Merrill Lynch has downgraded the realty sector. It expects Mumbai residential prices to fall 15-25% very soon. However, Adi Godrej, chairman and managing director of Godrej Group doesn’t expect prices to ....
Merrill Lynch has downgraded the realty sector. It expects Mumbai residential prices to fall 15-25% very soon. However, Adi Godrej, chairman and managing director of Godrej Group doesn’t expect prices to come down much in Mumbai. “In commercial, there is a bit oversupply, but not in residential.”
In an interview to CNBC-TV18, Godrej said, he sees strong growth in reasonably affordable residential properties in India.
Excerpts from Midcap Radar on CNBC-TV18 Watch the full show »
Godrej Properties has entered into an agreement with Godrej & Boyce (G&B). According to him, Godrej Properties will leverage very strongly on this agreement into the future.
Also read: GPL enters into agreement with Godrej & Boyce
Below is the edited transcript of his interview with Latha Venkatesh and Gautam Broker. Also watch the accompanying videos.
Q: Your announcement has been greeted with a bit of trepidation by some of the investors. They point out that Godrej Properties is already developing a 36-acre land parcel in same location with Godrej & Boyce and there is it getting a developer with a 60% profit share. Therefore, there is a bit of a disappointment with this 10% revenue share. What is your view on this?
A: First 35 acres that is being developed is a joint venture between Godrej Industries and Godrej Properties. It’s not with Godrej & Boyce. Godrej & Boyce has a long lease given to Godrej Industries on that land and that is being developed with Godrej Properties. So, the sharing is after the lease rent is paid to Godrej & Boyce.
The new agreement will cover hundreds of acres which will be developed over the years. And the great advantage for Godrej Properties to get a revenue share is that it won’t have to lock up funds in the development. In the 35-acre development, the funds will be locked up by Godrej Properties.
In the new agreement, over the years, the funds will be invested by Godrej & Boyce. Godrej Properties will get 10% of the revenue. The other was 60% of the profit, this is of the revenue. So, I think this is a tremendous agreement for Godrej Properties for two or three reasons.
One, Godrej Properties has tremendous opportunities across the country in joint venture developments. The only constraint in Godrej Properties will be financial ability. So, having this huge development of hundreds of acres taking place without any investment will be a huge plus for Godrej Properties.
To my mind, if you look at the present value of this deal, it exceeds the current market capitalisation of the company. I think investors and analysts have not fully understood this deal well. I will be very happy to clarify it with them individually as the case goes.
Whilst this will be developed over a period of time, prices are also likely to rise over a period of time. And this is a percentage of revenue. So, as prices rise, the revenue, the 10% revenue will also rise. To my mind, Godrej Properties will leverage very strongly on this agreement into the future.
Q: So, you are essentially saying that you did not get into an agreement similar to what you had got into with Godrej Industries is to keep your balance sheet light and not add leverage to the balance sheet. Was that the rational of doing a revenue shareing one?
A: Yes. That’s very important. Because if we had done a profit sharing deal where the investment was made by Godrej Properties then we could have done not too much outside of Vikhroli. Now, we can do a lot outside of Vikhroli. There are tremendous opportunities all over the country. We are already in about 12 cities of the country. So that will continue very strongly. This will add without any financial commitments.
Q: Can you tell us now about the Ahmadabad property? Can you give any revenue indications?
A: I don’t have the numbers, but that development is going out strongly. I think we are in the fifth phase of the Ahmadabad development. That is continuing.
We have added six new projects in this year. One in Gurgaon, this is our second project in Gurgaon. One in Chembur, it’s again Chembur in Mumbai which is also our second project in Chembur.
We have finalised two joint ventures with Godrej & Boyce, one in Hyderabad, one in Thane. We have finalised a major agreement in Nagpur. And ofcourse a major Bandra Kurla in Mumbai joint venture with Jet. So, our projects outside of our Vikhroli land are going very strongly ahead.
Q: Let's discuss a bit more about this deal that you have signed with Godrej & Boyce. Some of the analysts are pointing out that the sales and marketing cost in this agreement would be roughly 5% and in contrast you would be getting about 10% of revenues. Can you share with the analysts how much more revenues traction can you see from this deal? What the potential of this deal is?
A: I don’ think the cost of marketing will exceed two percentage points. The rest will go straight into our bottom-line because there will be no other costs other than those marketing costs. Remember these are high value large projects.
We have already announced one of them, the first residential project, of 6 lakh square feet. We opened it up for booking yesterday, on Dussehra. We sold 15 flats on the very first day. Now, we feel that this will go straight into the bottom-line.
This development is of hundreds of acres. It will take several years to complete. But the profits per acre will keep rising because the valuations will also rise. It’s a percentage of revenue. So, to my mind, the present value of this deal is tremendous.
I have seen some analyst reports and I feel that they have not understood the importance of this deal for Godrej Properties. All the finances for this Vikhroli development, which will be thousands of crore over the years, will be invested by Godrej & Boyce.
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Merrill Lynch has downgraded the realty sector. It expects Mumbai residential prices to fall 15-25% very soon. However, Adi Godrej, chairman and managing director of Godrej Group doesn’t expect prices to come down much in Mumbai. “In commercial, there is a bit oversupply, but not in residential.”
In an interview to CNBC-TV18, Godrej said, he sees strong growth in reasonably affordable residential properties in India.
Excerpts from Midcap Radar on CNBC-TV18 Watch the full show »
Godrej Properties has entered into an agreement with Godrej & Boyce (G&B). According to him, Godrej Properties will leverage very strongly on this agreement into the future.
Also read: GPL enters into agreement with Godrej & Boyce
Below is the edited transcript of his interview with Latha Venkatesh and Gautam Broker. Also watch the accompanying videos.
Q: Your announcement has been greeted with a bit of trepidation by some of the investors. They point out that Godrej Properties is already developing a 36-acre land parcel in same location with Godrej & Boyce and there is it getting a developer with a 60% profit share. Therefore, there is a bit of a disappointment with this 10% revenue share. What is your view on this?
A: First 35 acres that is being developed is a joint venture between Godrej Industries and Godrej Properties. It’s not with Godrej & Boyce. Godrej & Boyce has a long lease given to Godrej Industries on that land and that is being developed with Godrej Properties. So, the sharing is after the lease rent is paid to Godrej & Boyce.
The new agreement will cover hundreds of acres which will be developed over the years. And the great advantage for Godrej Properties to get a revenue share is that it won’t have to lock up funds in the development. In the 35-acre development, the funds will be locked up by Godrej Properties.
In the new agreement, over the years, the funds will be invested by Godrej & Boyce. Godrej Properties will get 10% of the revenue. The other was 60% of the profit, this is of the revenue. So, I think this is a tremendous agreement for Godrej Properties for two or three reasons.
One, Godrej Properties has tremendous opportunities across the country in joint venture developments. The only constraint in Godrej Properties will be financial ability. So, having this huge development of hundreds of acres taking place without any investment will be a huge plus for Godrej Properties.
To my mind, if you look at the present value of this deal, it exceeds the current market capitalisation of the company. I think investors and analysts have not fully understood this deal well. I will be very happy to clarify it with them individually as the case goes.
Whilst this will be developed over a period of time, prices are also likely to rise over a period of time. And this is a percentage of revenue. So, as prices rise, the revenue, the 10% revenue will also rise. To my mind, Godrej Properties will leverage very strongly on this agreement into the future.
Q: So, you are essentially saying that you did not get into an agreement similar to what you had got into with Godrej Industries is to keep your balance sheet light and not add leverage to the balance sheet. Was that the rational of doing a revenue shareing one?
A: Yes. That’s very important. Because if we had done a profit sharing deal where the investment was made by Godrej Properties then we could have done not too much outside of Vikhroli. Now, we can do a lot outside of Vikhroli. There are tremendous opportunities all over the country. We are already in about 12 cities of the country. So that will continue very strongly. This will add without any financial commitments.
Q: Can you tell us now about the Ahmadabad property? Can you give any revenue indications?
A: I don’t have the numbers, but that development is going out strongly. I think we are in the fifth phase of the Ahmadabad development. That is continuing.
We have added six new projects in this year. One in Gurgaon, this is our second project in Gurgaon. One in Chembur, it’s again Chembur in Mumbai which is also our second project in Chembur.
We have finalised two joint ventures with Godrej & Boyce, one in Hyderabad, one in Thane. We have finalised a major agreement in Nagpur. And ofcourse a major Bandra Kurla in Mumbai joint venture with Jet. So, our projects outside of our Vikhroli land are going very strongly ahead.
Q: Let's discuss a bit more about this deal that you have signed with Godrej & Boyce. Some of the analysts are pointing out that the sales and marketing cost in this agreement would be roughly 5% and in contrast you would be getting about 10% of revenues. Can you share with the analysts how much more revenues traction can you see from this deal? What the potential of this deal is?
A: I don’ think the cost of marketing will exceed two percentage points. The rest will go straight into our bottom-line because there will be no other costs other than those marketing costs. Remember these are high value large projects.
We have already announced one of them, the first residential project, of 6 lakh square feet. We opened it up for booking yesterday, on Dussehra. We sold 15 flats on the very first day. Now, we feel that this will go straight into the bottom-line.
This development is of hundreds of acres. It will take several years to complete. But the profits per acre will keep rising because the valuations will also rise. It’s a percentage of revenue. So, to my mind, the present value of this deal is tremendous.
I have seen some analyst reports and I feel that they have not understood the importance of this deal for Godrej Properties. All the finances for this Vikhroli development, which will be thousands of crore over the years, will be invested by Godrej & Boyce.
more info