Cash from land sale to be utilised for expansion plans: Nerolac

Paint maker Kansai Nerolac, on Wednesday, completed sale of its 16 acre land in Chennai to realty firm Brigade Enterprises for about Rs 537.8 crore. Nerolac’s Managing Director HM Bharuka told CNBC-TV18 that the cash will be used for the company’s expansion plans and use of any surplus will be decided by shareholders and the board.The company plans to increase its capacity by 20 percent over a two-year period in Punjab and Gujarat, Bharuka said. Nerolac is a debt-free company having Rs 400 crore of cash in its books. Suresh Kris, CFO of Brigade Enterprises, said that the land acquired will be used for residential and commercial projects. The revenue potential of residential projects is about Rs 600-700 crore, he said. The land purchase will be in the books of its Perungundi real estate special purpose vehicle (SPV), Kris said, adding that the purchase will not have any impact on Brigade’s profit & loss (P&L) account. Bharuka added that the company has some more additional land in Mumbai and Thane, but doesn’t have any plans to liquidate them anytime soon. Below is the verbatim transcript of Suresh Kris and HM Bharuka's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: Can you clarify for us how much you have sold your land for, what has been the rate, the average realisations and what will you be doing with that money?Bharuka: It is about 15.8 acres of the land and Rs 540 crore is what we have got. We had announced the expansion of the Gujarat Greenfield project and the Punjab project. So we are going to spend close to Rs 600 crore in the next two-three years. So, this money would be used for our expansion programme. We have closed the factory in Chennai and we have shifted that factory to Gujarat. So money would be used there.Latha: What is your debt and would any of this leftover money be used for retiring debt or anything like that?Bharuka: We are increasing our capacity by about 20 percent in next one and a half to two years both put together as well as Punjab. So our existing capacity is close to about 2,70,000 tonnes and we would increase by about 60,000-80,000 tonnes in two-three years.Latha: Is the board meeting anytime soon to decide how to redistribute the surplus cash you have?Bharuka: No, the board meeting is on 27 for the results and at that point in time, we are having annual accounts meet so that is the point where they would take a decision but as I mentioned, the main objective of this money would be to use for our expansion as of now. But we have good cash lying also on our balance sheet so it is for board and the shareholders to take a call.Sonia: Can you tell us how have you financed this deal, will the cash be going out from the SPV that is from the books of Perungudi Real Estate?Kris: The land has been acquired in the SPV called Perungudi Real Estate Pvt Ltd wherein Brigade and GIC are having the shareholdings of about 51:49 as in the previous projects. So, it has been financed by Perungudi by way of equity.Latha: There will be no impact on Brigade\\'s profit and loss (P&L)?Kris: Definitely there is no impact in Brigade\\'s P&L because of this.Sonia: Does the SPV, Perungudi Real Estate have any debt on its books?Kris: Zero.Latha: What is the plan now with this acquired land, when will a project come up over there, what is the timeline?Kris: It will be over a period of five-six years and the land of about 16 acres can be developed -- about 2.5 million sq ft of developable area. It is having a revenue potential. The residential revenue potential could be close to around Rs 650-700 crore. The rental portfolio, I would like to say the annual rental portfolio could be around Rs 275-300 crore per annum in five-six years time.Sonia: Just to clarify, none of this revenue potential will come to the books of Brigade Enterprises, right? All of it will go to the SPV?Kris: On consolidation basis, automatically it will come into that and on a standalone basis, what you are saying is right. Since it is an investment by Brigade on consolidated basis, it will come.Latha: It will show on Brigade's P&L in the form of a dividend payment?Kris: Standalone basis it will be reflected about dividend if it is declared.Latha: If I can expand this conversation to also include how the paints business itself is doing, have you noticed Q4 being any better than Q4 of last year, the seasonal uptick was there at all?Bharuka: Paint industry fortunately has not been doing badly in this given environment and if you look at the numbers for three quarters, we are having a double digit volume growth. Unfortunately, value growth is lower because prices have dropped down and real gross domestic product (GDP) is comparatively lower. But industry has done very well according to me, it is only auto, which has not done better than what we had thought. However, on the decorative side, the residential side, I think industry is doing well, we are still having a double digit growth. Q4 number -- today is the last day for us to close and it is not right for me to speak but I would say it is as good as what was earlier in the first nine months.Latha: Margins would be even better because of the crude intermediate prices?Bharuka: We have reduced our prices three times. We reduced in November, we reduced in January and we again reduced in the month of March. So we have passed on the benefit to our customers. So, yes, there are benefits which we have got by way of reduction in the crude oil prices but we have passed on that benefit. So for us, if we are able to maintain the margin that we have declared up till now, I think still it will have a good growth over last year.Sonia: You have made a big killing with this deal, Rs 540 crore through the sale of this land, do you have any more non-core assets, any more land that you would be looking to sell to raise money for expansion plans in the future?Bharuka: We do have some surplus land lying here in Mumbai as well as in Thane. As of now there are no plans to liquidate those assets. Let us digest this money first and then we will look at future but we do have some land bank available with us.