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Oct 10, 2011, 05.34 PM IST
Pujit Aggarwal, managing director of Orbit Corporation in an interview to CNBC-TV18 said, last one year has been nightmarish for the company due to concerns related to sanctioning of projects.
With this he believes that the company would be happy if they manage to maintain last year's revenues. Orbit Corporation's FY12 margins may take a hit on the back of rising interest costs and rising input costs.
In terms of sell prices also, he doesn't expect to get any additional benefit in the next two months. "There may be more project launches ahead but currently we would close at last yearís numbers," he added.
Below is the edited transcript of Aggarwalís interview with CNBC-TV18. Also watch the accompanying video.
Q: In your first quarter the total square feet sold was less in year-on-year terms. How did Q2 pan out?
A: As far as the last one year is concerned, it has been nightmarish on a macro level because there were lots of grey areas while getting plans sanctioned. A lot of dust was thrown up as to how certain areas should be calculated.
The law is getting settled and within next three to four weeks it should be in place. On the back of that we will start seeing very good numbers henceforth. Even Q2 seems to be a weak quarter. Now that there is much more stability coming in we are seeing some good times now.
Q: What exactly is this clarity that you are expecting from the government in a few days?
A: The rule under which plans are sanctioned is called Development Control Regulations which sanctioned in the year 1989 and came into effect in 1991. Over the last 20 years layers of various FSI regimes have been added. The FSI went up; the amount of area that one could construct on a plot went up by two to three times.
Over the years, due to these layers the way plans were passed were interpretations. So the area that could be passed for construction depended on project to project, developer to developer. There was not enough clarity on it. The new government which came in November, December last year in the state has decided to bring clarity on that. They have gone about changing that law. The order has been passed and we are expecting it to be promulgated in the next three to four weeks.
Q: According to real estate survey even as late as the month of August there has been almost a 30% dip in the Mumbai region in residential property sales. Why are developers reluctant to cut prices? When do you think developers will go ahead and cut prices and what quantum will that look like?
A: Developers have cut prices in some stray cases. Overall you are right p and prices have not been cut. Itís on the back of the fact that stabilised real estate prices have not gone down. When a developer is pricing his product, he prices it with a stabilised real estate and a discount on that.
Since that price has not gone down he feels that he will be able to sell his product at the price with which the stabilized real estate is going. The developers are not cutting prices and thatís the background on which you can see that the Mumbai market is not a problem from the demand side or the pricing side. The problem here is the supply side problem.
Q: Do you mean so many square feet of land is not getting sold because it is not available?
A: Where is the square footage? Whatever is being constructed is getting sold quite briskly. People need to see whether the plans are sanctioned, whether the project is going to get completed on time. If they see that the plans are sanctioned, everything is going on properly, the titles are cleared and the project is getting completed on time, itís getting sold and we are seeing that. Even in the exhibitions where we are participating we are seeing huge turnout and very positive response now.
Q: According to a report there has been a big shift from time-linked payments to construction-linked payments. How much of an impact would that have on IRRs and working capital? How much would a company like you suffer because of this change?
A: For Orbit we have always had a situation where we were linked with the progress of the work. It was not linked with timing therefore Orbit may not be impacted significantly. But as we move ahead buyers will benefit because they will be paying installments based on certain milestones which the project would have reached.
Based on that we might see an impact of about 2-3% on developersí margins at max. I donít see a very significant impact because developers would take larger advance payments then the project would invariably get delayed. This is good and healthy for the market.
Q: What do you expect to do by way of revenue growth and profit growth or margins for FY12?
A: With such a nightmarish experience if we are able to maintain revenues of last year we would be happy. Seeing these two quarters that are coming up we should be able to post at least last years number and very marginal growth. There is nothing significant and much to talk about.
As far as margins are concerned, they would take a hit on the back of rising interest costs and rising input costs. I donít think in the next two months I am going to get any additional benefit in terms of sell prices. There may be more project launches ahead but currently we would close at last yearís numbers.
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