TARC Ltd — Q2 FY25 earnings call

Call held 12 Nov 2024

Management summary

TARC Ltd reported strong operational performance in H1 FY25, with presales growing 6x YoY to ₹1,322 crores, reinforcing confidence in its ₹5,000 crore FY25 guidance. The company successfully refinanced ₹1,000 crores of debt, reducing interest costs and setting a target to be debt-free within two years. Project execution is on track, with Tripundra nearing completion, and a robust pipeline of luxury residential developments is planned from its extensive land bank.

Highlights

  • H1 FY25 presales totaled ₹1,322 crores, marking a 6x growth over the previous year.

  • The company maintains its FY25 presales guidance of ₹5,000 crores.

  • Three launched projects have a combined revenue potential of over ₹7,500 crores.

  • TARC Tripundra is 80% sold, with OC expected by Q4 FY25, contributing roughly ₹1,000 crores in revenue.

  • Current total debt stands at ₹1,650 crores as of September 30, 2024, after refinancing ₹1,000 crores of NCDs.

  • Management aims to become totally debt-free within the next two years.

  • Approximately 200 acres of the 500-acre land bank are developable over the next 3-5 years.

  • Unsold inventory across the three launched projects is ₹4,500 crores, with an average selling price of ₹20,000-25,000 per square foot.

Concerns

  • Unaudited subsidiary financial statements

Key financials

  1. Presales H1 FY25 ₹1,322 Cr +500%YoY
  2. Total Revenue Potential (3 Projects) ₹7,500 Cr
  3. Current Debt ₹1,650 Cr
  4. Collections (3 Projects till date) ₹750 Cr
  5. Unsold Inventory (3 Projects) ₹4,500 Cr
  6. Remaining Construction Spend (3 Projects) ₹2,000 Cr

What they filed

Q1 FY27: revenue up 185.5%, net profit down 57.4% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue4 9 12 76 7 +75%38 +322%209 +1642%217 +186%
EBITDA-24 -11 -84 -120 -36 −50%-18 −64%-90 −7%40 +133%
Net profit-67 -29 -105 54 -16 +76%-21 +28%2 +102%23 −57%
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

Presales

  • FY25 Presales Presales · FY25 · High confidence ₹5,000 crores
    We have given a number of 5,000 crores. We are very confident of achieving it from our existing projects.

    — Amar Sarin, Chief Executive Officer

  • FY26 Presales Presales · FY26 · Low confidence Higher than FY25
    We have been growing as a company. So, I think, that is showing the trend, but at the right time, we will come out with the guidance.

    — Amar Sarin, Chief Executive Officer

  • USD 1 Billion Presales Presales · in the near future · Medium confidence USD 1 billion
    I can't give a definite date, but that is the target of the company to get to 1 billion. Sooner than later, that's the idea.

    — Amar Sarin, Chief Executive Officer

Debt

  • Debt Reduction Debt · within the next two years · High confidence Totally debt free
    the strategy and the goal of the company is within the next two years to become totally debt free and that is what we are working on.

    — Amar Sarin, Chief Executive Officer

Project Completion

  • TARC Tripundra OC Project Completion · within the last quarter of this financial year (by March) · High confidence Obtain OC
    we are looking to apply for our occupation certificate within the last quarter of this financial year.

    — Amar Sarin, Chief Executive Officer

  • All 3 current projects completion Project Completion · next 42 months · High confidence Within 42 months
    Within the next 42 months, we should be completing these three projects. One project, like I said, is going to be between six and nine months, and the other two are going to take 36 months from there.

    — Amar Sarin, Chief Executive Officer

Collections

  • Additional Collections Collections · FY25 · High confidence ₹700 crores
    for the whole year, we should be getting close to 700 crores additional apart from whatever we have done in this financial year.

    — Amar Sarin, Chief Executive Officer

Land Bank Development

  • Developable Land Land Bank Development · next three to five years · Medium confidence 200 acres
    around 200 acres of this total land bank will be used in the next three to five years for our developments.

    — Amar Sarin, Chief Executive Officer

Compensation

  • Compensation Realization Compensation · within the next one year · Medium confidence ₹300 crores
    we are expecting these compositions to come within the next one year, I would say, from now.

    — Amar Sarin, Chief Executive Officer

New Project Launches

  • Number of Projects New Project Launches · over the next three to five years · Medium confidence 5-7 projects
    From our land bank, we will be launching at least five to seven projects over the next three to five years.

    — Amar Sarin, Chief Executive Officer

Free Cash Flow

  • FCF Generation Free Cash Flow · next three years · Medium confidence ₹500 crores
    we will be generating a lot of free cash flows in the next three years, so around 500 crores.

    — Amar Sarin, Chief Executive Officer

Risks & concerns

  • Unaudited subsidiary financial statements

    high

    Auditor commented on 26-29 subsidiary companies having unaudited financials, leading to analyst concerns about manipulation; management stated these are land-holding companies and audits were delayed.

    Analyst acknowledged

  • Collections lagging presales

    medium

    Analysts noted lower collections relative to high presales, which management explained is due to project launch timing and the phased collection structure.

    Analyst acknowledged

  • Debt levels and interest costs

    medium

    Analyst raised concerns about increased debt, which management clarified is being actively managed through refinancing and has a clear two-year debt reduction plan.

    Analyst acknowledged

Areas of evasion (1)

  • Specific reasons for the delay in auditing 26-29 subsidiary companies beyond 'audit could not be completed on time'.

Q&A highlights

2 direct, 1 evasive
Debt levels and refinancing strategy Direct
The total debt on the company is roughly between 1,600-1,800 crores. We have not taken any additional debt. ... The total rate was around 17% or 18%. So, that has been reduced to 12.75% now.

Addressed analyst's concern about rising debt and clarified the impact of recent refinancing on interest costs and total debt figures.

Asked by Priyansh, Individual Investor

Unaudited subsidiary financial statements and potential manipulation Evasive
So, basically, the companies which you are talking about are not business doing companies. These companies are the land-holding companies. There was some issue with the auditors. They could not complete the audit on time. ... we don't manipulate or anything like that.

Raised a significant governance red flag regarding the lack of audited financials for numerous subsidiaries, which management attributed to audit delays and denied manipulation without fully detailing the resolution plan.

Asked by Siddharth Chandra, VTV Capital / Kapil Sharma, CRD Capital

Collections lagging presales and revenue recognition Direct
So, as per the Ind AS method, it can only be done once the OC has come in and the apartments are ready for, given to a customer. ... So, losses are only because of the accounting standard application.

Clarified the accounting treatment (Ind AS 115) for revenue recognition in real estate, explaining why reported losses occur despite strong presales and why collections for new projects take time to materialize.

Asked by Saksham, Ambit Capital / Kapil Malhotra, Tata Mutual Fund

2 min read 6 chapters

Detailed narrative

Strong Presales Performance & FY25 Outlook

TARC reported an impressive H1 FY25 presales figure of ₹1,322 crores, representing a substantial 6x year-on-year growth. This strong performance underpins the company's confidence in achieving its ambitious FY25 presales guidance of ₹5,000 crores. Management highlighted that three recently launched projects collectively possess a revenue potential exceeding ₹7,500 crores, indicating robust demand and successful market penetration.

Key Project Updates and Inventory Status

Updates were provided for TARC's flagship projects: TARC Tripundra, a luxury development in South Delhi, is 80% sold, with construction in its final stages and the Occupation Certificate (OC) expected by Q4 FY25, contributing an estimated ₹1,000 crores in revenue. TARC Kailasa in Central West Delhi is 45% sold with a total revenue potential of ₹4,000 crores. The latest launch, TARC Ishva in Gurugram, comprising 385 apartments on a 7-acre parcel, has already achieved 40-45% sales. The combined unsold inventory across these three projects is valued at ₹4,500 crores, with an average selling price ranging from ₹20,000 to ₹25,000 per square foot.

Debt Management and Refinancing Strategy

As of September 30, 2024, TARC's total debt stands at ₹1,650 crores. The company successfully refinanced ₹1,000 crores of Non-Convertible Debentures (NCDs) from Bain Capital through Indian banks and NBFCs, effectively reducing the overall interest cost from 17-18% to 12.75%. Management outlined a clear strategy to become 'totally debt free within the next two years,' intending to utilize cash flows generated from the ongoing projects—Tripundra, Kailasa, and Ishva—for debt repayment.

Land Bank and Future Launch Pipeline

TARC holds a significant land bank of 500 acres, with approximately 200 acres earmarked for development over the next three to five years. This developable portion is expected to yield at least five to seven new luxury residential projects. The Gross Development Value (GDV) for three upcoming projects is projected to be in the range of ₹7,500-8,000 crores. Additionally, the company anticipates receiving ₹300 crores in compensation within the next year, which will be directed towards further debt reduction.

Collections and Revenue Recognition Dynamics

While presales have been robust, collections from the three launched projects currently total ₹750 crores. Management expects an additional ₹700 crores in collections for the remainder of FY25. The company clarified that reported losses, despite strong presales, are primarily due to Ind AS 115 accounting standards, which mandate revenue recognition only upon project handover or receipt of the Occupation Certificate, while construction costs are expensed as incurred.

Market Outlook and Strategic Focus

TARC remains highly optimistic about the luxury real estate market in Delhi and Gurugram, projecting a 10-15% year-on-year price growth over the next three to four years. The company's strategy is to exclusively focus on the luxury residential segment for at least the next 18-24 months, leveraging its brand and experience centers to attract end-users. TARC is also actively evaluating joint development opportunities within the luxury segment to expand its project portfolio.

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