Anil Manibhai Naik loves his "youngest baby". That is what the 71-year-old chairman of engineering and construction behemoth L&T calls the realty arm of his company, L&T Realty. He fusses over the projects, holding multiple meetings with architects and personally approves every building that is going to be constructed.
Naik also believes that anything from L&T Realty should live up to adjectives like "signature", "mega" and "landmark". But that is not surprising given the parent company's scale and size. L&T has 21 different business units, and posted net sales of Rs 60,873 crore in the financial year 2013. It's also not surprising, therefore, that within three years of its existence, L&T Realty has closed the gap on the bigger players in the real estate sector. With 35 million sq ft under various stages of development, L&T Realty is almost on an equal footing with the Lodha Group, one of the largest private developers, which is also developing 35 million sq ft of real estate. The country's biggest real estate company, DLF, has 52 million sq ft under development.
L&T's foray into land development took off in the late 1990s when it partnered with the Andhra Pradesh government in constructing HITECH City in Hyderabad, a 5-million square feet, ultra modern office complex that was inaugurated in 1998. Five years ago, L&T made headlines again by outdoing DLF and Indiabulls with a bid of Rs 1,900 crore for the development of an integrated commercial complex at the Seawoods railway station in Navi Mumbai. The 9-million sq ft project at Seawoods encompasses a shopping mall, an entertainment complex and offices on top of the railway station.
L&T Realty came into being in 2012. Many in the industry feel that the brand equity of its conglomerate parent is the biggest pull factor for its realty business. Success marked L&T Realty's initial thrust in residential complexes, when it sold 400 apartments within four days of the launch in Mumbai's Parel area in 2012. The project is a joint venture with the Omkar Group. Consultants said its proximity to the Lower Parel business district, L&T's brand name, a two-bedroom configuration for the units and the launch price of Rs 16,000 per sq ft against the market price of around Rs 28,000 per sq ft did the trick.
Pranay Vakil, founder chairman of Knight Frank India, feels that it was a natural progression for L&T, being an infrastructure developer, to get into real estate development. "If you have a good brand, you can sell the project when it is under construction. Otherwise, you have to finish it before you are able to sell it," points out Vakil.
Deepak Parekh, chairman of HDFC, the housing finance major, underlines the importance of the company's advantage in this business when he says, "L&T Realty has an edge over other developers because it is backed by a well-known brand specialising in construction. The company is converting its own land parcels, not buying land parcels."
L&T Realty has ongoing projects in cities where it owned land parcels - Mumbai, Chennai and Bangalore. But its vision is broader. Says Naik: "Five years ago, we thought that manufacturing had to migrate to small cities as it was becoming increasingly expensive to do business out of big cities. That's why we went to Vadodara, Visakhapatnam, Mysore, Coimbatore and other similar places."
Different business model
It is not only in moving to smaller cities that L&T's realty business stands apart from others. First, the company does not aim to become a pan-India developer. "We do not have the bandwidth to become an all-India player," admits Naik. "We will focus on Mumbai, Chennai, Bangalore and, at best, Pune." Commenting on this aspect of the business model, Vakil says that L&T Realty would have to overcome the challenges of knowing and adhering to local regulations in the cities on which it plans to focus, recalling how DLF was forced to pull out on this account after initially venturing into many cities.
Second, all L&T projects come as a complete package. The engineering and construction is taken care of by L&T, while financing for customers is handled by L&T Finance, even the sales, marketing and branding are taken care of by in-house companies.
L&T Realty has also taken care to boost its credibility by not going in for pre-launches, that is, launching projects before acquiring all requisite approvals. Pre-launches are a popular way of raising pre-construction funds. Naik cites the example of a project in Andheri, Mumbai, which has had its launch date changed three times and is two years behind schedule only because the company has been unable to have all the approvals cleared. "We do not sell even 10 per cent of a project without getting all the approvals," claims Naik. "When we say 30 months, we deliver in 30 months."
And given the big controversies over allotment of houses, the company also has strict rules about sales. No one buyer can purchase more than two houses. Even for that, the buyer has to produce two different PAN cards to be eligible. It does not give any discounts to buyers and receives full payments only in cheques.
After the company's Parel launch, the markets have turned tough, says Naik, adding that to beat the slowdown in the market, L&T Realty is targeting non-resident Indian buyers in London, Singapore, West Asia and other places. "The rupee is cheap and NRIs are looking to invest in good properties. We can provide them with good products," says Naik with optimism.
In its joint ventures, the company has been extraordinarily careful in selecting partners to ensure that the brand and goodwill of the company are not eroded. It was for this reason that Naik rejected an offer of a joint venture in Kurla - the project was not only for developing just 700,000 sq ft but it was also located in a non-prestige area. "We get many proposals for joint ventures," says Naik, "but I cross-check every proposal. We do not take approval risks."
As for the financials of the company, while the company refuses to part with top line numbers, Naik says, "It is one of the fastest growing companies for us, and is looking at at a profit of Rs 350 crore this financial year."
REALTY IN A DOWN MARKET
Is it a good time to launch residential projects given that the markets in key cities such as Mumbai and the National Capital Region are on a downward trajectory? According to consulting firm Liases Foras, for the December 2013 quarter, the inventory, or the months required to clear the stock at the existing pace of absorption, across India stood at 30. The Mumbai Metropolitan Region had the highest inventory of 46 months. Inventory of eight months is indicative of a healthy real estate market.
Among L&T Realty's current activities, the Seawoods project is a massive 9-million sq ft project. In Andheri, it is developing a 2.5-million sq ft area, while in Powai East, its latest is a 3.6-million sq ft undertaking. There, the company has leased one tower to JPMorgan and sold another to Sanofi. It is also developing a 2.3-million sq ft residential scheme on the plot. The company plans to develop its Powai West campus in two phases over the next decade.
L&T Realty is also developing 8 million sq ft of residential and commercial properties in Bangalore, and 6 million sq ft in Chennai. The company claims that its mall in Chandigarh, a mixed-use project, has already become a tourist destination with around a million people visiting it every month.
PROJECTS UNDER CONSTRUCTION
35 million sq ft, mostly mixed use projects
mostly owned by the company or in joint ventures
Mumbai, Chennai, Bangalore and Pune
Large signature projects, walk to work concept, no pre-launches, no discounts,
EXPECTED BOTTOM LINE FY 2014
Rs 350 crore