We are looking at rapid growth

Godrej talks about firm’s focus on risk mitigation to give the right risk-return balance, and other business plans

Pirojsha Godrej, the 31-year-old son of Adi Godrej, chairman of the Godrej Group, took over as managing director and chief executive of Godrej Properties Ltd in April. Godrej Properties is planning to acquire land in various cities and has successfully raised capital. It has also ventured into redevelopment of real estate in Mumbai this year, considered a specialized and niche space in the sector.

The Mumbai-based developer raised Rs.470 crore in March by selling shares through the institutional placement programme (IPP) route, similar to a qualified institutional placement, at a time when other companies received a lukewarm response in similar exercises. For the quarter ended 31 March, the company said revenue rose 11.9% to Rs.373.18 crore from a year earlier. Net profit fell 34.2% to Rs.39.8 crore.

A Wharton Business School graduate with a masters in business administration from Columbia Business School, Pirojsha Godrej joined Godrej Properties as executive director in 2008. In an interview, he spoke about the company’s business plans. Edited excerpts:

The general perception in the real estate industry is that Godrej Properties, which has typically been conservative, has become visibly aggressive under your leadership. Is that true?

It is true that the pace has gone up and there is more interest in rapid growth than there was a few years back, but this would happen only with controlling risk. So we are looking at rapid growth, but with proper risk control.

We have made some mistakes in the past like getting into commercial office projects in tier II cities.

We are now focused on risk mitigation and to give the right risk-return balance. We have some very experienced and the right balance of people in the team.

Godrej Properties recently announced its entry into redevelopment projects in Mumbai, which is new to the company’s project portfolio. How important will redevelopment projects become in years to come?

Besides the two projects, we are looking at more projects and exploring more opportunities in the redevelopment space, and we see this space growing. But it would be difficult to say how much, or how big it would be in our portfolio right now. Redevelopment opportunities for us will remain in Mumbai, not outside.

Are you planning any other business diversification or expansion of your portfolio?

Yes, though we have primarily looked at doing projects on a joint development format so far, we are planning to go out and source land in cities such as Mumbai and Bangalore. We could tie up with a fund or funds, and then source the land and develop them. We would form joint ventures in buying land parcels, that could each be between 1-3 million sq. ft in size.

The focus will be on residential projects and apart from the five commercial office projects that are being developed, we will not do any more office projects. We would like to do projects as a development manager, the way we are doing in Vikhroli on the Godrej and Boyce land and with another partner in a redevelopment project in Byculla, because there are huge benefits, but we have to choose our partners very carefully. (Vikhroli and Byculla are Mumbai suburbs.)

Capital-raising and debt reduction are the two prime concerns of most real estate developers today. What are your thoughts on this?

The IPP that we recently did was a big show of confidence among investors. Our debt-equity ratio has also reduced in the March quarter compared with the quarter before. However, margins would be under pressure in the short term and that is a challenge.

Godrej Properties has spoken about affordable housing in the past. Do you still have plans?

Affordable housing has a huge opportunity, but not an immediate opportunity for us. The government needs to put policies in place; and there has to be policies at a viable cost and which allow developers to engage profitably. I don’t see huge volumes in affordable housing happening today, but we may experiment in a small part in Ahmedabad.

Where do you see the company heading from here and what would the growth strategy be?

These are interesting times for the real estate sector, and while these are times of opportunities, you also have to manage your balance sheet. For the financial year 2011, we have seen a rise in total income and in our operational profit, though the sales momentum was below what we would have liked. This year should be better and we also have a higher number of projects and want to launch about 15 projects in FY 2013, including launch of new phases in existing projects. We are present in 12 cities and that would not be going up.

With the new amendments in development control regulations in Mumbai, what would be the impact?

The new development control regulations have resulted in the FSI (floor space index) going up, but at a higher price, which is fine. But what it has done is that it has created a level playing field for real estate firms that wasn’t there earlier.

Now that you are in the redevelopment space, would you also consider slum redevelopment?

Slum redevelopment has lot of opportunities, but we will look at them only in partnerships and these projects will not be outside Mumbai.

In Indian real estate, which is largely disorganized and issues of corporate governance keep coming up, what is Godrej Properties’s stand as a developer?

The brand is the most valuable asset for us and anything that hurts our reputation is harmful.

Also, Godrej as a business group has an old association with people and we would try to keep that intact.

Source:www.livemint.com