Alok to wind up realty foray

Two years after it entered the realty space by signing one of the largest land deals in the country, textile major Alok Industries has decided to withdraw from this segment by 2012. It plans to come out of its realty projects by then and concentrate on the core business.

The company wants to bring back the investment made in realty to partly pay its existing debt, which is around Rs 7,000 crore.

Alok Infrastructure, the wholly-owned subsidiary of Alok Industries, had inked a Rs 1,075-crore deal with the Ashok Piramal group's Peninsula Land for the Dawn Mills at Lower Parel in Mumbai in 2007. With 5 per cent stamp duty and other charges, the deal size inched close to Rs 1,200 crore.

In addition, Alok — a Rs 3,000-crore company in sales — also had entered into a 50:50 joint venture with the Ashford group for a residential project at Bhandup (Mumbai’s central suburb) and has invested Rs 75 crore so far.
 

REALTY REALITY

* Alok inked one of the largest land deals with Peninsula Land

* By 2012, the company aims to come out of realty

* Estimates of Rs 250 crore as profit from Peninsula project

* Selling cost estimated at Rs 23,000-24,000 per sq feet

* The deal cost Alok Rs 17,000 per sq feet

* Company to use the proceeds to part-retire its debt

* Bhandup project to launch in February, 2010

Sunil Khandelwal, chief financial officer, Alok Industries, said: "Our focus on real estate is not much there now. We have to come out of the realty basket. Realty projects take time to encash and that period of waiting is over now. We have decided to keep selling our projects as they get completed (floor by floor) and bring back the investment into our core business, which can be used to pay our existing debt as well as to Peninsula."

As on date, Alok has paid Rs 625 crore to Peninsula Land. At the Lower Parel project, the company has an area of 641,589 sq ft, plus space for car parking. At the deal value without duties and taxes, the per sq ft cost for Alok is Rs 17,000; upon adding other charges, it becomes Rs 19,000 per sq ft.

The company estimates it will make a profit of around Rs 250 crore from selling the Peninsula property. "We estimate selling the property at Rs 23,000-24,000 per sq ft, but it is yet to be seen how much we can get in the market," added Khandelwal.

With this, their search for private equity (PE) players for the realty project has come to an end, too. In the middle of this year, Alok was in talks with at least two PE players to sell some stakes in the realty projects.

The company has already sold one floor of the Peninsula project (which has 20 floors) to a Delhi-based non-banking financial company. The Bhandup project will be launched in February 2010.

Alok, which did not have expertise in real estate, will not entertain bigger projects in the future. "Barring a few smaller projects, we will not do projects of such a magnitude, of over Rs 1,000 crore," said Khandelwal.

"We had entered into real estate, taking it as a good opportunity to encash on the realty boom in the country. But we feel, it cannot be our regular business model," added Khandelwal.

Of the Rs 7,000-crore debt the company has in its balance sheet, Rs 3,000 crore is under the Textiles Upgradation Fund Scheme, Rs 1,000 crore are external commercial borrowings, Rs 1,500 crore is regular loan and the balance Rs 1,500 crore is working capital. On the Bombay Stock Exchange, the company's shares closed strong on Tuesday, at Rs 21.45, up 3.87 per cent.