Consolidation to drive tutorial biz

My colleague Priyanka Golikeri is the lead writer of this story appearing in DNA Money edition on Monday, December 3, 2012.

There was a time when word-of-mouth about private tuitions for school kids was enough to generate secondary income for neighbourhood Aunty. Now, she has to contend with corporatised business ofcoaching classes / tutorials that cover not only school and college examinations but competitive tests for a range of educational courses and jobs.

After all, organised tutorials are now a $ 5 billion (Rs 27,420 crore) business. Experts say the overall coaching classes businessis highly fragmented with several unorganised players. “This makes consolidation the need of the hour,” said Arks Srinivas, CEO of VistaMind, an MBA entrance exam firm.

Welcome to the age of ‘knowledge is money’ where partnerships, buyouts and countrywide alliances are the norm, providing not just easy access to remote areas but direct entry into new exam spaces.

For instance, last week, Mumbai-based MT Educare, a well-known, listed coaching institute for school and board exams, entered the IIT and medical entrance exams space by buying a 51% stake in Punjab-based Lakshya Forum.

Mahesh Shetty, CMD of MT Educare, said this acquisition will broaden the company’s science offering as well as reach.

Agreed Pramod Maheshwari, MD of Kota, Rajasthan-based Career Point Infosystems, an institute tutorial specialising in IIT-JEE and pre-medical entrance exam coaching. “Local partners are already well-versed with the complexities of a region, including people’s payment capacity, income levels and career choices. That proves a big help indeed.”

MT, it seems, emulated Career Point and CL Educate, an MBA and engineering entrance coaching firm that expanded into law exams by acquiring Law School Tutorials.

Satya Narayanan, founder and chairman of CL Educate, said getting into a new segment requires competence in the area concerned. “It works out better through some inorganic moves rather than expanding organically.”

According to Narayan Ramaswamy, head of education practice at KPMG India, tutorial classes are a local or region-specific activity with a large presence in Tier II and Tier III cities. “Established players in Tier I cities won’t mind paying a certain premium to build scale in unexplored markets.”

More so because some exams (like bank clerical tests) have gone online, requiring methodical, rigorous practice that only major tutorials with their technological infrastructure can provide, leaving small local coaching schools easy buyout targets, said Narayanan.

If not outright acquisitions, larger firms buy partial stakes and provide smaller partners with web support, test and study material, said Srinivas.

Then there is the option of franchises and direct expansion via branches. “We will look for opportunities in south and west where we currently do not have much presence,” said Maheshwari.

As stocks surge, more exits in the PIPEline

My colleague Sachin P Mampatta contributed to this story appearing in DNA Money edition on Monday, December 3, 2012.

With stock markets starting to look up, exits relating to private investment in public equity (popular as PIPE) are gathering pace as well. For, rising markets mean opportunities galore for cashing out.

Experts said markets seem to be offering price-to-earnings multiples in the 10x-25x range, depending on sectors like FMCG, metals, so on. CLSA’s recent exit from Apollo Hospitals has already set the tone, and many more such deals are expected in the coming months.

Venture Intelligence, which researches private equity and mergers and acquisitions (M&As), said 23 PIPE exits worth about $1.85 billion (Rs9,877 crore) have happened already this year. In addition, private equity (PE) firms made another 23 secondary exits worth $404 million (Rs2,192 crore).

Avinash Gupta, head offinancial advisory at Deloitte India, said some of the prominent PE exits were from stocks like HDFC, Kotak, Apollo Hospitals – companies that have shown growth and boast quality management.

Stocks of companies that are riding domestic consumption, those outside regulatory framework and financial services firms are likely to see PIPE exits because there will likely be many ready buyers in the current environment.

This year’s exits, observers said, relate to investments made after markets collapsed post the 2008 Lehman crisis. Then, PE firms had turned to stock markets because private placement opportunities were few and far between. In contrast, 2005-07 did not see too many PIPE deals as most transactions then were genuine PE investments.Turn to Page 14

Money was raised and invested in pure PE placements, industry experts said.

In 2007, per-year investments peaked at $19 billion, but the best returns on an annual basis were no more than $5 billion. “In the last four years, returns totalled only $20 billion,” said a top official from an international investment advisory.

The 2012 PIPE exits from stock markets would gather pace because not many happened in recent times. Few exits all these years had hampered Indian PE activity, said Dinesh Tiwari, director, Multiples Alternate Asset Management. “From 2005-06 onward, over $40 billion of PE money would have been invested. Assuming that the minimum holding period is 3-4 years, exits now could be worth as much.”

Darius Pandole, partner at New Silk Route Advisors, said exits are crucial for additional capital flows into the Indian PE industry. “PE firms seek to return more capital back to their limited partners (LPs). If this can be achieved over the next 1-2 years, additional capital will flow into Indian PE activity,” said Pandole.

LPs are large funds that invest in PE funds. PE firms manage money raised by such funds and invest in different companies, assuring a certain rate of returns to LPs.

Another form of PIPE exits is through initial public offerings (IPOs). For instance, some PEs will likely exit Bharti Infratel which is set to raise Rs4,500 crore through its IPO. The company will sell about 14.6 crore new shares. Four of its stockholders, including arms of Singapore state investor Temasek and Goldman Sachs, will selling 4.27 crore shares, according to a regulatory filing.

There were not many IPOs this fiscal. But with markets buoyant again, companies that have been waiting all this while to tap them, will go ahead with their IPOs. So, more PE exits are likely, experts said.

With Cinemax buy, PVR beams it to the top

This story first appeared in DNA Money edition on Friday, November 30, 2012.

Film exhibition firm PVR has become the largest multiplex operator in the country, pipping Inox-Fame combine and Big Cinemas to the post.

The company on Thursday announced that it has acquired the Kanakia family’s 69.27% stake in BSE-listed Cinemax India at Rs 203.65 per share, totalling Rs 394.97 crore, through its wholly owned subsidiary Cine Hospitality Pvt Ltd.

PVR currently has 213 screens across 46 theatres. Add to this Cinemax’s 138 and the screen count increases to 351 following the deal, bringing it closer to its target of 500 screens in the next three years.

“The proposed acquisition of Cinemax will create the largest movie exhibition chain in India,” Ajay Bijli, promoter of PVR said in a statement.

On his part, Rasesh Kanakia, promoter of Cinemax, said, “The deal will enable us to ensure greater focus on our real estate and hospitality businesses.”

PVR has also made an open offer for acquiring a further 26% stake under SEBI rules.

If the open offer is fully successful, it is likely to spend an additional Rs148.26 crore (at offer price of Rs 203.65 per share) to buy 72.80 lakh shares from the public.

The total cost of the acquisition will then be around Rs544 crore.

PVR is likely to part fund this acquisition, through a preferential issue of equity of 1,06,25,205 shares at a price of Rs 245 per share amounting to Rs 260 crore to its promoters, existing investor L Capital and Renuka Ramanathan-led private equity investor Multiples Alternate Asset Management (Multiples).

Through the issue, Multiples will invest around Rs 153 crore, L Capital would invest around Rs 82.3 crore and promoters would invest around Rs 25 crore into PVR. Post the equity dilution, both Multiples and L Capital would own around 15.8% stake each in the company and the promoters will hold 32%.

The management is also holding an extraordinary general meeting in the first week of December to consider and pass a resolution on raising the borrowing limit from Rs 300 crore to Rs 1,000 crore.

Analysts see the Cinemax acquisition move as a positive one for PVR.

“First, PVR will become the largest player in the segment post this acquisition. Secondly, adding the Cinemax screens to its portfolio will not only increase PVR’s revenues but will enhance profitability from Day One as Cinemax is a profitable chain already,” said an analyst with a leading domestic brokerage, requesting anonymity.

Amit Patel, an analyst with Angel Broking, concurred. “This transaction is a positive development for PVR and the price appears to be a very fair value. The impact is clearly visible from the way market has reacted to both the stocks.”

According to industry experts, setting up these many screens on its own would have cost the company around Rs 350 crore, at Rs 2.5-3 crore per unit.

However, it would have had to operate these at a loss for at least 2-3 years until they became profitable.

The PVR stock hit an intra-day high of Rs 275 on the news before closing at Rs 255.45, up around 8% from the previous close.

Shares of Cinemax, on the other hand, gained nearly 5% to close at Rs 184.25 – a new high.

If anything, analysts are not sure how the company will fund the acquisition.

DLF eyes 'very large, prized' development project in Mumbai

Rajeev Talwar

This Q&A first appeared in DNA Money edition on Wednesday, November 28, 2012.

Rajeev Talwar, executive director of DLF Ltd, says the country’s largest realtor is discussing taking up an ongoing development project in the megalopolis. Overall, he said things are better in the real estate sector and high inventories will act as a price ceiling as boom returns. Excerpts from an interview...

DLF currently has no project in Mumbai. Any plans to have one going forward?
We do have an interest in a very large and prized development in Mumbai. This project will be taken up with our partners very soon. We are currently doing the initial part of what we were supposed to do in that project. This is an ongoing project and one would be able to see a lot of construction activity on the site but the commercial part will be launched in consultation with our partners at a later stage. So the rehabilitation part has been taken up first, post which we will launch the residential development. I would be in a position to share precise details only later. Any announcement timeframe for this will be done once the partners have arrived at a mutual decision.

What is the story on DLF’s debt reduction?
We are working towards it. The Mumbai land deal with Lodha has concluded, money received and utilised towards cutting debt. Similarly, there are negotiations going on for the sale of Aman Resorts and wind-power business. We are quite confident of closing these transactions within this fiscal. Some funds are stuck with various departments of the government and various states – that should kick in as well. This apart, money would also flow in as a result of new launches happening in the coming quarters. So, we are well within our target of achieving Rs18,500 crore of debt (from Rs21,000 core) this fiscal. We are targeting to bring it further down to Rs15,000 crore the next fiscal.

How confident are you about closing the Aman Resort sale, considering the valuation concerns? It’s been in the works for a long time now.
These are complex financial transactions and they do take time because of the paper and legal work, but we are working very hard to close the deal. Valuations are a matter of international analysis and there is no point speculating over it. While we would certainly want to sell it at the highest price, the buyer would want it at the fairest valuation. It’s a two-way process, talks are ongoing and being held in India and overseas. We are extremely hopeful of completing the deal within this fiscal.

The new launches being planned -- will they be specific to certain markets or geographies? How much money are you expecting to receive from these launches?
We operate in a large number of states across the country, so launches will happen across the country. The launches spread over the next couple of quarters should give us anything between Rs2,000 crore and Rs3,000 crore. The money thus received will be very helpful in reducing debt further.

What’s the outlook for next year?
I think everyone – the policymakers, decision-makers, the finance minister, the Prime Minister himself – is looking forward to a much better year. I think they are working hard at it and in whatever way the private sector can contribute, I am sure we will. It will not only help the nation, it will also help us in turn. To come out of a cycle of low growth is a very difficult task for the nation but am sure it can be done.

What's the current business environment for realtors?
To tell the truth, it is looking up a little. But a lot remains to be done. If the quarter-on-quarter (Q-o-Q) GDP growth rates don’t show any improvement despite a good crop, we’d need a stimulus. If that happens, the overall business environment will look better, including for real estate.

What can spur the sector?
Finance minister’s persuasion on home financing by public sector banks. If food inflation gets under control and interest rates come down for individual buyers of homes, that would be great. A large inventory remains at the moment, which could open up for rental incomes once the economy starts looking up.

Then there are reforms required in the area of sanctioning supply. I think the time cycle taken over sanctions and then for construction to commence is fairly long in various local bodies or as a nation put together. If this can be cut down, supply will sync with demand. One must remember that real estate is a long-cycle industry and it takes 3-4 years to catch up with demand.

Unsold inventory is a major concern in the industry…
In a way, we are very fortunate in India that there is a large numerical inventory available. That’s because when there’s an economic upturn, price bubbles get created. The current inventory can take care of demand for the next 12-24 months, which gives enough time for the market to establish equilibrium between the demand and supply cycle. Despite difficult circumstances, building and construction activity did not plunge. And, overall, there has been investment by companies like Godrej Properties and Tata Housing, that are doing very well today.

But prices have shot through the roof and houses are not affordable anymore...
All those saying this belong to only super-metros. I don’t think people outside the four cities of Delhi, Kolkata, Mumbai and Chennai would agree with such a perception. And everyone in these four metros refers to only the established parts of the city where supply is low. As a result, there is significant increase in prices per square foot (psf). It is a fact that in satellite cities or in peripheries of towns, you have prices that are very affordable. I think from anywhere from Rs 2,000 to Rs 4,000 psf, which is rather affordable than expensive.

But houses in even the extended suburbs of, say, Mumbai remains unaffordable.
Areas connected to super-metros will certainly have that kind of a situation. Land prices in such locations play a significant role in increasing the overall cost of an apartment and I’d assume that would have been the case. That apart, one will also have to look at the kind of margins these developers are operating in. Having said that, if you look at cities like Ahmedabad or cities in south India, one can still find apartments that are priced in the Rs2,000 to Rs4,000 psf range. My personal view is that housing is still an affordable expense. But people want to live close to the heart of the city where housing for the middle class remains a dream because prices are so high.

Mumbai developers seem to be fascinated by luxury developments…
I think Mumbai is a well-developed market. Everyone calls their project a luxury development because that’s the catchword for a good quality of life and nothing more than that. While developers do talk about luxury, the size of Mumbai apartments is still small. I must say the developers are doing a very good job. The credit to a large extent also goes to the citizens as they use space extremely well. Mumbai is one city where one has seen that right from the floor to the ceiling, every inch of space is used optimally. I think that’s an extremely efficient usage of space. Developers are able to squeeze in two or even three bedrooms even in a 1,000 sq ft flat. That’s is not the case in other cities. While land prices in Mumbai are certainly a matter of concern, a liberal regime with respect to floor space index and floor area ratio will help to a great extent in arresting unaffordability – larger the supply lower the price. These are a few things our colleagues in Mumbai will have to pursue aggressively because the city does face a shortage of supply.

World facing 4 Grey Swans: WPP CEO Sir Martin Sorrell

My colleague Nupur Anand co-authored this story appearing in DNA Money edition on Saturday, November 24, 2012.

Sir Martin Sorrell, CEO of WPP, the marketing communications giant, says global companies are sitting on as much as $2 trillion (Rs 11 lakh crore) cash instead of spending because of an overwhelming sense of caution.

As a result, their focus has shifted to the very short-term, quarter-on-quarter, instead of a year or more, he said at an event on ‘How the world views India — opportunities and challenges, 2013 and beyond’ organised by the Bombay Chamber of Commerce and Industry on Friday evening.

The ad maven predicted 2013 will be a difficult year with not many significant events scheduled. “2014 looks better with big events happening including in Russia and Brazil,” he said.

According to him, there are four potential Grey Swan events facing the globe: the euro zone crisis, the Middle East crisis, the repercussions of change of guard in China and America’s gargantuan debt burden.

The economic / financial crisis in euro zone has shifted attention to BRIC countries primarily India because it is witnessing better growth, increased levels of success and lots of smiling faces, though politically, it’s a minefield, while the Middle East has become totally unpredictable, he said.

In China, the new leadership’s strong message on corruption has instilled great confidence, he said. “Within two years, major changes are expected there,” he said. 

Lastly, with $16 trillion debt, Sorrell doesn’t know what is really happening in America. “The new administration will have to get its act together fast. And they can’t keep ignoring the Gorilla in the room. There has been significant erosion in confidence, and most companies have missed their topline forecasts earlier. The post-October period is looking better, though,” he said.

Meantime, Sorrell said India remains better placed than other nations because of easy accessibility, increased growth, success rate and smiling faces.

“India is a vital destination, more important than other countries because the access to companies here is significantly easier compared with many other nations. Populous, rapidly growing countries like India will contribute to global growth,” he said.

Sorrell said today India has a series of successful companies and a good number of big names globally are Indian – praising what Tata Motors did with Jaguar Land Rover or what Mahindras, Ambanis, Mittals have done.

“However, I find visits to India very disturbing. The abject poverty outside the pristine campuses in Bangalore is unnerving at a mental, psychological and emotional level. In fact, this is the reason why I like going to China more. It is not that there is no poverty in China but just that they have done a better job at concealing it with the investments in infrastructure,” he said.

Cipla to take reins of South Africa firm

This story first appeared in DNA Money edition on Thursday, Nov 22, 2012.

Cipla has offered to acquire a 51% stake in Johannesburg Stock Exchange-listed Cipla Medpro South Africa Ltd, which has been marketing its products in the region. The offer price of 8.55 rand per share, an 11% premium on Cipla Medpro’s closing share price on Tuesday, takes the overall deal value to $220 million.

Cipla Medpro, the third-largest pharmaceutical player in South Africa, sources almost 80% of its products from Cipla and has been a sort of captive front end for Cipla. It has a turnover of over $200 million, according to S Radhakrishnan, wholetime director of Cipla Ltd.

However, the Mumbai-based company does not own any stake in Cipla Medpro as of now. Radhakrishnan said discussions between the two companies have been on for a while. 

Analysts lauded the move as a strategic one, which would give Cipla long-term rather than short-term benefits.

"My understanding is that the acquisition may not necessarily be earnings per share (EPS) accretive. If one draws a parallel between revenues from Cipla’s Africa business and Cipla Medpro’s South Africa business and then compares it with the overall acquisition cost, its impact on Cipla’s EPS is just about 60 paise, which is not very huge. So what Cipla is primarily buying into is Cipla Medpro’s distribution strength in South Africa as part of a forward integration process. Besides, this acquisition will also help Cipla cut costs significantly,” said an analyst with a top domestic brokerage, requesting anonymity.

Cipla plans to fund the deal through internal accruals. 

The management is open to more such opportunities, said Radhakrishnan. “At the moment, there is nothing specific on the anvil. However, from a business prospective, we are open to doing what is required for the company’s growth.”

A Reuters report said the agreement was spearheaded by Cipla Medpro’s founder and former chief executive, Jerome Smith, who quit last month following charges of ‘gross misconduct’. There was speculation in the market that Smith’s departure could impact Cipla Medpro’s relationship with the Indian company.

Radhakrishnan, however, denied the events were connected.

StrawberryFrog brings its 'cultural movement' to India

This story first appeared in DNA Money edition on Wednesday, Nov 21, 2012.

New York-based StrawberryFrog, which prouds itself as the world's first ‘cultural movement’ creative agency, has set foot in to the Indian market. Founded in Amsterdam in 1999 by Swede Karin Drakenberg and Scott Goodson, the India operations of StrawberryFrog will be headed by Raj Kamble who joins the agency as managing partner.

Kamble was earlier associated with BBH India, the UK-based Bartle Bogle Hegarty (BBH) Network's Indian arm. He moved out of BBH India in January 2012.

Specialising in devising movement strategies and programmes for its clients, Scott Goodson, founder and chairman, StrawberryFrog, believes now is the perfect time to come to India and take that leap — akin to a frog that can leap 60 times its height.

Interestingly, StrawberryFrog is the rarest frog in the world and comes from South America. Being a poisonous frog, the agency’s briefs, Scott said, always look for the most effective poison.

“StrawberryFrog has a culture of collaboration, fun and agility and jugad. India is a very important market for a host of international brands. Besides, a lot of Indian brands / companies are globalising and expanding across the world. I think this is just the perfect time to come to India and open up an alternative global marketing company,” said Goodson. Among the agency’s clientele include names like Mahindra & Mahindra, Google, Microsoft, P&G, Emirates, LG etc.

In addition to his role as global chairman of StrawberryFrog, Goodson recently published a new best-selling book ‘Uprising’. He has also been on the Cannes Titanium jury and writes for Harvard Business Review (HBR), Forbes, Huffington Post and Fast Company.

Elucidating on the agency’s cultural movement strategy, Scott said, the traditional advertising was primarily based on a model of providing marketing messages through television. “That’s changing. If you have a 16 year or 20 year old daughter or son, you realise there are other channels of communication that are equally important if not more important. In the United States there were soap operas, which were TV programmes created by advertisers of soap because women / mothers would watch it. All those shows disappeared about three years ago because mothers in the US (with an average age of around 24) no longer watched television,” said Goodson.

With new media especially digital and internet making a huge impact on the consumer behaviour / perception about a company or a product, Scott feels it is very important to tap each and every medium, build a movement through universal messages and create communities that will also connect with products and services being offered.

“No one wants to live in a smaller world today. Everyone wants to be in a connected world inspired with ideas, progressive dynamic thinking, they want to be alive. People are defocusing from the TV medium and a large part of the consuming population is online on Facebook etc. So how do you device a marketing strategy that’s coherent at a time when media is becoming so fragmented.

“A movement marketing strategy is all about finding an idea on a rising culture that is relevant to a wider audience across the span consuming your product. And once that’s done, you tie that idea back to the brand which then becomes central to that movement. Brands can identify, crystalise, curate, lead and sponsor a mass movement. Once you have a movement, you can do anything in a fragmented media environment,” said Goodson.

StrawberryFrog’s Indian arm is expected to get fully operational by the end of this month i.e. November 2012. While the company has already hired respective operational heads, Kamble refrained from sharing details saying, “We have some people on board but cannot disclose at this stage.” On the agency’s media strategy in terms of planning, buying etc Kamble said, “To be honest we haven’t figured that out yet.”

Talking about how has the agency dealt with this aspect of business in the past, Goodson said, “We generally work with partners and that’s what we are looking to do in India as well. Many clients have their own relationships so you can either plug into them or if they don’t then we can bring a partner and work with them.”

Indian Hotels going the asset-light way?

Business Editor Raj Nambisan is the lead writer of this story appearing in DNA Money edition on Wednesday, Nov 21, 2012.

Indian Hotels Company Ltd, which runs the Taj Group of Hotels, is altering its business model, according to people familiar with the development.

Till now, the country’s largest hospitality chain has been constructing hotel projects itself, which often leads to cost over-runs and clogged finances.

Under a new model, all hotel projects of the company will be executed by Tata Realty & Infrastructure Ltd (TRIL), while IHCL will manage them, one person said.

TRIL has already entered into an agreement with IHCL on this, another person said, adding the company has taken over -- or is in the process of doing so --three projects.

Officials of both Indian Hotels and TRIL refused to comment.

The Tata hospitality jewel has been financially stressed, posting net losses for the last four quarters. In July-September, the company reported a net loss of Rs67.82 crore on a net sales of Rs813.80 crore as against a net loss of Rs52.59 crore (on net sales of Rs743.86 crore) in the corresponding period last year.

The company owns and manages 115 hotels with 13,887 guestrooms under the Taj, Vivanta, Gateway and Ginger (through subsidiary Roots Corp Ltd) brands.

Traditionally, ownership and managing the operations (or management) are the obverse and reverse of the hotel business.

When management gets separated from ownership, it takes out all hotel assets from a company’s books but there is little clarity on whether IHCL will go the full tilt on this path – of spinning off the ownership of other properties that it already owns, especially marquee estates such as the Taj Mahal at Gateway of India.

An analyst with an audit firm, who did not want to be named since he’s not authorised to speak to the media, said a spinoff significantly enhances valuations and shareholder value. It also brings in efficiency with respect to taxation and better profitability.
IHCL has often talked about going asset-light.

"I am not at all surprised if the Tatas are thinking on those lines. While there aren’t too many examples to cite in the Indian hospitality market, that’s exactly how international players -- be it Marriott, Starwood or Hilton -- have restructured to become a pure-play hotel management companies," said a top hotelier also requesting anonymity.

In a similar exercise early this year, the Warburg Pincus-funded Lemon Tree Hotels separated ownership and management. The Patu Keswani-promoted entity then went on to also set up a third-party hotel management company and introduce new hospitality brands.

'Green buildings will be ubiquitous in a decade'

An edited version of this Q&A first appeared in DNA Money edition on Tuesday, November 20, 2012.

Phillip Bernstein

A green building is one which uses less water, optimises energy efficiency, conserves natural resources, generates less waste and provides healthier spaces for occupants, as compared to a conventional building. Phillip G Bernstein, vice president - Industry Strategy and Relations, Autodesk Architecture, Engineering & Construction (AEC) Solutions, delves into the concept of green buildings and its significance in creating a sustainable living environment. Edited excerpts...

Could you throw some light on the green building concept? How has is really evolved over the years?

It’s a great question. I am an architect and I practiced for a long time before joining Autodesk. When I was a student in the late 70s or nearly 80s, we had just come out of big energy crisis. What was called green building back then used to be solar architecture. It was about trying to make buildings use energy more efficiently and that’s all anybody cared about. However, as soon as gas prices went down the whole idea disappeared.

I was talking to one of my professors about the question of solar architecture and I asked him if it was important. He said No, it’s just pluming and that doesn’t mean anything. That was 30 years ago.

Now we have this green building movement, which is about building real estate. While architecture is a cultural phenomenon the green building movement is all about growing awareness of the responsibility of the things that we make and how they affect the environment.

How is the concept different today and what will it be like a decade or so from now?

A lot of real estate developers would talk about green as a marketing idea or something they are being forced to do that cost them extra money. We are in this middle period, where we are trying to think, fighting among ourselves whether it’s important. I think in the third period, which is probably going to start 10 years from now and going forward it will not just be a discussion but a basic part of how buildings should be built.

For example, back in the 1920s in the United States, when building industry was evolving after the civil war the idea of making a building safe for its occupants was optional. It wasn’t required by the law, it wasn’t the part of the regular working or part of the process. Then there was a terrible fire in New York where hundreds of people were killed in a factory. And suddenly the idea of life safety became part of architects and engineers and builders.

We don’t talk about it, you don’t hear a developer ever say you know I am not going to put those sprinklers in that building because it’s going to cost too much or I am not going to build those fire stairs because they are too expensive or I am not going to put any emergency lighting because that costs me too much money. It’s just what we do now and green buildings are going to become what we would basically do to build these structures.

Has global warming necessitated the concept of green buildings?

I live in New York, my house is surrounded with trees and the city is flooded... It’s all global warming, climate change causes it, there’s too much energy in the atmosphere. That energy is caused by solar radiation being trapped in the energy by carbon. Buildings produce 40% of the carbon that we put into the atmosphere, it’s as simple as that. Buildings consume most of the electricity produced, most of the carbon and use most of the water that we use. It’s not optional.

My recent discussion at a green building summit in Hyderabad was if your obligation is to predict the things affecting the environment when making a building or a highway or waste water treatment plant or an airport the best way to do that prediction is to create a digital prototype and test it in digital format first. And that’s not what we do what we do as architects and engineers is make diagrams, then we speculate and we do very quick analysis and what we can do with computer is actually predict what is going to happen.

Are people really taking it up? Is it very specific to developed economies?

It's starting to happen. It’s much better understood concept in the markets where we see deeper penetration towards technology like US, UK, Australia, Singapore etc, so we are getting there. I’ll give you an example, in the UK when the government changed last year, the new prime minister said we are going to a net zero carbon economy. Meaning buildings are no longer going to contribute carbon to the environment and he assigned his bureaucracy the problem of figuring it out how to do this.

One of the things happening in Britain in the following years is the government is now requiring that all government buildings be designed using digital models instead of drawings. So we are going to get the building industry to net zero and use advance technology to do it. They are studying the technology, they are training, they are experimenting, they are writing standards and they are making the change.

So unless it made mandatory by government, it won't be take seriously?

Ultimately it has to be, as those government regulations are manifestations of social desire. In India, I was told at the recent green building conference in Hyderabad, over 60% of the buildings are going to be built in the next 30 years. What it means is that 60% of all the buildings that will exist in India 30 years from now, have not been started yet. These buildings will generate huge amount of carbon, consume huge amount of building materials and huge amount of water. Would you really go about building such kind of infrastructure, without thinking about the effect on the environment? Doesn’t make any sense right?

So the question is what’s the strategy? I watch my colleagues from the Indian green building community trying to figure it out what they need to focus on, they trying to decide and it’s because the opportunity is amiss. And it’s a question of picking the things which they think can be most effective. I do believe that no matter what they decide to do, modernising the methods of the construction industry which includes using advanced digital technology, which is not a new idea.

What are the elements that make for a green building?

The essence of a green building is one that has a minimum amount of impact on the environment and has responsible relation to the environment. Buildings are enormously complex and the process of building them is enormously wasteful. They use huge amount of energy and they produce huge amount of carbon and so a net zero carbon building is one that the design and construction strategy is such that the building does not consume any energy after everything is set and done.

Is doing a green building more costly?

No, not necessarily. What I am saying is, they’ll do what the model says they are being driven to do. They are not going to come here and do out of the goodness in their hearts.  So I build a building which makes a small incremental investment in the infrastructure of a green building. But you would reap the better fruits over the life of the building.

How effective is Indian Green Building Council (IGBC)?

They have done a good job. I think they are just on the cusp of really getting this thing going. They claim they have got 1.26 billion square feet of green building area which sounds impressive and at one level it is. But it’s only couple of 1,000 buildings. They still have to go a long way considering the numbers of building that will be built in the coming years.

'Home buyers can clearly discriminate between credible and non-credible supply'

Abhisheck Lodha

Abhisheck Lodha, managing director of Lodha Group, which is coming up with several premium realty projects in Mumbai, feels the fall in interest rates is set to give a fillip to the sector. He said the credible and non-credible supply of real estate developments need to be looked at separately. He spoke about the market scenario and his company's plans. Excerpts from the interview:

What is your view on the current demand scenario, particularly in the premium segment which constitutes majority of your realty development portfolio?

The market is quite broad and demand is very strong for apartments / properties in the Rs 50 lakh to Rs 5 crore range. Unfortunately, majority of the discussions we get to hear these days is about piling up of supply and how inventory is not selling. What needs to be taken into consideration is that the home buyers can clearly discriminate between credible and non-credible supply. So lack of sales in the non-credible supply is clubbed with sales in the credible supply, but these are two different demands and markets.

Borrowing costs are still on the higher side for the home buyer though...

Some banks have announced interest rate cuts for mortgage financing in the recent past which is a good development for the industry. For the first time in the last two years, we are seeing single-digit interest rates and that's a very strong psychological effect. Overall, the rates are showing signs of coming down as there is a lack of credit uptake in the economy. Housing mortgaging is a long-term safe sector and no bank has ever lost money lending and non-performing assets are barely 0.1% to 0.3%. Banks will be more focused towards mortgage lending, which is good for the sector.

Do buyers in the Rs 3-5 crore range really find these 0.25% to 0.5% reduction exciting enough?

In absolute terms, a reduction of that kind may really not make much of a difference. But if you keep adding the percentage point reductions over a period of time, it is certainly exciting on a cumulative basis. Just two months ago, cheapest mortgage was available at 11% and the rate being talked about currently is 9.5% or so. Now a reduction of almost 1.5% in interest rates certainly makes a lot of sense.

How is the New Cuffe Parade development shaping up?

New Cuffe Parade is a neighbourhood and will develop over time with very unique offerings. We have already launched two developments there and a 63-storied third project was recently launched wherein we roped in UK-based Yoo Ltd to design, brand and market it. The development will have a mix of all the best that the world has to offer. We will keep striving to make sure that the new city centre has everything in terms of design, services and facilities that a project like that should offer. We have already sold more than 70% of the first two towers that were launched in the market.

What is the profile of buyers at your properties? Do you also get a lot of overseas buyers?

While there are people from outside India who have taken interest in this development, majority are domestic buyers. As a company we want to cater to the requirements of people of India, people with really good taste and desire for quality real estate developments. I strongly believe that our own people should be occupants of these apartments. Our developments are planned for the end-users residing in India.

The Indian rupee has depreciated against the US dollar and that appears to be presenting a huge opportunity for international buyers...

We always get such buyers for our developments, but that's just about 10-15% of the overall customer base. It's not very significant. Besides, it is very likely that the rupee could get stronger against the US dollar too, so it may not prove to be such an attractive opportunity then.

With the DLF land parcel acquisition completed, what are your plans for it?

It will be a separate residential project as all the related permissions are in place. I really cannot share details about it at this stage.