Oasis In The Desert
From timely delivery of projects to generating cash flows, Puravankara is among the few developers that have bucked the trend
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The real estate sector continues to be in the dumps. The morning newspapers, which had put on weight during realty’s boom years thanks to multi-page jacket ads announcing new housing projects, have now slimmed down considerably. And although occasional projects are announced, advertised and sold, the volumes are small. Besides, they carry, on a daily basis, stories of beleaguered homebuyers, bankrupt developers, stalled projects, and piles of unsold and unfinished inventory across cities.
But amid all the crisis and chaos in the sector, there are pockets of boom where developers are consistently beating odds and doing well each quarter generating record revenues, healthy cash flows, and launching newer projects. Puravankara is one such success story from down south.
For those who may be unfamiliar with brand Puravankara (mostly operating in southern and western India), the company has an established presence in the residential segment (luxury and affordable housing) and in commercial office spaces too. So far, it has completed 70 residential and commercial projects, spanning around 41 msf (million square foot), primarily across the gateway cities of south and west India. Currently, it has 21.43 msf under development and a land bank of around 68 msf. Its projects are spread across 10 major cities in south and western India.
The financial performance of the company speaks for itself. For the first-half of 2019-20 (till 30th September 2019) Puravankara sold 1,255 units and generated revenue of Rs 1,269 crore; up 42 per cent YoY. Brand Puravankara’s ready-to-move-in inventory sales doubled during the first half of FY20 with a total booking value of Rs 358 crore, up 142 per cent YoY.
The balance collections from sold units in all launched projects stood at Rs 2,005 crore (as of September 30, 2019) and related favourably against the balance cost to go of Rs 1,944 crore. Combined with the unsold receivables from launched projects of Rs 4,156 crore, the projected operating surplus of Rs 4,218 crore on the launched portfolio compared favourably against the current outstanding net debt of Rs 2,614 crore as on September 30, 2019, the numbers show.
So how is Puravankara generating cash flows, delivering projects on time, announcing new projects and yet managing to expand in existing as well as newer cities? To get the answers to these and many other questions, this reporter travelled to Bangalore for one-on-one interaction with the company’s senior management. “We put in the changes in how we function a few years ago, the results of which are visible today. We changed our selling strategy,” says Ashish R. Puravankara, MD and the second-generation entrepreneur, sitting in the room of his newly appointed chief operating officer (COO) for residential business, Abhishek Kapoor, on the third floor of his five-floor headquarters located on Ulsoor Road in the heart of Bengaluru.
“Around 4-5 years ago, most developers used to sell 10-15 per cent of their inventories in a project and spread the rest over the next few years because prices jumped as the construction progressed. Many developers are still doing it. Today, I want to sell 100 per cent on day one. That is the difference,” says Puravankara, adding, “I’ll be honest about it. It is costing me one-and-a-half times more in terms of marketing spends. But the fortunate part is after doing that, we’re able to meet the deadline.”
So what has been their strategy? By adopting a hybrid, book-building/expression of interest (EoI) model for every project whereas and when a new project is announced, that interested fill in the form along with a certain amount (usually 10 per cent or so which is refundable till the actual booking is done). Based on the customer feedback and smart marketing strategy, ‘interested’ customers get converted into ‘actual paying customers’. “The benefits are tremendous as one, there is no cash flow required,” says Puravankara.
“In the last one year, in the 80 per cent of the projects that we have completed and delivered, I have less than 5 per cent unsold inventory. Now percentages can be misleading, therefore, I’ll give you an example of a West End project where 600-odd apartments were delivered about a couple of quarters ago. Only 12 flats are unsold. In Skydale project, only eight flats are unsold. So the strategy that we put into place four-five years ago is paying dividend today,” says Puravankara with a smile.
Mastering Front Office Sales
“We have mastered the art of front offices,” says Puravankara as he begins to explain what he means. Apart from the sales from his own front office, the company has added a separate vertical of a strong channel partner who manages relationships with smaller real estate agents and brokers spread across geographies. In Bangalore, Puravankara has over 850 registered channel partners with a head who engages with each one of them on a daily/weekly basis. “So, he’s built an entire engine. Then there is the international sales not just in the Middle East but in Australia, Singapore, London and other places. These are agents with no cost. If they sell, I pay brokerage. We have developed this with an outreach programme. I provide them e-mailers, e-brochures, etc. All they have to do is sell. So there are these four pillars of our business which have made us what we are today. EoI, front office sales, strong channel partners — local and international. The icing on the cake is that all the sales have happened without giving discounts,” Puravankara adds.
Then there are a host of other initiatives that are constantly getting weaved into the system and processes of the company. In the first quarter of this fiscal, the company saw the opening of our pre-cast production workshop at Bangalore, intended for captive consumption. Explains Sanjay Sharma, President-Technical, Puravankara: “Apart from being efficient and resourceful, Precast is probably the best of the sustainable option available today.” The company recognizes that when it comes to adopting new technologies, cost-benefit-analysis must be done and deployment of the technology must be decided thus. “Precast considerably crashes the project life-cycle and that benefit of time directly impacts cost and thus has proven to be worth the investment,” adds Sharma.
Rescuing Stuck Projects
Puravankara has teamed up with local builders in Pune and Mumbai to kick-start stuck projects in the backdrop of a severe liquidity crunch, a move that will help it venture into the residential market of western India. “We have reached a critical level in our focused markets but will continue to expand. Puravankara has identified Pune and Mumbai as among the top 5-6 core cities that will be growth accelerators for the company across India,” says Kapoor, COO, Residential, Puravankara, adding, “Going ahead, Bengaluru, Hyderabad, Chennai, Mumbai and Pune will be our focus markets.”
Many developers have entered the western and northern markets to restart stuck projects amidst a cash crunch, the stringent Real Estate Regulatory Act and the threat of being taken to NCLT. Financially strong firms like the Prestige Group, Godrej Properties and Kalpataru Group have entered into joint ventures, joint development and development management agreements in the country’s largest property market by volume.
Why is Pune market so vital? As of December 2019, the total number of projects on hold (where work has commenced and presently stopped) has reached 249, shows the latest Gera Pune Residential Realty Report for July-Dec 2019. Then, since 2018, there is oversupply in the 1BHK segment and undersupply in the 2BHK segment which developers like Puravankara are attempting to solve.
Going forward, the company will develop over 11 msf across 13 projects in major cities, of which seven projects totalling 8.2 msf will be under its Provident brand that caters to mid-income customers, says Puravankara. Besides, his company will launch 7 msf of residential portfolio across these two markets spread between Provident and Puravankara brands. And this will happen over the next 24-36 months.
It currently builds luxury homes under the Purvavankara Luxury brand, while premium affordable residences are built under the Provident Housing brand, launched in 2008. Currently, 65 per cent of the company’s business comes from the mass housing brand — Provident — while the rest from other Puravankara brands.
It is important to know that now the non-Bengaluru projects account for 53 per cent of the share of ongoing projects and 77 per cent of new launches for Puravankara. Provident accounts for three-fourth of the launch pipeline. Separately, the firm is expanding its commercial portfolio. It plans to develop 10 msf of commercial projects and venture into retail development over the next five years across major cities. We wish them all the best.