Parsvnath goes slow on hotel expansion

To conserve cash, the firm is not buying new land for hotels and projects have been pushed back 12-18 months.

New Delhi-based Parsvnath Developers is going slow on hotel expansion to conserve cash in the business, a top company official has said.

Parsvnath had planned to open 100 hotels in seven years with about 10,000 rooms. Now, the company is not buying any land for hotels apart from what it has for its 20 hotel projects, of which six are under way.

“We will not buy new land for now. We are focussing on six projects and will start the other 14 in due course of time,” said Parsvnath Chairman Pradeep Jain.

Most real estate developers, like DLF, Unitech and others, are scaling down or slowing hotel plans due to the current slowdown in the property sector and the cash crunch. While property prices have dropped as much as 50 per cent from their peak in 2008 in metros and sales have declined 70 per cent compared with last year, banks have tightened lending to property developers.

According to experts, 20-30 per cent of the room capacity planned by 2010 would be deferred by at two to three years.

DLF, the country’s largest property developer, is said to be pushing back its hotel plans by 12-18 months due to the tough credit environment, while Unitech, another New Delhi-based developer, has sold its Gurgaon hotel to reduce its debt burden.

Even hotel chains are passing through a rough patch with occupancies falling 58 per cent in January 2009 and average room rates declining 14 per cent in the month.

Analysts expect Parsvnath’s balance sheet to be under pressure in the current quarter and the next financial year due to decline in execution, high receivables and overall slowdown in the property market.

The company’s consolidated third-quarter profit fell 95 per cent to Rs 5.42 crore and sales dropped 80 per cent to Rs 90.52 crore. In the fourth quarter, on a year-on-year basis, analysts expect revenues and net profit to drop further.

The company’s execution slowed in every quarter of the current financial year. The company has an executed space of 1.3 million sq ft in Q3 of FY09, compared with 2.2 million in Q2. Receivables from buyers went up to Rs 1,496 crore by the end of the December quarter, from Rs 1,346 crore in the September quarter.

“Developers cannot launch new projects when sales are slow and cash is hard to come by,” said an analyst with a Mumbai-based brokerage firm.

Parsvnath is developing six hotels in Mohali, Shirdi, Hyderabad, Lucknow, Ahmedabad, and expects to start the rollout by the second half of 2009. The company is in the process of getting approvals for 14 other projects, which are expected to start in the next 12 months.

Jain said the company was looking at diluting stakes in individual hotel projects and drop its earlier plan to dilute stake in the entire portfolio. “Today, there are no takers for consolidated assets. That is why we are looking at divesting stakes in individual projects,” said Jain.