How Godrej Prop is bucking the trend

At a time when large real estate developers are looking to exit projects and sell land to cut mounting debts and rising interest costs, Godrej Properties Ltd is betting big on its joint venture business model and brand name to drive growth.

“If it is another sluggish quarter, well, so be it!” executive director Pirojsha Godrej said. “We are setting ourselves up for a very strong medium-term growth.” Unlike its contemporaries who aggressively buy land to start new

projects, Godrej Properties has opted for the joint venture route, wherein it ties up with landowners and develops the property on a revenue-sharing agreement.

The company is able to lower its capital investment and to invest in more projects by opting for this route.

Godrej Properties has also entered joint ventures with some of its group companies who hold surplus land around their factories that can be developed into realty projects.

Under this arrangement, the developer (Godrej Properties) gets land to execute projects and the landowning company benefits from the expertise of the developer.

Godrej Properties is much less leveraged than its peers because of its different business model. As on June 30, the company had Rs340 crore debt on its books as compared with its peer Orbit Corp Ltd’s over Rs1,036 crore debt.

City-based Housing Development and Infrastructure Ltd has a debt of around Rs4,000 crore at present. DLF Ltd, one of country’s largest realty companies, is looking at restructuring its Rs21,524 crore debt. “In a weak market like today where most developers’ balance sheets are stressed, there isn’t that capital for them to go out and buy land,” Godrej said. “We are not actually buying land, we can tie up new developments with relatively low amounts of capital needs. So, I think, that is really what’s helping us and allowing us to grow even more in a weak market.”

Besides, the Godrej brand name allows the group company to dodge the problems that other realty companies face. “Customers, in an environment where they are reading about scandals and developers facing difficulties, have preference working with companies like us,” Godrej said.

The brand helps the company negotiate a borrowing cost around 300-400 basis points lower than market price, he said. .

The company has added eight new projects to its portfolio since April. It currently has 15.5 million square feet (msf) under development across 12 cities, and plans to add around 5 msf more by March, Godrej said.

Earlier this month, the company announced its most ambitious real estate development joint venture till date with its holding company Godrej & Boyce Manufacturing Co Ltd, which owns a vast land bank at Vikhroli in Mumbai.

“We don’t have an accurate assessment currently of what the total development potential will be,” Godrej said. “As you know Vikhroli estate owned by Godrej is truly huge, we don’t want to—at this point—give out numbers because we are not certain what the ultimate development area will be. It will be in tens of millions of square feet.”

The Godrej group reportedly owns 3,500-5,000 acre of land at Vikhroli.  NewsWire18