREL) is in a critical transition phase as it nears the completion of its merger with the Embassy Group. The quarter saw a strong recovery in pre-sales and collections, supported by a successful QIP and the receipt of OC for the Sky Forest project. Management is pivotally focused on liquidating finished inventory to aggressively de-leverage the balance sheet post-merger.

Highlights

  • New bookings grew 77% QoQ by value to ₹326 Cr, with 0.5 million sq ft sold in Q4.

  • Collections increased 14% QoQ to ₹333 Cr; full-year FY22 collections stood at ₹1,281 Cr.

  • Q4 Adjusted EBITDA rose 202% QoQ to ₹58 Cr, though margins stood at 21% vs 32% YoY.

  • Net debt reduced to ₹1,005 Cr against a gross debt of ₹1,310 Cr.

  • Received Occupation Certificate (OC) for Sky Forest, unlocking a net surplus of ₹1,032 Cr.

  • Concluded a QIP fundraise of ₹865 Cr (US$114 million) to retire debt and fund construction.

  • Total estimated net surplus from all projects (including planned) stands at ₹8,708 Cr.

  • Merger with Embassy Group is in final stages, with completion expected by July-August 2022.

Concerns

  • Near-term Debt Repayment

Key financials

  1. Revenue ₹273 Cr -23.3%QoQ
  2. Adjusted EBITDA ₹58 Cr +205.3%QoQ
  3. Pre-sales Value ₹326 Cr +77%QoQ
  4. Collections ₹333 Cr +14%QoQ
  5. Net Debt ₹1,005 Cr
  6. Construction Spend ₹134 Cr +22%QoQ

What they filed

Q1 FY27: revenue down 68.1%, net profit down 41.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue475 325 889 681 493 +4%213 −34%342 −62%217 −68%
EBITDA76 94 8 -11 -52 −168%-152 −262%-261 −3362%-131 −1091%
Net profit-34 -27 123 -166 -153 −350%-233 −763%-323 −363%-234 −41%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Revenue

  • Annual Pre-sales (Combined Entity) Revenue · FY23 · Medium confidence ₹2,500 - ₹3,000 crores
    what we are expecting to look to achieve is roughly Rs. 2,500 to Rs. 3,000 odd crores of sales per year. That is our target.

    — Sachin Shah, President

Debt

  • Net Debt Reduction (Combined Entity) Debt · next 12 to 24 months · Medium confidence 50% reduction from ₹6,500 crores
    over probably the next 12 to 24 months we expect that debt to reduce by more than half, just based on kind of the finished inventory that we have.

    — Sachin Shah, President

Other

  • London Receivables Recovery Other · by December 31, 2022 · High confidence £60 million (~₹620 crores)
    Roughly £60 million odd is remaining... assured the company that those funds would come in before December 31st 2022.

    — Sachin Shah, President

  • Gurgaon Land Sale Proceeds Other · next 2 to 3 months · High confidence ₹500 crores
    the proceeds for 106 are expected possibly in the next kind of two to three months. The definitive agreement has been signed.

    — Sachin Shah, President

Volume

  • Commercial Development Pace Volume · per year · Medium confidence 1.5 million sq ft
    what we would love to do is to develop at least 1.5 million square feet of commercial per year.

    — Sachin Shah, President

Risks & concerns

  • Near-term Debt Repayment

    high

    ₹964 Cr of debt needs to be repaid or refinanced in less than a year.

    Management acknowledged

  • RERA Deadline Defaults

    medium

    Past projects like Enigma and Centrum have missed RERA deadlines; management is working on settlements with RWAs.

    Analyst acknowledged

  • Construction Cost Inflation

    low

    Management believes the recent spike in material costs is temporary and has already been factored into pending cost estimates.

    Management downplayed

Areas of evasion (2)

  • Specific valuation of the 3,000-acre land bank.
  • Stabilized fixed overheads for the merged entity (gave a range but admitted it's too soon to predict).

Q&A highlights

3 direct
Merger Timeline Delays Direct
I would definitely say that we are now weeks away from a merger being completed as opposed to months.

Investors were concerned about the shifting timeline; management provided a high-conviction near-term deadline.

Asked by Manish Agarwal, JM Financial

Debt Profile Post-Merger Direct
while we have debt of roughly Rs. 6,500 crores we will have proceeds of roughly Rs. 3,000 crores to offset that debt.

Clarifies that while the headline debt figure will jump post-merger, the cash inflows from land sales and receivables will significantly mitigate it within the first year.

Asked by Jeevan Patwa, Sahasrar Capital

Pricing Trends for BLU Project Direct
BLU today, we have some seven units left to sell. It is basically our podium units... so the price reflects some of that.

Explains the apparent dip in realization per sq ft as a product-mix issue (selling less desirable units) rather than a market-wide price correction.

Asked by Anirudh Agarwal, AAA Investments

2 min read 5 chapters

Detailed narrative

Merger Integration and Final Approvals

The merger with Embassy Group is nearing its conclusion with NCLT Bengaluru already having approved the scheme. Management expects the final hearing at NCLT Chandigarh shortly, targeting a full completion between July and August 2022. Integration efforts are already underway across project operations, accounting, and HR policies to ensure a smooth transition into a larger platform.

Aggressive De-leveraging Strategy

Post-merger, the combined entity will start with approximately ₹6,500 Cr of debt. However, management has a clear plan to reduce this by more than 50% within 12-24 months. This will be funded by ₹3,000 Cr of near-term cash inflows, including ₹620 Cr from London receivables, ₹500 Cr from the Gurgaon land sale, and ₹1,000 Cr from the newly OC-received Sky Forest project.

Inventory Liquidation as a Growth Driver

The company is pivoting its focus toward liquidating finished and near-completed inventory, which offers a combined net surplus of ₹5,500 Cr (₹2,000 Cr from IBREL and ₹3,500 Cr from Embassy). This strategy aims to generate ₹2,500 - ₹3,000 Cr in annual sales without the execution risk of new construction. The receipt of OC for Sky Forest is a major milestone in this 'finished inventory' push.

Launch Pipeline and Premiumization

New project launches are slated for early calendar year 2023, including the high-value BLU Annex in Worli (900,000 sq ft with ₹3,000 Cr GDV) and the Juhu project in Q4 FY23. Management expects realizations for these new launches to hold above ₹30,000 per sq ft. The company is also exploring the launch of Phase II in Thane and Sector 104 in Gurgaon, each estimated to have a GDV of ₹1,000 Cr.

Commercial Portfolio and Asset Monetization

The Embassy merger brings a massive 42.5 million sq ft commercial land bank, primarily in Bengaluru. Management plans to develop at least 1.5 million sq ft of commercial space annually but is also evaluating converting some portions to residential or plotted developments to churn capital faster. The company intends to build, lease, and then sell these assets to REITs or institutional investors for stable income monetization.

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