Late last month, Mumbai-based Lodha Developers hit the headlines when it announced the acquisition of MacDonald House, an upscale property in one of the most sought-after localities in central London which is near the old US embassy, for close to Rs 3,000 crore (£299 million) from the Canadian government. The 0.67-acre property is located in the heart of the city and houses the Canadian High Commission. Once it is completed, the acquisition will make Lodha Developers the owner of one of the toniest pieces of real estate in London.
The deal is significant for two reasons. This is the first time that an Indian developer has ventured into the London market. So far, Indians had ventured only into West Asia. It has also happened at a time when the Indian real estate market is in the dumps - demand is well below supply and developers are reeling under a liquidity crunch. And this is not a small acquisition. To raise so much money in these days of tight liquidity at home is no joke. Naturally, people are asking if Lodha Developers has bitten off more than it can chew.
Abhisheck Lodha, the 34-year-old managing director of Lodha Developers, is no stranger to such questions. In 2012, Lodha Developers had bought 17 acres from DLF, the country's largest real estate developer, in Worli, Mumbai, for a jaw-dropping Rs 2,725 crore. (DLF had bought the land from state-owned National Textile Corporation for Rs 703 crore in 2005 but decided to exit in a few years; it made a killing on the transaction.) "When we bought the DLF plot, everyone asked how we will manage it. Whatever we have done is there for everyone to see," Lodha said from London.
Getting the mix right
What Lodha has done is that he has launched a mixed land-use project called The Park on the plot. The project boasts celebrity connections: Bollywood actress Aishwarya Rai Bachchan is the brand ambassador. Lodha has tied up with US-based Trump Organisation to build a tower inside the project. The 800-feet tower will comprise two or three units on each floor, with a mix of 3BHKs and 4BHKS. The price tag will be Rs 8 crore and above. According to the company, the tower with its golden edifice will be "an icon on the Mumbai skyline". Lodha claims the project has already racked up sales worth Rs 10,000 crore . It is not clear if this is the money that will bankroll the London acquisition.
In addition to the DLF and London acquisitions, the Lodha group bought a plot in Wadala from the Mumbai Metropolitan Region Development Authority for Rs 4,053 crore in 2010. It is considered the biggest real estate deal in the country so far. In all, Lodha Developers has spent over Rs 2,000 crore on buying land in the last three years, making it the largest land buyer in the country. In addition, the company repaid Rs 2,542 crore to Deutsche Bank last year. Deutsche had invested Rs 1,640 crore in Lodha Developers in 2007 by buying convertible debentures of the company. The company, it is worth noting, has found all this money even though it deferred a Rs 2,000-crore initial public issue in 2010 due to the volatile markets. So, where's the money coming from?
Lodha, for his part, says most of the acquisitions, including the recent one in London, have been funded through internal accruals. In a recent interview with Business Standard, Lodha had said the company did sales of Rs 8,700 crore in 2012-13, which is the highest for any real estate developer in the country. (If Lodha's numbers are accurate, his company has overtaken DLF which did sales of Rs 7,772 crore in 2012-13.) There is some scepticism, though. Raja Kaushal, managing director of Gatere, an alliance partner of BNP Paribas Real Estate, believes there is a difference between the announcements made by unlisted Lodha and its listed peers: "Listed companies need to disclose numbers every quarter, but Lodha does not have that obligation."
Lodha had insisted in an earlier interview that business was booming. "We had cash flows of Rs 2,500 crore last year and we will have cash flows of Rs 3,000 crore in 2013-14," he said. "We have the best credit facilities in the country and our average cost of funds ranges between 10.5 per cent to12 per cent." The Lodha real estate empire is closely held. According to Bloomberg Businessweek, Lodha serves or has served as a director on the boards of more than 40 companies, most of them in real estate and linked to the Lodha name. Business Standard could not access the balance sheet and financial performance of these companies, except for Cowtown Land Development which reported revenue of Rs 491.74 crore and loss of Rs 25.39 crore in 2012-13.
No debt problem here
Sanjay Dutt, the managing director of property consultancy Cushman & Wakefield, believes Lodha Developers is financially comfortable. "Its debt-equity ratio would be around 1:1, whereas most developers have 1:3," says he. "If you have assets of Rs 10,000 crore, it does not matter even if you have debt of Rs 10,000 crore on your books." The Lodha Developers website attributes the "group's tremendous success" to "financial investments from the finest global investors including JP Morgan, and Deutsche Bank".
But at a time when about 45 per cent of Mumbai's under-construction properties are unsold, how is the Lodha group generating such strong cash flow? Lodha claims, and many in the industry agree, his projects in Dombivali and Kalyan on the outskirts of Mumbai where he is developing mid-income projects and in central Mumbai where he is building a mix of premium and mass housing projects are all doing brisk sales. "Lodha is a brilliant marketing story. It has tried everything, be it getting Aishwarya Rai or Trump into its project or renaming a place. It is doing higher numbers than before. Buyers believe in it, despite it completing only a few projects till date," says Kaushal. The Lodha Group is developing 35 million square feet of real estate with over 30 projects in and around Mumbai.
Kushal adds that Lodha's ability to buy clean titles, get approvals and launch projects is very good. For instance, within two months of buying the DLF plot in Mumbai, Lodha did a pre-launch of the property, which was considered way too fast for any realty project in the city.
According to sources in the real estate sector, Lodha does thorough planning on marketing, sales and development even before he bids for a project. "They buy the property, launch it and quickly exit, unlike many developers who sit on land thinking prices will go up," says the director of a Mumbai-based developer which competed for a South Mumbai property with Lodha Developers.
"They also prepare dummy brochures for the project if they like the piece of land on the block." Dutt of Cushman & Wakefield believes that except Lodha Developers none of the realty companies has built strong markets among non-resident Indians, or NRIS, in the overseas markets, and this has helped it in selling projects better than others. Lodha has set up offices in Dubai, London and other markets to tap NRI interest, consultants say. Dutt says what also helps is that Lodha has launched projects across price points - a good way to hedge the risks.
"The group has projects starting from Rs 3,000 to Rs 30,000 per square foot across Mumbai, which not many developers have," Dutt says. Thus, its projects in Mumbai run the spectrum from Napean Sea Road to Dombivali.
Of course, the Rs 3,000-crore question of the moment after the Mac Donald's acquisition is what will Lodha do with the London property? One report suggests that the company may convert it into super-luxury homes and sell them for a neat profit. Those who know Lodha won't be surprised but it remains to be seen if the London market is buoyant enough for Lodha to sell these homes.
WHO ARE THE LODHAS?
Lodha Developers was set up in 1980 by Mangal Prabhat Lodha, who holds a law degree from the University of Jodhpur. He is the father of Abhisheck Lodha and is the chairman of the company. He is, according to the company's website, "involved in the business development and corporate relationship functions." He is also a Bharatiya Janata Party member of the Maharashtra legislative assembly. This has, at times, led to speculation that some politicians have invested in his group. "It is a stupid allegation. There is not a single rupee invested from illegal sources. If somebody believes that we have such funds, they should come in front and prove it," says Abhisheck Lodha,(pictured above) the managing director of the company.
Abhisheck Lodha holds bachelors and masters degrees in industrial engineering from the Georgia Institute of Technology, Atlanta, USA. He joined the group in 2003, says the website, and since then has been involved with the design, construction and corporate planning functions. Abhinandan Lodha, deputy managing director, is involved in sales, marketing and finance. Rajendra Lodha, director, leads the business development function.
Apart from Mumbai, the group is developing projects in Pune and Hyderabad. "The Lodha Group has several developments to its credit, including the Lodha Bellissimo, the only Indian residential development to feature amongst the top 1,000 landscapes in the world," the company's website says.
LODHA AT A GLANCE
Lodha is developing over 30 projects in Mumbai
Had sales of Rs 8,700 crore in FY 2013;
Bought land parcels worth Rs 12,000 crore in the last three years
Bollywood actress Aishwarya Rai Bachchan is the brand ambassador for a Mumbai project
Last month, bought prime London property for over Rs 3,000 crore