In August this year, New Delhi-based DCM Shriram Consolidated Ltd sold 38 acres of land it partly owned in a prime location in the city to DLF Ltd—India’s largest real estate developer—for a whopping Rs1,675 crore.
The sale is among India’s most expensive land deals. DCM Shriram, which
makes chemicals, sugar and cement, received Rs837.50 crore from DLF for the 50% of the property it owned. The remaining was owned by the Indonesia-based Lohia Group. The money came in handy for the Indian firm which needed it to fund its expansion plans. DCM Shriram is not alone in cashing in on rising realty values that are creating an asset class that can be liquidated at a pinch.
Developing gains: DLF Hamilton Court apartments in Gurgaon. DLF Ltd—India’s largest real estate developer—bought DCM Shriram’s West Delhi property for a whopping Rs1,675 crore in August.
Many large firms across India are selling assets they have held for decades. In some cases, the manufacturing units they set up on this land had already moved elsewhere, leaving swathes of industrial land available for development.
DCM Shriram bought the land in West Delhi in 1948. “It was bought just after independence and that’s why it (the property) was called Swatantra Bharat Mills,” Ajay Shriram, chairman?and senior managing director, DCM Shriram, said.
In the last two to three years, property prices have shot up by as much as three times across the country. At the same time, more and more people have moved to owning homes instead of renting them. The average age of homeowners has also fallen by at least 10 years from a year ago, and with 60% of India’s population in the working age group of up to 64 years, the result has been unprecedented demand for homes. The only constraint has been the scarcity of land, especially in the heart of large cities. That’s the gap companies such as DCM Shriram are leveraging to their benefit.
Last month, the Kolkata based Eveready Industries India Ltd—India’s largest dry cell battery maker—sold 15 acres in Navi Mumbai where its electrolytic manganese dioxide plant was located. The property, which was sold to Mumbai-based developer Housing Development and Infrastructure Ltd, fetched the company Rs115 crore. The plant had been closed for 18 months before the property was sold.
Soaring realty prices have become a temptation for companies such as Eveready. “I would rather set up new plants in backward locations, where there are tax incentives on offer,” Deepak Khaitan, executive vice-chairman and managing director said.
The company has already set up a battery plant in Uttarakhand, which is offering a tax holiday to industries.
Selling land is helping these companies raise money either to pay off debts or to fundexpansion.
The sale of the property at Navi Mumbai will help Eveready retire some of its debt, which stood at Rs378 crore on 31 March 2007.
While DCM Shriram initially had plans of developing the property on its own or with a partner, the company decided to monetize its land asset to increase liquidity.
“We did take a view on developing the land ourselves,” Shriram said. “But real estate projects take time. We felt the value it brought us was good. So, the board took a view that it is better to sell the land.”
Eveready has similar plans to leverage on its realty assets at other locations as well. Lucknow and Hyderabad may be next on the company’s plans for realizing the value of its realty assets, though nothing has been decided yet. Whether the company will proceed on these lines with outright sale of the property as it did at Navi Mumbai or get into real estate development is also still to be decided.
Meanwhile, developers are willing to pay any price to acquire prime land in the heart of the cities.
Thus, Kolkata-based developer, South City Projects (Kolkata) Ltd, is building four 30-plus storey buildings on 31 acres that once housed Jay Engineering Works, where Usha International Ltd used to make its sewing machines.
The factory had downed shutters after coming under the Board for Industrial and Financial Reconstruction.
Two other projects in South Kolkata—Westwind, a residential development, and Orbit City, a residential and commercial complex—have come up on land where Dabur India Ltd used to manufacture its health potion Chyawanprash and other consumer products.
But, not all companies are selling the land they own outright. Some have chosen to enter joint ventures with real estate companies to develop properties. Companies which owned factories in prime areas in the cities are shifting their factories to city outskirts and utilizing this prime land to develop real estate projects.
Bangalore-based United Breweries Group (UB Group), India’s largest brewer, has parterned with real estate developer Prestige Group for a project on the land that originally housed its brewery. UB Group holds a 55% stake, and Prestige Group a 45% stake in the joint venture.
The joint venture is setting up UB city, a mixed use development on Vittal Mallya road in central Bangalore at an estimated cost of Rs150 crore. The project is located at the heart of the central business district of Bangalore.
UB Group provided 13 acres for the project valued at Rs22 crore, in 2002. The project will include corporate offices, and retail and service apartments.
In Kolkata, prime land has been culled for setting up mega realty ventures from old industrial units.
India’s biggest shoe-maker Bata India Ltd and the Kolkata-based realty firm, Calcutta Metropolitan Group Ltd have formed a joint venture company Riverbank Holdings Pvt Ltd to develop a real estate project.
The joint venture plans to develop a modern township at Batanagar, located on the south-western fringe of the metropolis. Batanagar was the manufacturing base set up by Bata in 1936. It is the oldest surviving plant of the company in the country. About 262 acres will be developed to make housing complexes, condominiums, golf villas, hotels, malls and a school.
At Uttarpara, in the northern fringe of Kolkata, car maker Hindustan Motors Ltd has tied up with Bangalore-based Shriram Properties Ltd to develop an integrated IT township and auto-park on 314 acres adjacent to the country’s oldest automobile plant.
DCM Shriram, which closed the biggest land deal in India, still owns prime property on the Puducherry-Tamil Nadu border. The company had bought this 360-acre property near Puducherry 10-12 years ago. It hasn’t decided what to do with this land yet, though.
“We have not thought about the land in Pondicherry as yet,” Shriram said.
With inputs from Archana Rai in Bangalore.