HDIL inclusion in MSCI Index to increase FII holding

Here is a verbatim transcript.

Most of the FIIs link their portfolios to the MSCI. We will definitely see the upswing in the portfolios that FIIs are holding and HDIL will now become a part of that. Overall I think we also have to look at where the Nifty and the Sensex are heading and if that can be included in that then that would be a big step for us. But we get an idea that the real estate sector has not been given enough weightages in all these indexes which is now being done. These selective steps need to be taken and now with initial public offers (IPOs) that are lined up in the month of January, February and March, the real estate sector will again come into focus.

Q: Speaking of IPOs-there is an expectation in the market that January is going to see second round of fund raising by the listed companies and the IPOs will also come in, is that something? What are your thoughts on it?

A: We currently don't need to raise that kind of capital. Today we are pretty comfortable as far as our debt-to-equity ratio is concerned. We have not high cost of interest, so we will definitely take a decision during that time whether we need to again come out with another fund raising exercise or the American depositary receipt (ADR), global depositary receipt (GDR) or qualified institutional placement (QIP), if there is a huge payment or so, we will definitely take a decision.

Q: What is your current debt at the moment?

A: We have Rs 3,270 crore of debt and the debt to equity is 0.49.

Q: What kind of margins are you operating on both the transfer of development rights (TDR) and residential segments?

A: We anyways try to keep the margin in 35-40%. TDRs would be now increased in prices and we definitely will have at least 45-50% margins on TDR. That is healthy but what happens is that but commercial properties in between and FSI that which should provide high incomes and high margins and in residential, the margins are restricted and we will definitely see how that moves.

Q: On your residential sales, March and April was really good months and then we have seen August and September numbers, the growth in demand has been slightly sluggish. So do you think that in Q3 the demand will be flat and what kind of volume are you generating in the current month?
A: One of the good benchmarks of looking at the residential segment and the sales in the overall real estate sector in Mumbai is the TDR prices-the prices are still moving up we are seeing 2-3% prices in every week or every third week. That is providing some sort of an Idea that the residential segment is still doing well, commercial space will take its time to come up. But now what is also going to happen is that we concentrating a lot more on the execution of the commercial projects. We just launched almost 20 lakh square feet of commercial development in Kurla. We will definitely see that the real estate sector corrected in the month of March and now the price increase has already been 10-15% we will try and hold prices now. And, if we can, then I think the residential segment will come back.

Q: So how much did you initially take a hit in terms of pricing and then how much have you increased it by subsequently?

A: Initially in the month of March when we launched our first project, we took a price hit of almost 20-25%. Since then we have raised prices by another 12-15%. So overall the impact is that now we are coming back to the market prices which were there in 2007 but still it has not reached that same level. TDR prices are almost at 80% of what the prices were in 2007. I think that will continue and the residential segment will provide a big boost to our entire sector.

Q: In the next remaining two quarters, what is your plan, are you going to go big in TDR sales or will you be aggressively looking to launch residential projects?

A: Its going to be a mix of both. We have already clocked in the last quarter about 1.7million square feet of TDR sales. Because we are one of the largest generators of TDR in the city, we are going to continue with that. Our residential projects have been launched-we have just launched a project in Bhandup. That is another 1.3 million square feet of residential space. We are seeing demand coming into that segment as well TDR is also moving up. So we will keep a mix of both, try and maintain our margins and our income over the next two quarters and take it up from there.

Q: In terms of the Rs 350 crore of income that you have to book in the remaining quarter post September-how much of it have you completed and through what instruments?

A: We have booked TDR sales of almost Rs 100-110 crore. The entire income would be booked through TDR sales. Primarily the income tax search operations which were there on us we only had to give guidance. There is no effective increase on any of the tax liability which we have to actually give to the government.

Q: How do you see the retail vertical panning out?

A: Retail still has some time to go. I think businesses are still expanding now and we see retailers coming out. We have had good enquiries from all the retailers for our project in Andheri. There are good leads there and I think the retail segment would be the second one to actually come out of the downturn of the residential segment.