BEL will now offer apartments in the Rs10-26 lakh price range, which will provide greater visibility in the residential segment where it has been a premium player in the Rs50 lakh and above segment. In fact, corporate real estate players’ entry into this segment is a trend visible since the real estate sector bottomed out around six months ago. Unitech Ltd. recently announced “Unihomes" in the lower-end residential market, while DLF Ltd too is reckoned to be considering the same.

Why the shift to lower value-added segment? Given that the time taken from concept to completion of a project is less than in the premium segment and that they are more need-based purchases, a recovery in real estate could translate into faster revenue accretion. In other words, such projects churn out better cash flows for a company. According to a senior BEL official, “the value home component will comprise 20% to 25% of our product mix over the next 4-5 years, as against effectively 0% now." The company has a land bank of around 30 million square feet (sq ft). The move will also add to the company’s brand presence in a wider range of offerings.

An analyst from an institutional research and broking house explains that BEL’s strength over its peers is its excellent quality of land bank, with roughly 40% percent of the gross asset values (GAV) accruing from two premier projects (Gateway and Metropolis) in Bangalore. Both these projects are close to completion with around 80% of the apartments already sold. Unlike most of its industry peers, BEL has not raised funds through the QIP route to repay debt. It has a healthy debt:equity ratio of 0.6 (FY09).

However, its plans to sell a stake in its wholly owned subsidiary which is in the hospitality segment is yet to fructify. The plan is to raise around 350-500 crore which will be used to refurbish and construct its hotels in various cities. BEL’s strong brand visibility in the corporate realty segment and relatively smaller scale of operations compared to DLF and Unitech, will see faster accretion to revenues and profits. During FY09, its net revenues had fallen to 95 crore from 07 crore in the previous year. Revenues for the quarter ended September 09, grew sequentially by 28% to 4 crore, although it was down from the year ago period.

BEL will ramp up delivery capabilities from 2.5 million sq.ft. per year to around 4 million sq. ft per year. Revenues from the hospitality business, too, will come in from FY10 which will give a fillip to the consolidated income. Company guidance is that revenues should touch Rs1,000 crore by FY2012. Operating profit margins which had dropped to an all-time low of around 15% in 2009, should double in FY10 and improve further over the next two years. A report by Motilal Oswal Financial Services Ltd indicates a 32% growth in revenues and 25% growth in net profit over the next two years. The stock trades at around Rs135 on the National Stock Exchange. Given the robust balance sheet, revenue expansion will imply direct improvement in net profit, makingit a safe bet to ride an upswing in realty.

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