IT firms - India's real estate kings

IT companies have acquired over 1,000 acres of land

Here's a multiple choice question for you. India's biggest real estate tycoons are (a) the Mumbai-based Rahejas; (b) the Delhi-based DLF group, (c) the big four information technology (IT) companies.

If you've ticked (c), you're bang on target. The big four "" Infosys Technologies, Tata Consultancy Services, Wipro Ltd and Satyam Computer Services "" together own well over 917 acres of land.

That's a conservative figure "" we don't know how much land TCS holds because TCS did not respond to an Ice World questionnaire on the topic and so TCS is excluded from this figure. Add HCL Technologies' 102.74 acres of land in Noida and Chennai and the figure tops 1,019 acres.

Infosys Technologies has approximately 628 acres across India, Wipro owns a more modest 129.11 acres of land and Satyam owns 160.5 acres of land in Hyderabad, Bangalore, Bhubaneshwar and Pune.

The Satyam technology centre in Hyderabad accounts for 70 per cent of this, with the rest of the land being in Bangalore (about 15 per cent of the total), Pune and Bhubaneshwar (the remaining 15 per cent).

Indeed, every major software company in India is buying more land "" and state governments are falling over themselves to sell them land cheap, raising fundamental questions about whether they should do so.

Why do IT companies need so much land? The answer, of course, is that, being human-intensive, the IT industry needs space for thousands of employees.

Wipro, for example, has 28,500 employees. It has leased and rented a number of other buildings across the country. The long-term plan, however, is to ensure that all Wipro employees are housed in a campus. That means acquiring more land or taking land on a long lease.

A Satyam spokesperson says: "Satyam was one of the first IT services companies to invest in a large technology campus. The need to give customers increased comfort and confidence that work could be moved offshore meant creating an environment in India that replicated theirs. Coupled with this was the perspective that a young work force would readily adapt to a campus-style environment. The rapid growth that Satyam witnessed over the years and the resulting expansion meant scaling up the space requirement and renting office spaces too. However, efforts are on currently to replicate the campus environment at various locations."

Wipro's H. Prasad Hegde, general manager, operations, and the man who is in charge of all real estate deals at the company, says that Wipro has an immediate, medium term and long term land acquisition plan which is highly scientific.

"We look at our real estate plans very holistically. There is a long term picture of which areas we want to set up our facilities in and we will acquire land there as per our plan. Land acquisition is linked to our business plans. We do not acquire land for the sake of acquiring land," Hegde points out.

But Wipro is clearly scouting for land. Hegde indicates that Wipro, like Infosys and Satyam, will shift out of rented and leased premises to its own campuses in the future.

Wipro will need close to 200 acres of land to just shift employees out of rented and leased premises into Wipro's own campuses, apart from budgeting for future growth in a 'highly scientific' manner.

T V Mohandas Pai, chief financial officer at Infosys Technologies, points out that Infosys' campuses are intended to create for its employees an environment that fosters team spirit, learning, intellectual discussion as well as relaxation and fun.

"Our aim was to create world-class campuses and a professional environment that reflected the atmosphere at our clients' offices in the developed world. It was important that we gave our employees a sub-culture within our campuses that helped them relate to our clients globally and their style of working," Pai says.

"Our facilities are complete with software development blocks, customer care centres, conference rooms, libraries, training centres, health clubs, food courts, and convenience stores, thus meeting all the requirements of the employee in one campus," Pai adds.

But Infosys Technologies' 628 acres works out to about 2,73,55680 square feet. Infosys has on its rolls 25,634 employees. So on an average, for every employee Infosys has 1,067 sq ft of land.

IT companies on an average budget for between 100 sq ft. and 150 sq ft of built-up space per employee.

So do Indian IT companies gobble up land far in excess of their immediate and future needs?

"When IT exports started initially everybody underestimated the need for space. Eventually, everyone ran out of space faster than they thought would be possible and there was a mad scramble to identify locations and house employees. Today the pace of growth is frenetic and IT companies may probably want to play safe," explains Sridhar Mitta, managing director of e4e Inc, the technology holding company.

Mitta should know "" he was one of the first employees of Wipro's technology division and saw the boom when space got gobbled up in double quick time.

"What looks a lot today may not be enough 20 years down the line. But the IT companies are probably overdoing it today by taking up so much space," Mitta adds.

That's perhaps because land comes cheap. In their zeal to promote their states as IT destinations, state governments are probably giving land away at throw away prices to IT companies.

Says a real estate consultant in Bangalore:"The market price of land in Electronic City is around Rs 1.5 crore per acre. This is far more than what companies would have paid to acquire the land, though they would have got concessional pricing thanks to bulk buying."

State governments are probably offering IT companies too many concessions.

"I can understand it if a state government in the north east or in Rajasthan gives out land cheap because there is not much happening there. But why should governments in Maharashtra, Tamil Nadu, Andhra Pradesh or Karnataka want to give land cheap to companies that are sitting on hordes of cash? These companies need to go these states purely because people are available there. By selling land cheap, governments are losing out on money," argues a leading real estate company head in Hyderabad.

For the record, Tamil Nadu has no policy on land. But the government is allotting land at its Sipcot Seruseri IT Park in Chennai for Rs. 15 lakh an acre "" almost half the market price, according to a real estate industry source.

Satyam, for example, has a 112-acre sprawling campus in Bahadurpally near Hyderabad. When Satyam purchased the land in 1992, the going price could have been anywhere between Rs 60,000 and Rs 1 lakh per acre.

Today land in the area commands a price of between Rs 80 lakhs and Rs 1 crore per acre, though deals can be struck at between Rs 40 lakhs and Rs 60 lakhs.

So Satyam's land holding in Hyderabad is probably worth a whopping Rs 112 crore for which it may have paid only over Rs 1 crore. To be sure, the Indian software story had not started in 1992 and any concessions given to Satyam were richly deserved.

Not all IT companies have gained from state government largesse. HCL has been investing in land since 1991, its most recent purchase being a 45.45 acre plot in Noida in April 2004. It bought land at market rates.

Note, however, that foreign IT companies in India don't spend huge sums on acquiring real estate. They prefer to husband their cash to grow the business through acquisitions, investments in sales and marketing and partnerships.

Says a senior Oracle employee: "Only when they see some clear business benefits such as enhanced security and business continuity, better amenities for their employees and favourable impact on their margins do they invest in real estate. Even then, the investment is not large and in no way comparable to the type of investments made by the large Indian IT companies."

For example, the Chennai-headquartered Cognizant Technologies has approximately 20 acres of land in Chennai, Pune and Kolkata, part of phase one of its construction. It plans on acquiring another 20 acres for phase two which ends by the end of 2005.

In the first phase, about 6,000 professionals will occupy buildings in 20 acres; a similar number of professionals will be given space in the second phase of investment.

Note too that IT multinationals build five to six-storeyed structures versus the three to four storeys of their Indian counterparts. So Indian IT companies take up more land.

"The cost of Indian companies' buildings are lower. In 1996 when Wipro wanted to have a building with a covered car park, the cost went up by Rs 10 crore. We ditched the plan then," Mitta points out.

Still, Indian IT companies unquestionably have valuable land. It's difficult to determine just how valuable the land is and real estate companies differ on the matter.

But if another downturn comes along and they have to raise money, they can use their land as collateral. In the US, IBM did just this in 1995, when it was in dire financial straits. It sold its cantilevered entrance skyscraper in New York, closed its elegant museum-sized exhibition space and sold many of its valuable paintings.

That may or may not happen here in the years ahead. Till then, IT companies will continue holding some of the largest land holdings in some of the sweetest spots in India.