Nitesh Estates, the Bangalore-based publicly-held real estate company, is planning to launch six million sq ft of space in residential and commercial segments in the current financial year. The realtor is also in talks with few PE players to raise money on SPV level to fund future growth.
Nitesh Shetty, chairman and managing director of Nitesh Estates, spoke to Debasis Mohapatra about how the industry is able to manage tough times along with future plans of the company.
Real estate sector is once again in tough situation... Sales are dropping... realty players are not able to raise funds easily and even if they raise it is at high costs... How is the overall industry trend in the wake up a difficult interest rate regime along with an inflationary environment?
Rate hikes and inflationary environment are matter of concern for the industry. There was a momentum in demand that was built up during August, 2010 to January this year. This has tapered down but no substantial drop in the sales volume in this region (Bangalore) of the country has happened. However, rate hike is sentimental and people will wait till there is some easing in this front.
Is your operating margin under pressure due to an overall inflationary environment? And is there any drop in volume sales due to the current interest rate regime?
Our operating margin is not under pressure. We are one of the least leveraged companies in this industry with a net debt of only Rs 16 crore by end of March, 2011. Also, we are in no hurry to raise prices. As far as demand side is concerned, there is some dip in demand due to policy rate hikes post January.
However, it's not substantial and we have maintained momentum in the sales volume as most of our projects are in the premium segment. We have not increased our prices yet and will look at it if there is further rate hikes by Reserve Bank of India.
You are close to finishing an year after going public... How has been the pressures of meeting the expectations of the Street and how is the expansion panning out?
Post-listing, we have sold Rs 400 crore worth residential space and have launched four million sq ft of residential space during last fiscal. We should be launching six million sq ft of space in the current financial year in residential and office segment.
Also, in hospitality vertical, the Ritz Carlton hotel construction work has been completed and interior work in going on. We expect to launch it in the first quarter of 2012. In retail vertical, plan approval process is going on and leasing has begun in the upcoming mall project in Bangalore. That should hopefully be ready in two and half years. Apart from that we have entered into three -four joint venture developments in Bangalore and Chennai. We hope to start residential projects soon on these land parcels.
What is your sales target for the current fiscal in the residential space?
Last fiscal, we have sold 801 residential units and we aim to sell over 1000 units in the current fiscal. This will translate to around 1.5 million sq ft of space in residential vertical.
What is the rationale behind buying out 50 per cent stake of HDFC Property Ventures in your upcoming mall project in Bangalore?
We bought 50 per cent stake from HDFC property ventures and own the property completely as we see value in this retail project. While mall property will be around Rs 600 crore, this will give us around Rs 60 crore of rental income annually. From a long-term perspective, a retail project will give a complete look to our portfolio.
Will some PE players come on board on SPV level in any of your projects in the future?
We are in talks with couple of players and there is a possibility of roping in of some PE players on SPV level. We have aggregated bunch of residential projects and try to float a SPV where some players will come in. However, any thing concrete is yet to evolve in this space. Parallely we are in discussions to raise debt of Rs 300 crore.
Nitesh follows joint development (JD) model to set up new projects. Will you enter into any JD in the near future? Also, How will recent proposal of Karnataka government to raise duties on JD projects impact you?
This is a continuous process. As we talk, we are in discussions with many land owners to enter into JD for five to six projects. Most of these projects will come in Bangalore. As far as duty hike on JD project is concerned, there is a lack of clarity on this issue and we expect to hear something from the government soon.
Which is the next growth spot for Nitesh in the future?
While we will focus on all our verticals, the company is betting big on retail segment. We are coming up with a retail asset of 1.3 million sq ft in Bangalore and is planning around 1.9 million sq of retail space in the future. Presently, we draw around 75 per cent of our revenue from residential and rest from commercial space. Going ahead, we should draw a minimum of 15 per cent revenue from retail verticals.
