Abhisheck Lodha | A lot of value can be added if you know the local market well3 min read . Updated: 29 Aug 2012, 07:38 AM IST
Abhisheck Lodha | A lot of value can be added if you know the local market well
Bangalore: In 2005, when realty firm Lodha Group bought over a defunct textile mill in central Mumbai for ₹ 180 crore, India’s largest property developer DLF Ltd also bought Mumbai Textile Mill for ₹ 702 crore. The auction hosted by National Textile Corp. Ltd was significant because it announced DLF’s entry into the Mumbai real estate market and also sprang up a surprise new name—Lodha.
Earlier this month, when Lodha paid ₹ 2,700 crore to buy the DLF subsidiary that owned the 17-acre Mumbai mill land, DLF had mostly exited its projects in Mumbai.
A Mumbai-centric developer, Lodha is working on 40 projects, with roughly 35 million sq. ft of development. It delivered around 3 million sq. ft of area in fiscal 2012 and has around 4,250 acres of land reserves.
Lodha Group’s managing director Abhisheck Lodha, 32, spoke in an interview on the company’s journey so far, its strategy ahead and the latest transaction with DLF. Edited excerpts:
You have said it took almost nine months to consummate the recent mill land deal. What does this deal bring to the table for you?
It also gave us a prime located land parcel at an attractive price, and that is developable immediately. Particularly when the ability to execute a plan today involves uncertainty and risk, this is a good way to invest our money.
Most developers are scrambling for money and you’ve done a ₹ 2,700 crore transaction. How did you work out the financials?
We have already paid about ₹ 570 crore from our internal accruals and another ₹ 800-900 crore, of which we will raise ₹ 300-500 crore of capital either as debt or from private equity funds. We will also refinance ₹ 1,500 crore of liabilities that has come along as part of the transaction.
We are going to do a mixed-use project on this location, with a residential component and we are evaluating what the remaining part will be developed into. The project will be developed in phases and completed in seven-ten years from the closure of the transaction and the residential segment will be developed first and it will fetch a premium in terms of pricing.
With this transaction, did you become the largest real estate developer in Mumbai in terms of the project pipeline and its sheer value?
While we don’t have the ambition to be the largest, in the last three years, Lodha has significantly been the largest in Mumbai and somewhere between the top two developers in the country.
In the last three-five years, we have attracted and retained good talent and seen that money has been redeployed into our core areas of development and there has been no diversion of cash flows and no diversification into non-core businesses.
With this kind of growth, will Lodha still remain a Mumbai developer or do you have pan-India plans?
We have three projects under various stages of construction in Hyderabad but that apart, for the next three years or so, we intend to focus on the Mumbai metropolitan region. We strongly believe real estate is a local game and a lot of value can be added if you know the local market well. And focusing on execution gives you competitive advantage. Reaching the top is simpler than staying there.
Like most other developers, is debt a concern and while acquisitions have been robust by Lodha, are you happy with the way the company has delivered to customers?
On a consolidated basis, we have a debt of around ₹ 3,300-3,500 crore and if we do the debt-to-free cashflows ratio, we are more than comfortable compared to any other company.
We consider delivery to be in terms of both quality and quantity and we are not willing to trade off quality against quantity. Even if there is a delay of six-twelve months, we wouldn’t compromise on quality and we will not short-change our customers. Execution is a huge challenge in India and so we are not very happy where we are in terms of delivery, but I would say we are satisfied.
What would you say was the turning point and the milestones for the company?
Definitely, one of them would be when we bought ApolloMill for Rs180 crore, a big sum then, that everyone came to know about us. Then when everyone else wanted to develop office space, we decided to do residential.
The company’s growth has been rapid yet steady. We raised significant private equity capital and also bought the Wadala land from MMRDA (Mumbai Metropolitan Region Development Authority) in 2010 (for ₹ 5,053 crore).