IPO-bound Kalpataru bets on premium segment to drive sales in a plateauing market

Kalpataru Ltd's management and bankers to the issue at the company's IPO press conference in Mumbai

The five-decade-old real estate developer Kalpataru Ltd, whose Rs 1,590 crore initial public offering (IPO) opens next week, plans to double down on the premium housing segment—priced under Rs 3 crore—to increase its market share in Mumbai and Pune.

This comes at a time when observers have expressed concerns about a build-up of inventory at the higher end of the market, following a bumper year for luxury and ultra-luxury sales in 2024.

In an interaction with Moneycontrol, Kalpataru's management, including managing director Parag Munot, chief financial officer Chandrashekhar Joglekar, and executive director Narendra Lodha, noted that any perceived “slowdown” at the upper end of the market may be due to above-market pricing and landmark deals, which have raised expectations among some developers.

"70 percent of our portfolio is in the sub-Rs 3 crore segment, which is more stable in Mumbai. Around 10 percent is in the Rs 3–10 crore range, which also performs well. Only 20 percent is in the luxury segment (Rs 10 crore+), mainly in Worli and Bandra. Contrary to the slowdown narrative, luxury is still selling, especially high-quality redevelopment projects with strong amenities and brand trust," said Munot.

The company has managed to consolidate its position in the last few years through some strategic land sales, even as it continues to have a land bank of nearly 1,900 acres across India, including in Pune, Mumbai, Surat, and other cities. The promoters, who control the engineering player Kalpataru Projects International Ltd (KPIL), have also infused around Rs 1,440 crore through debentures, which are being converted to equity in tranches.

IPO proceeds

Of the proceeds from the IPO, the company plans to use around Rs 1,200 crore to reduce its debt, in order to lighten its balance sheet. Going ahead, Kalpataru plans to take the "asset-light" route for business development.

According to data from Anarock, Kalpataru is currently the fifth-largest player in the organised real estate market in Mumbai, and its market share in Thane, in Mumbai's north-east, has increased especially through the 100-acre Parkcity project at Kolshet Road, which also includes a 20-acre public park. Market competition in Thane is also stiff, with multiple large players competing in the integrated development space, such as Rustomjee, Raymond Realty, and Oberoi Realty.

Most of these developers also operate in the premium segment, priced in the Rs 1 crore to Rs 4 crore range, in order to maximise sales in an area undergoing a transformation in terms of infrastructure.

The management added that while business people have been large customers in the premium segment, the salaried class has also been large-scale homebuyers, due to the need for larger homes after the COVID-19 pandemic, Lodha said.

The company reported around Rs 3,200 crore in pre-sales for FY24, while market sources indicate that its FY25 sales have crossed Rs 4,800 crore, reflecting strong sales across most of its categories. While the company has reported consolidated losses in the last three full fiscals (full fiscal numbers from FY25 are awaited), Joglekar noted that increasing sales are expected to translate into improved revenue and profitability from FY25 onwards, with a large number of projects being completed and delivered.

Redevelopment projects

While Kalpataru prefers large, legacy land parcels in both the Mumbai metropolitan region and Pune for its residential and mixed-use projects, especially in the luxury segment, it has also been in the redevelopment business for more than 20 years, with three projects continuing in the island city and the suburbs. It has delivered 11 projects through redevelopment, with three more ongoing in Borivali, Lokhandwala, and Goregaon.

Even as observers express concerns about the large incentives given out to existing home and property owners in order to secure redevelopment deals, especially in the western suburbs, Munot said that its strategy to go for larger redevelopment projects, rather than a host of land-parcels sized one acre or less that are going for redevelopment, has helped them keep these projects viable.

"We have been playing the redevelopment game for the last 20 years. We have completed 11 projects, three are ongoing, and two will start soon. We generally go for larger sizes, like in Borivali, where we are doing a six-acre project, or in Lokhandwala, where we are doing a four-acre redevelopment project. A larger tract in redevelopment in a mature location, where there are enough people in the neighbourhood who want to move, will be viable," Munot said.