Arvind SmartSpaces plans expansion, eyes Mumbai and Hyderabad markets

After Bengaluru and Pune, Ahmedabad-based home-grown real estate player Arvind SmartSpaces (ASL) has now set its sight on Mumbai and Hyderabad markets. Part of the Lalbhai family-led Arvind Group, ASL has been preparing for its imminent foray into Mumbai and Hyderabad by exploring opportunities for land purchase.

While it has not laid out a strict timeline, ASL could soon join the bandwagon of regional real estate players such as Bengaluru-based Prestige Group, Ozone Group and Purvankara Projects.

Ahead of its Mumbai foray, ASL is consolidating its presence in Ahmedabad, Bengaluru and Pune alike, said Kamal Singal, company’s managing director and chief executive officer. While it launched its first project in Pune in January 2019, which is under construction now, the company is also executing seven other residential projects in Ahmedabad and Bengaluru. 

“We are keeping an eye on the markets of Mumbai and Hyderabad and exploring land opportunities there. However, we are in no hurry to enter Mumbai as our immediate hunger is being met by Bengaluru. Pune also has to become bigger as we don’t want to spread ourselves thin but go deep wherever we foray,” Singal said. 

Demerged in 2015 from the group’s flagship company Arvind, ASL has largely delved into residential projects across premium, mid-priced and affordable segments. Of these, most of the projects have been in the mid-priced segment, with ticket sizes ranging from Rs 60 lakh to Rs 90 lakh. “We have no intention to be premium in Mumbai since affordable and mid-priced segments are our focus,” he said.

Having established itself as a reliable, quality developer even during its pre-demerger days as part of the flagship Arvind in Ahmedabad, ASL’s foray outside of Gujarat has been strategic. Operating at gross margins of 25-30 per cent, the company has based its business on three strengths, including efficient land sourcing, capitalising its textile legacy brand pull and cost efficiency. 

In fact, the demerger from Arvind is in line with the group strategy to hive off profitable businesses to unlock higher returns for shareholders. For instance, apart from the profitable real estate business being demerged from Arvind and listed separately as ASL, the group also demerged the branded apparel-cum-retail and heavy engineering businesses into Arvind Fashions and The Anup Engineering in previous fiscal 2018-19. 

ASL has also been very selective of the markets it has forayed or intends to foray. So far, it has selected markets that have been growing naturally and bucking industry trends, especially in the mid-premium and affordable segments. “Most of our projects get occupied quickly since almost all of them are end users. Pune was a conscious decision to enter since there is a large salaried class base of consumers,” said Singal. 

What explains ASL’s strategy to consolidate Bengaluru and Pune on one hand and foray into markets like Mumbai Metropolitan Region (MMR) and Hyderabad is the recent H12019 data by real estate consulting firm Anarock. While MMR topped new housing units addition in the period with 49,890 units, Pune and Bengaluru were second and third with 28,220 and 20,080 units, respectively.

What further accentuates ASL’s strategy for markets like Pune and Bengaluru is that new supply in H12019 of units under Rs 45 lakh segment stood at 9,350 and 2,520 units, respectively, grabbing second and fourth spots among the top seven markets. “We have a roughly 80:20 or even 90:10 residential versus commercial ratio since residential is very less cyclical, less risky and requires lesser working capital,” said Singal. 

The company has also been open to both joint development models, where it ties up with local land owner, as well as outright land purchases. For instance, both the projects in Bengaluru — Skylands and Oasis — have been on land purchased by ASL, while the Elan project in Pune is on a joint development mode. Now, ASL has also bought a land at Yelahanka in Bengaluru for a new residential project.

This also explains why only 150,000-odd sq ft of the 7.4 million sq ft of saleable area in its upcoming projects would entail commercial, with the rest planned as residential projects across Ahmedabad and Bengaluru. These include new projects as well as subsequent phases of earlier launched projects.

ASL may not have been immune to the slowdown in the real estate as well as rising input and finance costs with its profit after tax remaining stagnant at Rs 30.6 crore in FY19 even as its top line grew from Rs 202 crore in FY18 to Rs 264.3 crore in FY19. However, the company has managed to depend on internal accruals for land purchases and incurring other costs, with its debt book standing at Rs 218-odd crore and debt equity ratio of 0.7:1.

Singal attributed this to the company’s move to not speculate on land but treat it as a raw material. As a result, the company invests on land largely through internal accruals and part debt and moves on to quickly initiate projects on the same. It is on the back of these moves that Singal anticipates to clock 25 per cent growth in sales in FY20 over last year.