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BW Businessworld

A Hard Landing

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Every day, in the narrow by-lanes of the south Mumbai locality of Nagpada, a goat is sacrificed and the poor get a free meal, courtesy the Balwa family. They are hoping somebody will hear their prayers and bring better luck to their incarcerated son, Shahid Usman Balwa. Co-promoter of DB Realty and architect of Swan Telecom, he was arrested in the 2G telecom scam on 18 February. Awaiting trial with him in Tihar Jail is his co-promoter and friend, Vinod Goenka, also charged with facilitating kickbacks to former telecom minister, A. Raja, of over Rs 200 crore through Kalaignar TV in exchange for licences.

For the two young entrepreneurs who were riding high just a year ago driving the fastest-growing realty company, it has been quite a fall. Unfortunately, for those sliding down the channel of misfortune, it does not just rain, it pours. Despite repeated claims that DB Realty has no shareholding in Swan Telecom or DB Etilasat, and that Goenka and Balwa invested individually in the telecom company, the defence does not seem to be washing. The Enforcement Directorate (ED) is examining a CBI request to attach properties of DB Realty under the stringent Money Laundering Act. The ED has also slapped a fine of Rs 1,621 crore on DB Realty for violations under the Foreign Exchange Management Act (Fema). This is more than the
Rs 1,500 crore the group raised in its February 2010 IPO! Various property deals inked by the duo are coming apart despite claims of "business as usual". For instance, the contract to lease Air India's Centaur Hotel on the banks of the Dal Lake in Srinagar has been scrapped.

It is not just the ignominy and the ruin of business prospects that Balwa and Goenka now face. It is a real and hard fall. The two promoters were ranked 64 in Businessworld's Super Rich list for 2010 with each worth Rs 3,570 crore. This year they are down to No. 165 with individual wealth of Rs 904 crore each — an erosion of 75 per cent in one year.

The Cowboy
"I will check the titles later; let us do the deal first." That is how Pranay Vakil, chairman of broking house Knight Frank India, who has had many brushes with Balwa, described the 37-year-old's approach to business. "Balwa has daring, and is raring to go. He has the approach of a cowboy. Personally, he is polite and respectful; and he is quite a health freak," says Vakil. While Balwa was in charge of all the liaising with government and the deal-making, Goenka was the quiet internal organiser of the company and continues to be its MD.

The two joined hands 15 years ago, forming the Dynamix Balwa Group and set up Mumbai's Le Meridian as their first project in 1995. But few know that they share strong family links as well. Goenka's wife, who is fluent in Marwari, is from the Balwa family.

WEAK SENTIMENT: Vinod Goenka, who continues to be DB Realty's managing director, has fallen from No. 64 last year to No. 165 in this year's Super Rich list (Phtographs Source: DB Reality)

The cowboy in Balwa is also reflected in the way the company does business. For instance, its prime residential project in Mumbai Central, which is almost complete, is a large 55-storey structure. But legal permission is reportedly only up to 45 floors. DB Realty obviously hopes to get the violation regularised over time.

Loss Of Faith
Before the 2G scam struck, Nabil Patel, the company's marketing chief, outlined the growth path. Patel told BW that the company had delivered 30 million sq. ft of built-up property and had another 60 million in the pipeline. It was constructing Mumbai's tallest skyscraper — a 720-metre-high hotel at Marine Lines. Another group company was developing 3,200 luxury hotel rooms across India. The company had revenues of Rs 921 crore for FY10, more than double the previous year, and jacked up its net profit by nearly 80 per cent to Rs 252 crore.

This is a long haul from the small two-star Hotel Balwa near Mumbai Central Railway Station and a few restaurants Balwa's father had set up in the 1980s. Or, for that matter, the operations of Dynamix Dairy that the Goenka family ran as partners in politician Sharad Pawar's constituency of Baramati, near Pune.

DB Realty had good figures for FY11 too. On a total income of Rs 1,269 crore, it turned in a net profit of Rs 302 crore, up 11 per cent from the previous year. But cracks had begun to show soon after the arrests. Net profit for the January-March 2011 quarter fell to Rs 11 crore from Rs 109 crore in the previous quarter.

Brokers closely associated with DB Realty projects said some of the frontline projects in Mumbai had slowed down or stopped. Orchid Turf View, a prime residential project advertised since 2008 and spread over 16 acres near the Mahalaxmi Race Course, had stopped after the construction of a steel frame of a single tower. Orchid Heights at Mumbai's Jacob Circle — advertised as a couple of 88-storey towers more than a year ago — is yet to take off, reportedly because of opposition from local tenants. Another joint venture for the Prabhadevi Crown Mills with the Thackersays, owners of the Hindoostan Spinning & Weaving Mills, reportedly had problems with the now suspended ‘floor space index (FSI)-for-parking space' scheme.
A company spokesperson reacting to these details, said: "DB Realty has a very strong management team with accomplished professionals working across all verticals. Our results for FY11 are a clear indication of the traction of the company. All our projects are on schedule and will be delivered in a timely manner."

"They continue to aggressively market and sell, often offering huge discounts," concedes Pankaj Kapoor, CEO of Liases Foras, a consultancy that tracks realty data. "But they are facing cancellations, and the sentiment for DB Realty is not good. Many of their buyers and investors may not pay their next instalments."

For realty firms, cash flows from fresh sales are crucial to complete projects. With eroding credibility, there are doubts whether consumers will continue to buy into DB Realty projects.

Much of the group's meteoric rise, and its ability to acquire land speedily, is alleged to be the work of political levers and the Goenkas' proximity to Sharad Pawar. DB Realty and Pawar both strongly deny this. But the company will have to explain to the 2G investigators what the quid pro quo is for constructing the Sharad Pawar International School at Chandivili, Mumbai. Now that their political influence is evaporating, can the promoters complete the projects?

Shahid Balwa and Vinod Goenka can be credited with having muscled into a fairly closed property market as late-comers, and using unconventional methods to acquire an impressive land bank. Now that they have as many as 26 unfinished projects and 50-60 million sq. ft to deliver, the question is: do they have the wherewithal to complete these projects?


(This story was published in Businessworld Issue Dated 25-07-2011)