Puravankara stock has been pretty under-valued, claims Abhishek Kapoor, CEO of the company. According to him, it is the perception battle that Puravankara has to weather as the intrinsic value of the stock and the performance of the company is at par with the top real estate companies of the country. In an exclusive interview with Ravi Sinha, Puravankara CEO explains why and how the brand would change the perception in the next few years. Excerpt of the interview:
Ravi Sinha: Stock performance of Puravankara has not been very impressive. How do you assess it?
Abhishek Kapoor: Inherently it is tremendously under-valued because the perception of the market has not been clear about the understanding of the business. In the last few months, we are doing communication more aggressively that what people should look at when they are evaluating our organization and our business.
If you compare us and benchmark us with anybody else then just look at the simple numbers. Valuation of some of the other benchmark companies is anywhere between 3 to 5 times of its annual sales number. This is not in our case where we have taken a few very aggressive positive steps in the last few years. We have brought down our debt from INR 3000 crores to less than INR 2000 crores; we have brought down our interest rates; our credit rating has gone up.
Ravi Sinha: What is your cost of borrowing?
Abhishek Kapoor: We have reduced our borrowing cost by 139 basis points. Our current borrowing cost is 10.56%, and that obviously includes some of the land acquisition cost as well. It has improved over the last few years significantly. Our under construction and new launches last year went up by more than 50%. In a year where we were impacted in the first six months due to administrative changes in the South, and then Covid, we still did three launches; we still went up; our Ready to Move inventory came down from 2.2 million sq feet to 100,000 sq feet.
Ravi Sinha: When it comes to stocks where do you place yourself in terms of EPS and PE?
Abhishek Kapoor: In real estate business, our balance sheet and P&L are driven by delivery; not by what you are selling and what you are building. That is why today this change in accounting standards has caused a lot of disruption in our ability to evaluate and understand these number. If you look at just the PE number, that may not necessarily be the correct reflection of the nature of the business. This is not like any other industry.
Ravi Sinha: IND AS 115 is the new accounting norm that you are talking about. But I suppose that has uniformly disrupted all the real estate companies.
Abhishek Kapoor: But it has caught the companies at different times in their life cycle. So, what happens is that different businesses will behave differently, and also because of the mix of the businesses that they are into. What is a healthy way to evaluate the performance of a company? First one is how is your sales figure; second and most important is how is your cash flows; and how much are you burning into the projects. In the last two years, we all have been affected by the Covid, but still one has to evaluate how much delivery are you doing. How much are you burning, how much are you collecting and how much are you selling, and then what is your launch pipeline.
A couple of years back we were selling Ready to Move inventory where we were collecting 100% in a span of three months of time. So, our cash flows were strong because we were selling the Ready to Move inventory. What happened last year is that our cash flows were strong and our Ready to Move was down by 67 per cent. So, how do you interpret it? What it means is our sales were definitely good, and what it definitely means is we were burning a lot more money in operations and it means we were delivering. Therefore, we could get collection milestone from our old sales. So, it is more about the perception issue where people have to understand and identify the actual numbers.
Ravi Sinha: So, what you are saying is that your stock performance is not high only because of perception issues. Is this what you are saying?
Abhishek Kapoor: Absolutely! Intrinsically there is no reason why our stocks would be so under-valued.
Ravi Sinha: Intrinsic value is generally assessed with the PE value and how is it positioned against the industry peers.
Abhishek Kapoor: Intrinsic value is also assessed from what is the quantum of value that you have in your landbank. If you monetize it and you discount those cash flows, then what is the total cash surplus that is sitting with you.
Ravi Sinha: If perception issue is what is troubling you then why is it so? Why have you not worked upon it?
Abhishek Kapoor: We possibly have not effectively communicated and engaged with the market to share our story and we are trying to reach out to the market and talk about what we are doing. We are talking hard numbers and achievements; it is not something that is just a conversation – whether it is reduction in debt, lower interest, improving on sales numbers etc.
Ravi Sinha: What is your PE, what is industry average and how the do you position Puravankara vis-à-vis the leading players?
Abhishek Kapoor: If you look at the earnings it is dependent on delivery. In the last two years our delivery has not been very good. It has not been good largely because of Covid. We don’t have commercial business for stabilized rental to book revenues in place, compared to anybody else. Primarily we are into residential business; neither we are into contracting business to continue to bill; nor do we have other stabilized retail business where we are getting rental yield. So, our earnings are dependent on the quantum of delivery that we do and it got disrupted due to Covid. So, I don’t think PE is the correct way of looking at it. In my view the correct way is to look at our cash flows.
Today on the floor Puravankara has got INR 6000 crore of cash surplus, which basically means from launch projects with inventory not open for sale we can generate a surplus of INR 6000 crores. In comparison, our debt is just INR 2000 crores; net debt is INR 1850.
Ravi Sinha: And you are also monetizing the land bank. How much land bank you have?
Abhishek Kapoor: Over and above the launched projects, the balance land bank that we have is 55 million square feet across India in nine cities. This year we are looking at 16 million sq. feet of additional new launches. If you add that and with the addition in the sales number, with more collections in the pipeline we will have more and more cash surplus in the next 2-3 years of time. This equity will be put in the business and it will be in a virtuous growth cycle. It is just a matter of time that these numbers will reflect in the story that I am talking about.
Ravi Sinha: There is a general perception that Puravankara got into plotted development because they were not selling well with multi-storied apartments.
Abhishek Kapoor: Absolutely incorrect! If you see our number, you realize that our launches have been successful. Yes, plotted developments have been more successful but that has been the case with everybody. Our residential business has done very well; you look at our sustenance with under construction. Our sales with under construction went up by 50%. Our Ready to Move inventory came down by 67%. The market perception has to factor in our numbers. That is why we are saying over a period of time people will realize we are extremely undervalued.
Ravi Sinha: Institutional investors doesn’t seem to very enthusiastic about Puravankara stocks. Why so?
Abhishek Kapoor: If you see break up of our holding, institutions hold more than 14%. Out of 25% stock listed in the public markets, more than 14% are held by the institutions. Why so? We have in fact low float. Investors are holding the stock and the shares are not churning; 56% of the floated shares are being held by the investors. If they have no interest, why are they holding it.
PE for Puravankara is 13.29; sobha is at 45; Prestige is at 13.34; and Brigade is at 123.44. Our business doesn’t have hotel and commercial. Now of course this year we are starting 2.74 million sq feet of commercial offices in Bangalore. We are aggressively working on multiple platforms to take on more. Why will IFC invest in Puravankara? They have found transparency, governance and value in it. Today, we are talking to some of the largest capital providers to the world.
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