IVRCL puts land assets on the block

Hyderabad-based IVRCL Infra is planning to sell as much as 1,600 acres out its land bank that it had secured for its real estate development. The land spans across five cities: Bangalore, Pune, Chennai, Hyderabad and Visakhapatnam.

The 1987-founded IVRCL, which operates in the core sectors of water & environment, transportation, buildings and power, also has four land blocks in Noida. These properties, east of Delhi, are ones it plans to sell off in the current financial year itself.

The company has around 2,300 acres of land in total. “Except for the 700 acres that we are already developing in Sriperumbudur (near Chennai), we plan to sell all the other land wherever we get a good price,” said Balarami Reddy, IVRCL director (finance). The company is currently developing an integrated township at Sriperumbudur not far from the Chennai-Bangalore highway. The township, with a saleable area of about 30 million square feet, will also have retail, hospitality, social infrastructure and special economic zone.

IVRCL plans to use the cash from land sale as capital for future projects in its bid to reduce debt requirement.

“We are already facing the challenge of high interest costs,” said Reddy. “Reducing debt and financing cost is a challenge that we are currently fighting.”

Even as the company’s net debt to equity ratio has been steady at 1:1, increased interest rates have been eating into its margins. Last quarter, the company’s operating margins showed a dip of 1.5 per cent on an annual comparison. Its earnings too were down owing to low margins, while interest cost registered an increase of 38.8 per cent on a year-on-year comparison.

Stock broking firms have been expecting the company to infuse equity. “If IVRCL is able to achieve this, it would not only improve its working capital cycle but also lend a fillip to execution,” said an earnings report by Angel Broking on the company.

The company undertakes engineering, procurement and construction projects. It also develops and owns infrastructure assets, mainly along the highways. Around two years ago, it decided to go slow on real estate development, but has now started the process of disposing off land.

The company is not worried about the timing of selling land bank. “There is no slowdown in the real estate market. People are willing to invest in land,” Reddy said. IVRCL has an orderbook of around Rs 26,500 crore. But, slow moving orders and execution have been playing spoilsport. Reddy expects this slowdown to last for another two quarters. “After that, the order inflow will start picking up,” he said.