Murali M, Chairman and Managing Director, Shriram Properties Ltd talks about MoU with LOGOS, execution timelines, land parcel available with the company, township project, ‘Shriram Grand City’, project pipeline, input cost pressure, capital and debt situation of the company among others during an exclusive interview with Swati Khandelwal, Zee Business. Edited Excerpts:
Q: Shriram Properties Limited and LOGOS have entered into a Memorandum of Understanding (MoU) for a potential sale of up to 90 acres of land in Kolkata, which will be developed into a Warehousing and Logistics Park by LOGOS. Please update us about the deal and will it have a revenue-sharing model?
A: This is a large township we are developing at a place called Uttarpara in Kolkata. It bought out Hindustan Motors car manufacturing unit, it is a township that is coming up. We have close to around 5,000 apartments under construction in this location, now. This project was inaugurated by the Honourable Chief Minister Mamta Banerjee four years ago. Phase-I of the apartments, 600 units getting delivered in May. The project has progressed very well. Out of the 314 acres of the township, we are developing about 45 acres of apartments, currently under construction, about 90 acres of land, we are looking at developing a warehousing and logistics park in partnership with LOGOS. As you know LOGOS is a large player in warehousing and logistics and they have chosen this place. We have chosen them to be a partner in developing this warehousing and logistics park. So, they will develop about 90 acres development and are they expected to invest around $100 million, this is an estimate given by them. So, they are going to develop this as the warehousing and logistics park in this park.
Q: How Shriram Properties will be benefitted from it and what kind of revenue sharing is about to happen in it? Also, what is the cash that you are getting from this deal and how it will be used?
A: This development will enhance the overall micro-market in this location. We have already around 5,000 units under construction now. This warehousing is another industrial activity which is coming up in this micro-market that will enhance and uplift the entire area in this micro-market. Thus, it will benefit us in price appreciation and also a faster sale of apartments in the future to come in. We have applied to develop another around 10 million square feet in this location as residential apartments. We also plan to do shopping malls, some office space, schools, and hospitals for their community. This deal with LOGOS by they doing the industrial township warehousing and logistics park, which will enhance the micro-market. And, also, this will help the local to get big environment.
Q: But how much cash are you getting from this deal?
A: This will be a development over a while in the next three to three-and-a-half-year. We expect to get more than Rs 200 crore in this transaction.
Q: Is this the cash amount or total revenue?
A: It is only the cash. The revenue that the project is likely to generate is much larger. LOGOS intends to develop close to about two-and-a-half million square spaces, which is of much higher value. As I said, it will be about Rs 1,000 crore in value and will also generate a lot of employment in the local market, which is likely to generate another 5,000 employment in the micro-market area.
Q: What are the timelines for the deal?
A: The development of the warehousing should kick start during this financial year, maybe, the first building could be completed in FY23 or early FY24 and that is the plan that LOGOS has got. The government has been very very extremely supportive in bringing industry and new investors into Kolkata. In fact, we approached the government about this, the government proactively took a lot of steps in making sure that this kind of development is taking place in Kolkata in our project sites. So, I would like to thank the government for its support in making sure that the investors are making good progress in it.
Q: So, can we expect that a few more such deals will be seen in the future with some other groups?
A: This is the first development in which we got into warehousing and logistics developments. LOGOS will be our long term partner and they are also looking at expansion in other cities. As you know that we have a presence in other cities like Bengaluru, Chennai, and Hyderabad, so, we may expand this partnership in other cities also in the time to come.
Q: Any timeline for it?
A: No, there is no specific timeline for it as you know that getting large land parcels is difficult but we started putting a team on getting the land now. LOGOS has been a great partner and we expect to take this relationship much deeper and stronger.
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Q: Other than LOGOS, is there any other company with which talks are on?
A: On warehousing and logistics, LOGOS is the one. On the other hand, Blackstone, Hiranandani has been talking to us but currently, there is no big plan. However, we are open to large partnerships.
Q: How many land parcels the company has with it at present all across the country and how much of the same will be developed this year? Also, how much land do you have in terms of your projects coming up in the next two to three years on stream? Do you have further land parcel acquisition plans on the radar?
A: As a company, we don’t own big land parcels. This is the only parcel of land that we owned other than small parcels in Chennai and Bengaluru. As a company we have focused on the asset-light model right from day one, so, we have got lots of joint developments and projects under development management and that has been our core strength. Last year, we did 4.37 million square feet pre-sales, this year we hope to do about 4.50 million+ square feet pre-sales. So, we are looking at aggressive growth and expect to grow 25% CAGR for the next three years time. We have huge plans for the next two to three years times.
Q: You have said that you are developing an integrated township project, ‘Shriram Grand City’, on 314 acres of the land parcel owned at Uttarpara in Kolkata. How much of it will be used for residential and what for commercial and what is its status at present?
A: In terms of residential, 4.50 million square feet us under construction now. We expect to do another 10 million square foot development in this location. Other than warehousing, we also have close to about a million square feet for commercial and we have someplace for schools and hospitals plus other amenities. It is a large township.
Q: Can you please let us know about the other projects that will come on stream in FY23 and the cities where more actions will be seen? Also, do the company has plans to go beyond the states where it is present at present?
A: We are not looking at pan-India. We would like to deepen our position in markets where we are already operating. We have a large presence in three cities namely Bengaluru, Chennai and Hyderabad and we would like to deepen further and further in these markets. We expect the market to provide tremendous opportunities in the cities where we operate. Here we have a very strong pipeline for the next three years and during that time, we did not need to look for projects outside today. We have lots of projects in our portfolio. So, the current portfolio in itself can take up more than 25% CAGR growth for the next three years. Hence, we would like to focus and consolidate in the regions where we operate and we do not look at other cities at this point. We could look at Pune sometime later.
Q: Input cost pressure has increased a lot in the last some time and commodity prices like cement and steel among others, have also surged. What is your view on those prices and how will it impact your margins? Do you have any price hike plans in the recent future and have you taken any price hikes in the recent past?
A: It is a bigger problem that we have. The price increase in the last two quarters has been a major concern. I anticipate the price increase to move further up will continue to grow in FY23, which is also going to be a concern. So, we have to address how to deal with this. Because of the demand increase across the markets, we have been able to increase the prices. Last year also, we increased the prices a little bit and this year we anticipate the prices to go up by at least 10%. If not, it could also be by 15% but 10% is the rise that I anticipate and we are geared up for price increases across all of our projects.
Q: What would be the timelines for this increase?
A: Q1FY23 onwards. We have already given price increases in some of our projects as of now. In Q1FY23 and Q2FY23, we will increase the prices and that is the only way because of the demand not because of anything else. The demand has been good. The market has gone through serious consolidation and today that consolidation is something that is helping large branded developers like us. Consolidation is what is helping us.
Q: How are your working capital situation and debt situation of the company at present? The deal would have bettered the projections but what kind of prospects will you have when it comes to acquiring more land parcels and what is your focus on financials?
A: We are one of the very low debt-equity ratio companies in real estate. Our net debt is only 0.3% compared to the competition, we are the lowest in terms of debt-equity ratio. All these cash flows which are coming up in FY23 will help us to reach 0.8% from 0.3% and that is what we are looking at. In FY24, we expect to be debt-free from the current position today. Whatever, the current projects are under construction now will become debt-free unless new projects and new debts are there. Otherwise, we expect to be debt-free from the cash flows that are being generated from the projects.