We are sharpening residential footprint in Mumbai and Pune: Arvind Subramanian, MD & CEO, Mahindra Lifespaces

by Jeremy

This will show up in the financial performance in the second half of this year and into the next financial year.

Mahindra Lifespaces has lagged its peers in the real estate sector, who have scaled up significantly, over the last decade. Arvind Subramanian, MD & CEO of Mahindra Lifespaces, tells Shubhra Tandon the company is changing course and will now focus on only two cities — Mumbai and Pune — for the residential segment, and plans to add four to five land parcels each year with roughly about Rs 2,000 crore of sales potential. The company is also targeting Rs 500 crore of industrial leasing by FY25. Edited excerpts:

Real estate developers are calling FY21 the best year ever for sales. Mahindra Lifespaces continued to report loss, your revenues halved in Q4 and there is a 73% decline in FY21. How are you looking to change this and by when?

Accounting standards require us to recognise a project only when the project is completed and until then it shows up on balance sheet and does not show up on P&L. So we have been in a cycle over the last year, and part of this year as well, where we have a lot of projects under construction but completions were fewer, and that is what has hit our reported financials. But our collections have been strong at Rs 700 crore in FY21, and we had more sales in seven months than we did in 12 months of the previous year. This will show up in the financial performance in the second half of this year and into the next financial year.

Mahindra Life Spaces has not had a good run over the past decade, while competition has really scaled up. What went wrong and how are you changing?

Candidly, the last several years we have been flat to horizontal in terms of our performance. And yes, many competitors have scaled up faster than us. It is hard to comment about the time when you were not there to see what was happening. However, now we are sharpening our residential footprint to essentially Mumbai and Pune, unlike earlier where we had spread out to many more cities. We feel that there is value in being deeper in few markets. We will continue to have some presence in Bengaluru, where we believe it will be the third market that we would enter once we have reached sufficient scale in Mumbai and Pune.

We expect to launch one project in Bengaluru this year and we will continue to build on that. Meanwhile, in Mumbai and Pune, we are adding new land parcels for residential. We have announced three new land parcels in the last four months — Bangalore, Pune and Kalyan — and that sets us up well from a growth perspective. The intent is to add four to five land parcels each year with roughly about Rs 2,000 crore of sales potential. If we are able to do that consistently for the next two to three years, it will set us up to get Rs 2,500 crore of sales by FY25, which is our goal for the residential business.

What are your plans on the industrial parks business?

We feel the industrial parks segment will benefit from the geopolitical and macroeconomic changes taking place, as companies look to expand beyond China, and India naturally figures as a prime candidate. We want to get to Rs 500 crore of industrial leasing by FY25 and are strengthening our team for this segment. Most of our investments in this segment are behind us.

You have said you intend to go slow on projects which take 12-15 years to complete. Why this change?

From a residential perspective, we are looking at projects which we can get in and get out in about four to 4.5 years. So ideally, about eight lakh to one million square feet, which we feel works better for our economics rather than trying to buy land cheap, which has been the historical approach of developers, including us. We haven’t seen that play out favourably for us or for the others, and we now want to invest in land which is ready to market.

You are planning to heavily invest in land acquisitions to grow volumes. How will you keep debt in check?

Our balance sheet currently has almost zero net debt. However, more importantly our current strategy of picking land parcels and exiting within four to 4.5 years, allows us to rotate cash much quicker. Most of our land transactions are structured where either the land owner is getting us the approvals or most of the payout for the land is getting timed closer to actually getting the approvals. Therefore, the time gap between putting money for the land and actually starting to clock income from customer collections is short.

How do you plan to fund land acquisitions?

The acquisitions will be a mix of outright purchases and joint development and joint ventures. The funding will be a combination of internal accruals and debt. A 1:1 debt-equity gives us enough headroom to fund these acquisitions. Last year, we collected over Rs 700 crore from customers, so we have significant internal accruals to fund these acquisitions. Also, when we are talking about Rs 2,000 crore worth of sales, we are talking about Rs 500 crore or so of land outlay, so roughly 25% of the top-line is the cost of land, which is easily digestible.

How is Q1 shaping up and what does FY22 hold for Mahindra Lifespaces?

All aspects of business moved ahead in Q1, albeit at a slower pace compared to the last seven months, which were very strong for the industry. Though from a very high run rate and very high speed, one is suddenly dropping gear and pressing brakes, which has kind of hurt us, but it’s not been zero and in fact reasonably good for the first quarter. We had about Rs 700 crore of collections last year, and we should see a jump from those levels in FY22, depending of course on how the pandemic plays out and if there is a severe third wave. Subject to that, I do expect significant growth in residential this year. From the industrial segment perspective, international travel is still restricted and it is tough for clients willing to set up operations in India to visit sites for choosing factory locations. However, the pipeline is strong but the deal conclusions will be more towards Q4 or the next financial year.

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