We count every penny now
Business Standard, January 15, 2010, Page 10
Q&A: Sanjay Chandra, MD, Unitech Ltd
Raghavendra Kamath / Mumbai
Sanjay Chandra, managing director of Unitech Ltd — the country’s second-largest real estate developer — steered the company out of near-bankruptcy in 2009 when its debt rose to Rs 11,000 crore and property sales came to a standstill. The company switched its focus from premium housing to affordable and mid-income projects to stay afloat. Unitech was also in the news for selling off its assets in its efforts to reduce debt. The efforts seem to have paid off as Unitech announced on Monday that it booked over 13 million square feet of properties so far in this financial year as against only 3 million booked in the whole of fiscal 2009. In an interview with Raghavendra Kamath, the Unitech MD talks about how he managed the crisis and the road ahead. Edited excerpts:
Do you think the sales momentum will continue now that there are indications of interest rates going up?
Those who are planning to buy houses will not shy away from buying just because interest rates will be up. In India, there is still a tendency of not holding mortgages for too long. People are pre-paying mortgages — they are averse to having mortgages on houses they live in. Yes, affordability will reduce; possibly our ability to raise prices will also reduce, but there are ways to subvent it. We are subventing interest rates for a year, and the response has been very good. We actually have home loan desks at all our offices.
How much price increase have you carried out in the previous quarter?
Not much. We increased prices by an average 6-7 per cent in the last quarter. We will go along with interest rates. If the annual interest rate is 10 per cent, we will raise it by 10 per cent. Customers will run away if you increase it irrationally. You have to increase it only to the level where it does not affect your sales. If it slows down your sales, it is not worth it. One should focus on return on equity.
What is your outlook for the coming financial year?
I think sales volume in housing will be excellent. Commercial, or office space will finally pick up; it has been good over the last three months. Commercial is mainly driven by information technology (IT) companies which have started expanding after a 15-18 month lull. Transactions have started happening once again. But rentals will not go up for sometime as there is a huge supply in the market. After this supply is absorbed, you will see rents going up. But, I see that cycle still two years away.
Your stock price has fallen 25 per cent from September whereas the Sensex has risen 10 per cent. Are you worried?
Yes, we have underperformed. It is time to catch up. But, what we told our investors is that we have delivered on the guidance we gave. Stock performance will be taken care of if we deliver. Though we have underperformed the Sensex, our operational performance has been outstanding, and people will soon understand what we are doing. If you look at our operational update, we have added 4,000 workers in the last quarter. In April, we had 3,500 workers, now we have 20,000.
At least a dozen of your projects were running behind the schedule? What are you doing for them?
We have deployed additional manpower on all those sites and all our efforts are on to complete them by financial year 2011.
What is your key strategy going forward?
We will look at housing as a manufacturing business. Land is one of our key raw materials. Construction is second. One of the key things in our business is “when” you bought land — it determines profitability — and the second, “what” was the product and “how” you would make that product. If you make your product in 18 months instead of 30 with better technology, forget about absolute profitability; the return on equity employed will be much faster. We will focus on efficiencies in production cycle. Earlier, we used to think overheads had gone up and we must control costs and so on. But now we count every penny, we count each day. Now we have a separate department which focuses on cost control, where we can control costs.
The focus is on projects that can be monetised faster. We have 8,000 acres of land and most of that was bought at historical prices. Only 10 per cent of our land is under development. Even if you look at incremental land, we are looking at projects that can be launched fast and do not compete with our existing land bank.
You took a U-turn from premium housing to mid-housing to beat the slowdown. Now that markets have revived, will you shift your focus back again?
No. One thing we learnt from the slowdown is that one should cater to a larger audience, which is there in mid-income housing. In good times and good markets, utilise your prime land for premium housing. For example, in our Uniworld resorts, villas start at Rs 2.8 crore. We are selling 15 villas a month. But we cannot depend on that only. You can’t build a sustainable business model that focuses only on luxury. We will do it selectively and only in good locations.
In the coming financial year, how will you bifurcate your housing portfolio?
Unihomes, our affordable segment where we sell homes at Rs 12-13 lakh, will be 25 to 30 per cent (of the business). We feel it will grow substantially. Premium will be 40 per cent and 15 per cent will be luxury. The rest will be commercial.
What is happening with Unitech Corporate Park projects which have had been deferred?
We had deferred one project due to poor demand and the rest are all on track. Construction activity is at an all-time high and leasing activity has been very good.
How do you look back at the troubled times when there were all kinds of rumours about Unitech, including that of bankruptcy?
When we look at that period, we realise our biggest mistake was asset-liability mismatch: Short-term debt for long-term investments. Rollovers earlier used to happen easily, but when the credit crisis came, they stopped. The good thing was that we had assets. Some of our key investors saw value in our company and assets, and did not focus only on short-term market conditions. That’s why we could raise our qualified institutional placements (QIPs) comfortably. The second mistake was that while we had enough land to build tens of thousands of apartments, the market we were catering to was niche luxury segment, which had a limited audience. The good thing is we honoured all our commitments. People appreciated us for that.
Are you looking at PE investments?
We are staying away from them. They want 20 per cent after-tax returns. They want debt-like instruments. It is better to take loans from moneylenders.
Business Standard, January 15, 2010, Page 10
Q&A: Sanjay Chandra, MD, Unitech Ltd
Raghavendra Kamath / Mumbai
Sanjay Chandra, managing director of Unitech Ltd — the country’s second-largest real estate developer — steered the company out of near-bankruptcy in 2009 when its debt rose to Rs 11,000 crore and property sales came to a standstill. The company switched its focus from premium housing to affordable and mid-income projects to stay afloat. Unitech was also in the news for selling off its assets in its efforts to reduce debt. The efforts seem to have paid off as Unitech announced on Monday that it booked over 13 million square feet of properties so far in this financial year as against only 3 million booked in the whole of fiscal 2009. In an interview with Raghavendra Kamath, the Unitech MD talks about how he managed the crisis and the road ahead. Edited excerpts:
Do you think the sales momentum will continue now that there are indications of interest rates going up?
Those who are planning to buy houses will not shy away from buying just because interest rates will be up. In India, there is still a tendency of not holding mortgages for too long. People are pre-paying mortgages — they are averse to having mortgages on houses they live in. Yes, affordability will reduce; possibly our ability to raise prices will also reduce, but there are ways to subvent it. We are subventing interest rates for a year, and the response has been very good. We actually have home loan desks at all our offices.
How much price increase have you carried out in the previous quarter?
Not much. We increased prices by an average 6-7 per cent in the last quarter. We will go along with interest rates. If the annual interest rate is 10 per cent, we will raise it by 10 per cent. Customers will run away if you increase it irrationally. You have to increase it only to the level where it does not affect your sales. If it slows down your sales, it is not worth it. One should focus on return on equity.
What is your outlook for the coming financial year?
I think sales volume in housing will be excellent. Commercial, or office space will finally pick up; it has been good over the last three months. Commercial is mainly driven by information technology (IT) companies which have started expanding after a 15-18 month lull. Transactions have started happening once again. But rentals will not go up for sometime as there is a huge supply in the market. After this supply is absorbed, you will see rents going up. But, I see that cycle still two years away.
Your stock price has fallen 25 per cent from September whereas the Sensex has risen 10 per cent. Are you worried?
Yes, we have underperformed. It is time to catch up. But, what we told our investors is that we have delivered on the guidance we gave. Stock performance will be taken care of if we deliver. Though we have underperformed the Sensex, our operational performance has been outstanding, and people will soon understand what we are doing. If you look at our operational update, we have added 4,000 workers in the last quarter. In April, we had 3,500 workers, now we have 20,000.
At least a dozen of your projects were running behind the schedule? What are you doing for them?
We have deployed additional manpower on all those sites and all our efforts are on to complete them by financial year 2011.
What is your key strategy going forward?
We will look at housing as a manufacturing business. Land is one of our key raw materials. Construction is second. One of the key things in our business is “when” you bought land — it determines profitability — and the second, “what” was the product and “how” you would make that product. If you make your product in 18 months instead of 30 with better technology, forget about absolute profitability; the return on equity employed will be much faster. We will focus on efficiencies in production cycle. Earlier, we used to think overheads had gone up and we must control costs and so on. But now we count every penny, we count each day. Now we have a separate department which focuses on cost control, where we can control costs.
The focus is on projects that can be monetised faster. We have 8,000 acres of land and most of that was bought at historical prices. Only 10 per cent of our land is under development. Even if you look at incremental land, we are looking at projects that can be launched fast and do not compete with our existing land bank.
You took a U-turn from premium housing to mid-housing to beat the slowdown. Now that markets have revived, will you shift your focus back again?
No. One thing we learnt from the slowdown is that one should cater to a larger audience, which is there in mid-income housing. In good times and good markets, utilise your prime land for premium housing. For example, in our Uniworld resorts, villas start at Rs 2.8 crore. We are selling 15 villas a month. But we cannot depend on that only. You can’t build a sustainable business model that focuses only on luxury. We will do it selectively and only in good locations.
In the coming financial year, how will you bifurcate your housing portfolio?
Unihomes, our affordable segment where we sell homes at Rs 12-13 lakh, will be 25 to 30 per cent (of the business). We feel it will grow substantially. Premium will be 40 per cent and 15 per cent will be luxury. The rest will be commercial.
What is happening with Unitech Corporate Park projects which have had been deferred?
We had deferred one project due to poor demand and the rest are all on track. Construction activity is at an all-time high and leasing activity has been very good.
How do you look back at the troubled times when there were all kinds of rumours about Unitech, including that of bankruptcy?
When we look at that period, we realise our biggest mistake was asset-liability mismatch: Short-term debt for long-term investments. Rollovers earlier used to happen easily, but when the credit crisis came, they stopped. The good thing was that we had assets. Some of our key investors saw value in our company and assets, and did not focus only on short-term market conditions. That’s why we could raise our qualified institutional placements (QIPs) comfortably. The second mistake was that while we had enough land to build tens of thousands of apartments, the market we were catering to was niche luxury segment, which had a limited audience. The good thing is we honoured all our commitments. People appreciated us for that.
Are you looking at PE investments?
We are staying away from them. They want 20 per cent after-tax returns. They want debt-like instruments. It is better to take loans from moneylenders.
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