Kaveri Nandan: An unlikely real estate king

BACKSTAGE

This is the largest ever foreign investment in the country's rapidly growing real estate sector. Emaar will invest $ 500 in the venture, while MGF will pump in the remaining $ 333 million.

Out of the blue, this has catapulted MGF's little known chairman, Ved Prakash Gupta, into the top echelons of the Indian real estate business. None of the country's top builders had managed a coup like this. Emaar, after all, is no small fry.

Listed on the Dubai Financial Market, Emaar has a market capitalisation of $ 9.5 billion. It accounts for 5.7 per cent of the Dow Jones/DIFC Arabia Titans Index, which represents the 50 blue-chip companies in the region. It reported a profit of around $ 460 million for the year ended December 31, 2004. Emaar has been associated with large projects like the Burj Dubai Tower and the Dubai Mall, the world's largest shopping and entertainment complex. Emaar also owns Dubai Bank.

Now, Gupta, an octogenarian, is Emaar's partner in India. As the family patriarch, he still heads the Rs 500 crore group. But the day-to-day operations are handled by his son, Rajiv, and his two grandsons, Siddharth and Shravan.

The family is well-known in the society of the capital's old business families. Beyond that, it keeps a low profile. The Guptas are known as serious players in the real estate market, though much smaller in size as compared to the big daddies of the business like the Hiranandanis or the Ansals. But the Emaar association could alter all of this.

For Gupta, it was the high watermark in a long journey that began in 1930 when he set up Motor and General Finance Ltd to enter the risk-laden business of hire purchase of automobiles.

But the first mover's advantage was his: the first vehicle bought in India on hire purchase was financed by MGF Ltd. Since then, the total number of vehicles financed by MGF is close to 2,50,000 including trucks, tractors, pickup vans and cars.

In 1987, MGF set up a joint venture called India Lease Development Ltd with the International Finance Corporation, the private sector lending arm of World Bank. Then it formed another joint venture called Citicorp Credit Services India Ltd, India's first factoring company in the private sector, in association with Citicorp Securities and Investments Ltd.

In 1997, MGF established its third joint venture for consumer finance with Avco Financial Services of the US, a Fortune 500 company. Over the years, MGF also picked up automobile dealerships for various companies including Hyundai, Toyota and Volvo.

A few years ago, MGF decided to diversify into real estate. Says Gupta's grandson and MGF developments director, Shravan Gupta: "The margins in our traditional business of financial services have shrunk and eroded down the years. We are getting the usual 15 to 20 per cent growth from it. Our focus is now real estate." The group's first project was a shopping mall in Gurgaon. Coming next is the Metro Khyber mall in Delhi.

"For us, there is a method to this madness. Our malls are well planned, situated only at prime locations and have shops of only leading brands. Shopper's Stop and Life Style will be the anchor stores for Metro Khyber Mall, along with 30 to 35 other smaller retailers. All our projects are undertaken only after extensive market reasearch," says a confident Shravan. The Rs 200 crore mall will have a six-screen multiplex, food courts, 10 speciality restaurants, a large hypermarket, department stores and an auto mall.

For the joint venture with Emaar, MGF has committed an investment of $ 333 million (Rs 1,500 crore), though the group's turnover is only Rs 500 crores. The cash flows would be even smaller. How will the group meet its investment commitments? Will it encash its 40 per cent stake in the venture at a hefty profit soon? These are questions others in the real estate business are asking. On their part, the Guptas say they will make the investments out of internal accruals and debt. Sceptics aren't convinced.