We were waiting for the market to get better, then raise money

We were waiting for the market to get better, then raise money
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First Published: Fri, Nov 20 2009. 11 21 PM IST

New landscape:Roy says the residential projects will be sold but the company will hold the commercial properties in perpetuity.
New landscape:Roy says the residential projects will be sold but the company will hold the commercial properties in perpetuity.
Updated: Fri, Nov 20 2009. 11 21 PM IST
Mumbai: Sushanto Roy, the eldest son of Subrata Roy, chairman and ‘managing worker’ of Sahara group of companies, has donned many hats, including that of Lt Vijayant Thapar in a Sahara One serial Mission Fateh in 2003, the year he became the CEO of the group’s media business. He now heads the group’s real estate and infrastructure businesses as the CEO of Sahara Prime City Ltd. His vision is to build 217 integrated townships, christened Sahara City Homes, across India in the next 10 years. He also wants to take the company public. Sahara Prime has already filed a draft offer document with the capital markets regulator for an initial public offer or IPO. He plans to raise Rs3,000 crore through the offer.
New landscape:Roy says the residential projects will be sold but the company will hold the commercial properties in perpetuity.
In an interview to Mint, Roy explains why there have been delays in Sahara City projects and what the future holds. Edited excerpts:
You are planning to grow aggressively and raise funds. And is the worst over for the real estate market?
If you are talking about the share market, yes we have waited for the lull to go away.
We have timed it in such a way that the recession is over and there is a little more vibrancy in the market. If you are talking about our business, we have been continuously doing business.
Had we been in bigger cities, we would have been affected. But we were in cities where there was demand for real estate. We have been the first mover in many of these places. We didn’t get affected. We were waiting for the market to get better to go and raise money.
You seem to be focusing on residential construction alone.
Yes, 90% is residential and only 10% is commercial---malls, hospitals and schools. It comes as an ancillary to the residential area to help people who are living in the townships we develop. But if you see the larger picture, you realize that we will end up with 217 schools and 217 hospitals, and so on. This means we will also have a commercial project at hand.
We are planning to build half a billion sq ft of residential property in 10-12 years. The focus is entirely on integrated townships.
Can you sustain a project that mainly focuses on residential projects?
The housing outlook report by (rating agency) Crisil (Ltd) estimates that 33 million houses are required in the next few years and most of them in urban areas. With this kind of demand in residential properties, you are looking at a profit margin of 50%. In commercial properties, the margin is around 14%.
The residential projects will be sold but we will own the commercial verticals in perpetuity, may be with a partner or two. There will be 217 schools and an equal number of hospitals but we are not experts in running them. We are talking to many players who have the expertise in these areas for possible tie-ups. Our expertise lies in building integrated townships.
Can you name any of these potential partners?
I am afraid I can’t name them. But we are in advanced stages of agreement for the hospital, though we are yet to sign (on) the dotted line. The talks have been on for past one and a half years.
What’s your revenue model?
I’ll give you a typical revenue model for one township. In a 100-acre township, there will be 300 houses. For the residential part, we will be spending around Rs400-450 crore. If you take a place like Nagpur or Coimbatore, we will generate close to Rs1,000-1,200 crore. That’s the economics for one township. A Solapur project will generate less than a Nagpur project.
What’s the time frame for making this kind of money?
We expect the construction of a township to be completed in five years and sales in three and a half to four years.
But the Sahara City Homes project started six years ago and you haven’t delivered anything as yet.
We started construction two years back in Lucknow, Indore and Nagpur. We are planning to give consumers their first possession next year. In the other six cities, we have started construction only a year back.
What caused the delay?
I don’t think there is any delay. We wanted to get good quality land in good locations. The approval and transfer process took a little bit more time than what we had anticipated.
Nearly 60-70% of your land reserves are yet to get the necessary clearances for starting construction work. How long you will take to get the approvals?
First we need the NA (non-agriculatural) approval (to allow the land to be used for non-farming purposes). After that, we need to get the layout and building plans approved. For a typical 100-acre township, it will take nine months to a year to get all required sanctions and approvals.
Our business model says aggregate land, pay for it and start selling and then start construction. We want to be sure we don’t need to stop work midway for want of sanctions.
How much are you diluting the promoter stake in the IPO?
The promoter group companies own 79-80% stake and the the balance is with our contractors. The dilution part has to be discussed with our merchant bankers. It is not decided yet.
How much do you plan to raise through the IPO?
We are raising about Rs3,000 crore with an option to retain 10-15% extra money.
You have three subsidiaries for land reserves, hospitality and retail businesses. How many of them are making money?
Sahara Prime City is generating revenue. The hotel is making money and the hospital is one vertical, which will take six months to start making profits. On a consolidated basis, the company’s turnover in April-September period was Rs179 crore and it made a gross profit of Rs28.3 crore
Is it true that there is a clear division of responsibilities? While you will look after the real estate and infrastructure businesses, your brother will take care of the rest.
I am looking after Sahara Prime City. My brother (Seemanto Roy) is looking after the Amby Valley project and he is also looking after the entertainment business. There are so many other senior people in Sahara who are taking care of other divisions.
Are you planning an IPO for Amby Valley also?
Yes, if Amby Valley decides so. I think they will do in near future. It is not part of this company. It is a different project with a different price point, which does not not many similarities with the township projects. That’s why we have carved it out and kept separately.
n.subramanian@livemint.com
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First Published: Fri, Nov 20 2009. 11 21 PM IST