Discussion about DB Realty's fundraising and future plans

 Number of Speakers: 2

Shahid Balva (Shahid) and Interviewer (Interviewer)

Discussion about DB Realty's fundraising and future plans

[Interviewer]: of DB Realty the company has raised 920 crores via the QIP route. Shahid Balva, the vice chairman and managing director of DB Realty, joins us now to discuss details on the fundraising. Shahid, good afternoon and good speaking to you after a while. Can you tell us a little bit about this fundraising? How much are you looking to raise? What will the funds be used for? How much of it will be put into growth purposes and how much to perhaps reduce debt?

[Shahid]: So, we have already raised 920 crores via the QIP amidst this choppy Market but you know we had the investors backing us mostly Global in investors and that is now behind us. Having raised that money, we are now going to use this as a growth Capital at DB Realty. We are already debt-free, so we have zero debt at DB Realty level. We have very insignificant debt at the project level which will also be more or less repaid next financial year. So essentially, next financial year on a Consolidated basis also we will be debt-free. This money that we have raised, we are intending to utilize this as a growth capital for our projects. So, you know unlike other real estate development companies who have a five, seven, eight-year life cycle of their projects, our model is different. We are basically a developer of developers, so we provide land to most of the developers in Mumbai who work with us. So the likes of Prestige, now L&T, Adani Realty also has a project with us and similar LG properties. So we work with these last developers, we develop our lands or lands that we take up for development like slums, bring them up to a development stage and a year and a year and a half we are able to recycle our Capital unlike normal developer who will have to wait who has to wait seven eight years our capital is back in a year year and a half and then we recycle it to other projects.

[Interviewer]: Got it. Shahid, just a couple of questions here. One is that this entire money I presume will be used for DB Realty itself and not the demerged hospitality, right?

[Shahid]: Yeah, so we are not intending to use this in, so we are not intending to use this capital for the hospitality bit. Except that in the interim so till the hospitality is companies demerged and listed we will provide support but the support is on condition that the money gets returned back to us. That is one. Second is the, you know we have a stream of annuity coming up. So from this year onwards, we will have about 250 crores of annuity coming from rent of our land in Mira and from two years hence, we will have about 15 to 1600 crores of annuity rental yield coming into DB Realty. So all that rental yield will keep on adding into the kitty which we will mostly, you know, we don't need as much as what we will as as much as the rental yield for our growth Capital but we would like to return that to shareholders in some form or the other going forward.

[Interviewer]: Okay. Can you tell us about what is the plan that DBT has over the next one to two years? Will you be largely focused in the Mumbai market itself any more JVS that you're looking to do with any other players because there are so many players now entering the Mumbai market? You know, South based players like Prestige etc. Any more JVS that you're looking at?

[Shahid]: So, we are already working with Prestige today. You know, in terms of gross development value (GDV), a term that is used by developers, we have almost 70,000 crores worth of projects ongoing with Prestige in Mumbai under construction. With other developers, we are actively working with Godrej; we have one project ongoing which is almost 6,000 crores in terms of gross development value. We have other projects in pipeline where we are in discussions with L&T. Hopefully, you know, some most of them will fructify large projects that we are working with L&T also. And we are also working with other developers who are not present in Mumbai, large developers who are based out outside of Mumbai and all of them look at us as a credible counterparty for project that they want to undertake in the Mumbai real estate market.

[Interviewer]: Right. You wanted to earlier raise 1,500 crores, right? That was the board resolution. So with this 920 crores QIP that you've done, can we expect some more coming in or this is it for fundraise right now?

[Shahid]: For the moment, this is it because I don't think we intend to raise any money at the moment. Even this money was raised for growth so it wasn't raised for any particular debt repayment or any other immediate outflow. We will use this money as a precious resource and our expectation for return on Capital is much much higher than you know other our peers. So, we'll be very judicious in using this money and we will be debt-free going forward and you know it is our belief that you know the real estate business at least the business that we are in cannot afford to have debts.

[Interviewer]: Can you help us with what is the quarterly sales run rate that DB Realty is doing right now and what does what is the expectation over the next one to two years?

[Shahid]: So, you know because the nature of our business is different from the nature of the business of our peers where they have you know quarterly sales and pre-sales etc., the way we look at this business in terms of cash flow. So, this year we had significant cash flow but coming years, that cash flow is going to keep on increasing. We are hoping that it will be at least 1,000 crores plus next year and then you know there the growth thereafter is going to be not incremental but exponential.

[Interviewer]: Alright. So you are targeting 1,000 crores of cash flow next year itself. What's the value of the unsold inventory and the land bank that you have right now?

[Shahid]: So, you know the company can be valued in some of parts. We have several projects, we have over 600 acres of land but I'll just take a few of the land parcels that we have. And our most significant land parcel is the land parcel at Mira road which has about 5 crore square feet of development potential. And today the capital values over there are about 20,000 rupees a square foot. So you just you know you multiply that and that's about a lakh crores in just one project. We have several such projects across the city and the sum of parts of our company is significantly greater than the value of the share as it trades presently. We understand that you know the market will have a little bit of time to understand maybe a quarter or two and when they see the cash flow coming in and the balance sheet becoming even more and more visible in terms of profits etc. they probably be able to understand us better.

[Interviewer]: What we're trying to understand is what the realizable value would be because you know uh the projection for what the value for Mira Road would be uh is slightly different from the kind of realizations that we've seen in recent past at a lot more premium locations like South Bombay and BKC as well. So just wanted your thoughts on what is the kind of realizations that you will see.

[Shahid]: Mira road is a stable market. We have two projects already ongoing in Mira Road and the realizable capital value today is between 17 to 20,000 rupees depending on the views location etc. These are all affordable segments so these are the apartment that we build over there are between 600 to 1200 rupees per square foot. So this is one to one and a half to two and a half crore ticket size. It is not comparable to the South Mumbai market where there are large luxury projects. Our affordable segment is doing exceptionally well so we are even in our existing projects we are seeing no slowdown the action is good and coming back to Mira road those projects will that particular one project will give us whenever we start almost about 5,000 crores of cash flow every year for the next 20 years.

[Interviewer]: We were just having this discussion with a couple of other real estate stakeholders an hour or two ago about how the MMR region is seeing huge potential in Redevelopment there are 30,000 crores worth of projects which could get into Redevelopment over the next couple of years. Would you folks at DB Realty be doing anything on the Redevelopment front I mean just trying to understand what kind of potential would it be for you?

[Shahid]: Mostly the Redevelopment is in the Mumbai region not when I say BMC limits the MMR region still hasn't does not have a capital values to support Redevelopment because there is a intrinsic cross subsidy in that model. But in the Mumbai model for example is not 30,000 there is a Perpetual for the next 20 years you will see Redevelopment happening and the number is much much bigger it's not even we we we are not even able to comprehend it maybe three lakh crore, 10 lakh crore whatever that number is but the Redevelopment opportunity is there just to give you an example we are right now in BLe we have a project with Prestige it's called the Jijamata Nagar project we've just started developing that project it's got 4 million sare ft of development potential at current Capital values that is 40,000 crores of development in one project so that 30,000 crore number maybe has a couple of zeros missing from them.

[Interviewer]: All right, that's crazy the projections that you're making here but you know just wanted to understand with regards to the portfolio going forward you have about 28 and a half million square feet in terms of a residential portfolio how much of that will be executed in the next financial year how much will be upcoming out of this where construction has not yet started?

[Shahid]: So, you know you might be referring to our corporate presentation. So the ongoing projects that you see will all get completed next year all of them literally all of them. Then there is upcoming those are projects that we will start over the next one one and a half year those are land banks that we already have own or have rights to develop. So those will be separately as in when we launch those projects with Partners. So in our ongoing projects, we already have Partners in our upcoming projects we are working with L&T very closely we are obviously working with Prestige very closely we are also in discussions with Godrej on one project. So those projects as we as time goes by in the next two three quarters we will keep on announcing the partnership with existing Partners on those projects.

[Interviewer]: Shahid, great speaking with you. Thank you so much for joining us and all the best with the plans that you have at DB Realty.