Unitech Ltd, the other star in the realty firmament whose shine seemed to have faded is ploughing its way back. Unitech managing director Sanjay Chandra explains how exactly in a special interview with CNBC-TV18. Edited excerpts:
I was a bit surprised that you only raised $325 million because you had a book of $1 billion. Were you not tempted to raise more?
Actually when we went out to raise the capital, we were looking to raise anywhere between $200 and $250 million. The response was so large that we got a demand of over $1 billion. So we discussed it with the key investors and finally concluded to retail the size to about $325 million because that was also quite an upsize from the initial deal size.
What was it, fear of dilution, because the equity money is not easy to come by nowadays?
It was our strategy. We started working on it much prior to all of this. We were looking at overall fund raising of $500-600 million from private equity at project levels, selling off non-core assets and equity dilution. When we went for the equity raise, we felt $200-250 million was sufficient but we saw a demand which was far more so we upsized it to be able to do that because now what we are seeing is that assets sales are happening at better valuation today because no longer are we perceived to be in distress.
People don’t perceive that you are in a corner anymore?
No, that’s one thing that came out good from both the equity raise and other fund raising process. We changed our business plan a lot. We started focusing rather than land banking from the capital intensive side to actually banking on the land.
So a couple things were that we could sell land but there were not enough buyers.
Developers have enough of their own land so they really wouldn’t buy land. So the only exits which we had was to price our product in a way that it sells very fast. So what we did was we redesigned most of our product portfolio from luxury to relatively affordable to affordable, reduce the apartment sizes, reduce the prices in a sense we got our ticket prices of the product we are selling down by over 50%.
Is that right because the general perception is that you only reduced the prices by only 15 to 25%?
Prices have been reduced by 25%. But we have reduced the sizes of the apartments also, so now we are catering to a far larger market size. For instance in Gurgaon our cheapest product was for Rs70 lakh, now we’ve got Rs29 lakh, Rs28 lakh product also. So now the speed of sales of these products have been phenomenal. Last 45 days we have booked new property of residential of over 2 million sq. ft. Just to give you a perspective, from October to February we would have only booked 100,000 sq. ft because that’s how bad things were in that period.
2 million at an average realization of?
Rs. 3,000.
And this is across which geographies?
One project in Gurgaon and one project in Chennai. So similarly we are launching new products in various markets at price points where we are trying to be 20 to 25% lower than the market prices around, as well as offering sizes that are not available in the market which is opening a whole new customer base.
Do you think you will manage to deliver the kind of targets you are talking about?
We are launching about 30 million sq. ft of new projects, in the least we expect to book about 20 million sq. ft of that. In the last 45 days itself we have achieved 2 million sq. ft itself just out of 2 markets, but every new market takes us a few more months to establish. What we have realized is that we need to price it to see it move. As developers we were focusing on the luxury market, but we had enough product that we could have been a Wal-Mart. Now we need to sell to the masses so we need to price our product accordingly and not go after the margins, margins will come down but return on equity can be much faster, with today’s cost of capital.
So your focus is firmly on cash flows right now?
What we want to focus on is rather than realization per acre, cash flow per acre. We want to convert the land into cash receivables.
How much will you end up delivering or constructing by the end of this fiscal do you think?
About 9 to 10 million sq. ft will be delivered this year.
You will be able to sell it?
Yes.
Are you sure about that?
The bookings will be far more, but this is the past product that is being delivered now. This actual 20 million sq. ft that we book now will be delivered in the next two or two-and-a-half years.
And the blended realization would be about roughly 3000?
Yes it will become high because of Mumbai. NCR is about 3,500-3,600, Calcutta would be 2,500, south where Chennai has the first initial launches we have sold 1200 apartments in the last one month, our realization is about 3,100.
So what will you margin profile come down to?
Margins will still be about 40%. Our land costs are on an average about Rs 200 per sq. ft. Our construction cost depending on the product would be Rs 1300-1500 per sq. ft. So its still healthy margins, earlier they were very healthy.
So what will you end up this year in terms of profits?
I think we will stay away from those numbers because we don’t give guidance but profitability will be down because of costs of capital and interest costs, etc. But I think the worst is behind us.
About asset sales, were you talking about ready property or other assets like hotels from which you need to raise cash from?
It’s hotels, some commercial office buildings and also ready properties. In every project of ours in the past what typically happens is that there are 500 apartment complex, you sell 450 and go on to the next project, you have left overs everywhere. The inventory is pretty substantial and those are ready to move in. Hotels are moving pretty fast, we sold one and the other one we should be close to finalizing within this next month or so. We should net Rs450 crore between the two hotels. We have a target of Rs1,600 crore from asset sales by March.
How much more cash do you need to breathe easy on your balance sheet?
Our peak debt was 10,500 crore, it became 8,500 recently, pre-QIP (qualified institutional placement). Now post QIP and some of these assets sales we think we will be able to achieve 6,000 to 6,500 crore, which is comfortable level but still intend to take it down to 4,500 to 5,000 crore.
That’s still high debt, interest chargers are close to Rs1,000 crore.
It was Rs1,000 crore, pre- all that, now average blended charges would be Rs750-800 crore for this year.
After paying Rs800 crore interest you will generate 18 crore net cash flow?
Yes.
So you don’t need to dilute any more equity?
No. No equity dilution needed at all. As a company we need to concentrate on launching affordable projects which move fast. I think the best thing for us to do is bank on the land which we created.
You think you need to cut prices further?
I think the prices are set, but I don’t think we will increase our prices substantially. We have cut them enough to excite the customers.
Has Unitech seen the worst?
Yes, it has. We have worked towards dispelling all that. We are concentrating on a much larger market than two years ago. Our fresh bookings are higher and the volumes are a lot more.
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