Godrej Properties is on the lookout for some cash injection. The listed real estate development company is likely to sell shares in the market to bring down its promoter holding to 75%. That's not all. The company is talking to private equity investors to offer shares of step-down subsidiaries that manage real estate projects. Fund raising is not an easy option for real estate companies, says Pirojsha Godrej, executive director at the company. The company though would continue to look at raising capital at the project level.
The job looks daunting as Godrej Group chairman Adi Godrej has already stated that over the next 5 years or so, real estate is expected to be the main driver of the group financials. The results are there for all to see. Its quarterly results last Friday fell short of the mark as earnings came in below estimates and it also reported a higher net debt of over Rs 900 crore, which indicates limited room for operating cash generation.
The share price of the company slipped 1.5% on Monday while the BSE Sensex rose about 1%. Moneycontrol.com reported that Goldman Sachs has recommended selling Godrej Properties and has cut its target to Rs 518, from Rs 523.
Pirojsha Godrej had served as an additional private secretary to the minister of state for external affairs in 2003. He was a summer intern at the Senate office of Hillary Clinton in 2002. He spoke to Firstpost on the road ahead for Godrej Properties:
What in your view would be the trendline in profitability and revenue for Godrej Properties?
Pirojsha Godrej: We expect strong growth in revenue and profitability. If you look at the last few years or quarters, growth was substantial. I expect some fluctuations due to cyclicality of revenue. We have seen a substantial jump in the past. Full-year numbers are a quarter percent. There would be cyclicality in revenue and profitability, depending on project sales. However, the overall trend is expected to remain strong.
What is the total area under development?
PG: The total developable area is 83 m squre feet out of which about 10m sq feet is under development.
How easy or difficult is it to raise money?
PG: In a general sense, it is difficult to raise money. Especially if you are in the real estate sector. Public markets have been closed for some time. Having said that, we have an established track record. We had a successful IPO and our stock price is 60% higher than that at the IPO offer price. If we went to investors with a story of wanting to raise funds for further growth, we do feel we would be able to raise funds both at the entity and project levels.
The government's rural job guarantee scheme has had an impact on labour costs. What is your assessment of the situation?
PG: Costs for construction will escalate on an ongoing basis. It is a very good thing for the country actually. India cannot grow at 9-10% a year without construction workers participating with a higher income. I do not expect it would be huge pressure on margins if income would rise in the general economy, prices of real estate would also go up. All increased costs would be passed on to customers and we are confident that we would be able to pass them on.
Listen to the audio version of the interview here.
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Updated Date: Dec 20, 2014 04:05:43 IST