Last month, Purvankara launched an institutional placement programme or IPP and an offer for sale (OFS) to cut the promoter stake to 75 percent. The group CEO talks about Purvankara's future plans.
Purvankara for itself having been in the industry for 38 years has got its own brand equity
Bangalore-headquartered Purvankara has been in the real estate business for 38 years with interest in Kochi, Chennai, Coimbatore, Hyderabad and Mysore. The company has so far completed 34 residential and two commercial projects covering 7.8 million square feet and has an ambitious plan of developing 81 million square feet over the next 7-10 years.
Around four years ago it launched a new brand ‘Provident’ for affordable housing. Last month, Purvankara launched an institutional placement programme or IPP and an offer for sale (OFS) to cut the promoter stake to 75 percent. In this section of Prime Property, the group CEO Jackbastian Kaitan Nazareth talks about Purvankara's future plans.
Below is the edited transcript of his interview with CNBC-TV18
Q: I want to begin by asking you about the recent IPP and the OFS undertaken by the company. How much was raised and does all of this money raised come into the company or will it go directly to the promoters?
A: With the IPP and the OFS, we have got through the Securities and Exchange Board of India (Sebi) guideline of having the promoter holding at 75 percent.
Totally Rs 307 crore from the IPP and OFS will come back into the company. I must clarify did not have fund raising requirements at this point of time. We did this to meet Sebi obligations.
Q: On May 23, the day we of the IPP launch, we saw Dalal Street crash. I couldn’t help but think is Purvankara's date with capital markets jinxed? The markets had crashed when you had an IPO as well. Were you in May tempted to withdraw the issue?
A: We too thought in the same lines, but at the end of the day, we were extremely happy because existing investors showed faith in the company. We got marquee investors who invested with us.
While we were on the road show, the story of real estate, the way we spoke, we told them about what India truly is. I think we believe in the company, more in the macros of the country and more so in the way we are conducting our business over the years.
It was a good day, markets were extremely volatile but at the end of the day being oversubscribed 1.5 times and 1.49 times on a market day like that only means that the management has done a good job.
Q: Can you give me an idea of the quality of investors that participated?
A: The existing investors like HSBC everybody has reinvested, in a sense added more. We have State Bank of India (SBI), Reliance and we have some foreign and domestic funds.
They all believe in the fact that this company having two brands and in sustainable markets is here to stay. We spent hours on our road show talking about how the Provident brand has come up in the last four years.
Purvankara for itself having been in the industry for 38 years has got its own brand equity.
Q: What will you use the proceeds for?
A: We are going to use this to retire our debt. We are going to prepay some of our debt that is, Rs 307 crore. In the bargain we will save about Rs 45 crore and this money we will use for accelerated construction. We firmly believe that real estate is about execution.
If you have seen the way we have been doing Provident, which is a little more than four years old company, sold more than 7000 units which I always believe is easy to sell.
However, we delivered about 3500 units with quality, with time and that is going to be a differentiator. So, going on from now you have seen us do this in the last three years and going forward our focus will truly be on execution.
Q: So you are telling me you are going to cut debt but what will be your debt post that repayment?
A: We currently with this Rs 307 crore our debt-equity will come to 0.74 immediately. However, we have now ready-to-move-in stock which will get liquidated in about 14 months and that will add about Rs 1000 crore.
We have had some fabulous launches in the last 18-20 months and cash flows from are strong. So, if you look at how we would be in the next 1-1.5 years, our debt-equity will come to 0.55 debt-equity levels.
Q: What is your launch pipeline for the new fiscal?
A: For the fiscal, Purvankara will launch about 6 million square feet with three projects in Bangalore and a large project in Chennai that is on the anvil. In the next quarter you will see this being launched. In Provident, we are going to be launching four million square feet but we are getting into another geography that is Coimbatore. So, there is a total of 10 million square feet of launches for the group for this fiscal.
Q: Let us begin with Bangalore. What is on the anvil and at what prices will we see these launches.
A: As a brand in Purvankara we will be in the super luxury segment. You will see us launching mansions in fact row houses in a very prominent locality in the next month or so.
From a price perspective, Bangalore still remains an end-user and an affordable market in that sense of the word. You look at any product - villas, row houses or you look at super luxury apartments - these are all grown in about 15-18 percent in the last one year.
That is what makes Bengaluru stand apart.
Q: Fair enough, but I was actually asking was at what kind of prices will we see Puravankara launch projects in Bengaluru?
A: In the Puravankara brand yes, they will all be premium projects. Our current averages are at about Rs 4,300 that will move to Rs 5,000 this year, a 15-18 percent jump, but having said that I think the row houses will be price at a little more premium maybe in the Rs 10,000 range.
Q: I don’t know the specks of these projects that you are planning, so what kind of final ticket prices are on the anvil?
A: In the apartment we are talking of 1,600 square feet, three bedrooms, also a 1,800 and a marquee project on Sarjapur Road with terraces at about 2,400 square feet, so this would be the kind of size of the project.
The row houses will be about 3,400 to 3,500 square feet and again very limited addition I must say. If you are asking in terms of how the specifications would be, this would be all in the premium range going from marble to other works.
Q: What about Chennai? What are your plans for that city?
A: We are going to be launching a large project in Chennai; it will be sold in three phases. One of our project is coming close to completion. So, we are concentrating on setting our marketing offices and the stuff like that.
We would definitely launch in the Rs 4,500 range as a start. This will be again high rise building with about 1,500-1,750 square footage of area.
Q: Let us talk about Provident. Affordable housing I have realised is a very subjective term. How affordable is Provident?
A: When the maximum pricing in the city like Bengaluru would be about Rs 3,700, you compare apple-to-apple and I think within that geography people sell it at Rs 4,000-4,200.
Here while you tend to compare prices I must take you to the fact that this is a value engineered product, a lot of cost savings from a construction perspective because we focus a lot on value engineering and that is why we are able to pass on the benefits of what we say from construction onto a customer and that is what that makes it affordable.
Q: Do you have any plans of hiving off Provident maybe even listing it as a separate entity. What are your thoughts on that?
A: There are multiple thoughts. People who come and look at Provident the way we build they call it a great future company of India. I think at this point of time we want to keep it close to our heart in terms of the way we execute. We are fortifying the brand.
We need to build the brand across. We are extremely strong in the markets that we are. People have started talking about us in cities where we aren’t present. So, I think we will reach there and we will subsequently take a call.
Q: What are the upcoming launches of Provident?
A: Yes, in Bengaluru you will see at least two launches. They will all be in the range of Rs 3,500-4,000 and in Coimbatore also we would be launching one, which should be in the range of Rs 3,700.
Q: Puravankara Provident made a name for itself in South India. Any plans to foray into the North, let us say National Capital Region (NCR) for example?
A: We have an office there. We are doing a lot of sales for our projects in the South of India through our Delhi office and that office has been primarily set up to look at opportunities and while I talk a few opportunities have come our way and we are looking at them and evaluating them for technical and financial due diligence.
Q: Given what you are saying, are there any plans to increase the company’s land bank?
A: Currently we have enough and more land, 49 million square feet of land that we haven’t even got in terms of development we got 39 million square feet that we are thinking on development in the next three years. We are currently developing 29 million square feet add to it the 10 million square feet that we would be doing now for this fiscal. I think there is no hurry to buy land. At the end of the day if you ask me for the projects that we have we should launch they are all profitable projects and we should keep going on. Unless a great opportunity comes our way, which I don’t see coming soon.
Q: Now let us talk about your existing projects. Resales are always a good barometer to gauge the success of a project. How are resales in your projects?
A: I feel extremely happy when a customer comes and tells me that he has got an offer for 2X and 3X. The fact remains that as a company we do not sell to investors, it is all end-user driven and that is why when we hear of resale I will not be able to give you the exact numbers.
But I hear of people who had invested for themselves being tempted because they are moving out of town or otherwise getting 2Xs or 3Xs. So, I will not be able to give you a complete number in terms of the resale because we are catering to end-users.
Puravankara stock price
On November 24, 2015, Puravankara Projects closed at Rs 61.65, up Rs 1.95, or 3.27 percent. The 52-week high of the share was Rs 96.80 and the 52-week low was Rs 57.80.
The company's trailing 12-month (TTM) EPS was at Rs 4.46 per share as per the quarter ended September 2015. The stock's price-to-earnings (P/E) ratio was 13.82. The latest book value of the company is Rs 78.05 per share. At current value, the price-to-book value of the company is 0.79.
READ MORE ON Purvankara , real estate business , Kochi, Chennai, Coimbatore, Hyderabad , Mysore, ‘Provident’ , affordable housing, institutional placement programme , offer for sale
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