Ansal API says land cost, risk very high in Mumbai

Ansal API, the New Delhi-based real estate company, built the first mall of the Northern India in South Delhi apart from constructing several housing and office complexes in the central business district. Anil Kumar, the chief executive officer of the firm, spoke to Vivek Seal about how the real estate market is doing after the slowdown and how the company would handle the mounting debt on its balance sheet. Excerpts from the interview:

How is the luxury housing doing, since that segment suffered the most in 2009?
The luxury market has really picked up in the last 3-4 months, and in the mid-segment, especially the areas such as Gurgaon, there is ample demand. Even in areas such as Noida and Greater Noida, demand is really picking up because of the development in that area. Banks have started releasing loans, income levels of customers have started to increase and there is stability in income. As prices are now going up, people have started investing in the real estate sector. In any case, the luxury market is no more than 5% of the total market and in value terms it would be 15-20%.

How are you bringing in customers to your projects?
What we are offering to our customer is no EMI scheme that is subvention scheme in which for 2-3 years or till the time the house is handed over to the customer, we will pay the interest portion of the loan. Now, after three years and completion of the project, in consultation with the buyer, I can put the house for rent and that rental income would take care of the installments. We have followed this model for our project in Gurgaon’s Esencia and the response has been very good. Now, what we gain from this is, I get 70% of the project cost upfront at a lower borrowing cost, as customers advances would be considered as home loan and this will help me reduce the average borrowing cost for the company. Borrowing at 8% is much better than borrowing at 14.1% and even my debt equity ratio is not spoilt as the loan would not be on my books. We will follow a similar model in Lucknow and Mohali.

What about commercial projects?
Commercial is picking up, but retail is a bit slow. The commercial building leases are seeing some positive upside, but IT parks are still recovering. About 10% of our sales come from the commercial segment. Overall, our sales in the last fiscal was about Rs 800 crore and we expect to grow substantially this year with cash flows improving significantly. Now, we launched many projects last year, but we recognise revenue via the point of completion method (POCM) in which we start recognising revenue when the construction is over 30%. Those projects would now start contributing from this year onwards.

Several analysts have said that you may face cash flow problems and expensive debt, what is your view on that?
We have no problems relating to our cash flows and it has doubled in the last 4-5 months to Rs 95 crore, and with subvention scheme in place you can expect this to go up very soon. I do not see any problems in paying debt and interest. We are also working on refinancing a major chunk of debt or paying it off completely.

Would you raise funds through preferential allotment of shares to pay off debt?
We have raised money through this route twice, but have used just 10% of it to retire debt and rest has been used to complete projects as those cash flows would help us to cut debt. Promoters currently hold 56% so if we want we can offload 5% more stake, but there is no definitive plan to dilute stake, however, we are ready if the opportunity arises.

Are you looking to get into the Mumbai market?
No, I know many developers are venturing into that market but we would concentrate only in Punjab, Rajasthan, Uttar Pradesh, Haryana and Delhi. We have enough to do here, got our plates full and have projects worth Rs 55,000-70,000 crore in these regions alone. I do not think Mumbai makes a good choice for us at the moment as the land cost there is very high with high risk.