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Godrej Properties, the Mumbai-based real estate developer announced launch of their BKC (Bandra-Kurla Complex) project in partnership with country's largest private air carrier Jet Airways.
Commenting on the project, Pirojsha Godrej, MD and CEO of Godrej Properties said the launch of the project comes at an attractive time. Especially, with positive news on reforms front and along with interest rate reductions that have started could lead to buoyant demand for both commercial and residential spaces.
The saleable area of the BKC project is 1.3 million square feet (sq.ft) out of which 250,000 sq ft will be used by Jet for their corporate headquarters. Commenting on revenues from the project he said, "We expect revenues from this project to be about Rs 3,500 crore-4,000 crore over the life of the project. We are looking launch the project at price of Rs 27,000-28,000 sq ft, which could substantially appreciates as the project unfolds," he added.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: Can you take us through some of the details that we not get, what is the total amount of money you are expecting to make by when and what will be the margins on this project?
A: We are launching our project Godrej BKC. This is a project we are doing in partnership with Jet Airways. This is a piece of land that they had originally bought and we are now doing this in joint venture with Jet Airways.
The project in total is about 1.3 million square feet of saleable area in terms of the size of the project about 250,000 square feet of that will be used by Jet Airways for their own corporate headquarters and the remainder of which will be sold externally. We expect revenues from this project to be about Rs 3,500 crore-4,000 crore over the life of the project. We expect to complete construction by the end of 2015 and hopeful complete sales on the project soon thereafter.
I do not think at this time I can comment on the margins of the project because it depends on a large factor of things that will play out over the next three-four years. However, we are quite optimistic that we are launching this project at a very attractive time. The Indian economy, we think is now troughed out. We think the reform measures the government is taking combined with interest rate reductions that have started and will continue to unfold, we believe will lead to a very buoyant demand for real estate both on the residential and the commercial side.
From a supply perspective we also think the timing is very good because of the slight weakness the commercial market has seen over the last couple of years, there isn’t much by way of new supply that developers have committed. Once demand picks up, we think this project can do well and there will be substantial room for price improvement over the course of the project.
Q: If you could give us a picture of where the balance sheet stands after the launch of the project? Could you give us the net debt levels and how this project will make a change?
A: The net debt of the company at the end of last quarter, which is our last published number that I can talk about, is about Rs 1,500 crore. We think it is a very manageable number. From debt equity perspective, from the end of calendar year 2011 to the end of calendar year 2012, our gearing ratio reduced from 2:1 to 1:1. Our net debt has also reduced by Rs 500 crore. In the last two quarters we have had more than Rs 200 crore of operating cash flow surplus. So, we think our balance sheet is in very strong shape.
We do not anticipate any major impact in either direction in the short-term from the launch of this project. Certainly it will allow us to create funding through sales. It will be used to invest in the construction and development of the project but there will be investments required for the development as well. So, I would say from a balance sheet perspective in the very short-term it is probably neutral.
Q: What will it cost you to develop this property. How much of it will be your problem, how much of it will be Jet’s. Therefore if we can have an idea whether it won’t make any difference to the amount of loans that you may have to raise?
A: We already have a substantial amount of loan. Out of Rs 1,500 crore debt, we have about Rs 750 crore of debt on the project already, so we do not anticipate any incremental debt requirement for the project. We think the cash flows from the sales we generate will be more than sufficient to cover additional investment.
In terms of the project structure with Jet, it is a 50-50 profit sharing arrangement. Their profit and any fund to them will be received at the end of the project and will be based on at that time the surplus in the project after taking out all cost of debt.
Q: In the near-term do you think cash flows maybe a bit subdued because the investment you have made in the project and only once the project is launched could you see cash flows coming in and so the near term outlook maybe a bit challenged?
A: We are announcing today that we are launching the project. So the project is now open for sale. We are quite excited at this stage. We anticipate that we will see high amount of interest in the project and we will be able to generate cash flows.
There could be opportunities to generate cash flows far in excess of the funding requirement of the project in the short-term but I think it is premature to comment on that at this stage. However, for now we expect that we will be able to meet the funding requirements of the project in the short-term entirely through the cash flow it generates.
Q: Have you done some pre-sales? You sound confident that the money you will make will be more than the money you will spend in the first year itself.
A: We haven’t done any presales on the project, we are launching it today but we are confident that there will be demand for this kind of project. In any case, the incremental investment in the project is due over a large period of time. So, the payments for the floor space index (FSI) that we have purchased are due on an annual basis once a year over five years. The repayment of the debt we have on the project doesn’t start until four years from now. So there is ample time and the project has been structured in a manner that it will not require any further capital outflows from us at this stage.
Godrej Prop stock price
On April 17, 2014, Godrej Properties closed at Rs 218.90, up Rs 11.60, or 5.60 percent. The 52-week high of the share was Rs 296.97 and the 52-week low was Rs 153.90.
The company's trailing 12-month (TTM) EPS was at Rs 4.69 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 46.67. The latest book value of the company is Rs 103.61 per share. At current value, the price-to-book value of the company is 2.11.
READ MORE ON Godrej Properties, Bandra-Kurla Complex (BKC), Jet Airways, Pirojsha Godrej, Rs 27, 000-28, 000 sq ft, Indian economy, commercial market , floor space index (FSI), Skidmore, Owings & Merrill LLP (SOM), architectural partner
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