Sobha Ltd (SOBHA) Q3 FY23 Earnings Concall Transcript

Sobha Ltd (NSE:SOBHA) Q3 FY23 Earnings Concall dated Feb. 08, 2023.

Corporate Participants:

Jagdish Nangineni — Managing Director

Yogesh Bansal — Chief Financial Officer

Analysts:

Adhidev Chattopadhyay — ICICI Securities — Analyst

Puneet — HSBC. — Analyst

Pritesh Sheth — Motilal Oswal — Analyst

Kunal Lakhan — CLSA — Analyst

Abhinav Sinha — Jefferies. — Analyst

Mohit Agarwal — IIFL Securities. — Analyst

Parikshit Kandpal — HDFC Securities — Analyst

Deval Shah — RBSA Investment Manager. — Analyst

Dhruvesh Sanghvi — Prospero Tree — Analyst

Vasudev Ganatra — Nuvama Wealth Management — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q3 FY 2023 Earnings Conference Call of Sobha Limited hosted by ICICI Securities. 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. Adhidev Chattopadhyay from ICICI Securities. Thank you and over to you, sir.

Adhidev Chattopadhyay — ICICI Securities — Analyst

Yes. Good evening, everyone. On behalf of ICICI Securities, I’d like to welcome everyone on the Sobha Limited call today. From the management we have with us Mr. Jagdish Nangineni, the Managing Director, Mr. Yogesh Bansal, the Chief Financial Officer, Mr. Vighneshwar Bhat, the Company Secretary and Compliance Officer, and Mr. Ramesh Babu, the Senior VP of finance.

And now, I’d like to hand over the call to the management for their opening remarks. Over to you. Thank you.

Jagdish Nangineni — Managing Director

Good evening, everyone, and welcome to the quarter three FY 2023 earnings call. Apologies for a delay in the start of the call due to last-minute connectivity issues. Thank you, Adhidev and your team, for organizing this. My team and I are happy to interact with you and post our third quarter results of this financial year.

We have already shared the operational update of the company in early January 2022. The investor presentation based on the audited financials results adopted by the Board can be downloaded from sobha.com.

In Q3, we built on good momentum created in the first two quarters of this financial year. All regions and businesses have contributed well to a better result in terms of sales, completion of projects, collections in real estate, contracts, manufacturing and retail, which has led to record numbers in this quarter, higher service sales and collection and also higher handovers in the recent years post-COVID.

This, I believe, is achieved with high level of focus, coordination and alignment across the 3,300-plus team members across India. This also showcases stability in demand through sustained consumer confidence, higher affordability, appeal for brand Sobha and aspiration for higher quality homes and larger ones.

Our geographical diversification with presence in multiple cities in the past decade is slowly coming to cushion, which is witnessed in this quarter. While Bangalore continued to be consistent in contribution to our sales, Gurgaon also has contributed very well this quarter.

With this quarter, we have achieved a sale value of about 2,700 crores in the first nine months, with other cities contributing about 30% of it. Our contracting and manufacturing too is witnessing improved activity and delivery of in-house — improved activity for delivery of in-house and external clients.

Given the run rate, it looks like we will be able to reach closer to 5,000 crore sales in this financial year. We did not launch any new projects during the quarter, but released more towers from the ongoing projects, which contributed to the quarter sales.

We are making good progress on future launches, which are part of our pipeline across locations. With forthcoming projects included, we currently have an inventory of about 23 million square feet, about 11 million square feet of that in ongoing projects. This gives us good visibility of inventory and we continue to pursue building new metrics as well.

With this brief commentary, I like to hand it over to Yogesh, our Chief Financial Officer, to give his quick comments on quarterly performance before we take calls from all of you.

Yogesh Bansal — Chief Financial Officer

Thank you. Good evening everyone. I would like to begin with sales. During this quarter we have seen sales, good traction in sales actually and actually 1.48 million square foot plan in India which is value of 14.25 Crore, Sobha’s share of 328 Crore by 1,000 Crore first time.

This driver has been consistently performance in, Bangalore, Kerala and GIFT City market exceptionally good quarter for NCR. During this quarter, we have launch bought our new tower at Sobha City Gurgaon, after we will be getting in line with that four credit kind of preferences for larger price.

And it is done by the market we are seeing in record single bed tower in Sobha City and they are contributed 24% in volume and 35% in value to overall sales in the quarter. In Sobha City we have two more tower at around 3,50,000 square feet which is actually loss.

For nine month we are sold total 4.107 million cases with value of 53,732 Crore. Now, we quickly talk about some cash flow performance. We are seeing steady improvement in sales and collection last year and we have done 8,860 Crore in the first nine months.

We have got net cash flow of the 130 Crore in the quarter and 568 Crore in last nine months. We would like to maintain a balance of growth between deleveraging and growth oriented capital investment in tower. Our growth rate as on 31st December is larger roughly 207 Crore and that 1769 Crore. Our net equity reduced 2.70.

Moving to P&L for the income generated during Q3 FY 2023 was 1898 crore and nine months 2162 crore. The Real Estate Revenue for the quarter was 674 crore and nine months 1,568 crore, our EBITDA for the quarter 119 Crore with margin of 13%.

So these to continuously improve our quality, process and operation and financial management, so now I would like to thank you all the participation. Now we can open the floor for the question-and-answer session.

Questions and Answers:

Operator

Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] Yeah. The first question from the line of Puneet from HSBC. Please go ahead.

Puneet — HSBC. — Analyst

Thank you so much and congratulations on getting good production as well. My first question is with respect to the margin, the margins again we do seem to be quite newer, even compared to the history and compared to the previous quarter also, can you comment upon what’s really happening there and what will drive it up now?

Jagdish Nangineni — Managing Director

Good evening, Puneet. Yeah, on the margin front, I think we have mentioned in the earlier calls as well. While the margins of real estate continues to be very stable and on expected lines of what we desired at the time of launches of the projects, the current quarter reduction in the margins have — should largely be attributed to some of the contractual projects, which we are completing during the course of the quarter and the higher cost that we bore during the COVID period, and which we could not pass on to the customers.

So hence we take the increased expense towards that is contributed, and I think with the closure of the projects in another quarter or so, largely they should be done, and we should be back to much higher margins going forward.

Puneet — HSBC. — Analyst

And this is — two more quarters to go for the contract, because it’s visible in cash flows as well your contractual expenses are higher than contractual collection. So we are seeing two more quarters of big food chain where one should…

Jagdish Nangineni — Managing Director

Maybe just one more quarter. Yogesh, do you have any other point?

Yogesh Bansal — Chief Financial Officer

Cash flow effective — it should be noted, we will not see any negative in cash flow. But P&L might we see a bit in next — or probably in March quarter.

Puneet — HSBC. — Analyst

So negative cash flow this quarter itself, and after fourth quarter, we see an impact also there?

Yogesh Bansal — Chief Financial Officer

Yes, correct.

Puneet — HSBC. — Analyst

And secondly, on your project expenses also that seem to have also touched the run rate of almost INR500 crores a quarter. Is that the run rate that one should be looking at?

Jagdish Nangineni — Managing Director

That’s right, Puneet. Good observation. Yes, the increased project expense is purely in line with the increased project completions. So hence — and the sales volume also has picked up. So we have started easy delivery. And wherever we have completed sales, we have accelerated our execution progresses as well.

Puneet — HSBC. — Analyst

Okay. Cash flow also had INR744 million of payments that you receive, can you describe what that is related to?

Jagdish Nangineni — Managing Director

So that’s related to the — land payments you’re referring to?

Puneet — HSBC. — Analyst

Yes.

Jagdish Nangineni — Managing Director

Yeah. So that Puneet is related to the new land investments that we have kick started again this quarter. And corresponding to that building a new inventory pipeline beyond FY ’25 is where we start investing, and also contributing to the — also to complete some of the payments, which are pending for — to bring the current inventory pipeline that we have into the line.

Puneet — HSBC. — Analyst

Got it. So now you kick started this new line of purchase. So, it relates to new — more and most of all, is that how you want to view?

Jagdish Nangineni — Managing Director

Sorry, Puneet Puneet — can you please repeat.

Puneet — HSBC. — Analyst

Is that more new acquisitions or more to old payments.

Jagdish Nangineni — Managing Director

So it’s a combination of three things, Puneet. One is for — there are certain commitments which we had from the old land that we had, or partnerships that we are — in order to complete, that is completion for that. Second is for the existing land banks where we are consolidating. And third is for new land acquisition, it’s a combination of all three.

Puneet — HSBC. — Analyst

Possible to break it between the three.

Jagdish Nangineni — Managing Director

Break it largely it will be about 50% would be for the new acquisitions and remaining 50/50 for the old and consolidation.

Puneet — HSBC. — Analyst

That’s great. Thank you so much. And the last one is on — if there any positive development on the ED case? And what is the status if you can update on that as well.

Jagdish Nangineni — Managing Director

And so during the quarter, Puneet you have seen that we have released — we have the important changes regarding the matter. They have delivered — original attachment done by them and the matter is now sub judice. And while that has occurred, the closing attachment we have noted in our information to the exchange that it does — it has not impacted any of our existing operations.

Puneet — HSBC. — Analyst

Yes so no further — any expectation of when it gets sorted out at the division level in timeframe that you could potentially guide.

Jagdish Nangineni — Managing Director

So that’s, the matter of judicial process. We hope to conclude it as quickly as possible. But that’s something that’s very uncertain in terms of time.

Puneet — HSBC. — Analyst

Got it. That’s so useful. Thank you so much, and all the best.

Jagdish Nangineni — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Pritesh Sheth from Motilal Oswal, please go ahead.

Pritesh Sheth — Motilal Oswal — Analyst

Yeah, thanks for the opportunity and congrats on record performance this quarter. Firstly, you don’t say so, you know, historically in the last couple of years, you have gradually increased your sales record so should be considered 14 billion as a new loan now and probably you will look to maintain or grow on this number from here on.

Jagdish Nangineni — Managing Director

Thank you Pritesh. The number we are very happy with this new record that we have achieved. Now as we grow more the expectation for us also, is definitely could do better than what we have already achieved. So while that’s an endeavor that’

Pritesh Sheth — Motilal Oswal — Analyst

Sure. And obviously, to maintain that you have to have a good chunk of launches again and good amount of steady launches. So what’s the pipeline looking like over the next six to 12 months? Well, you’ve highlighted, you’re, pipeline in the presentation, but in the near term, including the phases that early years and the launch, what’s the launch that we can see over the next, let’

Jagdish Nangineni — Managing Director

So we have inventory, forthcoming inventory of about 12 million square feet, as we have indicated in the presentation. So all of that about 1 million square feet should come in this quarter Q4. In fact, we have already launched about 800,000 of that, by this time, and the remaining about 250,000 should come in the next couple of months, the remaining, so that’s about a million square feet, and then next Q1, we should be able to do about 4.5 million square feet, sorry, 3.5 million square feet or so.

And towards the end of next financial year, we should be able to another 3 million square feet or so. And the remaining in the subsequent products but that’s roughly the launch schedule that we aim to achieve.

S say four to five quarters.s going to bet — that’s the new benchmark that we have set. So we’ll surely work towards probably achieving better than this.

Pritesh Sheth — Motilal Oswal — Analyst

So that’s really helpful. Just lastly, on — I can see one project, I mean, one commercial project you have added in your pipeline that’s in Gurgaon. You can share some details on it. Is it in Sector 103 or I guess it’s the second parcel that you have that’s the location. But just if you can clarify on that?

Jagdish Nangineni — Managing Director

That’s right Videsh [Phonetic]. This is part of the existing project international city, it’s in Sector 106. During the quarter we have done a restructuring of the arrangement with the existing partners. And hence, this has come into the pipeline, there this entire asset is own their now. So that’s an additional asset, which were put in the pipeline after the restructuring.

Pritesh Sheth — Motilal Oswal — Analyst

So that’s commercial projects are meant for leasing or meant for sale?

Jagdish Nangineni — Managing Director

That’s something that we are still evaluating. And we will take a call in the next month or so we’re in the process of design and planning for the exponentials.

Pritesh Sheth — Motilal Oswal — Analyst

Sure, sure. Got it. I have a couple of more questions, but I’ll join back in queue and ask later. Thank you and all the best.

Operator

Thank you. The next question is from the line of Kunal Lakhan from CLSA. Please go ahead.

Kunal Lakhan — CLSA — Analyst

Good evening. thanks. My first question is on NCR market and actually the big delta that we saw between essentially came from the NCR market and that remains the most luxury product in our portfolio in terms of realization also. So firstly, what’s happening over there in terms of luxury demand and luxury sales? And I — second part of the question is when I look at your launch pipeline, I think only about 1.7 million, 1.8 million square feet of pipeline in NCR considering that market is really doing well. Do we have any other projects or is that all we have now in NCR left? If you can comment on that.

Jagdish Nangineni — Managing Director

Yes, Kunal. So Kunal I’ll take your first — second question first, which is on the brining inventory that we have in NCR. So that 1.75 is the forthcoming — forthcoming launches. Other than that, in the existing projects, both Sobha City and International City we have both put together close to about anywhere 1.5 million square feet over that. And in addition, we have added this commercial piece as well. So both together, it should — it is about more than two million square feet.

And plus this we have the forthcoming launch 1.75 million. So that all of them put together is about 3.75 million square feet at least and we are working towards building up the pipeline as well. So we think we should be very comfortable given the demand that has seen an uptick, we should be able to cater to that. So coming — so now coming to the first question, there is no doubt that there has been a big uptick in in terms of demand in NCR and Gurgaon, where we operate. So, the — and to cater to that demand, we have in the existing inventory also redesigned our remaining inventory and launched larger homes and that’s where we could attract the customers and do record sales.

So, that plan — planning of redesigning and getting to the new demands of the customer has really worked well. Combined with it the — we have been present there for several more than a decade, there are projects which we have completed and there are a lot of customers who have experienced our product that can really helped us drive this increased demands that occur.

Kunal Lakhan — CLSA — Analyst

And just a follow-up on the — on an earlier question, the land investment that you have kick started from Q3 which geography you’re having — I mean, looking at in terms of new land purchases?

Jagdish Nangineni — Managing Director

So, our overall plan has been to increase our sales run rate sustainably or 6 million to 7 million square feet in the medium term and part of which is about coming to Bangalore about 2 million or so. So the remaining has to come from the other geographies and corresponding to that we have started investing in both in Bangalore and in other locations.

Kunal Lakhan — CLSA — Analyst

Okay. Okay. And my second question was on the revoking of the occupations service for Sobha, a few new changes, provide some insights on what has happened here and what is the recent update on them?

Jagdish Nangineni — Managing Director

Yes. Sure. The — that was a very unfortunate event for us, while we have complied with all the regulations. There has been the — we had to correct one of the compliances that we hadn’t earlier, which we did and we are — and corresponding during the process, the subsequent — the permission that we had to receive for BBMP. We had already applied for it. And as part of the process they had canceled the existing OC for which we have already obtained a stay order from Karnataka. However, we would like to resolve the issue as quickly as possible and we have been working with the authorities who have been very cooperative to close out the mattress quickly as possible.

Kunal Lakhan — CLSA — Analyst

Sorry. I didn’

Jagdish Nangineni — Managing Director

Yes. This is a project which is where the project has been completed for about six years ago. And over a period of time we have been the finally we handover in 2019, we had obtained occupancy certificate during that time. However, one of the compliances particularly fire clearances that we have obtained during that time, were found to be defective. And those defective fire clearances have been rectified and e-submitted to the BBMP. Now BBMP taking the rectified documents are in the process of regularizing, the old occupancy certificates. So that’s the rectification procedure that’s going on and we hope to complete the process very soon.t understand. So you said that you have applied for the relevant NOC and clearances? These are the occupation certificates which are issued like over 2013, 2016 and so on and so forth, right. So I’m sure we will having these NOCs and clearances.

Kunal Lakhan — CLSA — Analyst

Okay, essentially I think that’s the bone of contention. I don’t know how did these clearances or NSC are inappropriate in the first place? So I think that was…

Jagdish Nangineni — Managing Director

Yeah, that’s right. And that was that something that we had to rectify?

Kunal Lakhan — CLSA — Analyst

Sure. Thank you.

Operator

The next question is from the line of Abhinav Sinha from Jefferies. Please go ahead.

Abhinav Sinha — Jefferies. — Analyst

Hi. Could we send some leverages on [indecipherable] performance over the past few quarters. So the first question is that gap between the [indecipherable] whichever revenue is very high and refusing to close for quite some time. So, what is the target here? Because the goal will be a big gap between the two and 25 is when it merges, what are we looking at?

Jagdish Nangineni — Managing Director

Sorry, Abhinav, we cannot hear the last part clearly. Can you repeat that?

Abhinav Sinha — Jefferies. — Analyst

Yeah. So by when you expect the gap between the cash flows and P&L to reduce in terms of profitability and FY ’24 or FY ’25?

Operator

Sir, I’m sorry to interrupt. Sir, there is a background noise. I mean, the disturbance is coming from your line. We are not understanding what you’re speaking. So, could you please go to a quieter place and talk?

Jagdish Nangineni — Managing Director

Abhinav, I heard most of the question now. So, I do acknowledge your concern. Like we just mentioned earlier in the call, the main reason for the increased cost base for the revenue that we have recognized is largely to do with the in the higher spending that we had done in some of our contractual projects, which we think that mostly it is done as those projects are coming to an end. So, hence, in a quarter or so, in, like, for this financial year, in this financial year, itself, we should be able to preserve most of the increased costs. And subsequent to it, I think we should be back to much better EBITDA margins.

Abhinav Sinha — Jefferies. — Analyst

On EBIT basis Yogesh, what should be the margin contractual that we should be looking at the new pipeline that you have created over the last couple of — last three, four quarters?

Yogesh Bansal — Chief Financial Officer

On a gross margin level or PBT level, we typically aim about 8%. And unfortunately, that has some of those margins got eroded during the COVID period and increased costs, so, which we could not pass on to the customers. So, but going forward, that, that we will still go by that number by choosing new contracts.

Abhinav Sinha — Jefferies. — Analyst

Okay. Second question on the balance sheet. The gearing has come down quite significantly. And this quarter, we saw you putting, let’s say 40% of the cash flows into debt, is that the right way to look at it that earlier we used to talk about some debt reduction and some land banking is — are we believe that safe today?

Jagdish Nangineni — Managing Director

Yes, Abhinav. This is in continuation to our commentary for the past few quarters, there we were saying that the debt reduction was a primary motive, initially, and now, I think we think that we are reasonably comfortable with the indicating, and post once we had a little bit of comfort now during the process, we were working on building up the new inventory pipeline, so which we have started using that cash flow — operational cash flow to sort of build on those new opportunities. And like I said, though, the land payments corresponding today in this quarter is in three buckets. One is for the consolidation of the land, second is in for the sum of the pending payments for bringing the existing inventory into fruition. And third is for new pipeline.

Abhinav Sinha — Jefferies. — Analyst

Right. There is also wanted to get some markets trends from you once pricing in NCR I think you’re not selling INR3 crore plus apartments right and this is 15,000 market, I think you’re Hyderabad now is 15,000 and pricing in Bangalore is also tending towards 10,000. So I mean, is this like an environment for even higher volume whereon top of picking…

Jagdish Nangineni — Managing Director

From a pricing point of view, I think we have matured quite a bit. And if you consider last one and a half years, we have been continuously improving price innovations. And that’s not a goal itself, but that looks to be fairly mature now. And that we are witnessing even in the new tower launches or new launches that we are doing. We are doing — we are pricing in the higher class, and we are pricing in the new demand that at the latest pricing levels. So, and we’re still seeing these good demand at this price levels also. So, all the leading indicators look like the demand seems to be fairly stable.

Abhinav Sinha — Jefferies. — Analyst

Okay. And then also maybe 12 months from now, you will says, sales mixture between volume and pricing even the sales growth or it will still be more pricing there?

Jagdish Nangineni — Managing Director

I would say, it depends on two things. One is on the inventory that’s available. That I think whenever we have done good launches, and also catering to the end customer in terms of the new requirement of probably larger homes, it has worked well. And the new pipeline that we have, which is in next this quarter and the next quarter, we are fairly comfortable in terms of the volume to be similar or slightly better than what we are doing, okay. But pricing, I think we should be also is not something that I’m aiming for much higher mix in terms of pricing. But if the demand continues to drive it, then we will look at those price hikes.

Abhinav Sinha — Jefferies. — Analyst

But no later than demand, right? Because there was some media reports that Bangalore has been some sort of negative reaction to higher prices in one or two cases upon discounting. I mean, for you, it seems to be good going, but for the rest of the market, that’s my last question here.

Jagdish Nangineni — Managing Director

Yes, we cannot discount the reaction to the new price and increase prices, second increase in mortgage rates. We cannot discount that. However, what I was mentioning was it also depends on the kind of inventory that you have at — and the locations where we are present. So given that we seem to be doing okay right now. So we’ll have to wait and watch and see how we can continue to do the volumes in such a probably slightly mature market now.

Operator

Thank you, sir. So, ladies and gentleman in order to ensure that the management will be able to answer questions from all the participants in the conference, please limit your questions to two per participant. Should you have a follow up question, please rejoin the queue. Thank you. The next question is from the line of Mohit Agarwal from IIFL Securities. Please go ahead.

Mohit Agarwal — IIFL Securities. — Analyst

Yeah, thanks. So my first question is on a previous question on launches. So, am I correct in understanding that between now and end of FY 2024, you will be launching about 4, 4.5 million square feet?

Jagdish Nangineni — Managing Director

Yes, Mohit. For this quarter, we were — we plan to do about a million square feet. Like I mentioned, we have already got about 700,000 square feet in till now. We have launched at Hyderabad project, which is off about 650,000 square feet in January and one more project in Bangalore, which is a row house project.

So these two have been done and got — we have one more project in the pipeline for this quarter. Subsequent to that the next quarter, we hope to be about another 3.5 million square feet and post that the later part of the FY 2024 we should be able to do another 2.5 to 3 million square feet.

Mohit Agarwal — IIFL Securities. — Analyst

So sir is that enough to kind of you know looking at 5,000 crores this year. And then assuming you want to grow double-digit, would that be sufficient to have decent double digit growth over 5,000 crores?

Jagdish Nangineni — Managing Director

Well, we have not guided for any kind of growth yet, but we’d like to do better than what we are doing today on this. So given these pipeline of launches, I think we have the current inventory and is launches. I think they’re fairly there to capture the demand that we are already witnessing.

Mohit Agarwal — IIFL Securities. — Analyst

Okay, understood. And sir my second question as you know, in the [Indecipherable] account, you know, there is a note that there was a termination notice by one of the, you know, contractual client. So, could you give some details around that and if you couldn’t share any details on that on the name or you know, what happened in this contract?

Jagdish Nangineni — Managing Director

Well, this is a contract which we signed about in 2012 were in the we — there was an arrangement between ASDA [Phonetic] and APMC to develop the part of their land and rebuilding commercial assets. So that that particular project or agreement that we signed is what the note refers to.

Mohit Agarwal — IIFL Securities. — Analyst

Okay. Understood, sir. That’s all from my side. Thanks.

Operator

Thank you. The next question is from the line of Parikshit Kandpal from HDFC Securities. Please go ahead.

Parikshit Kandpal — HDFC Securities — Analyst

Hello.

Operator

Please proceed, sir.

Jagdish Nangineni — Managing Director

Yes, Parikshit.

Parikshit Kandpal — HDFC Securities — Analyst

Yes. Hi, sir. Congratulations on a decent quarter. So my first question is on the contractual business. So, given the margin which you have declared, so is it right to assume that like losses of about INR180 crores to INR190 crores in the financial around contractual?

Yogesh Bansal — Chief Financial Officer

Hello Parikshit.

Parikshit Kandpal — HDFC Securities — Analyst

Yes, can you hear me? Hello?

Yogesh Bansal — Chief Financial Officer

Yes, Parikshit.

Parikshit Kandpal — HDFC Securities — Analyst

So, I was asking how much you — given the losses attributed to the contractual business and financial year till date, the nine months–

Yogesh Bansal — Chief Financial Officer

So, in the — in this financial year, probably with the losses or let’s say the reduced margin that we have the higher processing have taken that should be in the range of this quarter and — for the nine months, it should be around INR50 crores to INR60 crores, but this is a number that we can we can come back to you again, Parikshit, if that’s okay.

Parikshit Kandpal — HDFC Securities — Analyst

Yeah. Sure. So, second question is on the way forward for the contractual business. Now, this has been a pain point for us in the financial year. So, how do you see the future of this business within Sobha’s entire development portfolio?

Yogesh Bansal — Chief Financial Officer

Yes, so, we have two legs, which is one is the contractual business and second is the manufacturing and retail business. So, the contracts basically that we have taken in the last — which we are executing in the last couple of years, there have been the problem — gone into a zone of lower margins — much lower margins than what we had anticipated. Given that we are, of course, being very choosy in terms of the new contract that we are signing and that we have started doing it since the beginning of this financial year after we have understood the cost escalations and their impact. So, considering that we will continue to see how we can shortlist and go after projects, which are — which fit into our requirement of margins and cash flow.

Parikshit Kandpal — HDFC Securities — Analyst

Okay. The last question sir, this Q4 you had launch Hyderabad, then again in Bangalore, and now, RBI, again increased the rate by 25 basis point, now we have convincingly crossed 9% on home loan. So, what’s your initial sense of the demand on these new launches? And given that direction across 9%, so how do you think — what’s your take on the demand?

Yogesh Bansal — Chief Financial Officer

The Hyderabad launch has been fairly good for us till now. I’m responding to the increase in rate — home loan rates and the higher prices like we — like I was mentioning in the previous in call. The leading indicators still seem to be that demand is fairly stable, but we cannot ignore the fact that the prices are higher now and the cost of acquisition of the home are also has gone up in terms of mortgages. So, we will have to wait and watch. But I believe in the long — I don’t know how it’s going to play out in the near-term, but what we believe is we have very strong brand acceptance and we have a strong — good pipeline in terms of products that — which are aligned with the customer needs today. So, given that, we should be able to do fairly well in the overall market however it is. If it’s good, then definitely we should be doing better. If it’s stable that’s we’re going to ride on that.

Parikshit Kandpal — HDFC Securities — Analyst

Just lastly if I may, Sir. This financial to-date, what would be the new gross development value addition? I mean, you have incurred some capex about the INR37 crores this quarter, which you said was a new main acquisition. So, on all part this is a nine month and the third quarter what would be broadly the GDV new GDV addition outside your land bank?

Jagdish Nangineni — Managing Director

So, historically, we have not been mentioning any GDV or any such disclosures earlier. If that’s a requirement or is there something that we should do it, then we will consider it and do it in the future. But the typical land investments that we do, those are ones which contribute towards the land bank and come into the inventory pipeline, as and when the right milestones fit?

Parikshit Kandpal — HDFC Securities — Analyst

Thank you. Thank you, Sir. And all the best to you.

Jagdish Nangineni — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Deval Shah from RBSA Investment Manager. Please go ahead.

Deval Shah — RBSA Investment Manager. — Analyst

Am I audible?

Operator

Yes.

Jagdish Nangineni — Managing Director

Yes, Deval.

Deval Shah — RBSA Investment Manager. — Analyst

Yes. So, I think most of my questions have been answered, but I just have a particular — just wondering more — slightly more color on the note to accounts where one of the customers has canceled and asked for the compensation of INR350 crores. Just wondering more insight on that.

Jagdish Nangineni — Managing Director

Okay. So, that — I think we have touched upon that earlier, Deval. It’s a contract that we have signed with ATMC in 2012, wherein we had to — they were going to — it’s a development agreement, wherein we had to build partly part of their land, and we could build some commercial assets for ourselves. That’s a land in which there was — there is a disagreement between us and hence the matter currently is — it’s in judicial forums.

Deval Shah — RBSA Investment Manager. — Analyst

Okay. And with regards to a projects where are receivables excellent, so what could be the financial implication of that? Because, as we mentioned earlier in the question, that was the earlier project, which was closed in 2019. So, is it possible for us to estimate on the financial implication, atomic falls on the company, and what is the likelihood? So, just wanted to understand on that also.

Jagdish Nangineni — Managing Director

Our current focus is to make sure that the compliance is complete, Deval. And we think that the financial implication is something that is, can be part of the — our routine expenses. So, — but we still do like Deval assess that it too soon to come up with a number right now. As and when it comes up, we’ll make the right disclosures.

Deval Shah — RBSA Investment Manager. — Analyst

Okay and nothing more question on that. But I hope the lapses we had or encountered earlier has now been filled with regards to the operation?

Jagdish Nangineni — Managing Director

Absolutely.

Deval Shah — RBSA Investment Manager. — Analyst

Okay. Thank you. All the best.

Operator

Thank you. The next question is from the line of Dhruvesh from Prospero Tree. Please go ahead.

Dhruvesh Sanghvi — Prospero Tree — Analyst

Yes. Hi. Congratulations on continuing good set of numbers. I have two questions. So, when I see the story Sobha, it started with the management team, 70 cases getting settled and there was this thing which came across and there is this APMC judicial things and there is OC related judicial aspects, continuous improvements. On the other hand, continuous improvement on the operation side is what we keep hearing the lower margin on the contractual cycle, collectively in the last 18 months a lot of bad news. Can we get the kinds of number that we may be facing are 70%, 80% done and you as the new manager or the CEO are in far better control of things, so that we can probably look at a better jump in terms of growth and the mindset towards growth.

Jagdish Nangineni — Managing Director

Thank you, Durvesh. Like you mentioned, there has been significant improvement and also are building on what we have already done earlier in terms of operations, no doubt about it. So some of these issues have been legacy issues in terms of — it’s not that they’re entirely new, but unfortunately, some of them have — new ones also have cropped up, but we have been fairly been able to manage those. And if you — if we think that this is diverting our attention and not focusing on growth, that’s not something that is probably the right interpretation. While we are doing this, the other path towards the growth is completely on that is mature organization with a deep organizational strength. So, hence, we should be able to manage these issues and also move over towards growth trajectory.

Dhruvesh Sanghvi — Prospero Tree — Analyst

Thank you. And one small other question in terms of consolidation related to the Hoskote land, suppose if I mean, it may take another one or two years for consolidation, as I can imagine from the comments. But suppose if this gets completed, consolidation could be in the range of some INR200 crores, INR300 crores of extra land, or it will not be such higher number?

Jagdish Nangineni — Managing Director

You mean to say INR200 acres INR300 acres.

Dhruvesh Sanghvi — Prospero Tree — Analyst

No, no. Do we have to spend INR200 crores or INR300 crores extra on acquiring the remaining Hoskote land to consolidate everything, or is it a much smaller number that it is legally bank consuming.

Jagdish Nangineni — Managing Director

So on the Hoskote land, Durvesh we don’t intend to invest as much going forward. The current plan is to start building on whatever we have in terms of development. And in case we should be — we can consolidate in future, we will use the cash flow come back to fund the new acquisitions.

Dhruvesh Sanghvi — Prospero Tree — Analyst

Okay. So, no, they’re meant for at least, for Sobha, in terms of launching whenever the time comes, but it’s not related to spending on future land related to [Indecipherable].

Jagdish Nangineni — Managing Director

Yes. So it is not going to be a major land payments, like you’re mentioning, the quantum is not as much as what you are mentioning.

Dhruvesh Sanghvi — Prospero Tree — Analyst

Right. Thank you. Thanks a lot and best of luck.

Operator

Thank you.

Jagdish Nangineni — Managing Director

Thank you, thank you

Operator

The next question is from the line of Vasudev from Nuvama Wealth Management. Please, go ahead.

Vasudev Ganatra — Nuvama Wealth Management — Analyst

Yes. Thank you for the opportunity, sir. My first question is on the deck front. You mentioned that you’re comfortable with this gearing? So should we assume the net debt to equity remain in this range? Or do we have any target on net debt to equity?

Yogesh Bansal — Chief Financial Officer

Good evening, Vasudev. We — while we are comfortable with the current debt levels, our cash flow management, which we have been focusing on for the past more than two-and-a-half years will surely continue. And we’d like to sort of keep that in control or reduce it further, but that’s going to be balanced with our growth objectives too.

While that being said, so the absolute levels of debt probably will be — probably remain the same and — or we will aim to contain it. And the net debt — debt to equity would probably reduce as the equity rates will increase.

Vasudev Ganatra — Nuvama Wealth Management — Analyst

Sure, sir. That’s helpful. And my second question is that, we had about 75 crores of land payments in this quarter. So, how should we see the landscape ex-arbitrary [Phonetic] going ahead?

Jagdish Nangineni — Managing Director

So, the — this is, like I said, this is for payments towards some of the old agreements that we already have and some of the new land acquisitions and for some of the land consolidation that we have been doing for past several years. So it’s a combination of all these three.

The 75 number, how it might look like in subsequent quarters is a function of the new business development that we would do and the opportunity there, we would probably complete in the next quarters.

But largely, the way we look at it, the management of the cash flow is, last financial year we have generated free cash flow of about INR515 crores. This financial year, in first nine months, we have already done close to INR563 crores. So which is — or INR568 crore, sorry, which is fairly significant. And this cash flow, we think that this is good enough or probably good enough to build a future pipeline to aim our growth. So it’s — our plan is to find any of the new acquisitions to the operational cash flow.

Vasudev Ganatra — Nuvama Wealth Management — Analyst

Okay, okay. Got it sir. That’s it from my side. Thank you.

Jagdish Nangineni — Managing Director

Thank you.

Operator

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you sir.

Jagdish Nangineni — Managing Director

Thank you everyone for participating in the call and your questions and patient hearing. I hope we have answered your questions expertly. We believe that our focus on operational excellence coupled with strong consumer confidence in the brand are the pillars of our strength. So, simultaneously, helping achieve the customer satisfaction and business metrics.

We think that we are uniquely positioned through our vertically integrated operating model and geographical diversification, which has paid dividends even in this quarter to capitalize on the opportunities in the residential real estate space. And we continue to witness that the demand seems to be stable.

And hence our discipline growth mindset and investment in technology and people and profits improvements should ease results and in accelerating our growth across our business segments, with an inventory pipeline of about 22 million square feet, improved financial structure after nine consecutive quarters of debt reduction through internal accruals and with high visibility of future cash flows, we aim to deliver consistent long-term performance.

Wish you a very — all the best of the remaining quarter, and truly appreciate your support. Thank you.

Operator

Thank you, sir. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us and you may now disconnect your lines.