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Jan 10, 2017, 10.06 PM | Source: CNBC-TV18

Note ban impact on realty not as bad as projected: Ajay Piramal

Asserting that sales in A-class real estate sector have been about 75 percent of the average, Ajay Piramal of Piramal Enterprises rubbished concerns of demonetisation have a big impact on realty.

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Note ban impact on realty not as bad as projected: Ajay Piramal

Asserting that sales in A-class real estate sector have been about 75 percent of the average, Ajay Piramal of Piramal Enterprises rubbished concerns of demonetisation have a big impact on realty.

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Ajay Piramal (more)

Chairman, Piramal Group |

Asserting that sales in A-class real estate sector have been about 75 percent of the average, Ajay Piramal, Chairman of Piramal Group, denied concerns of demonetisation having a big impact on realty.

“People have held back a little bit because of the talk of prices and interest rates coming down... but it is moving towards normalcy now,” he said.

Piramal said that more important than the demonetisation is the impact that is going to take place because of the Real Estate Regulation Act (RERA). “At every stage you took some more money from your customers, now those days are gone. One is because of the new Act does not allow you to do it. Also, people of the last 10 years, especially in the big cities have found that there have been a lot of approval delays that have taken place,” he said. The new Act will protect interests of consumers, he said.

Below is the verbatim transcript of Ajay Piramal’s interview to Prashant Nair on CNBC-TV18.

Q: You are into the entire spectrum of real estate financing. The total size of your investments is about Rs 30,000 crore or so -- this includes the investments in the Shriram Group of companies as well. Your thoughts prima facie on what demonetisation has done to the sector – I am talking about real estate?

A: When I look at the real estate sector, I think we have to go a little more into detail about it. We as a company have for instance been only lending to the A-class developers in five or six major cities. About 300 projects that we have lend to, when we look at details of those projects, we find that sales are about 75 percent of what they would have been in a normal case. Therefore, it is not as bad as it has been made out to be.

Also, in real estate, I think, it is a long-term, once in probably lifetime decision, so, people have held back a little bit because of the fact that everybody talks about that prices are coming down, interest rates are going to come down and hence I think 75 percent, but it is moving towards normalcy now.

Q: On the issue of prices, are we really going to see price correction? You operated tier-I markets, but you have a sense overall.

A: Overall I don’t see prices coming down. More important than the demonetisation is the impact that is going to take place because of the Real Estate Regulation Act (RERA). The new act which is there for the real estate, I think that is a more significant change that is taking place in the environment.

Q: Has lending slowed down?

A: Not really. When I see the numbers of the quarter end, our lending has not slowed down.

Q: So, at the end of H1 of FY17 you did revenues of more than Rs 4,000 crore. One can extrapolate those numbers to full year?

A: Yes.

Q: Out of the Rs 30,000 crore that I mentioned, the loan book on the real estate side is about Rs 19,000 crore plus at the end of second quarter, H1. How is that going to shape up from here?

A: I don't want to give too many forward looking statements but I think it is going to be a good growth from here. When I see the sort of numbers which come out for Q3 and then going on into Q4, I think we should have actually good numbers.

Q: On the NPA side 0.4 percent, you were actually doing much better compared to a year back or two years back, do you think that trend will continue?

A: Yes, we are pretty confident. Our NPA as a percentage and also in absolute terms has come down. 0.4 percent is the gross NPA though we provide for much more. It is only because we have been able to recover some of the loans which had gone bad. So, that just shows that the quality of the legal documents that we have as well as the risk assessment that we do is quite robust and this just one evidence that we have been able to recover a couple of loans which had been provided as NPA back into the system.

Q: Construction finance is about 50 percent of that Rs 19,000 crore book right?

A: Yes.

Q: And that will grow?

A: That will continue to grow.

Q: In that book that will be the fastest?

A: We made a strategic choice a year and a half ago to fund construction finance. Earlier on, we were in the early stage of financing. When we saw that the market, the way it was developing and the way we wanted to actually see the risk that we were doing and the size of the book, that is when we choose deliberately to go into construction finance.

Q: On the housing finance side, what are the plans, how are you going to enter that space?

A: Housing finance, we have created a separate subsidiary for housing finance. So, it will be managed by an independent team of people. We have people who have got experience in housing finance, who have understood this space and these are all home grown talents. One of things that we distinguish ourselves from others is that we get home grown talent who have been with us for sometime, who know our values which are really important and the culture. So, we have created this team, we are in the basis of creating a team in housing finance and we will go into those.

So, the first of the things that we want to do is that we are today already in more than 91 plus micro markets which we are funding different projects. So, those are the ones which we know well, we know what is the demand in those areas and that is where we will start by funding first. We have put initial equity of Rs 1,000 crore and I think over time we will keep increasing it. So, Rs 1,000 crore equity in housing finance also allows you a fairly decent debt equity ratio. So, I think this should be significant growth engine for us in the future.

Q: You have applied for an approval to the NHP?

A: We have applied for the NHP. As soon as we get the licence we will -- so, all the preparatory work is being done. Also, we are going to use a fair amount of technology in it, so, you are not going to have as many feet or as many branches as what traditionally it was there. One of the advantages of coming in late is that you can start with new technologies.

Q: Coming to your investments in the Shriram Group of companies, you are clearly the single largest shareholder, directly or indirectly you own between 15 percent and 18 percent in various Shriram Group companies – Shriram Transport, Shriram City Union Finance, Shriram Capital, what really is the plan there? How should one look at this; you have in the past said this is like a portfolio investment for us.

A: As I look at it today, we talked about the Piramal business in financial services, we have also talked about Shriram Transport and the City Union, all these three businesses are on a growth trajectory today. All of them have enough runway to grow. In my view, with all this demonetisation and the environment, actually organised finance companies are going to do even better as more and more money comes in into the system. So, I feel that this is the time for us individually to focus on growth in each of the businesses.

Q: So the answer is no, indirectly you are saying there is no plan to merge or anything??

A: No. At this moment we don’t want to do that.

Q: Also the nature of the business, you are on the wholesale side, they are on the retail side. So, the game is different in that sense or is it about you gaining experience there?

A: I think it is really about not distracting ourselves. Any merger -- more than 50,000 people of the Shriram Group means the culture will be different. It takes a lot of time and one or two years in a merger of this size would mean that you can get distracted from your growth agenda. As and when we find that our growth agenda is coming to a steady level, that is the time we should look at it.

Q: In terms of getting people on board because you are expanding on your own as well, is that project over or is that a continuing process?

A: It is a continuing process. As you know to get high quality people is a challenge and that makes a difference and especially I found in the financial services, the most important thing is the quality of people and more important than that is the culture and the values that you have. Therefore, in our system, we insist on getting people at lower levels and then bringing them up in the system because that is when they get our culture and our values and I think that is the most important. Otherwise financial services is not as complicated a business as sometimes is made out to be.

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