Shriram Properties, the realty arm of the ₹60,000-crore Shriram Group, is planning to hit the market with its much delayed Initial Public Offering by next year, if market conditions improve after the general elections.

M Murali, Managing Director of the Chennai-based firm, said: “Once the elections are over and the market opens, we will be ready for listing.It is too early to decide the amount we want to raise.”

Since the company began operations in 1998, Shriram Properties has built about 6,000 homes in seven cities, including Chennai, Bangalore, Hyderabad, and has another 10,000 houses under construction in its overall portfolio of 57 million sq ft. It plans to continue its focus on residential development in the South Indian market instead of aiming to be a pan-India player.

In an exclusive chat with The Hindu Business Line , he reveals more.

What are your future plans?

We want to scale up the company’s valuation to ₹20,000 crore from the present ₹3,500 crore in seven years, but we are flexible on this target given the ups and downs in the industry’s business cycle. In the past, realty companies were valued in terms of their land banks. Now, this is shifting towards valuation on the basis of three core values – capability for delivery, corporate governance and transparency which will help us achieve this target.

One benchmark that we will be guided by is our need to grow at least 10-20 per cent faster than the industry growth rate.

What has been your business strategy?

When we started in 1998, we were clear we would only be developers and not get into land aggregation or construction contracts as (neither was part of) our core expertise. Our strategy was to get land from someone who is holding or aggregating it, get a good contractor, partner with both and develop. The strategy came not out of great intelligence but sheer non-availability of capital. Secondly, we did not deviate from our core target segment of mid-market.

According to the Foreign Investment Promotion Board’srecords, out of the ₹60,000 crore that has come into real estate private equity so far, we are the single largest entity with ₹2,500 crore or three per cent of the market share, so our strategy has worked for us.

Why are you focussed on the mid-market segment?

Demand in the mid-market segment is huge; not as big as in the affordable housing segment but not as bad as the luxury segment. Margins too are reasonable. We also chose it since we realised that the Shriram Group had a connect with customers in this segment which we needed to leverage. The luxury segment always attracts more players because of high margins and fame attached to it while affordable housing faces pressure on profits. In the mid segment, there is decent money to be made and huge demand to be served.

What challenges do you see ahead?

Capability building is not easy in India we don’t have trained manpower; delivery too is an issue. This gap will take at least 10 years to bridge. Price increases is another big challenge; the price rise in cement, steel and sand translates into our construction cost increasing by 8 to 10 per while the (sale) price doesn’t increase correspondingly.

How has your company been affected with the slowdown in the realty industry. Are a slump in sales and inventory pile-up key issues?

Inventory piling up across the sector is a myth. It has happened only in the luxury segment where 90 per cent of the developers focus on the top of the pyramid, constituting three to five per cent of customers.

The slowdown has had a positive impact on our company because during the slowdown, other developers and landowners were strangled by liquidity problems. This was an opportunity for us and we started approaching them to get sweeter deals.

What would be your company’s focus, going forward?

We will be looking at aggressive expansion in Bangalore, Chennai and Hyderabad. We have two projects in the pipeline in Hyderabad, two in Chennai and one in Bangalore lined up for the next six months.

What are your expectations for the realty sector from the new Government?

Policy on land documentation and record updating is a State subject but if the new Government does something big in this matter, it would be a major game-changer for us. Today, we are unable to go to other cities because (their) land laws are different. Just like the uniform civil code, there should be a uniform land code which would make it easier to attract people to develop in multiple States.

Do you see a correction in housing prices after the elections?

In the short-term, prices could go up after the elections, but in the long-term, they will go down if a good Government comes to power. (In such a case) supply will rise too high and prices will naturally head for a correction.

Related Topics