As you drive through the recently unveiled Haryana stretch of the Dwarka Expressway (19 km section, it will not be difficult to conclude why the zone is considered one of the most promising emerging realty hubs in the country. On both sides of the stretch, you will notice construction of various projects at different stages bearing the names of some of the big names in country’s realty today – Sobha, Godrej, adani, Experion, etc. and, as you reach close to Sector 104 zone, the sight of a bunch of tall towers bearing the signage of hero realty will not fail to draw your attention. The upcoming township comprises eight towers (the last one has been recently launched) and comprises over 1,000 residential units in varying sizes. Local company officials will tell you that this will be the first of the many projects that has been planned in this location in the coming years and, seen from that perspective, it would be more like a flagship project for the company in Delhi/Ncr.
But calling it the flagship project in a specific zone could well be an understatement. Given the current positioning of the firm, the project may well mean more than that. It may mark the arrival of the firm on the bigger realty stage and become a more formidable force for the future developments in the medium to long run. The company may have been in existence for little less than two decades but, after a slow start, as the market observers vouch, it has shown aggression in the post-corona phase. and this owes to a host of factors, which includes change in the business approach, adopting different business models, and a makeover of the top leadership team. The business environment in the realty sector has also significantly improved in the recent years with a decisive demand and pricing uptick witnessed across the country. and
Shah: looking at an exponential growth journey
the company under the leadership of realty sector veteran Dharmesh Shah (who held senior positions with other realty majors like Lodha, adani, Purvankara, etc) seems to be making most of the available opportunity to get the company its prized positioning in the marketplace that should match its pedigree. “We are looking at an exponential growth journey ahead”, Shah says, while explaining different elements of company’s strategic plans for the near to medium run.
Hero realty’s imagination of a quantum jump near-to-medium-run journey clearly stems from that larger trend in the market, wherein corporate group-backed realty firms are slated to become a more dominant force in the future. Godrej, Tata, Mahindra, L&T, Adani and, now, hero are part of this club which are likely to vie for the expanding realty pie with the well-established specialists like DLF, Oberoi, Sobha, Purvankara and others established regional players in the market.
Corporate India, across diverse sectors such as telecom, automobiles, consumer goods, textiles, steel, pharmaceuticals and engineering, is spearheading the transformation of Indian real estate, contends Anuj Puri, chairman, Anarock Group. Raymond, Dabur, TVS and Kirloskar are some of the new entrant corporates and other large developers today are better equipped to manage the business efficiently and profitably. “They have successfully launched and executed several residential and commercial projects,” Puri underlines. “Given their strong background and capabilities, it is easier for them to raise capital and liquidate their products owing to a healthy record of execution and deliveries”.
Going by the market perception, in the post-corona phase, new equations have emerged in the Indian realty space wherein the corporate backed realty firms are showing more aggression. “It is a spell of consolidation in the real estate market, wherein weaker players are going out of the game and category a players (comprising players with real estate as the core competence and those with the corporate backing) are looking at the next level of big time growth. more than anything else, the trust factor is working in their favour, as the buyers are becoming smart, better informed and more demanding,” says ravi Shankar Singh, MD, residential, colliers India. adds Rahul Purohit, co-founder, Square Yards: “many of them had arrived in the market much earlier but, barring Godrej and Tata realty, they were not quite agile as they felt that the market lacked a sound regulation mechanism. But RERA changed all that and, now, after a brief pause again due to the corona (2020-21) hit, many of them are showing intent to drive their realty business at full throttle ahead”.
Analysts point at other trends pertaining to the growing presence of realty arms of the big groups. For instance, they are mostly playing at the entry point of the growing luxury space which is witnessing a serious demand spurt. coming from a bigger stable, financing is not a challenge for them. There is no need to buy land afresh for a project, as landlords across the country are keen to join hands with them in a partnership mode. Plus, they command a premium of 5-20 per cent over the existing rates of a similar project executed by a category B player (a regional player, who has been prominent in a specific zone for long). and the deliveries by the business conglomerates’ realty entities are still far away from a serious scrutiny. “The bulk supply line of the companies backed realty firms has just begun to unlock,” Purohit informs. “Two years from now, we will have a better understanding of their buyers’ sentiment on quality”. But, in terms of opportunity, as some analysts believe, Indian reality could well be looking at a high growth phase like the earlier 2002-08 spell. “Indian realty sector (things remaining normal) is slated to become a $1 trillion business by 2030, from the current level of $500 billion,”
Affirms Singh of colliers. “The scope is huge. There is a shortage of 20 million residential units in the five metros alone, which obviously also includes affordable housing, which has an overwhelming share in the projected trend”. according to Anarock’s consumer sentiment surveys, the demand for branded developers continues to rise. These include listed players or developers who have been operating for a decade and more, or even newly-formed entities of large conglomerates and also those with sizeable areas under development either locally or Pan-India.
Industry insiders say that, during the first 15 years of its journey, the company has been quite slow, as cash flow management was a challenge for them, which was probably holding them back. The corona-driven crash had also hit construction cycle badly and nobody was an exception here. On a cumulative basis, hero’s realty unit has delivered 3.5 million sq ft of development, which is not too high a figure and they took too much time to reach out to a high growth zone like Gurgaon.
Shah, who has been in command for the last 25 months, says the change in leadership in 2022 (the top 20 per cent has been replaced) was exercised to infuse a new energy in the firm and make aggressive moves. The mandate had several elements, the key among them being a change in the entire approach. “What really excited me was the idea of our chairman Sunil munjal to bring an industry model in the real estate format. This idea came from an automotive mindset where there are fixed vendors, fixed components and fixed sizes. The broader agreement was to make the fixed unit sizes, fixed templates and the same kind of specs and then scale it up. It’s basically an assembly line approach,” Shah narrates.
Provisioning for consistent cash flow was also an important element for the rejig plan and for this the company has switched over to an asset light model which provides it financial flexibility as it selectively chooses landlord partners. “as per the model, we bring all our expertise of development, marketing, sales, customer, management and end-to-end execution of the project. and there is a landowner who puts the land. We do a revenue share or an inventory share with them,” Shah specifies. Under the formula, the landowner generally takes 32-35 per cent, while the execution side keeps remaining 65 per cent. after the expenses, what remains is its profit. But, since the land cost has been borne by the owner, the realtor does not have to bear nearly 40 per cent cost of the project.
Ashish Kaul, CMO, hero realty, who is another important figure in the company’s top hierarchy today says that, along with the change in the business model, the company has been keen to set a benchmark in customer-centricity. “We are the least advertised player and we are not saying that we want to be the biggest,” he emphasises. “rather we would like our customers to know us because of deliverables that match our brand reputation. Our chairman has clearly said when you talk to a customer, consider it you are talking to me. The idea is to usher in a consumer brand-oriented lifecycle management in our real estate enterprise that will be the single largest differentiator between a hero realty and everyone else”. Kaul has held senior positions with several topnotch consumer facing firms in several sectors including broadcasting. “To keep our brand image intact, the company is designing its offerings to attract median Indians (mostly with a household income of R1-2 lakh), invariably doing direct sales and avoiding any kind of bulk selling to investors, something that has been a favoured practice for realtors,” he further elaborates.
Having made strategic changes, Shah and his key team members emphasise that the company is now ready for accelerating on the growth highway as the company has signed new projects and is aiming to open a supply line which will increasingly become robust. “From 3.5 million sq ft (in 3-4 projects), we have moved our portfolio to 10 million sq ft (about a dozen projects),” explains Shah. “We have presence in Gurugram, mohali and Ludhiana. In the next quarter itself, we are launching a 1 million sq ft in Ludhiana, 800,000 sq ft in mohali and about 2.6 million sq ft in Gurgaon. We are launching 4 million sq ft in a single quarter. That’s the growth this organisation has seen in during the entire 14 years”. Of the 10 million sq ft pipeline, about 20 per cent would be plotted (easier to monetise). meanwhile, in the next two years, hero homes Gurugram Phase 1 and Phase 2 in Sector 104 on the Expressway will be delivered. In the plotted development ‘hero ark’ in Sector 85, Expressway, Gurugram, will also be handed over to the buyers. another phase of mohali project will also be delivered. On an overall basis, the company is looking at about 2.5 million sq ft of delivery to the end consumer.
Hero realty will be making another major strategic change in its functional style as it would be taking vertical route for its product categories. hero homes and hero Earth are the existing brands for its residential offerings and later this year, it has planned to launch hero Signature – a brand exclusively meant for the premier category. and, then, at a more matured stage, there would be a vertical for commercial business which will be taken up after putting the current business in a high speed mode (currently it is a small component of the portfolio). “Each business will be driven on its own. That’s the objective. We want to emulate FmcG culture wherein every brand is treated on its own served by its own sales team, projects team. We are looking at our operations embodying the FmcG structure with automotive character,” Shah points out.
With consistent improvement in supply line and project deliveries, the company is expecting a significant jump in its earnings. according to Shah, hero realty is well-poised to register a revenue in the range of R5,000 crore in the next two-three years. Though he refuses to divulge the capex, Shah acknowledges that, operationally, the company is profitable now. and, there are subtle indications to suggest that the company will be closing the current fiscal with a topline at about R1,000 crore. a reliable source confirms that the company had notched revenues of R350 crore in the previous fiscal.
Meanwhile, Shah emphasises that the next two years will be critical to harness the recent gains and for this hero realty is committed to strengthening its position in North India with Gurgaon becoming the fulcrum of its expanding base with a series of residential projects (Sectors 85, 95, 99 and 102). more projects in Dwarka Expressway is quite understandable, as a recent study reveals that property prices in the region has seen nearly 80 per cent appreciation in the past 10 years, making it one of the most fertile current turfs for realty business in the country. Noida is the next frontier, where the company will be stepping in soon. hero realty, however, is not keenly looking at opportunities beyond North India in the next couple of years. But as and when it decides to move beyond its comfort geographical zone, the preferred markets would be Pune and Bengaluru.
Several recent media reports have suggested that hero realty looking for an IPO in the not-so-distant a future. Point it out to Shah and he laughs it off. “We are funded in-house, we have a promoter equity access, and we have easy accessibility to debt. We’re getting debt at 9-9.5 per cent. For me, getting funds is not an issue. Today a lot of equity players and funding agencies would like to partner with us. That’s why I don’t want to explore the IPO route as of now,” he remarks, while exuding confidence that the company is now well-placed to sustain its top speed drive, using options that would suit it best.
RITWIK SINHA
ritwik,sinha@businessindiagroup.com