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BW Businessworld

Tata Housing’s Second Debut

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The road to the village of Betim snakes up gently from the Mandovi river, and after a couple of turns reaches a dead end. And this is where Villa Paradiso lies. Mumbai’s jet-setters fly into Goa’s Dabolim airport, enjoy their weekend there, and are back to their dealing rooms after a 40-minute flight on Monday morning. 

Villa Paradiso was among the first properties developed by Tata Housing after it was re-launched in 2006. The Portuguese hillside villas with Mangalore tile roofs and verandahs dressed with quaint balustrades were a good brand advertisement. The well-heeled snapped up the two-bedroom apartments for Rs 1.5 crore and more. It was worth their while. They soaked up the sun in the kidney-shaped swimming pool, and spent their evenings watching the lights of Panjim, or toasting their luck as the casino boats drifted past on the Mandovi below.

Since 2006, Tata Housing has come a long way from its early chequered history. Incorporated as Tata Housing Development Company (THDC) in 1984 with Tata Sons holding 99.87 per cent, the company initially did well but slowed down in the 1997 real estate recession, with sales of just Rs 80 crore. By 2000, it was off the radar of the Tata think tank, and business activity ground to a halt by 2000. “Till 2006, there was no land, and no projects. Even the company logo was withdrawn,” recalls Brotin Banerji, MD & CEO, Tata Housing.
 

LUXURY and mid-level projects have higher margins
MIXED MARKET: The 36-acre project under development in Gurgaon, Primanti, is a mix of super-luxury villas, executive floors and apartments
(BW Pic by Tribhuwan Sharma)

After the trough, the revival started in 2006, and real estate was on the roll again. The Tata Group saw an opportunity. Tata Housing was given a new lease of life, and business plans were redrawn to ride the boom. How has it performed in its second outing?

Homes For All

Sales executive Mahesh Mahovar is cooling his heels after completing a hectic sales campaign for nearly 600 apartments at Tata’s Talegaon project. La Montana, set amidst the rain-drenched hills of the Western Ghats, 125 km from Mumbai, is an ‘affordable’ second-home project with neat little flats starting at Rs 19 lakh.

The bare-bone shells of the apartment blocks are up and hectic work is on at the site for constructing the podium. Mahovar says they will begin delivering homes by July next year, by when the second batch of the more expensive 125 row houses will also be ready for launch.

La Montana is being developed by Smart Value Homes (SVHL), a Tata Housing subsidiary focused on the ‘affordable’ housing segment. “Many of our buyers include local employees working in the Talegaon industrial area; some are asthma patients while others are in search of clean air,” Mahovar tells BW.

Interestingly, while other builders turned to ‘affordable housing’ as a recession-tackling measure in 2008-09, THDC did so by choice. The company made its mark in 2006 with the launch of its mass housing project at Boisar, an industrial town about 90 km north of Mumbai, targeting the large working class population.
 

 65% of Tata Housing’s sales come from upmarket residential projects
At the ‘budget’ end, the company sold 1,500 small one- and two-room homes under the ‘Shubha Griha’ brand, priced between Rs 3.9 lakh and Rs 6.5 lakh. Company officials said the stock was over-sold as soon as bookings opened. Tata Housing simultaneously came out with the superior ‘New Haven’ brand at Boisar with 1,800 units priced between Rs 12 lakh and Rs 28 lakh. For the more discerning, ‘New Haven Crest’ offered a set of plush 150 row houses.

The company replicated the Boisar experiment at another 65-acre project at Mumbai’s distant suburb of Vasind, which falls on the Central Railway line. At Vasind, Shubha Griha ‘budget’ homes of 360 and 490 sq. ft are marketed at Rs 5.8 lakh and Rs 7.8 lakh, respectively. The ‘New Haven’ units came in the range of Rs 15-35 lakh.
 

Lap Of Luxury
Is it Tata Housing’s strategy to focus on the mass, affordable segment? In fact, not. It was a starting point, but the company has been quite clear it will get higher margins from middle class and luxury segments, while falling back on ‘budget’ housing to boost its top line in times of trouble. “About 35-40 per cent of our product is from Smart Value Homes; Tata Housing accounts for the upmarket 65 per cent,” says Banerji. SVHL is targeting the mass segment.  

Not far from Talegaon, and closer to Mumbai among the Khandala hills, Ritesh Kothari is busy selling the last of Tata Housing’s luxury villa project ‘Prive’. At the top of the hill of the 20-acre property is the ‘show villa’ now snapped up by Raj K. Chauhan of Parle Agro for Rs 14 crore. The stone inlaid exteriors open up to a spacious glass-fronted living and dining area and a massive wooden open deck. Clouds drift past nonchalantly, and when they open up, it is a 180-degree, breathtaking view of the rolling hills beyond, and the valley below. The lower floor is the living area and bedrooms that open to a small private garden and plunge pool. And finally there is the ‘entertainment room’ on the ground floor. One can take the stairs, but there is also a small elevator, hidden behind wooden closets, that commutes between the three levels.
 

HIGH-END is a tough market as inventory moves slowly
IN NATURE’S LAP:
The luxury villa project, Prive, has 73 houses, some priced between Rs 12-16 crore
(BW Pic By Subhabrata Das)


Kothari’s other celebrity clients include Vineet Nagrani of Credit Suisse, Arvind Sampat of Standard Chartered Bank, cricketer Ajit Agarkar and renowned cardiologist Dr Sudanshu Battacharyya. For them and the 60 others who have bought these villas, the second home in the clouds is a 90-minute drive from Mumbai. Kothari opened sales a couple of years ago between Rs 3.5 crore and Rs 8 crore for these 73 exclusive villas. He is holding on to a dozen or so fully-furnished villas and has pushed up the price to Rs 12-16 crore. Tata Housing’s expected revenue from the project: Rs 300 crore. There is competition too. Sahara’s Aamby Valley and the Ajit Gulabchand-promoted Lavasa both offer ‘hill station’ homes in the vicinity.

In the upper middle-class market, Tata Housing’s offerings include a 36-acre project in Gurgaon called Primanti, which offers a mix of super-luxury villas, executive floors and apartments in high-rise towers with the standard garnishing of spas, gymnasiums and other condominium comforts of gated communities. In Bangalore, the company is selling The Premont — a project with 320 residences atop Banashankari Hill in four towers as well as row houses in the Rs 1.8-2.4 crore range.



Anchor Man

Banerji is clearly a Tata man. He wears his company logo literally on the collar of his white shirt. “The company was in cold storage for over a decade. Its logo had been withdrawn and even the domain name was up for grabs. But within a few years we have taken Tata Housing from 0 to 60 million sq. feet.”

Banerji is not exactly modest, but he is the anchor man behind Tata Housing’s runaway growth. At 38, he is the youngest of the Tata CEOs, and the company website acknowledges that 43 million sq. ft has been delivered with Banerji at the helm. During his 13 years with the group, he has worked in Tata Chemicals to re-launch Tata Salt as a branded product; and then was with Barista in the 2004-06 period. It was perhaps his turnaround performance at Barista, which brought the coffee retailer back into the black, that marked him as the man for reviving THDC.

 

'Within a few years, we have taken Tata Housing from 0 to 60 million sq. ft'
Brotin Banerji, MD and CEO, Tata Housing
Banerji attributes the company’s rapid growth to two factors. The company’s strategy to straddle all segments, from the top-end luxury market to middle class homes and finally to the mass, budget category, has paid off.

He also says the company has adopted the joint venture route wherein it prefers to develop projects with landowners as partners rather than sink scarce capital into acquiring expensive land banks. Banerji disagrees with the view that the JV route can hit growth if pesky landlords create problems.

“Joint development accounts for 50-60 per cent of our projects and we are managing to add 10-15 million sq. ft every year to the pipleline. The Tata name gives us credibility. Landowners come back to us since we help them multiply their assets manifold. That is because we always sell at a premium. We opened Primanti at around Rs 5,500 a sq. ft, when similarly placed Gurgaon projects were selling at Rs 4,000,” he says. Banerji clarifies that in these JVs, Tata Housing is careful to ensure that operational command remains with it.

It’s a tough market today though, concedes Banerji, with the luxury residences moving slowly compared to six months ago.

The price of construction material is on an upward trajectory. Steel is up from Rs 32,000 to Rs 55,000 per tonne in the space of 18 months. This is increasingly squeezing margins. But Tata Housing hopes that its multi-segment approach will keep it ahead. “With no new launches this quarter, we have again fallen back on the ‘affordable segment’. It is 55 per cent of sales this quarter. That is keeping our cash-flow going,” says Rajeeb Dash, head of marketing services at Tata Housing.

“Our launches have come down substantially because we do not launch without full approvals,” concedes Banerji. “We get stuck not so much because of the market, as much as because of permissions not coming through in time.”
 
Ramping Up
The certificate of performance was delivered to Tata Housing when holding company Tata Sons decided to invest Rs 500 crore as fresh equity in its real estate subsidiary about six months ago. The infusion tripled its paid-up capital and reserves that earlier stood at Rs 250 crore. The rationale for the move is obvious. Tata Housing needs funds for its aggressive expansion programme through land acquisition and developing projects across all segments of the real estate market. Tata Sons, with surplus money for investments, is searching for the right avenues within the group.

Tata Sons’ strategy was to differentiate housing from other real estate. It, therefore, simultaneously launched a sister company, Tata Realty and Infrastructure (TRIL), in 2007, around the time of Tata Housing’s revival, to focus on non-residential sectors such as IT parks, SEZs, airports, roads and bridges. Both the group companies are headed by R.K. Krishna Kumar, as chairman of their respective boards.

 
BUDGET housing boosts the company’s topline
HOMING IN: Tata Housing’s budget houses at Boisar, near Mumbai, are mostly in the Rs 3.9-6.5 lakh and Rs 12-28 lakh range
(BW Pic By Umesh Goswami)


“We thought rather than starve it (Tata Housing) of capital, we should give it the means to grow. We could have easily brought in a private equity partner or launched an IPO, but given the scale of improvement in its operations, we feel we should fund this internally,” said Kumar at the time of announcing the Tata Sons’ infusion.

The results support the Tata Sons move. Tata Housing grew 78 per cent with sales of Rs 1,098 crore in FY12, from Rs 617 crore the previous year. Net profit, too, has risen to Rs 180 crore from about Rs 100 crore for the same period in the last fiscal. This puts THDC ahead of similar corporate realty companies of the same genre.

Godrej Properties (GPL), for instance, logged a consolidated turnover of Rs 820 crore for FY12, up 47 per cent from Rs 559 crore the previous year; net profit, however, declined from Rs 131 crore to Rs 98 crore for the year ended 31 March 2012 (see chart). Mahindra Lifespaces, an M&M group company, had earnings of Rs 701 crore for FY12, 13 per cent up from the previous year’s Rs 612 crore. Net profit grew marginally from Rs 113 crore to Rs 129 crore. The Ashok Piramal Group company, Peninsula Land, recorded a turnover of Rs 532 crore in FY12, up from Rs 501 crore the previous year; but net profit slipped 22 per cent to Rs 151 crore from Rs 191 crore in the same period.

There are, however, some question marks about  the JV route for development. Banerji’s reliance on partnering landowners, a business plan that is focused on doubling sales year on year, will face the downside if partnerships sour and thus affect project delivery.

Tata Housing may not admit to the pitfalls but it has recently been aggressively buying land. Speaking about the company’s growth strategy, Anuj Puri, CEO of property brokers Jones Lang LaSalle (JLL), says: “Tata Housing has become more aggressive under the leadership of Brotin Banerjee. They have been acquiring properties across India, which speaks clearly of their confidence in being able to crystallise their expansion plans. Last year, JLL India transacted a property at Bhubaneswar to them via the PPP route, wherein they paid a much higher premium than their nearest bidder.”

Being latecomers to the game of putting together large land banks, Tata Housing is taking on unconventional projects. For instance, in the Mumbai suburb of Mulund, the company is redeveloping a Maharashtra Housing Board  colony that involves constructing a humungous 3.1 million sq. ft and rehabilitating the hundreds of displaced families currently living in dilapidated tenements.

For funding, Banerji says that with the new equity infusion, the company would consider a healthy 1:1 debt-equity ratio, implying raising up to Rs 750 crore in debt. “There is no IPO on the cards, but to keep the funds pipeline going, we are  considering a set of quasi-bond offerings at the end of this year.”

A healthy land bank, a wide portfolio of projects and the advantage of the ‘Tata’ brand are all on the side of giving Tata Housing a healthy rate of growth. But the question is: will the jittery realty market sustain the company’s ambitions?

gurbir(at)singh(at)abp(dot)in

(This story was published in Businessworld Issue Dated 03-09-2012)