Anant Raj Industries Ltd, a real estate developer in North India, has re-entered the residential market in the last two years. It raised debt to buy land at lower rates during this period, a strategy that CEO and Director Mr Amit Sarin says has worked in its favour.
Now that land buying is nearly done, the top priority for the company is to trim its debt, currently slightly less than Rs 1,000 crore. The company wants to cut the borrowing by half in the next one year and revert to a zero-debt status in two years.
In a free-wheeling chat, Mr Sarin talks about the debt reduction plans, and effect of the land acquisition Bill on land buying strategy.
What led to the shift in strategy and entry into the residential segment?
Till two years back, our focus was mainly commercial. Today, the company has about 5.5 million sq ft (msf) of commercial space, which is ready. About 60 per cent of this is leased out and balance is getting leased. Two years ago, we saw an opportunity to come back into residential. Back then, things were not so good. So, buying land was a fantastic opportunity.
Fortunately, at that time, we were sitting on cash. The company had about Rs 500 crore of cash in bank and a Net Asset Value of Rs 3,200 crore, with zero debt. We decided to leverage our balance sheet. In the past one-and-half year , we spent Rs 860 crore on land acquisition.
Our peak debt was Rs 1,250 crore, but we reduced the debt earlier this fiscal, and brought it to below Rs 1,000 crore. Today, the land buying is almost done. The company has launched three residential projects in the market. These are projects in Manesar, Gurgaon and Neemrana. These projects are on the land parcels we had acquired recently. So, the land prices here are low.
How do you plan to reduce your debt this fiscal?
The total debt is less than Rs 1,000 crore. As far as the ratio goes, we are comfortable. By 2012 Diwali, we will cut this debt to half. By 2013, the company will be back to zero-debt status. We have comfortable cash flows and are fully funded now.
What is the proportion of commercial to residential inflow?
In the past two years, we have reduced the commercial focus. In the commercial portfolio, we have 5.5 msf ready and another two msf in the pipeline. So, by the end of next year, we will have about 7.5 msf of commercial space. Today, commercial is going through a bad phase and leasing out is not that easy. So, we have deliberately slowed the commercial focus and are coming back into residential.
In the financial year, about 30-40 per cent of our revenue will come from commercial rentals and the balance from residential. Among the rental properties, we have office space in Manesar. We have an IT SEZ in Rai, Haryana which is getting ready. We also have a mall in the NCR region. We have five hotels, leased out to various hospitality chains.
But the way the pipeline for land bank is planned, the residential portfolio will be almost 80 per cent (of total inflows) in the next 3-4 years.
What is the current land bank?
The exploitable land bank is 1,250 acres. Of this, around 175 acres is now ready for launch. This particular parcel has been acquired recently in Gurgaon. We will use it for a township project to be launched by the end of 2011. Our target audience for this project is upper middle income customers and premium customers. Being local is our biggest strength. Unless you are a local player, you will not know what kind of demand and supply, and downsides are involved.
What is the cost implication of the land acquisition Bill for you?
For three of our projects, the land acquisition is complete. In the fourth project (the yet-to-be-launched project in Gurgaon), we are 95 per cent done with buying of land. There is no obligation on the company to buy the balance five per cent, if there is any problem. The main aim now is to reduce debt and we will comfortably do it. Unless we see a fantastic opportunity, our land buying is complete.