Realtors bet on contract work to stay afloat

Realtors bet on contract work to stay afloat
The Economic Times, February 05, 2009, Page 5

Ravi Teja Sharma & Sanjeev Choudhary

AS REAL estate downturn deepens, some realty companies are hoping to stay afloat with increased focus on contractual projects. Companies see the contribution of such contractual works to significantly rise in their overall revenue. However, analysts feel a downturn may slow the pace of contracts as well.

“We will aggressively seek contractual construction projects,” said Parsvnath Developers chairman Pradeep Jain. Last year, the company bagged a project in Patna to develop the old Bankipore Jail campus on Frazer Road as the Buddha Memorial Park that would also include a temple with resemblance to Delhi’s Akshardham Temple. The contract was worth Rs 125 crore. Contracting contributed 16% to the overall revenue of Parsvnath in the quarter ended September ‘08 and Mr Jain says the contribution is going to go up in the coming quarters.

Indian real estate sector is in a turmoil these days. Demand for homes, shops and offices have dried up shrinking all real estate firms’ revenues and profits. India’s largest real estate firm, DLF, reported a 69% drop in profit, while second largest Unitech posted a 74% drop in its bottomline. Similarly, Parsvnath and Omaxe too have reported a decline of over 95% in their profit.

Given the difficult times, some companies such as Parsvnath and Omaxe are seeking contracts from governments as well as corporates to shore up their revenue. Omaxe has got contracts worth Rs 600 crore, mostly from the government. The company has got a Rs 300 crore contract to build a hospital in Saharanpur from the UP government, and two Rs 100-crore projects from Punjab to build modern jails at Faridkot and Kapurthala.

Hindustan Zinc has given Omaxe the mandate to build a housing project at its plant in Udaipur for Rs 100 crore. Over the last 6-8 months, players like Parsvnath and Omaxe have got contracts from various state governments as well as corporates to setup hospitals, parks, housing complexes and in some cases even jails. “We have around Rs 600-crore projects in the pipeline,” says Omaxe CMD Rohtas Goel.