Godrej Properties to launch 10 projects in Q4, the highest in any quarter ever: Pirojsha Godrej

has completed a QIP of Rs 3,750 crore. What do you plan to do with these funds? Are there any plans for expansion?
The objective of the fund raise is to pursue rapid growth. We believe the residential real estate sector in India is poised for fairly dramatic growth in the years ahead and we are fairly well placed to capitalise on that. The sector is also consolidating quite rapidly with leading players gaining market share. Despite being the leading residential developer in the country now, we estimate our market share is something like 2% which speaks to us about the opportunities for growth there. So the capital will be put to source land either through joint ventures or outright purchases and will greatly help us scale up the business over years.

You have gone for a slight change in business model. Earlier, you had an asset light model and more asset managers and executor of projects. Now you have started purchasing land. Do you think a blended model is much better going forward?
Yes for now we would like to pursue the blended model with some joint ventures as well as some outright purchases. What has allowed us to consider buying land which we historically have not done is that we do see valuations at an attractive level, given the stress the industry has undergone over this down cycle over the past eight years.

We think there are good land deals in the market and cycle. We will be developing most of these projects that we acquire now and it is likely to be a much stronger cycle. Already over the last six months, things are getting better. We expect to see that trend continue over the next few years and therefore land acquisitions that we do now will be quite value accretive for the company. That is why we specifically timed this capital raise during this period because we see an opportunity in the next 12 to 18 months where land values will continue to be reasonable while property sale volumes will increase. Beyond that period, it is quite likely that land markets will start tightening as well. So our hope is to fully build up a development portfolio that we need over the next seven or eight years during this window of time.

Which regions do you earmark for yourself and where do you see good growth and good valuations?
Over the last few years, we have been focussed on the top four real estate markets in the country which are, Mumbai, Delhi NCR, Bangalore and Pune. Each of those markets is a very large opportunity in its own right and our market share in each of these four markets, despite being among top three players, is still in the low to mid single digit. We think there is a huge opportunity to scale up presence in these markets. Cumulatively, they account for over half the value of real estate sold in India and therefore we would be addressing a large part of the overall opportunity. The idea is to double down on that strategy and continue to strengthen our presence in these four markets. We may also consider entering a new market like Hyderabad where we see quite positive dynamics but most of the investment will be within these four cities.

Your launches are among the very few that take off very well. What is the sense you are getting from the consumer end for demand as the economy went through an unprecedented shock. What is the feedback from your own sector?
This sector has rebounded faster and stronger than anyone would have guessed. The first quarter of the financial year was quite a challenging period for the sector as a whole with construction coming to a half as most buyers wanted to wait it out. But already by the third quarter things were improving quite meaningfully, construction work was on at full swing. We had a higher numbers of labour onsite by September than we did pre-Covid. Over the last two quarters, demand has also come back very strongly. Our own sales in Q3 grew 25% year on year. We expect similarly robust numbers in the fourth quarter and that is true of most of the major listed players in the country. Customers are preferring to buy from stronger developers who do not have concerns from a delivery perspective.

The overall industry is exiting a long downturn from 2012-2013. Over the last six months, the next leg of the cycle has begun and that will continue to play out with stronger volumes and hopefully some pricing movement as well over the next few years.

You are from an industry which is dealing with costlier raw materials as prices of steel, cement and other materials are going up. Are you or the sector being able to pass it on?
We expect that through the cycle, we will have the ability to pass this on. The real estate cycle typically starts with the recovery in volumes which is what we are seeing over the last six months but after that, typically prices start moving up. In India, fresh supply creation has been abnormally low over the last three or four years because most developers have been focussed on managing their current liquidity issues or monetising their existing projects and did not have the capacity to invest in new projects. That is going to show up in the market’s supply dynamics over the next couple of years.

Demand picking up will lead to a situation where it is more favourable to the supply side from a pricing perspective. Again there is nothing revolutionary about it but it is a typical real estate cycle. When things are bad, supply gets constrained. When demand starts coming back, there is a period of under supply and the reverse happens. One of the challenges of this sector is that from a supply perspective, it takes quite a bit of time to react.

What kind of inventory are you sitting on right now on the basis of your recent launches in different geographies?
Our inventory is at an all-time low at the moment. We are well over 80% sold at the moment which to us is an indication that we are being able to successfully monetise the projects we are bringing into the market. The key focus of the company will be to enhance the number of launches. We think the current quarter will be a quarter where we have launched more projects than in any other quarter in the company’s history. We expect FY22 to similarly be a robust period for launches and to ensure that that sustained momentum can be maintained through business development which in turn will be supported by this QIP we have just completed.

Not only is your stock very high quality investment grade, but your products also are very high quality investment grade. What are the launches you have lined up?
We are trying to get done 10 launches just this quarter. We have an exciting project in the heart of Noida in sector 43, we have a project in Mumbai in Chandivili. We are in the process of launching a plotted development in Bangalore.