Recently, Delhi-based Parsvnath unveiled a new scheme called the ‘The 25:75 House of Happiness’. Parsvnath’s scheme is for 16 residential and four commercial projects in several cities including Delhi, Greater Noida, Ghaziabad, Sonepat, Panchkula and Moradabad.
The consumer has the option to choose which property suits him or his requirements.
It has not been an easy ride for the Delhi-based Parsvnath since the 2008 financial crisis. Like many other developers, Parsvnath has had to deal with high debt, cash crunch, delayed projects and a slowdown in the property market. It managed to rope in private equity players like Red Fort Capital to invest in its projects and ease the pain.
Recently, the company unveiled a new scheme called the 'The 25:75 House of Happiness'. Parsvnath's scheme is for 16 residential and four commercial projects in several cities including Delhi, Greater Noida, Ghaziabad, Sonepat, Panchkula and Moradabad.
Parsvnath says it is different from interest subvention where buyers don’t tie up with financial institutions. They pay 25 percent upfront and 75 percent on possession. Parsvnath chairman Pradeep Jain talks about the new scheme.
Below is the verbatim transcript of his interview on CNBC-TV18' special show Prime Property
Q. Is the new scheme a marketing gimmick to help the company tide over a liquidity crunch?
A: We are not in a liquidity problem as such. We put around 20 projects, out of those which almost around 70 percent area of each project is mostly presold and 30 percent is unsold. We as company policy keep releasing the area on quarter-on-quarter basis.
The balance 30 percent area we put into this scheme to attract our existing as well as new customers. We are getting very good response for our scheme because this is the first of its kind in the market.
Q: You are saying this scheme has been successful. How successful has it been?
A: We already closed around 300-odd bookings in last 50 days and there are still 30 days to go. We are expecting another 200-300 bookings. In value terms, we have already booked the area in terms of about Rs 250 odd crore depending on project-on-project basis.
Out of the 20 projects, a few are already ready for possession. Some of them will be completed in three, six months. So, we will get the cash flow and improve our internal accruals related to all our projects.
Q: So the sense I am getting is a buyer can decide he wants a property that is going to be ready in six months, 12 months, or even 18 months?
A: It depends on each projects. For example, the Exotica project in Gurgao we are developing Exotica and in that we have all kinds of property, like ready property, three month possession, six month possession, even 18 months possession.
The consumer has the option to choose which property suits him or his requirements.
Q: So, you do admit that this scheme will help your cash flows in the short-term. How much will you actually be able to raise from this scheme?
A: What we are expecting out of this scheme is to easily sell around Rs 400-500 crore worth of property. We will get about 25 percent now and 75 percent after of possession.
Out of those Rs 400-500 crore, whatever possession we are offering in three or six month’s time, we start getting money. Whatever will be unsold will be released into the normal scheme.
Q: Would it not be good business ethics on your part to keep this money in a separate account and ensure it is not diverted for other purposes, be it debt repayment or expansion?
A: In most of the projects we have the escrow mechanism. Around 70-80 percent money is kept in the project and 20-25 percent is taken out for our general commitments and 70-75 percent we use only for execution.
Q: But why should consumers take this scheme or your possession timeline seriously? You are running way behind schedule in so many projects.
A: Some of our projects have been delayed, but we paid the penalty to the consumer.
Q: Do you guarantee the consumers you are not going to use the funds raised from these scheme for any other purpose?
A: All our customers understand that in last couple of years we are concentrating only on execution and on delivery.
This is the scheme which will help fast execution and delivery.
Q: You are basically saying you are not looking to expand, those plans are on hold and you don’t even want to increase your land bank?
A: You are right. We are basically not acquiring any new land. We are focusing on execution and delivery.
Q: Can you tell me which are projects will be ready for possession soon?
A: In the next six months, we will offer possession of projects like Exotica, a few projects in Ghaziabad, and some in Greater Noida, Lucknow and Indore.
This year, we feel most of our past commitments will be fulfilled.
Q: Did you like DLF, have to put up with consumer activism? Did you see similar protests?
A: There is nothing wrong with consumers protecting their interests, but the developer needs to understand their concerns as well. Our agreement very clearly mentions that we have to compensate the consumer and we are not diluting any specification or any commitment related to the facility within our complex.
But we need to make them understand that most of our projects are now on an advanced stage of completion.
Q: What is your debt like? High debt has been one of the big reasons for project delays.
A: Our debt is moderate as compared to the earlier year-on-year, quarter-on-quarter basis. We are not increasing our debt. In the financial year FY13-14, we expect our debt to further reduce substantially out of our internal accruals, relating to our ongoing projects as well as some of the other monetization.
I think in this year we will be able to monetise few of our assets and reduce the substantial debt.
Presently the gross debt on a standalone basis is about Rs 1,400 crore, which will be reduced to about Rs 700-800 crore by end of the financial year.
Q: I am guessing that one of the assets that you will want to monetise is the plot that you bought in 2008 in the heart of Lutyens, Delhi, that is KG Marg in Connaught Place. You have looked at the commercial property here in the past. What are plans?
A: The KG Marg property is 1.2 acres. The allowable Floor Space Index (FSI) as per today’s norms and saleable area is approximately 130,000 square feet and this building is going to be one of the top office building.
We are going to start construction in the next couple of weeks and are planning to complete it in 18-24 months. I think comfortably we will be able to get about Rs 1,000 crore from that project.
Q: You are talking of raising Rs 1,000 crore. What kind of rentals are you looking at?
A: This property is going to be the new generation property and is going to come up into the CBD area, after almost two decades. If we compare the other high-end property within the CBD area, the present rental is in the tune of about Rs 400-500 per square feet. Similarly, If we work out the rental in our building at say Rs 400-500 per square foot and if we discount it with say 7-7.5 percent, we will be able to get about Rs 1,000 crore.
Q: This rent actually seems to be above market rates?
A: No, recently we have done a transaction in one of our projects in Bhai Veer Singh Marg, we completed that project. We already start leasing that property.
The first lease we have done is at the rate of Rs 325 per square foot plus maintenance charges, so all put together, about Rs 350 per square foot. That property has recently been completed. Now we are waiting to get the occupancy certificate from the local authority, then the tenants can start using it.
Parsvnath stock price
On July 25, 2014, Parsvnath Developers closed at Rs 29.05, down Rs 1.05, or 3.49 percent. The 52-week high of the share was Rs 37.90 and the 52-week low was Rs 22.25.
The company's trailing 12-month (TTM) EPS was at Rs 0.54 per share as per the quarter ended March 2014. The stock's price-to-earnings (P/E) ratio was 53.8. The latest book value of the company is Rs 61.61 per share. At current value, the price-to-book value of the company is 0.47.
READ MORE ON Delhi-based Parsvnath , 2008 financial crisis, high debt, cash crunch, delayed projects , Red Fort Capital , ‘The 25:75 House of Happiness’.
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