Will pare debt to Rs 2300cr; prices to rise by 20%: HDIL

A: HDIL is one of the largest land bank owners in the Mumbai Metropolitan Region (MMR) region. This policy of affordable housing which has just come out two weeks back is aimed at providing free of cost affordable housing to the government in lieu of additional FSI.

This additional FSI has moved on from one to three. However, out of that component 2.25 goes towards the residential segment and 0.75 goes towards the affordable housing segment.

It is a big increase in the MMR region because most of the other undeveloped areas around Mumbai, they were lacking in FSI. There the FSI was restricted in those areas. It is a good policy for us primarily because a couple of our projects in Vasai, Virar where our component was about 50 million square feet of affordable housing will now move up to about 75 million square feet. It will be one of the largest affordable housing township projects in India.

It is a great policy now but as we go along if there are any further amendments you will have to wait and watch what the government does.

Latha: Can you explain this more in terms of rupees and in terms of percentage gain for you? If you have to give away 25 percent for affordable housing to the government then how much money do you make on say a Rs 100 crore investment?

A: Primarily if you look at it, the affordable housing area that we give to the government, the cost to us is the construction cost. So, if you are looking at anywhere between Rs 1200-1500 a square foot will be the cost of generating this entire 2.25 component of affordable housing.

We anyways used to get one FSI, we used to get 0.6 transfer of development rights (TDR) but now because the cost of TDR will not be involved, the total cost will move up a little bit but the component of sale will increase substantially. Vasai, Virar anyways nowadays is at about Rs 4500-5000 a square foot.

This project Planet HDIL which we are planning to launch maybe this year end will probably be about Rs 25000-30000 project.

Sonia: Can you also start selling the land that has higher FSI to other developers in the area and how much of a potential could that be?

A: We have over the years been selling FSI in Vasai, Virar. A lot of our FSI transactions have taken place in that area because we own some of the largest land banks out there. When the approvals from the environment ministry do come in which we are awaiting maybe in the next couple of months, when we do get that we will look at the FSI model as well primarily to get the cash flow moving, to get the construction on. I think the FSI model has worked for us earlier and continues to work for us.Latha: Where does all this fit in terms of your debt reduction program? You already have done a fairly successful debt reduction by over Rs 550 crore. So, does it make more strategic sense to sell more land and reduce your debt? Where debt stand say end of March 31 2015 or March 31 2016?

A: It always makes sense to reduce debt. That is one component of business which takes away the margins whatever we make. We have been pretty successful but this has just been the first step. We are looking at a further 25 percent debt reduction over maybe this year and beginning of the next year.

We are currently on a consolidated basis at Rs 3400 crore, on a standalone we are at Rs 2900 crore. We are looking at maybe a 25 percent reduction so that will bring us close to about Rs 2200-2300 crore and we will be pretty comfortable at that level with our debt figures.

Sonia: How will you facilitate that, what are the non-core assets that you currently have that you are looking to offload?

A: We have offloaded quite a bit. We have offloaded our hospitality business and we have offloaded our multiplex business. We are currently looking at a couple of other major properties that we can get into, some FSI transactions. Vasai, Virar will form a huge part of this debt reduction process. We have other areas outside of Mumbai where we are looking at monetising those assets.

However, this is our daily business, this is what we do, we monetise land parcel whether on an FSI basis or if we find value. We are looking at offloading commercial properties as well. So, whatever we can do to reduce debt over this year, we are going ahead and do that.

Sonia: You have decided to reactivate the SRA projects in BKC and in Vikhroli. If you can just tell us when do you expect the clearances for these projects to come through and when they do what kind of an upside could it provide to you in terms of FSI sales, just ballpark figures?

A: SRA projects are quite a different animal altogether. Till we don’t construct the rehab component we are unable to actually get our sale FSI on line. We are currently in the process of getting rehab component on line. The approval process is a continuous process for us.

I think over the next year we should be able to monetise BKC as well. We are getting active cash flows from there. We have a host of other projects; we are currently talking to the government but considering the fact that the elections are around the corner I don’t know how that is going to pan out because over the next three months we are going to see the code of conduct come in, the elections takeover and the approval processes will get delayed. This is going to cost us a little bit of pressure in the system but we should be able to manage that.

Latha: Where are prices headed, which pockets geographically in Mumbai are likely to flair up, which might take a while and how much if you have some number?

A: I don’t think the prices are headed down in anyway. I think they are just going to either stabilise here or move up a bit. I think the ticket price that we are currently focusing on is about Rs 1.2-1.5 crore. That is average ticket size now anywhere on the central suburbs; western suburbs are a little higher. Central suburbs are about Rs 1.2-1.5 crore. If you see over the next one year, I personally believe that the market is going to move up and there will be at least a 20 percent upside for real estate developers on the pricing front.