What Does FY25 Have In Store For Shriram Properties And Zaggle | NDTV Profit
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00:00 [MUSIC]
00:06 Hello and welcome.
00:06 This is Earnings Edge.
00:07 We're taking a stock of Sriram Properties for the quarter gone by and
00:11 what we can expect going into the new financial year.
00:14 And we are in conversation with the CMD of the company, Murali Malayappan.
00:19 Good afternoon.
00:20 Thanks so much for joining in.
00:22 It's been a great quarter for you.
00:25 It's also been a very strong year for you.
00:28 My question really is that with the kind of momentum that we're seeing,
00:32 where does FY25 lead to?
00:34 What's in store going ahead?
00:37 Good afternoon.
00:38 Thank you for hosting me here today.
00:40 We had a fantastic year, the FY24.
00:44 And also, I'm extremely bullish about what is coming up for us.
00:50 Now that next few days we'll be ready with the election results.
00:54 And markets are posing quite a lot of possibility.
00:58 And next five years, we are extremely bullish.
01:02 What is going to happen for the economy in India?
01:06 Growth across the country, across various sectors.
01:10 And so particularly in real estate.
01:12 And the government of India has been emphasizing on Atmanirbhar.
01:15 We expect Atmanirbhar to be given lots of momentum in the next five years.
01:22 Real estate is the only industry which covers Atmanirbhar 360 degree.
01:26 And the government of India is going to have a lot of trust on housing,
01:31 is my view, and particularly on middle and mid-market housing.
01:34 So we are here to capitalize this opportunity.
01:37 As you have seen, last year performance has been pretty good.
01:41 And with that, we are looking at FY25 with GAINEX,
01:47 we are looking at about 5.2 to 5.5 million square feet and about 2750 to 3000 crores sales value.
01:55 And again, handover, we had a record handover of 3000 units last year.
02:00 We are looking at going up by 10 to 15% for this year.
02:05 Overall, we are estimating about 25% CAGR across all the parameters for FY25.
02:12 But given the momentum, what is likely, we could surpass the budget.
02:17 Okay. All right. So that's what we can expect.
02:21 Mr. Malayapam, you know, the understanding in the markets at the moment is that
02:27 while inventory levels across many markets in India are low at the moment
02:32 when it comes to the real estate sector, going into the next two to three quarters,
02:36 there is a likelihood that there will be a significant amount of larger supply
02:42 in the many markets that you also operate in, Bangalore specifically as well.
02:46 My question then is that what is your reading on ground at this moment?
02:51 And I reckon that to a certain extent, you know, you'd advise investors to look at a slightly longer term,
02:57 not necessarily just over the next three to four quarters.
03:01 That said, can you tell us about, you know, the potential supply that could potentially come through
03:07 over the course of the next three quarters and what your reading here is?
03:12 The demand is continuing in a very, very robust way across the country.
03:17 And the Indian real estate, you can map it easily.
03:20 It's starting from Bangalore, Chennai, Hyderabad in South and Pune, Bombay in the West,
03:26 Kolkata in the East and NCR region in Northern region.
03:30 Across all these markets, the demand is very, very strong.
03:35 On the supply, I don't see a bigger supply because of the market consolidation.
03:40 The market has gone through serious consolidation, particularly post Dimon and GST and RERA.
03:46 And government has been doing a fantastic job in making sure that they distinguish difference between men and boys.
03:54 So I see a very regulated supply coming into the market, whereas demand will continue to be much larger than supply.
04:03 Particularly in the mid-market and I mean, premium mid-market segment.
04:09 Luxury, there is already a lot of supply. Also, there is a good demand.
04:13 On the other hand, affordable housing, the demand has been phenomenally good,
04:19 whereas supply has come down drastically in the last 12 months time.
04:23 And on the other hand, mid-market and premium segment demand and supply has been going hand in hand.
04:31 And I expect demand to continue to be very robust and supply will not be that way.
04:37 But that's an opportunity for our national exchange of properties to look at.
04:41 So we are looking at again launching close to about nine projects during this year, FY25.
04:47 Across all the cities, Pune one project and Chennai two projects, rest in Bangalore, Kolkata about one project.
04:57 So we are lining up about nine projects, adding about six million square feet,
05:02 out of which we are looking at about two and a half million square feet to sell for FY25.
05:07 We are extremely rich on the mid-market segment.
05:10 On the affordable housing segment, Government of India has to intervene, step in to address that.
05:18 If we are not able to address in FY25, from the government side,
05:22 there will be an acute problem can come up in affordable housing is my worry.
05:27 But government, I'm sure, is looking at it and will step in to do some corrective steps on affordable housing.
05:35 So if we can actually also talk about your operating profits in general.
05:41 You know, it does seem like the bulk of the profitability that's coming through is essentially driven by operating leverage.
05:49 And by that I mean that it's essentially the momentum in the growth in revenues that you're seeing is actually leading profitability.
05:57 But when it comes to the margins, well, there has overall been a little bit of a contraction here.
06:04 Can you take us through the factors that have actually led to this and what we can expect going forward in FY25?
06:12 If you look at the project level, profitability has been pretty good for us across all the projects.
06:19 And moving forward, we expect this to go up.
06:23 In fact, at the profitability level, because I mean, we record this based on the registration happened
06:32 and the construction competition method, project competition method, we are expected to get a good margin.
06:40 We look at EBITDA margin stabilizing at about 23 percent, 20-23 percent comfortably and the PPD is about 8-10 percent.
06:48 So which is one of the highest in the industry today.
06:51 And we are likely to maintain that same momentum for the next at least two to three years time.
06:59 So I just want your view on whether or not you are looking at markets beyond just Bangalore, of course, which is your mainstay.
07:07 What other markets are you looking to expand towards over the course of the next three to four years?
07:14 Maybe this year itself we will be looking at expanding into Bombay and Denmark region.
07:19 That will be our next focus.
07:22 As you have seen last year, we worked hard on getting Pune market tracking.
07:27 All the approvals in place, we are about to launch this project in Pune.
07:31 We are waiting for the last day of approval.
07:33 So we should be launching hopefully by June or before end of June, hopefully.
07:42 Bombay is another market we are looking at entering.
07:46 Currently, the demand is good in all the cities.
07:50 Of course, NCR, there is a good demand.
07:53 We will not be looking at entering NCR this year, but we will be very, very opportunistic in looking at what is good for the enterprise and take a view on that.
08:02 But this year, certainly we are looking at starting our operations in Bombay.
08:07 So also your presentation suggests that there is an improvement in realizations of as much as 12 percent on a year-on-year basis.
08:16 Going into the next few months in terms of sales, so what is the pricing environment that you foresee?
08:22 Will there be a big change?
08:24 Is there a likelihood that pricing could be even better as compared to last year?
08:29 Prices will continue to go up is my view.
08:32 Particularly the segment where we are operating, mid-market and premium mid-market segment, we expect the prices to go up.
08:38 Which I have been saying for the last three years, year-on-year, the growth.
08:42 So we have been witnessing the same growth or slightly better than what I have been predicting.
08:47 This is likely to continue.
08:48 This is essentially happening because of two things.
08:52 I mean, the gap between demand and supply.
08:54 For the mid-market segment, demand seems to be higher than the supply.
08:59 And the market consolidation, because of that only few developers have been able to sell.
09:05 If you map Indian real estate, not more than 35 to 40 developers across the country,
09:12 catering to close to 80% of the demand. And if you take every city, whether it is Bangalore or Chennai or Hyderabad or Pune or Bombay or NCR,
09:21 10 to 12 developers catering to the demand of about 80%.
09:26 So, which means customers are imposed lots of pain in these 10 to 12 developers,
09:34 which means they are not comfortable moving beyond these people.
09:39 Hence, there is a big price momentum possibility is there.
09:44 I expect the price appreciation to the momentum to continue.
09:49 Particularly now, let's say, we hope, government election results to be very positive.
09:56 And there will be a lot of expectations from the new government.
10:00 And with that momentum and economic growth, what is expected,
10:06 the prices will continue to go up for the next 12 months, Chinese maybe.
10:11 So, final question then. So, can you just talk to us about the debt levels that the company has at the moment,
10:17 whether or not you are comfortable with these debt levels and whether or not there are any plans with respect to structuring of this debt with respect to equity going forward?
10:26 Debt, I am not comfortable. I am extremely comfortable.
10:31 We are one of the lowest in the industry on debt equity ratio compared to all other competition.
10:37 We are one of the lowest. Hence, I mean, it is not a matter of concern for us.
10:42 But as an organization, we would like to, I mean, keep very low debt.
10:49 As an organization, we don't borrow money to buy lands.
10:51 We always put our equity to buy lands because, I mean, land is a long term investment.
10:56 Whereas construction finance, we take working capital. The projects that are under construction today,
11:01 all of the projects are likely to get completed in about 18 months to 30 months time, which means all these debts will become zero.
11:10 The current projects which are under construction today, the working capital exposure will become zero.
11:15 Of course, as and when we start new projects, the new project related debt, like working capital debt will come,
11:21 but not the equity what we will be using for the land purchase.
11:26 Hence, debt equity ratio, I am not having any discomfort.
11:31 Having said that, 18 to 24 months time, the current projects, whatever the debt, will come down to zero debt.
11:37 So, we are making good progress. Debt equity ratio is in a very, very comfortable position.
11:42 Okay, Mr. Malayappan, we leave it at that. Thank you so much for joining us and taking us through the quarter gone by,
11:47 as well as what we can expect from the company.
11:50 We look forward to more such conversations.
11:53 I have with me the IMD CEO at Zagil, a very interesting company, as well as set of numbers disclosed by Zagil.
12:00 And I have with me Mr. Avinash Godhikini, who is going to talk to us about that and what we can expect going forward.
12:07 Welcome, Avinash. Good chatting with you. First off, I want to try and understand.
12:12 You've guided for 45 to 55 percent growth on top line for FY25, doubling of top line over the next two years.
12:20 Talk us through the levers which are helping you get there.
12:24 Thank you. Thank you so much for having me on the show.
12:28 Well, the levers are the tremendous tailwinds to the spend management space,
12:34 whether you're looking at companies wanting to digitize, whether you're looking at partner banks,
12:40 wanting to work with more profitable, stable fintechs, as well as the quality of the software in which we keep investing.
12:48 And, you know, a lot of things that we're doing.
12:50 Like we recently launched our AI chatbot called Rasbot, Ras with a Z for Zagil.
12:58 And, you know, we are seeing some great leads on innovations like this.
13:02 So overall, if you look at the tailwinds for a leading spend management company like Zagil,
13:08 they're very significant. And that's why we're very confident of the growth in the coming years.
13:14 OK. Now, with regard to just the numbers itself, when I'm looking at Q4 specifically, as well as FY24 as a whole,
13:24 your margin number is roughly 10 odd percent. It's double digit.
13:29 Where should one see that number go in FY25? Will you be able to maintain that number on this kind of a top line growth?
13:37 See, we've been given a guidance of our adjusted EBITDA to be 11 to 13 percent for the year.
13:43 And we were able to meet our guidance. We were at about 11 percent for the year.
13:49 And our growth guidance was also, you know, met. So we were very pleased with that.
13:55 And we believe that our margins would remain at similar current levels for the coming year while we continue to grow.
14:04 Because this is a business where we have overall, if you look at it, tremendous operating leverage.
14:11 And there's a benefit of being the number one in terms of commanding price premium, in terms of commanding higher wallet share.
14:21 And so in the medium to long term, we see, you know, very significant margin expansion.
14:26 And in the current year, we believe we'll be able to maintain current levels.
14:31 So before I come back to margins, I just want some perspective on how much of your revenue is recurring.
14:37 You've got a top line of roughly 775 odd crore in FY24. How much of that is recurring?
14:44 Could you give us some flavor, texture on that? It may not be absolutely on a contract basis recurring,
14:50 but what can one reasonably expect in terms of that top line number to be recurring?
14:56 See, a large part of our business is, you know, recurring in nature because it's either your...
15:03 Where do we earn money, right? We earn either on software, where companies pay their SaaS fee, which is obviously recurring.
15:11 Or we earn on transactions and transaction income is through, you know, instruments that we provide or points that we provide,
15:18 which keep getting used and redeemed.
15:21 So there is a clear recurring pattern in all these revenue streams.
15:28 And again, you know, you have corporates, you have employees, there are spends that keep happening, you know, every day, every month.
15:35 And those spends are happening through our platform and we are monetizing.
15:39 So there's a very large component of our revenue, which keeps recurring.
15:44 So would that be 90% plus? Is that a reasonable number to expect?
15:51 See, I wouldn't want to put in an absolute number there.
15:55 But if you understand the nature of the business, it's pretty obvious that a lot of it is recurring.
16:00 Yes. Which is why the question actually, Avinash. Sorry. Yes.
16:04 Yes. Yes. Yes. And also there's a lot of cross-sell opportunity.
16:07 So what we see is in the same customer, the same corporate, the same user,
16:12 there is an ability to cross-sell and upsell in a very big way because you've got an app and a relationship going with the customer.
16:18 And that keeps, you know, helping us monetize year on year.
16:24 With regard to ESOP, Avinash, is the larger part of the ESOP expense now behind us?
16:30 Is that what one can see or do you expect even in FY25-26, ESOP expenses to continue to remain elevated?
16:38 Because your employee costs have contracted. So just want some perspective on that.
16:42 And while you're giving that perspective, if we can just urge the team to kind of pull up the adjusted EBITDA versus the EBITDA numbers,
16:52 which we've kind of collated just for perspective. Thanks, Avinash.
16:56 So on the ESOP cost, our overall last year ESOP cost was about 15.5 crores.
17:03 And this year our expectation is that it will come down to about 8 crores.
17:08 So ESOP costs are coming down in a very significant manner.
17:13 Coming to our adjusted EBITDA was 85 crores and 85.5 crores.
17:20 And our absolute EBITDA was 70.6 crores for the year. Right.
17:25 So that's the difference is the ESOP cost. And you've grown on both parameters very significantly.
17:34 And that gives you a lever, Avinash, if I understand correctly, to expand both margins as well as the EBITDA number slightly more than what the top line grows at in FY25.
17:49 Look, there are a lot of levers and this is, of course, one of them. But we continue to, you know, be very bullish about both growth as well as what we are investing to build for the future.
18:01 Some of the investments that we are making currently would yield results in the coming years because our attempt is always to build value for the medium to long term while taking care of the short term.
18:14 So that's the balancing act that goes on.
18:19 Two cash balances, acquisitions. Last question on margins. You've suggested the significant scope for expansion in the medium term.
18:27 Now, we've spoken about one to two years, but let's talk medium term maybe in terms of margins.
18:32 20 percent plus, is that a number that is somewhere close to what you're looking at, maybe three, four years down the line?
18:41 I don't want to put an absolute number, but margins will grow in the medium term, three to four years for sure.
18:49 And even today, if you look at it, the reason why we are more focused on growth is because of the space that's got created because of certain RBI interventions.
19:04 Some of our competitors have been very significantly impacted, especially in our accounts payable platform.
19:10 And we want to capture that space as well as the overall tailwinds of digitization, of GST filing.
19:18 All these pieces really agar very well for us.
19:23 So, if we had been taking a different route, we could have expanded margins significantly even this year.
19:32 But we believe that it's in the best interest of the company and the shareholders that we focus for growth for this and next year.
19:42 And margin expansion would automatically follow.
19:45 I also want to highlight that if you look at the gross margins, last year our gross margins were 49 percent, which grew from a gross margin of 39 percent the year before.
19:56 So, the gross margins are expanding.
19:58 And anybody who follows business realizes that if gross margins are expanding, EBITDA would eventually follow.
20:06 Sure.
20:07 A couple of pieces I want to deal with before we close, Avinash.
20:12 First is with regard to your software costs, your expenses, your intangibles, which is the key for a company like you.
20:20 Are these software costs expensed?
20:23 Are they sitting in your assets?
20:25 How does it work from an accounting perspective?
20:27 And what's the kind of number that one is looking at in terms of investment within your own current software in-house organic over the next one to two years?
20:38 So, some of the software costs are expensed out.
20:42 Those are costs which we incur for routine maintenance and stuff like that.
20:49 But the costs which are around building of the product and the platform, those are amortized.
20:56 So, that's how we segregate it.
20:57 Only those costs which are around actual building of the product and capability or enhancements in terms of significant functionalities is what we include in the amortization.
21:10 Overall, as part of the IPO proceeds, we have allocated over three years about 40 crores for investing in product and tech.
21:20 And we are on track with that.
21:22 Okay. You know, last off, with regard, you have a large cash balance.
21:27 You have voiced the possibility of inorganic expansion.
21:32 Will it be on the current pillars of product that you have or will it be a different pillar, a different product?
21:38 What's the kind of ticket size you're looking at?
21:41 Give us some color, texture, flavor.
21:43 See, it could be augmenting the current products.
21:49 It could be an adjacency.
21:50 It could be potentially providing us expansion to newer geographies.
21:57 One of the areas that we are very bullish about is around tax filing and tax management has become extremely important for both users as well as companies,
22:12 especially with users now drawing income through various means, not just your salary, but investing in the markets, for example, rental income, etc.
22:22 So there is a need for them to get high quality support and a platform to be able to do that.
22:29 And there are other areas where we are having conversations.
22:34 The whole thesis is that the acquisition should bring long term value to Zaggle and also to complement our current strengths.
22:45 So that's how we look at it.
22:47 Okay. Thank you so much, Avinash, for all of that perspective.
22:51 Wishing you all the very best for FY25. We'll stay in touch and chat more.
22:55 Thank you.
22:56 Plenty of developments happening in Zaggle.
22:58 And it's good understanding smaller companies. It's a 3000 odd crore market cap company.
23:05 And what you're seeing is 44 crore on path this year and doubling of revenue maybe in the next two years or so.
23:14 So keep your eye out on this one. But with that, completely out of time on this edition of Earnings Edge.
23:19 Stay tuned to NDTV Profit. We have more on the other side.
23:21 [Music.]
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