Bangalore-based Prestige Estates is one of the top realty picks for brokerage firms like CLSA and Jefferies.
Prestige was also the first real estate company to comply with Securities and Exchange Board of India (Sebi’s) minimum public float norm. The promoters pared their stake from 80 percent to 75 percent in January via an institutional placement programme or IPP, an issue that was subscribed 2.75 times.
CMD Irfan Razack spoke about the company's future plans on CNBC-TV18's show Prime Property.
Here is the edited transcript of his interview with CNBC-TV18:
Q: Prestige Estates is a company that in the first nine months of FY13 surpassed all the guidance it had offered for the full fiscal be it for sales, launches, etc. For the new financial year what is your new guidance for launches?
A: This year we had given a guidance of about 8 million square feet and we have exceeded that and we have almost touched or maybe crossed 10 million square feet of launches. Going ahead in the following financial year we should exceed the 10 million square feet launch and it looks to be pretty exciting.
There is a lot in the pipeline and lot of projects that we have been working on over the last couple of years we see them fructifying in a month or so. So, there is going to be a very strong launch calendar and it is going to exceed the 10 million square feet what we did this year.
Q: Does this launch pipeline include Prestige foraying into new cities? Will Prestige get out of its comfort zone of Bangalore and South India?
A: We are established well in Bangalore and now we are increasing our footprint in Chennai. We are present in Kochi and we have tied up several new developments in Kochi. We are in Hyderabad and we have tied up for few properties in Hyderabad also. Apart from that we are looking at smaller cities like Coimbatore, Goa and Mangalore. Mangalore we are even building a mall currently in a small residential development. There is potential in these cities but not as big as what we have in Bangalore. However, all these little bits do add up to a large total so there is quite a bit happening but we are pretty much in the South at the moment.
Q: Can you give us details of these projects that will be launched, what kind of prices for example can we expect?
A: For obvious reasons I will not be able to give you the names and the locations of my coming launches. However, the ticket size can vary from Rs 30-35 lakh going up to Rs 2.5-3 crore. There is going to be a mixed bag, there is going to be something for everybody and there is pretty exciting launch pipeline that we have lined up. It is only a matter of couple of months that we will be coming in with quite a number of things.
Q: You mentioned all these new cities that Prestige will be entering so are you buying land or is it via joint venture with land owners or even local developers?
A: It is a mixed bag. It could be a joint venture with the land owner or it could be a purchase. It depends on the location of the property, depends on what opportunity it presents itself and what type of terms it comes. We have identified a few things and we have to see how it pans out.
Q: When I asked you about upcoming launches you mainly spoke about residential projects. So is that the segment of real estate Prestige will be focusing on? Also this mixed bag of launches you speak of, of Rs 35 lakh to Rs 1.2 crore should I then assume that Prestige is not focusing on luxury or super luxury projects?
A: Basically residential is where you get your revenues, residential is where you get your turnover and our focus will be primarily residential, not to say that we lose focus on the other categories but residential will be our baseline. In residential itself, I believe the business that will happen and will continue to happen is in the mid-income residential housing and mid-to-premium so we will stick to that. We will definitely be doing some premium, super premium and luxury but luxury and super premium doesn’t have a very large market, it has a niche market.
There are certain breed of buyers who want to buy for themselves they are not looking at growth on capital so they buy there. However, the mid-income is where the actual home users come in. Commercial is also our strength, IT is our strength so commercial and IT development will happen and we will be balancing and looking at how the demand versus supply is and then it will continue. We are getting strong in the shopping mall area. We are going to complete three malls in the current calendar year and another three are on production and two planning.
Q: I want to get back to the guidance that you had offered for FY13 you for example surpassed the sales guidance in the first nine months of the full fiscal. Looking back do you think you gave a conservative guidance?
A: I don’t think there was any conservatism, we were realistic because the previous year we had done Rs 2100 crore of sales so what we did was we looked at what has happening on the ground and we said this current year an achievable target will be Rs 2500 crore. If we have exceeded that, that goes to commend the team that has worked to see that we got our approvals and the launches that we did were successful.
The market itself shows that whenever a premium development in a good location from brand like ours is launched there is enough acceptability and people are ready to commit themselves and buy.
Q: Analysts say Prestiges’ margins are good but could be better, how do you answer to those critics?
A: We cannot ignore margins, margins have to be there. We have to protect our margins otherwise how do we take care of our overheads. Having said that we have to do realistic margins, we as a company have never looked for super profits. We have always looked for realistic margins and that is probably one of the key to our success. We do our costing based on our costing and some calculation since our project runs over life of three years for inflation. All this is added up and then we have a realistic margin of 30-40 percent.
So, that is the thing and with the inflation if the value of the development or the product itself grows the customer is happy that his investment is secured, one and secondly, there is a growth on capital.
Q: Developers high debt is a big area of concerns. What's Prestiges' debt like and what about debtors? Prestige does get criticism for having too many debtors, is all of this manageable?
A: Debt is pretty much under control and today we have a debt equity ratio of 0.4 or 0.45 which is very much below what ever is happening in the industry because we believe in our residential development, we should be positive cash flows. If the debt is there in my balance sheet, it is only where we are creating assets for rental income, capex projects like shopping malls and IT parks and hospitality assets.
This comes from a combination of debt as well as internal accruals. Residential per se it has all the time got positive cash flows. The only time probably we need to block in capital is when we commit ourselves to buy some land or we pay deposits to the land owner for joint development agreement and that comes in from internal accruals. So, we are pretty much there.
Even our debtors like you asked, debtors also have been considerably brought down and there will always be that time lag between collections and with the type of volumes we are doing. However we have no concern as far as the debtors are concerned because ultimately the product itself, rather the home itself is not handed over to the buyer till he clears the last rupee on the statement of account.
Q: Do you have a roadmap for debt reduction?
A: We have reduced debt considerably and as things stand with the generation of cash that has happened collections have been good, they have been at all time high. We have had quarterly collections of almost Rs 500 crore plus in the last two, three quarters, that helps us to have surplus cash flows and once you have surplus cash flows automatically the reliance on debt will definitely reduce.
The only place that I need to probably grow debt is for the completion of our capex projects, but then at the end of the day the capex projects also become self funding in the sense that once the product itself is ready, once the development is ready it becomes into a lease rented discounting method. So, I don't really have to look for cash to pay back my debt or service my debt, it gets paid back from the rental income that is generated.
Q: We just saw Prestige doing a fresh equity issue, an IPP that brought down the promoter stake from 80 percent to 75 percent. How exactly will that Rs 350 crore odd raised via the company be utilised?
A: The whole idea of this was to dilute as per Sebi norms and this is helping us to invest in land, in the cities that we intend growing like Chennai, Bangalore and other places. It is going to be a combination of several things and we will be using that money pretty judiciously.
Q: You are done with one round of fund raising, any other such exercise on the anvil, even if not via the capital markets, but let’s say via private equity (PE) for specific projects?
A: We have to see, it depends on the size of projects that come, it always good to be comfortable and low on debt and have surplus cash flows. So, there are many opportunities that present themselves in terms of PE players who are available in the market. So if some deals do come in at sensible terms without any fixed commitments, we are exploring things all the time. It is a very dynamic situation.
Q: Are you like other developers running behind schedule?
A: At the moment all the projects are on track. We have also had our learning's and we have realised that if it is a very large development the time that it takes is going to be longer. So, depending on the size of the development we finalise and close out the delivery times. It could be anywhere in the region between 2.5 years to 4 years. We have also learnt that may be instead of doing everything in one go, may be phase out block wise deliveries also.
Q: What exactly have you learnt?
A: We keep learning everyday, we can't stop learning, but there is a collective experience that we have. Probably that is an advantage that we have over others.