Max Ventures and Industries Limited (MAXVIL) Q2 FY23 Earnings Concall Transcript

Max Ventures and Industries Limited (NSE:MAXVIL) Q2 FY23 Earnings Concall dated Nov. 10, 2022

Corporate Participants:

Sahil Vachani — Managing Director and CEO

Rishi Raj — COO

Rohit Rajput — CEO

Nitin Kansal — CFO

Analysts:

Faisal Hawa — H.G. Hawa and Co — Analyst

Unidentified Participant — — Analyst

Dipti Kothari — Kothari Securities — Analyst

Riya Verma — NR Securities — Analyst

Anup Shah — Shreya Securities — Analyst

Presentation:

Operator

Ladies and, gentlemen, good day and welcome to Max Ventures and Industries Q3 FY ’22 ’23 Results Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. And, there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Sahil Vachani, Managing Director and CEO, Max Ventures and Industries. Thank you. And, over to you Mr. Sahil Vachani.

Sahil Vachani — Managing Director and CEO

Thank you, and good evening to all. Thank you for joining us on the Max Ventures and Industries Q2 and H1 FY23.

Rishi Raj — COO

6.6 acre of mixed-use campus along with Max Square Phase 1. New York Life has committed to invest INR196 crores for a 49% equity stake. Max Estate will be responsible for the final delivery of the project and will be entitled to a development fee on the same.

From a market perspective, office leasing has bounced back and is expected to close at the pre-COVID levels both pan-India and in Delhi NCR. Net absorption just for Q2 FY ’23 recorded at 9.86 million square feet, up by 11% quarter, two-quarter and up by 58% on a year-on-year basis.

New completions were recorded at 11.9 million square feet-in Q2 FY ’23, up by 8% quarter-on-quarter and 9% year-on-year. Mumbai and Delhi NCR led the gross leasing number for quarter two FY ’23 accounting for 26% and 23%. Like for pan-India, NCR is estimated to reach pre-COVID levels of 8 million to 10 million square feet of gross leasing in the current year.

Now let me move on to the residential development, which Max Estates has signed up. We have acquired 100% equity in Accord Hotels and Resorts Private Limited for an enterprise value of INR306 crores, which holds a 10-acre land parcel in Sector 128 of Noida. We plan to develop a mixed-use luxury residential project on this land parcel, which will have an estimated sellable area of approximately one million square feet and sales potential in excess of INR1300 crores.

The project is planned to be developed in two phases and we will cater to premium end of the residential market. The first phase is planned to be launched in the first half of next calendar year and expected to be delivered within three years of the launch. Project will comprise 200 to 250 premium residential units with only 20 to 25 number of residents is per acre, which will be one of the dense residential communities in Delhi NCR. Inspired by our Live-will philosophy as explained by Sahil earlier, the project will have curated mix of best-in-class amenities focused on community and recreation health and wellness and sustainable living.

For residential housing from a market perspective, we are seeing sales cropping peak that the market has been over last decade. NCR residential market in Q2 FY23 witnessed a sale of 11,000 units plus up 21% year-on-year. It also saw launch of around 10,000 new units up 28% year-on-year. All markets saw average prices consistently increasing for last three quarterly periods.

With this, I hand over the call to Rohit Rajput, our CEO of Max Asset Services.

Rohit Rajput — CEO

Thank you, Rishi. Max provides end-to-end managed office services, including but not limited to set out leases, set out design, and build and office operations of pantry housekeeping, IT services, etc. Managed flexible office offering WorkWell Suite center and Max House utilized now 100% leased, witnessing a strong response in Max House, we will strongly evaluate keeping WorkWell Suites part of our upcoming offerings by Max Estates at both Max Square and Max House Phase 2 as well.

As a part of our WorkWell philosophy, we continue to differentiate our client experience by adding more amenities, like fitness centers, salon, and early learning center, shuttle services, badminton court, etc. We continue to curate various F&B options as well as community events including intercompany sports tournaments to create a unique ecosystem for our clients who are truly WorkWell. We remain to uplift our assets with the best-in-class facilities and becoming more operationally efficient, we are deploying various digital tools across all verticals, like just walking management, lift management, amenities booking, visitor management, and air quality monitoring.

I’m happy to share revenue for MAS more than doubled year-on-year in Q2 FY 23 to INR80 million. In H1 FY ’23 revenues have grown by 118%, to INR155 million. We expect the facility services business of Max to witness strong growth in FY ’23 as a high percentage of offices are now open and expected to avail our services.

With this, I hand over the call to our CFO, Nitin Kansal for financial update.

Nitin Kansal — CFO

Thanks, Sahil. Good evening everyone. Now let me give — first give you the financial highlights for quarter two FY ’23. Consolidated revenues for quarter two FY ’23 increased by 80% year-on-year to INR274 million. Consolidated EBITDA increased by 104% year-on-year to INR83 million in quarter two FY ’23. Consolidated profit after tax stood at INR36 million in quarter two FY ’23 as compared to a loss of INR21 million in quarter two FY ’22.

Now, let me give you the financial highlights for the half year H1 FY ’23. Consolidated revenues for H1 FY ’23 increased by 62% year-on-year to INR548 million. Consolidated, EBITDA increased by 64% year-on-year to INR170 million in H1 FY ’23. Consolidated PAT stood at INR100 million in H1 FY ’23 as compared to a loss of INR21 million in H1 FY ’22.

Speaking about our liquidity position. Gross debt stood at INR5.3 billion as on September 2022. Cash and equivalents stood at INR3 billion as of September 30, 2022, hence a net debt of INR2.3 billion. At the start of this year, we had a cash balance, cash and bank balance of INR4.7 million recovered from the proceeds- sales proceeds of our packaging Film business.

During the year, we further raise funds from the lease rental discounting of our lead assets and the balance to deploy the cash as follows. INR3 billion for acquisition of 100% equity in Accord Hotels and Resorts Private Limited, which has now we subsequently renamed as Max Estates 120 Private Limited which holds a 10-acre land parcel in Sector 120 of Noida. INR3 billion for acquisition of Acreage Builders Private Limited for developing the best-in-class grade A commercial office space on this line in Gurugram. I would now ask Chris the moderator to open the question floor for question-and-answers.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] First question comes from the line of Faisal Hawa from H.G. Hawa and Co. Please go ahead.

Faisal Hawa — H.G. Hawa and Co — Analyst

How many of these projects in Noida are there lot of companies which are which have gone bust. And particularly [Technical Issues]. So what is the possibility that we could acquire a lot of such projects from through NCLT or even through banks? And are we in constant talks with any of these institutes to really get our revenues growing much faster? And second point is about these New York Life arrangements. Will this be like constant arrangements for other projects also and are they ready to put an unlimited amount of money?

Rishi Raj — COO

Hi, Faisal. This is Rishi, I’ll take those questions. Just to — just to put growth trajectory into perspective, we ended FY ’22 with 1.5 million to 2 million square feet of development portfolio with the recent acquisitions that we have announced and what is clearly in our line-of-sight between Noida and Gurgaon, we expect to end FY ’23 with 7 million to 8 million square feet of portfolio across asset classes, geographies, and risk spectrum. So, that itself is almost three to four times of growth in the last 12 months from a development portfolio perspective.

Coming specifically to your question about Noida, you’re absolutely right. Noida like overall Delhi NCR has been a significant churn in terms of incumbent developers. And that actually presents a significant opportunity for us to consolidate and become as per our aspiration a leading player in Delhi NCR. In Noida in itself, we recently announced 4-acre acquisition of land which was with Axis Bank which they got as a part of debt asset with JV. And also we have an acquisition in pipeline as you rightly said through the insolvency process which is Delhi 1 wherein the hearing on the plan has already begun.

We will continue to evaluate as we have stated very clearly, our aspiration is to grow our residential and commercial portfolio by a million square feet each of the year on an average. In light with that aspiration, we will continue to evaluate similar opportunities in Noida and outside Noida in Delhi and Gurgaon as well. So that’s to your first question.

On second question, New York Life remains committed to grow and deploy capital as we grow our commercial real estate footprint in Delhi NCR.

Faisal Hawa — H.G. Hawa and Co — Analyst

And, in FY ’25 or FY ’26, is there a good chance of the land which is owned by the promoters and near the airport also very good development under the Max umbrella?

Rishi Raj — COO

So on that, as you are aware, it is going through a land pooling process. And at this point in time, the land which has been pooled and the land in sector 3 zone and of Delhi the land, which has been pooled is going through the verification process. The first step is for the entity which owns the land to receive the notice to form consortium. Indications are very positive for that to happen soon and from there on it could well be 24 to 36 — 18 to 24 month kind of a process for the final license to happen and thereafter the developing process can begin.

Faisal Hawa — H.G. Hawa and Co — Analyst

So FY ’25, good chance?

Sahil Vachani — Managing Director and CEO

We will we will not like to speculate at this end. I think the first thing first let the notice to form consortium come and then we will start the process for forming the consortium implementation plan and thereafter we will be able to give you a more firm update on our plan as far as that particular opportunity is concerned.

Faisal Hawa — H.G. Hawa and Co — Analyst

Thank you very much, [Indecipherable] overr my questions.

Operator

Thank you. Next question comes from the line of Prateek Sharma from AS Investor. Please go ahead.

Unidentified Participant — — Analyst

Hello.

Sahil Vachani — Managing Director and CEO

Yeah, please go ahead.

Unidentified Participant — — Analyst

Am I audible?

Sahil Vachani — Managing Director and CEO

Yes.

Unidentified Participant — — Analyst

Yeah so my first question is what would be the current capex for FY ’23 and what will be the capex for the next couple of months — for the next couple of years, sorry.

Nitin Kansal — CFO

Prateek, this is Nitin Kansal. For this current FY ’23, we would have capex which is in the range of INR100 crores to INR120 crores, which would be for the completion of the Max Square Phase 1 project and completion of the Phase 2 of Max House in Okhla. This capex is deployed over there. In the next couple of years as Rishi mentioned we have announced commercial project in Noida and Gurgaon for which we are doing a detailed capex assessment and we would be able to give a numbers on the capex — capital deployment from them in the coming calls. Of the land which we have already acquired for them, for the land at Noida for the residential, we have paid an amount of INR306 crores for the position of the land and post the quarter ending, we have paid around INR320 crore, INR10, INR15 crore for the acquisition of that acreage land in Gurgaon.

Unidentified Participant — — Analyst

Well. This is helpful. My second question is, what is your outlook on the residential real estate business especially in NCR region where we are at present right now?

Nitin Kansal — CFO

The outlook project is very, very positive. I think the numbers speak itself. If you just look at — if you just — let me just share a couple of numbers with you. If you look at pan-India and you look at the year-to-date calendar year 2022. And just in terms of number of units sold is 230,000 units sold in nine months, and the estimate rate which has already passed the full-year 2021 and the estimate is that this year will become near to the peak that India has seen over last one decade, and similar story is there for Delhi NCR as well. Again if you look at the number of sale for year-to-date calendar year 2022, it’s 39,000 units well past full-year 2021 of 21,000 units and again inching towards becoming — inching towards becoming one of the highest that the NCR would have seen over last one decade.

So overall outlook is positive and one of the things I would call out is a large part of this demand is really end-user driven and things very sticky. And one could also see a reflection of that in developers being able to consistently improved the pricing also to absorb rising the commodity prices.

So overall outlook is pretty positive. We expect this to continue for rest of the year and in the next year and in the next year as well.

Unidentified Participant — — Analyst

All right, Sir. All the best for the coming quarters. That’s all from my end.

Nitin Kansal — CFO

Thank you.

Operator

Thank you. [Operator Instructions] Next question comes from the line of Dipti Kothari from Kothari Securities. Please go ahead.

Dipti Kothari — Kothari Securities — Analyst

Hi, sir, thank you for the opportunity. Sir my first question was that in terms of leasing, what is the expected space for leasing in million square feet in FY ’24 and FY ’25?

Unidentified Speaker —

Look from a leasing perspective if you — if you look at what do we have in portfolio from a — from FY ’23, ’24 perspective is Max Square Phase 1 which is around 0.7 million square feet and Max House Phase 2 which is 0.15 million square feet. Max Square Phase 1 is getting completed quarter four of FY ’22 and Max House Phase 2 is getting completed in quarter — quarter two of FY ’24, right. So both of these assets have very robust traction from leasing demand and leasing pipeline perspective and we are very confident that in next two years both the assets will get fully leased.

Dipti Kothari — Kothari Securities — Analyst

Okay sir and sir what [Indecipherable] are you expecting in FY ’24 and FY ’25 going ahead on an overall basis?

Unidentified Speaker —

So, look if you look at Max Towers, Max Towers would be clocking INR35 to INR36 crores. Max House Phase 1 INR15 crores to INR16 crores. And expected rental for Max — peak rental Max House Phase 2 is INR22 crores to INR23 crores and Max Square Phase 1 the peak rental is estimated to be at INR60 crores.

Dipti Kothari — Kothari Securities — Analyst

Okay, Sir. Thank you so much, that answers my question.

Unidentified Speaker —

Okay. Thank you.

Operator

Thank you. [Operator Instructions] Next question comes from the line of Riya Verma from NR Securities. Please go ahead.

Riya Verma — NR Securities — Analyst

Hi, sir thank you see opportunities. Sir, firstly what is the update on a Delhi One project. Hi Sir. Thank you for the opportunity. So first, what is the date on Delhi 1 project?

Unidentified Speaker —

So on Delhi 1, as I was mentioning in response to the previous question. Our plan — the resolution plan is with NCLT. All major objection has been removed. The progress from the last call till date is that the discussion on the plan per se has begun. And we are expecting a series of such court hearing to happen over next few months for us to get clarity on the timeline for plan approval. And other major development has been of which you may be aware of that Supreme Court has adjudicated Noida as an operational creditor. versus financial which is giving further select to the progress of plan setting and plan approval.

Riya Verma — NR Securities — Analyst

Okay. Thank you. And secondly, for the commercial project in Gurgaon, are we looking to get a partner onboard, if yes and by when do we plan to get them onboard?

Sahil Vachani — Managing Director and CEO

Yes, we are looking to get partner onboard and we will soon update you in that regard the expectation is to have that onboard in this financial year itself.

Riya Verma — NR Securities — Analyst

Okay and this is my last question. With increasing interest rates how will this affect our business [Indecipherable] also do we see a demand issue because it’s [Indecipherable].

Sahil Vachani — Managing Director and CEO

Okay. So there are there are two parts to that question. One part, which I guess is more related to residential business from a customer sentiment and demand perspective. And second part is to do with cost of development. So I’ll request Nitin to start with cost of development and then I will take up the customer piece.

Nitin Kansal — CFO

Sure. Thanks, Riya. In terms of cost, while underwriting our projects, we do a thorough assessment of how the interest rate — what is the interest rate looking forward to. And when you are doing an assessment of those, we break in a certain increase in interest cost from the current and underwrite accordingly.

Sahil Vachani — Managing Director and CEO

So from a residential consumer sentiment standpoint, if you look at what has happened. India has seen now 190 basis point of interest rate increase. Depsite that what you see happening in the market if you look from a historical perspective till date, this has not happened consumes’ sentiment. The demand of the absorption actually on a quarter-to-quarter basis has only gone up. And as I was mentioning the numbers in my — as to response in my previous question, this year is expected to really reach the peak that India has seen over the last decade both are in India level and NCR level.

And, we expect the consumers’ sentiment with respect to residential demand to remain positive because one of the big change we are seeing this time with respect up surging demand, particularly post-COVID is to do with, this is all end-user driven. And, also there is a significant shift in the mindset from renting versus owning and the trend towards owning and the trend towards that’s the second shift and the third shift, we’re seeing which is where we believe we’ve a sweet spot is demand and navigating towards credible corporate developments with quality development. So, what we saw happening in the commercial office market is also now playing out in the residential market and in both segment, we feel very positive and confident with respect to demand for the products that Max Estates will bring online.

Riya Verma — NR Securities — Analyst

All right. Thank you, very helpful. Thank you and all the best.

Sahil Vachani — Managing Director and CEO

Thank you.

Operator

Thank you. Next question comes from the line of Anup Shah from [Indecipherable] Securities. Please go ahead.

Anup Shah — Shreya Securities — Analyst

Hi, sir. Thank you for the opportunity. Also, wanted to understand what is your outlook on the commercial real estate business?

Sahil Vachani — Managing Director and CEO

That’s a great question. Let me again start with the numbers that sell. If you looked at calendar year 2022, both at a pan-India level and at Delhi NCR level, we are estimating the full-year absorption to reach pre-COVID 2019 levels, which for NCR is in the range of 8 million to 10 million square feet that’s number one. Number two. Yes, there are global macroeconomic concerns playing out in US and Europe. In our view, that as overall market level, they have some impact on decision making. Having said that, if you come to a micro-level and look at where we are planning for our new products it’s Noida expressway and Golf Course Extension road; both these micro markets or one-dollar micro markets, the two most important vectors in Delhi NCR. I mean both these micro-markets if you look at existing stock and upcoming supply, a significant proportion is what we call strata sold or fragmented sold assets not lending itself to quality development and experience.

And third, in our experience of Max Towers, Max House, and the demand that we seeing for Max Square and Max House Phase 2, the occupiers are all navigating and gravitating towards Grade A-plus assets where they can be assured of quality experience. And that continues to give us lot of confidence in terms of uptake of our office assets in both of these micro markets.

Anup Shah — Shreya Securities — Analyst

So another question what is your opinion on the current rental rates and do you see further increase or decrease in the next few quarters?

Sahil Vachani — Managing Director and CEO

On rental rates again the developing detail. If you if you look at rates at overall market level, post-COVID this year rates have started inching up. But that’s at the overall market level so the good news is it has started pinching up. If you go a couple of levels granular and let me illustrate the best illustrated is with the help of our Max Tower experience. Pre-COVID, we started the rental for Max Towers at INR85 to INR90, averaging at 106 over the COVID period and post-COVID the last lease that we did that INR130 per square feet. So there is a substantial jump which factors in market sentiment, but more importantly the flight-to-quality and demand consolidating to quality developers and quality developments which are far queue.

Anup Shah — Shreya Securities — Analyst

Okay, Sir. I will check from my side thank you. Thank you.

Sahil Vachani — Managing Director and CEO

Thank you.

Operator

Thank you. Next question comes from the line of Rakesh Ambedkar, an Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Yeah. Hi, thank you for the opportunity. I have two questions. First one is can you share your thoughts on your capital allocation strategy between real estate and residential project?

Unidentified Speaker —

Rakesh, you would see we entered into the residential space in June of 21 post we have recently announced a project in Gurgaon, in Noida Sector 128 was residential. Going forward, we would be allocating, we will do an equal proportion of capital allocation on residential and commercial, and this will be a function. We will be doing an equal allocation in the residential and commercial going forward on the capital allocation site.

Unidentified Participant — — Analyst

Okay. Perfect. My second question is more strategic on dividends. So can you share your thoughts on Gurgaon distribution?

Unidentified Speaker —

[Technical Issues] dividends, yes.

Unidentified Participant — — Analyst

Sure, Rakesh. Currently, we are in to a growth phase and deploying our capital on the expansion of the business. But this has been a constant [Indecipherable] from the investors and [Indecipherable] to us on the dividend. Currently, we intend to deploy the capital more on for the asset expansion as well growth story of the businesses.

Going forward, we’ll come to you — and will come back the investor in the dividend in the coming years.

Unidentified Speaker —

Okay. Thanks for the question.

Operator

Thank you. [Operator Instructions] Next question comes from the line of [Indecipherable] from NM Securities. Please go ahead.

Unidentified Participant — — Analyst

Thank you for the opportunity sir. I just had one question. Can you elaborate the cashback that you have deployed in the last six months and how will we be deploying the remaining cash going ahead?

Unidentified Speaker —

In the last six months, the cash was deployed with the first project which we acquired was in the first quarter of the current financial in which we acquired 100% shareholding for a land of residential project in Noida Sector 128 which was INR306 crores. Subsequent to the quarter, we post even — post the quarter, we acquired. 97% shareholding for a company called Acreage which owns land for a commercial project in Gurgaon of INR322 crores. And going forward, we have also been declared as a successful bidder for land which was auctioned by Axis Bank for amount of INR220 crores for the four-acreage of land. This is the capital which has been deployed as of today. For the — on the land which we — for which we have been declared the successful bidder, we have got New York Life as a 49% equity partner and they have committed to invest in amount of INR196 crores on the — on the sector 129 Max Square Phase 2 project.

Unidentified Participant — — Analyst

Okay, sir. That’s much helpful. Thank you.

Operator

Thank you. As there are no further questions, we have reached the end of question and answer session. I would now like to hand the conference over to Mr. Rishi Raj for closing comments.

Rishi Raj — COO

Okay. I hope we have been able to answer most of your queries. We truly look forward to your participation in the next quarter. And if you have any further queries you may contact SGA, Investor Relation Advisors. Have a great day ahead. All the best and thank you.

Operator

Thank you. On behalf of Max Ventures and Industries Limited that concludes this conference. Thank you for joining us you may now disconnect your lines.

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