Finding The Right Mix
This slow starter in real estate is set to drive in the fast lane.
Small developers have been knocking on the doors of Anita Arjundas, Managing Director of Mahindra Lifespace Developers (MLDL), with proposals for either jointly developing a project or selling their property to her. "There has been an increase in joint development and joint venture enquiries in affordable housing from small developers. But we are not in a hurry. We will be comfortable starting a new project or entering ongoing projects where there is scope for making money," says Arjundas, who doesn't want to pick any project which is more than 30 per cent complete.
While developers are chasing Arjundas to add credibility to their projects through association with the Mahindra brand, there is one more reason -the company is sitting on more than Rs 300 crore cash that it had raised in a rights issue in May. MLDL, of course, is not averse to partnering; it is looking to acquire new land parcels and has signed five memorandum of understanding, or MoUs, with land owners for building houses in Mumbai, Pune, Bangalore, Hyderabad and National Capital Region or NCR. "While our current and forthcoming projects would address the next three years, it is important for us to add land parcels today to keep the momentum going and scale up for the next four-five years," says Arjundas. She says if all the five MoUs work out, the company will acquire close to 30 acres, on which it will be able to deliver saleable space of close to 4.5 million square feet.
The urge to expand has seen MLDL make it to BT's Fastest Growing Emerging Companies in the services segment.
MLDL is scouting for land across India. But its success owes a lot to its decision not to buy land between 2005 and 2009. "Then (2006/07), land banks determined valuations and the focus of many was on accumulating land. During much of this period, we stayed away from new acquisitions as land prices were high and we did not see the economics working at such prices," says Arjundas, who started acquiring land only after 2010 and that too in areas with decent infrastructure and connectivity.
MLDL had forayed into real estate way back in 1994/95. It started with development of residential real estate in Mumbai. Today, it operates in seven cities - Mumbai, Pune, Bangalore, Hyderabad, Chennai, Jaipur and NCR. "We are in a region where there is growth potential and sustainable urbanisation. We want to participate in the growth of cities. After all, by 2030, 42-43 per cent of India is expected to be urbanised," says Arjundas.
The company has a diversified portfolio ranging from mid to premium housing (accounting for 72 per cent revenues) to integrated housing (under the World City brand) and industrial cluster, which accounts for 20 per cent revenues, to the new affordable housing segment, which contributes 8 per cent to revenues. "In the next three-four years, we expect our affordable housing business to contribute to 20 per cent of overall revenue, though the mid-premium segment will continue to dominate, accounting for 60 per cent revenue. Around 20 per cent will be generated by our Integrated Cities & Industrial Clusters business," says Arjundas.
Demonetisation & RERA
In 2016/17, demonetisation and poor sentiment hit real estate sales. The company reported over 50 per cent fall in net profit to Rs 48.94 crore compared with Rs 104.2 crore in 2015/16. The strict Real Estate Regulation Act, or RERA, also added to compliance costs and slowed sales. There has also been uncertainty related to the goods and services tax or GST. "Demonetisation, GST and RERA made customers postpone investments. While the sector is languishing, over the medium to long term, it's worthwhile to look at MLDL. It enjoys the benefits of association with the Mahindra group and a strong balance sheet. Once sales pick up, it will be in a position to enjoy the fruits of the macro upswing which is expected from the second half of 2017/18," says Avinnash Gorakssakar, Head of Research at Joindre Capital, a Mumbai-based broking firm.
Arjundas is aware that real estate is a local play and, therefore, runs different regions as separate profit and loss centres. "A regional profit centre approach allows us to operate locally while deriving the benefits of best practices, economies of scale and experienced talent pool from major cities," says Arjundas. MLDL has selected western and southern regions as growth corridors for the residential business. For this, it is focusing on adopting quick-turnaround, asset-light models such as joint development and joint venture.