In last two years, Mumbai-based Lodha Developers bought land worth Rs 8,000 crore, with DLF’s Mumbai Textile Mill plot being the latest. In one of the biggest private equity exits, it paid back Rs 2,500 crore to German investor Deutsche Bank earlier this year. Managing Director Abhisheck Lodha, in an interview with Raghavendra Kamath, talks about the company’s strategy. Edited excerpts:
Why is the Lodha Group aggressively buying land, when most big developers such as the Ajay Piramal group and the Oberoi group are going slow and property markets are down?
It is our confidence that we can sell. Because we sell, we finance new land buys. We have the capacity to constantly capture significant amounts of Mumbai sales. We sold properties worth Rs 5,000 crore last financial year and Rs 6,000 crore before that. As far as big developers are concerned, Oberoi had sales of Rs 800-900 crore last year. The Ajay Piramal group has not even started the business (real estate) yet. We are ahead of Unitech and also ahead of DLF in 2011. Since DLF is also into plotted development, and we are entirely into constructed area, we are on a par with them. So, we have a different (bigger) scale. I do not know any other developer in the Mumbai market who can be compared to us, in terms of our scale and magnitude of development. We are number one or two in the country, though we are primarily focused on the Mumbai Metropolitan Region (MMR. Besides, we cater to all segments—from Rs 25-crore apartments in Malabar Hill to Rs 25-lakh units in Palava near Dombivali.
Since you have spent Rs 8,000 crore on buying land, property experts say you are spending huge amount as interest. Is that right?
That is not correct. We have debt of about Rs 3,500 crore . We have strong cash flows. We spend very little time between buying the land and constructing the project and start the sales, rather than spend years struggling to start construction, leading to cost overruns. Our ultimate focus is on selling well and selling profitably. After paying interest, we have free cash flows of Rs 1,500 crore. Our cash flows are far more than the sales of any other player in Mumbai.
How has the slowdown that in the property market affected your business?
No doubt, overall property markets are down, but we have not seen any decline in sales. We are getting a disproportionate share of our market because people have faith in us. In the first four and a half months, our sales were 15 per cent higher than in the corresponding quarter last financial year. Our sales stood at Rs 1,500 crore in the quarter ended June. For the first two quarters, our sales would be between Rs 2,800 crore and Rs 3,000 crore. Selling 5,000 to 6,000 units of houses in a single city every year is not what everybody does. You should appreciate DLF and Unitech sell houses across the country, but we do it in a single city. We have 20,000 live customers and are adding 4,000-5,000 more every year.
How many units did you deliver last year? How many did you deliver this year?
We delivered 3.2 million sq ft with an average size of 1,000 sq ft in FY12. In the previous year, we delivered 2 million sq ft. This year, we will double that.
You have not secured all the permissions for the 117-storey World One project and the Mumbai Metropolitan Region Development Authority (MMRDA) has not given you complete possession in the Wadala project. Isn’t that a concern for your customers?
For World One, we have secured approvals from all departments except from the civil aviation one. It is the least of our worries. It is a process and they are still studying the project. Our international consultants have studied it and have not found any problem. We have not sold one flat more than what we have permission for. We are a fool-proof company and we don’t go beyond what authorities have approved. In the Wadala project, while MMRDA has given possession of a part of the land, we have commenced sales where construction is underway.
In the World One and World Crest projects, how many flats have you sold?
In World One, 60 per cent is sold, while in World Crest, 50 per cent is sold.
Many of your projects are in central Mumbai, which is prone to oversupply. Consultants say this could lead to price corrections.
Of our 280 million sq ft saleable area, only 18 to 20 million sq ft, or 10 per cent, are in central Mumbai. Talks of oversupply have been there in central Mumbai for some time. I can’t forecast what would happen tomorrow. But facts have not supported what has happened in the market so far. It is difficult to get supply in the market. As of now, there is moderate supply in central Mumbai. There are no new projects up for completion this year or next year — nothing till 2015. And, there is demand at different price points — a lot of builders were building large, three-bedroom apartments or four-bedroom apartments. Now, different price points have come in. For any large project such as the Mumbai Textile Mill, which go on for about seven, eight or ten years, would there be any down cycle?, For sure, there will be a down cycle. Will there be up cycle? Yes, there will be. Because it is the nature of real estate — every four years, there would be up and down cycles. If you buy only during the up cycle, I don’t think it is a smart move. The smart ones, the very successful ones, are those who see opportunities at the bottom of the cycle, not at the top.
The Omkar-Larsen & Toubro joint venture has announced a project in central Mumbai at Rs 16,000 per sq ft, half the prevailing prices in the region. How do you see it affecting your projections?
I do not want to comment on that. Decisions on pricing are a combination of quality of location, design and promoters. We believe the Mumbai Textile Mills land is in a good location and has good access from all sides.
You are carrying out large projects such as World One and New Cuffe Parade, which would take years to complete. Aren’t these risky, given the volatile market conditions and the constant changes in rules?
First, World One would be completed in 2015 and World Crest in 2014. Every business is about opportunities and risks.
At the macro level, there are certain trends; there are winners and losers. There are successful companies and not-so-successful companies, based on how good or bad these are in managing risks and opportunities. In real estate, I have not seen too many people who can reasonably predict what is going to happen next. In the last three years, many people said prices would go down tomorrow, and would keep going down. Every company takes a business call on what is going to happen next and moves ahead. We have not taken public money. We are here to create value, though it is privately held.
Fellow developers say you have best marketing team but you lack execution capabilities.
Though I do not want to comment on anonymous views, I wonder whether they have met all the 1,100 engineers we have employed. We spent Rs 1,600 crore on construction in FY11 and Rs 2,200 crore in FY12, much more than what most companies spent in their existence. Our performance speaks. We have delivered 3.2 million sq ft, the most anywhere in the country last year.