Unity Infra has joined hands with Deepak Fertilizers to build an agriculture produce market committee (APMC) on a 90 acre land in Kalyan, Mumbai.
The financing will be divided as 75 percent debt, which is about Rs 320 crore, and 25 percent from equity, Unity Infra COO Nilesh Jamdar told CNBC-TV18. In January 2015, the company had received a corporate debt restructuring (CDR) approval to aid cash flow.
The company has got a lease of 35 years for the land from Maharashtra State Agriculture Marketing Board.
Jamdar said that the company will hold 60 percent stake in the special purpose utility (SPV) whereas Deepak Fertilizer will have 40 percent share. He is anticipating 5500 metric tonne of fruits and vegetables to be handled at APMC on a daily basis. Sixty percent of the state-of-the-art terminal market will be utilised for payable facilities like cold storage, warehouse while the rest will be used for commercial activities, he said. The company is expecting a 22 percent internal rate of return from the project, he said adding they are also looking to expand the business in the overseas market.
The existing debt of Unity Infra will be separate from the debt of the SPV. Jamdar said it is on verge of completion of various SPVs and is divesting its holdings to reduce the company's existing debt.
The agriculture segment of the project will be launched in 2020 and the commercial segment will be launched in 2021.
Below is the transcript of Nilesh Jamdar's interview with Sumaira Abidi & Reema Tendulkar on CNBC-TV18.
Reema: Can you give us some details about this agreement that you have signed with Deepak Fertilisers- what will be the financial commitment, the equity shareholding?
A: This is basically a modern terminal market complex, a competitive agricultural produce market committee (APMC) that we are developing near Kalyan; hardly three and a half kilometres from Kalyan. The 90 acre land is holded by Maharashtra State Agriculture Marketing Board and it has been leased out to us for a long-term concession of nearly 35 years. We are going to develop an APMC kind of a facility over there where the growers and the consumers - the interface between them are to be done at a more efficient level to avoid the brokers in between.
We are a pure infrastructure player and have been developing bridges, tunnels, roads and all. I would like to remind you about our five-star hotels that we had constructed in Pune called 'Vits' and Orchid that we handed over to the Vithal Kamat group.
We don’t have full-fledged expertise into agriculture and hence, have tied up with Deepak Fertilizers who have their own network of Sarthi collection centres. We are going to have a technical tie-up on that part and it is a 60:40 arrangement. Unity Infra Projects will be holding 60 percent in that special purpose vehicle (SPV) called Modern Mumbai Terminal Market Complex and Deepak Fertiliser will be holding 40 percent of the equity stake.
Sumaira: So, Kalyan is a new challenge to Vashi?
A: Yes.
Sumaira: What will be the financial commitment on your part as well as Deepak Fertilisers?
A: This is a Public Private Partnership (PPP) kind of a project where we have to design, build, operate and subsequently transfer back to the government over a period of 25 years with a lease extendable another 10 years.
A lot of banks, although are averse today for PPP project, but for this particular project they are very gung-ho about because it is a priority sector lending. So, we are looking forward to around 75 percent debt from the major financial institute and 25 percent equity put together of Deepak and us.
Sumaira: So, how much would this 75 percent debt be in absolute terms?
A: It will be roughly around Rs 320 crore.
Sumaira: And you have secured this financing?
A: Right now, the concession agreement signing is in process because we were waiting for this shareholder agreement to be signed with Deepak. Now that has been done last week, we now look forward to ink the concession agreement. Once the concession agreement is signed, we will approach the financial institute with our overall projections on the revenue and the internal rate of return (IRRs).
Reema: Correct me, if I am wrong, but I thought the government was moving against APMCs in order to perhaps help in some price correction?
A: Yes, the government is in a mood to remove the APMC bottlenecks because it is tremendous. Whenever the fresh produce reaches Vashi, the unloading itself takes a lot of time; a couple of days to just unload in which we lose 40 percent of the freshly produced. To avoid this wastage because of the typical style of functioning of APMC, it has become a challenge not only to the farmers but also to the retailers.
So, we are going to be a competitor to that APMC, we will deliver because we are having land. APMC, Vashi is sitting on an infrastructure bubble which can burst anytime but we are looking at a 60 acres of state-of-the-art facility, where we will have ripening chambers, grading chambers, we will have cold storages, godowns, warehouses and other facilities.
Reema: So, what is the expectation? How much do you think this joint venture SPV can generate in terms of revenues as well as margins?
A: Approximately 9000 metric tons per day is the current output of fruit and vegetable exclusively in Vashi because these are the very strategic location. Kalyan will serve to at least six municipal corporations whether it is Ulhasnagar municipality, Kalyan, Dombivli or Navi Mumbai, Mumbai, Thane. All these corporations are surrounding this particular market complex. So, we are looking at an initial phase of around 3,500 metric tonne of fruit and vegetable and around 2,000 metric tonne of groceries output. Now, this entire output which is traded on our market will have a market cess of around one to two percent and accordingly we will generate the revenue.
The IRR that we are projecting for this project is roughly around 22 percent of project IRR.
Reema: The only way you’ll make your revenue will be on this market cess of one to two percent?
A: No, that is just one of the streams of the revenue because out of the 90 acres, 30 acres we are allowed to commercially explore. That is a kind of cost subsidy to us developing this market. So, 30 acres we will be developing purely commercial thing, which is not related to agriculture; you can say non-agriculture.
Even in the 60 acres, we are going to have these facilities which will be payable whether it is a ripening chamber or grading chambers or cold storages or warehouses, you have to pay for it. So, these are the other streams of revenue other than the cess. We are tying up with the major auction houses- our legal, technical team is visiting Netherlands also, we are looking at Amsterdam market also.
Sumaira: Like a holistic?
A: Yes, where the farmer will understand because nowadays farmers should understand what is the kind of money his produce is getting, what is the kind of demand that is generated.
Sumaira: When will this come on stream and when will revenues start picking in? For Unity Infra itself in FY15 you’ll have posted a loss in excess of Rs 340 crore. What is now the guidance of when things can stabilize if not improve?
A: This particular loss is more because of the huge interest burden on the company and the huge debt on the company.
Sumaira: Which will only increase now right with the further debt that you take on?
A: Right, but we are having some strategic plans to reduce the debt. For example, we are having a couple of SPVs which are on the verge of getting commercially operated, Unity building assets are developing a Delhi police headquarter - we are divesting in these kind of SPVs.
We are looking at divesting certain stakes in our URDL real estate company, which is doing a lot of projects in Bangalore. So, this divestment will try to cut down on the debts and it will bring down the interest cost over a period but losing on this kind of project because this will be one of the biggest game changer. This is going to be the first modern terminal market complex of India and having a very strategic location in Mumbai.
Sumaira: When will revenues start kicking in from here?
A: We are focusing on 2020 as the first year of revenue generation and the non-market part, will generate revenue by 2021.
Reema: That is the commercial one?
A: Yes.
Reema: You indicated that the SPV will be raising debt of Rs 320 crore and your contribution in the JV is 60 percent. So, that means that Unity Infra will be raising debt of close to about Rs 190-200 crore. The company anyway has a very high debt and you are already a part of Corporate Debt Restructuring (CDR) process. Your debt is getting restructured. Can you tell us what happens to your debt after this?
A: This is a very interesting kind of a structure where the SPV is formed without making the parent company’s balance sheet heavy; it is a standalone company which has the equity contribution. It is the equity contribution that is a challenge right now.
The debt will be funded to the company itself and the company will raise as this is a fresh company having two shareholders - Unity Infra Projects and Deepak Fertilizers. There will be no direct impact on Unity Infra Project’s balance sheet per se because this is an SPV. We will be doing a business in this particular SPV.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
