business india aug 3 - 16 2015

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BUSI N E SS I N DI A ◆ THE M AGA ZI N E OF THE COR POR ATE WOR LD Corporate Reports

Godrej Properties Ltd (GPL), the real estate development arm of the 118-year-old Godrej group,

seems to be unfazed by the ongoing slowdown in the real estate sector. During 2014-15, the company clocked a 56 per cent growth in its revenue of `1,843 crore. While the property sales in the country’s residential market continue to be depressed (down by around 40 per cent), GPL registered its highest ever sales (booking value) of `2,398 crore (area: 2.6 million sq ft) during the year. Besides, it also sold commercial space (300,000 sq ft) of `383 crore. In fact, the company has sold real estate worth `8,000 crore in the last three years.

In a market where new launches were few and far between, the com-pany has generated exceptional response in the case of its new launches. Despite being a new player (which entered just four years ago) in the NCR market, which is faced with supply overhang, GPL has pulled off a phenomenal performance. In fact, the company emerged as the larg-est developer in Gurgaon by sales

volume in 2014, when its sales grew five-fold to cross 1 million sq ft. Both its new-ly-launched projects in Gur-gaon were a big hit. In Godrej Oasis, over 200 flats (booking value: `250 crore; average price: `7,140 per sq ft) and in Godrej Aria, over 250 flats (booking value: `285 crore; average price: `7,100 per sq ft) were sold in the launch quarter itself. In a short period of time, the company has added four projects in NCR and already launched four of these proj-ects with an overwhelming success. GPL’s cumulative sales volume in NCR currently stands at 3 million sq ft.

In Mumbai, the company suc-cessfully launched its second town-ship project, Godrej City in Panvel and sold 600,000 sq ft of space, with a booking value of `343 crore (average price: `7,500 per sq feet) in 2014-15. GPL also launched Phase II of its premium residential project, Godrej Central, in Chembur and has so far sold close to 600,000 sq ft of space, worth over `870 crore; aver-age price: `14,500 per sq feet) since

its launch. At Godrej Infinity, Pune, it sold more than 200 apartments in just 10 days,

with a booking value of `120 crore; average price: `6,000 per

sq feet. The company has success-fully launched another of its residen-tial projects, Godrej Prana, in Pune, within one year of signing the devel-opment agreement and has sold over 2,40,000 sq ft of space at an average rate of `4,800 per sq ft.

Enthused by the response of Phase I, GPL launched Phase II of Godrej United in Bengaluru ahead of its schedule. And, in 12 months, it sold 524,000 sq ft of space, valued at `324 crore at an average price: `6,200 per sq ft.

While developers across various markets have struggled, GPL has con-tinued its impeccable track record of execution and timelines. In fact, the last fiscal was also the best ever year for the company in terms of project deliveries. The company delivered 3.5 million sq ft of space, involving five residential projects and a pres-tigious commercial project – Godrej

Making its mark

GPL has bucked the market trend with its strong brand and diversified portfolio

Godrej: encouraging performance

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BUSI N E SS I N DI A ◆ THE M AGA ZI N E OF THE COR POR ATE WOR LDCorporate Reports

One – which currently hosts the cor-porate office of GPL. The 760,000-sq ft modern office building in Vikhroli, Mumbai, will be the new headquar-ters of the Godrej Group. All corpo-rate offices of its group companies will also be based in this iconic office building, which will have other corporate tenants too. This pre-mium office space is a part of GPL’s 34-acre mix-use project – The Trees – launched four years ago. The proj-ect, the joint development (60:40)

with two other Godrej group compa-nies – Godrej Industries and Godrej & Boyce – will also have residential and retail developments, besides a five star hotel.

GPL has collaborated with several of the world’s most renowned archi-tects and engineering consultants to design this futuristic project of The Trees. Pelli Clarke Pelli Architects, the lead architect for the master plan as well as for Godrej One, is well known for designing architectural land marks such as Petronas Tow-ers in Kuala Lumpur, International Finance Center II in Hong Kong and Bloomberg headquarters in New York City. Larsen & Toubro has con-structed Godrej One, which is cer-tified as LEED Platinum, globally recognised as the highest rating for sustainable design.

Of the five residential projects delivered last fiscal year, GPL has delivered 228 apartments (1.6 mil-lion sq ft) in phase II of its Godrej Garden City (GCC), Ahmedabad. Ear-lier, in October 2013, the company had handed over 624 apartments in 13 towers in Phase I of this project. The average rate in GCC is currently around `3,500 per sq ft. In this 250-acre mega township project, it is going to deliver some 13,000 apart-ments and villas in a phased manner. The company is executing this proj-ect jointly with Shree Siddhi Group, Ahmedabad. The master plan for the project has been created by world-renowned architects Skidmore, Owings and Merrill (SOM), which has designed numerous landmark proj-ects across the globe, including the Burj Khalifa in Dubai. GCC is one of the two projects in India and amongst 17 worldwide to be chosen as a partner by the Clinton Climate Initiative, with the goal of achieving a climate-positive development.

Robust developmentThis apart, GPL has delivered four res-idential projects, one each in Mum-bai, Nagpur, Bengaluru and Gurgaon, during the last fiscal year. It has also added to its development portfo-lio five new projects (total saleable area: about 8 million sq ft) in cities like Mumbai, Bengaluru, Kolkata and

Gurgaon. With this, the company currently boasts of a robust develop-ment pipeline of about 110 million sq ft, involving around 49 projects, at a residential and commercial mix of 90:10. These projects are spread across 12 major cities – Chandigarh, Gurg-aon, Ahmedabad, Kolkata, Nagpur, Mumbai, Pune, Hyderabad, Manga-lore, Bengaluru, Chennai and Kochi.

“Under difficult market condi-tions, where builders are struggling to sell their products, GPL has not only shown a great deal of resilience, but also posted an encouraging per-formance. Buyers have reposed full faith in its offering, capability and track record. Moreover, its corporate identity and brand value have also extended much needed comfort to the buyers, who are currently tread-ing cautiously,” says Ashok Kumar, managing director, Cresa Partners, a real estate advisory firm.

“Undoubtedly, the market is depressed. But some of the develop-ers which have come up with the right kind of products at the right locations have been successful. More-over, it is also a test of their various capabilities and their ability to con-vince the home buyers with the right kind of offering,” says Samantak Das, chief economist & director, research, Knight Frank India.

“Over the last few years, we have put up a concerted effort to ramp up our capabilities,” says Pirojsha Godrej, 34, managing director & CEO, GPL. “We have done a lot of work in improving our processes and perfor-mance in critical areas like project selection and planning, execution quality and cost, and consistent sales growth. While some of the results of these efforts are already evident, we believe there is much more ahead,” he adds. Pirojsha, under the guidance of his father, Adi Godrej, has played a key role in leading the company through a phase of rapid growth in the last few years. From being a small player six-seven years ago, the com-pany has come up to be established as one of the leading and fastest growing companies in the real estate sector. In fact, it emerged as the sec-ond largest developer in the country by sales volume in 2014-15, Prestige

Shareholding pattern

Others13.87%

DII1.18%

FII10.04%

Promoters74.91%

Promoters74.91%

Godrej 1: prestigious project

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of Bangalore being the largest. Since his appointment as exec-

utive director in 2008, Pirojsha has been involved in a leadership capac-ity in all key areas of the company’s operations. When in April 2012, he took over the rein of GPL, he became the youngest chief executive in the group. The youngest of group chair-man Adi Godrej’s three children, he joined the company in 2004 as a management trainee. His elder sis-ter Tanya oversees marketing for the group, while sister Nisaba heads human resources and innovations.

Named after Godrej group founder Pirojsha Burjorji Godrej (1882-1972), he has a Bachelor’s degree in econom-ics from Wharton School, University of Pennsylvania, a Masters in Inter-national Affairs from SIPA, Columbia University, and a Masters in Business Administration from Columbia Busi-ness School. Widely travelled (over 60 countries) and a self-confessed foodie, Pirojsha is keen on political affairs and has undertaken summer intern-ships at the Senate Office of Hillary Clinton in New York and at the min-istry of external affairs, New Delhi. He also loves to collect rare books, manuscripts and memorabilia.

Over the last few years, Pirojsha has proved his leadership ability and also his ability to face adverse condi-tions. After taking a year-long break from company’s affairs to complete an MBA from Columbia Business School in 2007, he resumed office just a few weeks before the Lehman Brothers meltdown. The Indian real estate market was heading for a dif-ficult phase. Though established in 1990, the company had very little in the pipeline at that time. There was only one project in Bengaluru. There were no new projects in markets like Mumbai and Pune.

The company had a narrow base of

about `200 crore as revenue and 250 employees in 2008-09. Today, it has over 900 employees on its roll. The revenue has also swelled manifold. In fact, in the last seven years or so, the company has grown at a CAGR of over 40 per cent. It has created a pan India presence, with projects in 12 cities. It has got over 20 projects under devel-opment in Mumbai, eight in Bengal-uru, six in Pune, five in NCR, four in Kolkata and two each in Hyderabad and Chennai. This apart, the com-pany has footprint in smaller cities like Mangalore, Kochi, Nagpur, Chan-digarh and Ahmedabad. Though pri-marily into residential, the company has a mix of both residential and com-mercial projects. In residential itself, it is well-diversified both in terms of segment and geography.

Asset-light model“Pirojsha has redesigned the strategy, organisation structure, and execu-tion capabilities of Godrej Proper-ties to position it for exponential growth in the years to come. These changes have already started provid-ing strong results and are likely to provide even stronger results in the future,” says Adi Godrej, chairman, Godrej Group.

How did GPL manage to pull off this kind of performance – that too, in a not so favourable market condition? The company did a few things that have not only helped it face the headwinds effectively, but also gain the desired momentum and mass. It has continued with its differentiated asset-light busi-ness model, where it doesn’t own the land, but instead enters into an agreement with the landowner. The company thus focusses primarily on the development aspects of the project, as also carrying out the job of sales and marketing. Currently,

almost all its projects are coming up in joint development with partners – mostly landowners. This model has helped the company expand its business quickly without much strain on the capital front. Besides, it has been able to ramp up its devel-opment and other capabilities by channelising resources.

In joint development, the com-pany shares the revenue with the partner depending upon the price of the land and other development aspects. Its share may vary from 80 per cent to as low as 20 per cent.

The company has also created a special investment platform with Dutch pension services provider APG-led global investors. The Godrej-APG platform (29:71), formed in July 2012 with a total corpus size of `1,100 crore, has helped GPL to explore the opportunities in different markets, without deviating from its capital-efficient land sourcing strategy. In cases where landowners don’t want to be part of the joint development but instead want upfront exit, the platform comes into play. It buys the land and acts as landowner/joint development partner, and thus allows GPL to maintain its asset light model. The company has fully deployed this corpus in four of its res-idential projects of which two are in NCR and one each in Bengaluru and Mumbai. In Bengaluru, the platform has recently bought 18 acres of land off Kanakpura Road from realty firm Puravankara Projects Ltd.

“Even as we want to pursue our asset-light business model, we don’t want to miss any opportunities in our key markets,” says Pirojsha. “Our

FinancialsFina

(` crore) FY2011 FY2012 FY2013 FY2014 FY2015Revenue 447 770 1037 1179 1843EBITDA 289 208 296 358 341PAT 143 129 197 236 235OPM (%) 39.73 20.51 27.55 23.96 13.95Networth 911 1442 1429 1793 1847

Godrej BKC: ready by next year

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investment platform with APG has helped us in meeting this objective and scaling up our portfolio with-out being impacted on the capital front. Going ahead too, we would like to continue with this approach of ours”. On being asked why he joined GPL, among the group’s small-est businesses back then, he says: “It was quite a small business but one that had a lot of opportunity. Also, one thing that appealed to me was that none of my other family mem-bers were too involved with this busi-ness and it was at a size, where I could make an impact as compared to some of the more established companies.”

While the asset-light model has helped the company to expand its portfolio, it has left it with the much-required resources that can be used for ramping up its development ability as also sales and marketing capabilities. Over the last few years, the company has put in place a concerted effort to improve upon its processes in criti-cal areas. GPL has gone on to bench-mark its processes. It has revamped the entire delivery system.

“We are focussing on our process capabilities in a big way. The entire value chain has been revamped in pursuit of excellence. While we will continue to pursue our efforts towards adding more value to the system, today we certainly have a robust structure which has put up a perfect setting to take us through

our next phase of growth,” says K.T. Jithendran, executive director, GPL, who heads the business develop-ment, marketing and sales functions of the company. He joined the com-pany in 1994, and was elevated to his current position in May 2010. A civil engineer from the Indian Institute of Technology, Kharagpur, he then went to the Indian Institute of Man-agement, Calcutta and completed an Advanced Management Programme from Harvard Business School.

While GPL, as a part of the Godrej group, enjoys strong brand equity, it has initiated several measures on the sales and marketing side in lieu of the changing market dynamics. Today almost 80 per cent of buyers are in the age group of 30-40 years. The company has tried to revamp the entire set-up and make it con-temporary, where the most sophisti-cated tools are used for effective and efficient results. It has also started a customer-profiling exercise, where

a mapping of the customer habits across projects is carried out to pre-pare customised marketing activ-ities for the target customers. On the brand-building front, research and brand health evaluation studies are conducted on a regular basis to understand brand recall and saliency in the minds of customers. The com-pany has built up a team of fresh and young talent (average age: below 35 years), who have been roped in from across various sectors.

Rich dividendsGPL has boosted its sales channel significantly. Apart from offering online booking through its own web-site, it has tied up with online por-tals like Magicbricks and 99acres to further enhance customer access. It has also partnered with e-commerce player Snapdeal to offer online book-ing of its real estate projects. Cur-rently, over 20 per cent of GPL’s sales take place through online channels. Besides, the company has created a strong network of 3,000-odd chan-nel partners, which include local and national brokers, international prop-erty consultants as also wealth man-agement firms. Currently, almost 50 per cent of sales are happening through channel partners

The company has set up regional offices in all key markets of the country and recently also opened its first representative office in Dubai to engage directly with the Indian diaspora across the GCC market. GPL is also looking to open international offices in Singapore, Hong Kong and the US in future. Over the years, the company has constantly been engag-ing with customers through various exhibitions and events in interna-tional markets including Dubai, the UK, Singapore, Hong Kong, Austra-lia, Africa and the US. In fact, these efforts have paid rich dividends as the company managed to generate 25 per cent of sales volume from its international sales last year as against 8 per cent in the previous year.

“Our efforts have started bear-ing fruit and this has provided us with the much-needed motivation to carry them forward in a focused manner. We have put up a robust

Jithendran: the entire value chain has been revamped

Gold County Villa revised

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and dynamic system, which also facilitates several newer concepts including cross selling of proper-ties among our regional offices,” says Girish Shah, chief marketing offi-cer, GPL, who joined the company in 2010 as vice-president, sales & mar-keting. Prior to this, he had worked with Reliance ADA Group, Kingfisher Airlines and Johnson & Johnson.

These initiatives on the part of the company have helped it to lever-age its brand value further in the real estate market, which is passing through a transition phase. In fact, they feel that, in a difficult market condition, the buyers often look for some trusted brand on which they can bank on and here corporate developers like Godrej, Mahindras, Tatas, L&T and others often have an edge over their traditional counter-parts. Going forward, as the market matures and the organised supply increases, home buyers will increas-ingly look for reputed and trusted names and brands for quality as well as security. Today, brands already account for over 40 per cent of res-idential sales and this number will only increase in coming years.

“Godrej is a solid brand which infuses tremendous confidence in the minds of consumers. In a market like real estate where so much of money is at stake, credibility and security is paramount. In fact, Godrej will be able to derive more value out of its brand equity in real estate than other segments (like FMCG) of its presence,” says Harish Bijoor, CEO, Harish Bijoor Consults Inc, and a brand expert.

“GPL’s brand equity is a big differ-entiating factor in this market,” says Paresh Karia of Easy2own Estate, a Mumbai-based national property broker. “Buyers are increasingly look-ing for credible names which can live up to their expectations in terms of quality and delivery. GPL’s proj-ects have invoked an encouraging response in this otherwise sluggish market condition” he add. Easy2own Estate is also part of GPL’s network of channel partners but sells prop-erties of other major developers too – including Hiranandani, Brigade, Kolte Patil and Embassy.

GPL has adequately backed up its

brand with well-diversified offering in terms of products and geography. The company is present across all segments of the market. In residen-tial, it has judicious mix of premium, mid-segment and affordable proper-ties. In the last two-three years, the company has strategically reduced its exposure in the commercial segment by monetising its assets and aims to focus on residential development going ahead. In fact, it is planning to sell about ̀ 2,000 crore worth of com-mercial assets in the next few years, which will also help it to reduce its debt of `2,764 crore (2014-15). In its under-construction commercial proj-ect – Godrej BKC – in Bandra-Kurla-Complex in Mumbai, the company has been able to sell 3,50,000 sq ft of space out of the total saleable area of around 1.30 million sq ft. The proj-ect, expected to be ready by the next year, is being developed in joint ven-ture with Jet Airways.

A solid brand“For the last few years, we have been

trying to reduce our exposure to the commercial sector as per our asset light strategy and this process will continue going ahead as well. We have monetised a big chunk of our assets and some more to follow,” says Pirojsha.

While it is acting as development manager, it also closely monitors the execution process, it engages reputed names like L&T, Shapoorji Pallonji and others to ensure construction quality. It has been engaging the best architects, designers and town plan-ners for its projects. Incidentally, GPL is the first company to be certified as ISO for their eco-friendly green building construction.

“As a landowner, we have been associated with GPL in two proj-ects in Mumbai and our experience has been more than satisfactory,” says Nandan Damani, managing director, Simplex Realty (formerly Simplex Mills). “It has got all the req-uisite capabilities to carry out quality developments. Given an opportu-nity, we would always like to be its partner”. Simplex was a landowner and JD partner in two of GPL’s Mum-bai projects – Godrej Glenelg, a lux-ury project located in Mumbai’s upmarket area of Cuffe Parade, and Godrej Planet, a high-end residen-tial project in Mahalaxmi, Mumbai, with 380 units of varying configura-tions across five towers of 48 storeys

Godrej Icon: standing tall

Leverage indicators

Mar 2015 Dec 2014

Net debt (` crore) 2,764 2,605Net debt/equity ratio 1.50 1.35Average borrowingcost (% YTD) 11.18 11.27

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each, with contemporary design and open spaces.

“In GPL, buyers are finding a wide range of options. It has also estab-lished a track record of its own by delivering projects within the stipu-lated time frame. In fact, GPL’s prop-erties are commanding a premium in this depressed market,” says Mon-ica Mehta of Mumbai-based Prop-erty Junction, a national broker & channel partner of GPL.

While home buyers have reposed their faith in GPL, private equity investors are not far behind. They too find its projects an attractive investment proposition. PE players like Milestone Capital, Sun Apollo, Red Fort, Motilal Oswal, HDFC Ven-tures Trustee Co and ASK group have done project level investments in various projects of GPL. “As a devel-oper, GPL has made a rapid progres-sion in the last few years. It has built up the much-needed capabilities. Moreover, it has lived up to its brand image with its delivery and quality,” states Sunil Rohkale, CEO & manag-ing director, ASK group, which has invested `100 crore in 2012 in GPL’s residential project, Godrej Central in Chembur, Mumbai. This redevel-opment project currently under con-struction will have a saleable area of 600,000 sq ft.

“We had invested in one of GPL’s projects in Bangalore (Godrej Woods-man Estate) some time back with a total investment of around `46 crore

and exited with a return in three mul-tiples. Throughout the association, they have been quite professional in their approach. Still we are constantly in touch with them to explore oppor-tunities,” says K.G. Krishnamurthy, managing director and CEO, HDFC Property Venture Ltd.

“In a short very limited period, GPL has made a very good progres-sion. The company’s asset-light model has worked quite well in the backdrop of a strong brand value it commands in the market. In fact, it has set ideal precedence for the industry,” says Pranay Vakil, founder and chairman, Praron Con-sultancy, who is also an indepen-dent director on the board of GPL. GPL’s independent board also com-prises names like Keki Dadiseth, ex chairman, Hindustan Unilever and Lalita Gupte, chairperson, ICICI Ven-ture Funds.

Calling the shotsGPL is now suitably placed with its robust pipeline. Moreover, the com-pany has at its disposal the group’s massive land bank of about 1,500 acres in Vikhroli, Mumbai. It is already undertaking a 34-acre mixed use project – The Tree – whereas another premium residential proj-ect, Godrej Platinum, is also being constructed in the same compound belonging to the group company, Godrej & Boyce.

“GPL has at its disposal a huge land

bank in Vikhroli and the group will be keen to see GPL participating in the development of this land par-cel. It will also provide GPL a robust pipeline in the land-starved Mumbai market,” says Kumar.

On a one year high/low of `309/220, GPL’s stock currently quotes at `260 (July 29, 2015), with a mar-ket capitalisation of `5,184 crore. The stock got listed on January 5, 2010 at `510 (IPO: offer price `490). “The real estate market has stabilised, even as a few pockets have shown some con-cerns. The fundamentals continue to be intact. The market is expected to gain its momentum in the next two-three quarters,” says Shailesh Puranik, managing director of Mumbai-based Puranik Builders.

With all these developments in place, GPL has positioned itself quite well in the market to start its next phase of growth. The company’s differentiated asset-light model has helped it to not only face the diffi-cult market condition effectively but also expand its portfolio both in terms of projects and geography. In fact, due to this approach, the com-pany has grown very rapidly in the last few years with a sizeable portfo-lio to offer to the market. Its diver-sified offering with a judicious mix of properties and locations, has pro-vided it with a much-needed where-withal to face the market vagaries.

In the last two-three years, the company has consciously tried to reduce its exposure to the com-mercial market by monetising its commercial assets in pursuit to its capital-efficient, asset-light business model. This move should augur well for the company. While pursuing joint development, the company has built up its execution and sales/mar-keting capabilities in a big way. In fact, the company is today much bet-ter placed to leverage its brand value in a market, which is undergoing a transition. As the organised supply of properties increases and the mar-ket matures, developers with brand equity and credibility will have a distinct edge and that is where devel-oper like GPL will call the shots.

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Shah: putting up a robust and dynamic system

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