Arihant is ready for revival
“During the pandemic year (2020), as part of the stimulus package aimed in improving the economy, the government of India introduced the Atmanirbhar Bharat Abhiyan package, which included measures towards improving the state of the affairs in the real estate sector as well,” observes a report by CARE on the sector favouring the affordable housing segment. “While some reforms were temporary in nature, and were to provide immediate aid to the sector, others were directed in uplifting the sector on a long-term basis.”
“The Maharashtra government has announced a reduction in stamp duty on property purchases,” the report adds. “The reduction came into effect in August 2020, with the state bringing down the stamp duty on property registration from 5 per cent to 2 per cent till December 2020. After this period, buyers will pay 3 per cent as the stamp duty on property registrations starting from January to 31 March 2021.”
This sentiment has had an effect on certain housing enterprises. For instance, the BSE and NSE-listed Arihant Superstructures Ltd (ASL) has been able to improve sales and improve the balance sheet. The company has reported sales booking of close to Rs460 crore in 2020-21 (P), as against Rs260 crore in 2019-20, with a strong revenue visibility for next few quarters. The company’s monthly collection has doubled which, in turn, will speed up construction activity.
“On the one hand, the company is focussing on increasing sales while, on the other hand, it is keen on improving its balance sheet strength,” explains Ashok Chhajer, 52, CMD, ASL. “With rising collections and sales booking, the company has repaid loans of Rs105 crore in 2020-21, which had stood at Rs387 crore in 2019-20 – over 27 per cent. This is a great achievement, since Arihant’s peers are still struggling with their high debts. The company’s finance costs improved to 11.54 per cent in 2020-21 (P) due to loan repayment. At the same time, the company has credit lines from India’s top private institutions such as HDFC and ICICI to support the construction activities to an extent of Rs250 crore.” Chhajer has nurtured the business, inspiring the industry with best practices and at the same time building the organisation.
Meanwhile, the counter on the BSE which was trading at Rs18 (last April) has now increased more than three times to Rs65, accounting for a market cap of Rs269 crore. The Chhajer family holds a majority of 74 per cent in the company.
“For any real estate firm, launching a project is probably the easiest thing to do,” explains Ambareesh Baliga, an independent market analyst, who has been tracking the company for the last five to six years. “However, completing the project within a reasonable time as promised, adhering to quality and cost without cutting corners is most important and as an analyst one needs to track that cycle closely to understand the long-term potential of the company,” he adds.
“The company has grown consistently in terms of the number of projects as also the quality and size of them.” Project sales and construction are the two important wheels which need to move in tandem.
“If the sales are faster than construction, in all probability, the project may become self-funded, through buyers’ contributions,” affirms Baliga. “However, if the sales are slow, the activities will need to be funded to keep up with the pace of construction work. Sales velocity is dependent on market factors, which have been weak for the last few years due to the demonetisation shock, the Real Estate Regulatory Authority (ReRa) interventions, as well as the uncertainties GST has brought in; however, the brand has managed to grab a large part of the available market.”
In fact, ReRa brought in some much-needed transparency to the sector which had seemed lopsided till then. Now, it helps to reduce the trust deficit, which has dogged the sector all the while. ReRa has also plugged some loopholes, which had led to many builders, including some erstwhile top brands, to fail. “The triple disruption cleaned the sector of the non-conforming and weaker players, leaving the field open for better known brands in various micro-markets,” claims Baliga.
“Arihant has been growing consistently, though there have been hiccups due to the disruption-led slowdown in the market,” contends Baliga. “However, it does not seem to have reduced the pace of construction, which has led to a higher gearing ratio. In 2019-20, looking at the weak markets, the promoters drastically reduced not only the interest payable, but also the CMD's salary, which shows their commitment to the business. The foresight of ensuring continuous construction during tough times has resulted in them having ready or near-ready inventory, when there was a sudden surge in demand post-Covid, as buyers were looking for bigger and well-designed homes in gated communities for a better lifestyle. The cash flow was rightly used to pay debts to bring them down to comfortable levels.”
Dominant presence
Chhajer, whose family was earlier in the textile business, set up his real estate business in 1994 and has been a player with a dominant presence in affordable housing segment since then. In 1999, he sighted Navi Mumbai as the next big growth area in real estate; in the next two decades, the group completed 30 projects. ASL has till now delivered 52 projects, covering 8 million sq ft and 10,000-plus homes.
The company is a dominant player in the affordable housing and mid income segments and has a strong foothold in Navi Mumbai, MMR and the Jodhpur regions. “About 96 per cent of Arihant’s portfolio consists of affordable housing and mid-income housing, while it has a small presence of 4 per cent in the premium housing segment. But new launches in Vashi in the premium segment will enable it to increase the share in the total portfolio pie,” says Chhajer, explaining ASL’s region-wise portfolio. The figures clearly indicate its strong foothold in Navi Mumbai, with Kharghar and Taloja contributing 20 per cent of its total projects, Panvel and Vashi about 40 per cent and MMR region, another 15 per cent.
“With focus on growth, Arihant has completely integrated the in-house capabilities of land acquisition and procurement, liaison, design and engineering, EPC and marketing and sales, which ensures tight control and quality considerations,” claims Chhajer. “As a real estate player, we have received many awards, which reflect the company’s quality, reliability and customer trust.” The Arihant Adita project at Jodhpur was included in India’s top 100 projects by CRISIL, with Arihant being counted among India’s top 50 brands in 2015.
Chhajer, the chief promoter, has nearly three decades of industry experience and has witnessed multiple real estate cycles. He is well-known for his foresight and balanced risk-taking appetite and leads the corporate strategy, project design and strategic land acquisition activities of the company.
Today, Chhajer Senior is joined by his eldest son Parth. A co-promoter of the company, Parth is a graduate from The Pennsylvania State University, where he studied Economics and Business Management. He had small stints at HDFC RED, Deloitte, Equirus Capital and CLSA, learning about various sectors before joining ASL. Currently, he looks after sales, marketing and product design at ASL.
“The group has weathered major economic downturns in 2007-08, 2013-14 and 2020-21, and has been able to identify opportunities in adversity too. By 2007, the group had delivered its 25th project, while 2014 marked the milestone for the company, with its revenues crossing Rs100 crore. In 2017, the company launched its flagship project, Arihant Aspire and, in 2020-21 (p), it expects to record sales of over 1,100 units, when many other real estate players are sitting on huge inventories,” explains Parth.
“This is a great achievement by a company of its size, as real estate as a sector has been struggling for a while. By September 2020, the developer community was sitting on unsold stock of over 723,000 units, worth over Rs6 lakh crore, in the top nine residential markets, while Arihant was successful in selling its housing units, reducing debt and launching new projects,” adds Parth.
Focus on niche growth areas
“Most of the customers in the segment are end-users and prefer to avail of home loans, which are currently available at historically low rates. This, along with various other government sops, has made home buying for this segment attractive. Also, the pandemic has led to a need for spacious homes in well-designed gated communities,” adds Ashok Chhajer, who has been able to meet the expectations of this segment well, with a variety of projects across various micro-markets.
“What distinguishes Arihant from its peers is its focus on the housing segment in niche growth areas, where infrastructure is developing, as against matured markets like the Mumbai region. Decades of market presence and strong foresight have enabled us to sense a revival in the sector earlier than our peers and, accordingly, we have strategised our launches,” says Parth. In the last few years, the company has launched a number of smaller projects, in quick turnaround time, completing the projects fast and moving to the next one, thus ensuring regular cash flows and reiterating the brand ethos of providing quality homes at affordable prices.
“The long-term strategic planning by the Chhajer family has resulted in cheap acquisition of land vis-à-vis the competitors, which will result in better profitability for the group in the years to come. The company has acquired land as low as Rs500 per sq ft for affordable housing, which again provides strong visibility,” adds Ashok Chhajer, sensing the turnaround of the sector with positive bias.
“The company has expanded its sales and marketing team by about 75 people in 2020-21,” says Parth. “And it has plans to add another 15 per cent in 2021-22 to promote sales of its housing units, as the demand is rising, backed by low interest costs regime, tax advantage offered by the government and changing perspective towards ownership in the Covid-19 period.”
“With the current construction pipeline, the company will be coming up with new launches across all segments of affordable housing, mid-income housing and luxury housing, whilst targeting to grow by 50 per cent on all parameters. We are well-positioned to reap the benefits from the revival in this sector. The government incentives, lower interest rate regime and a changing lifestyle, with quality home at affordable prices, will drive the demand for housing units in the coming period,” adds Chhajer senior. Leveraging the opportunity, Arihant is launching new and larger projects like Aalishan, Aspire, Arshiya, Aloki, Anchal and Adita, which will contribute to its performance in the coming year.
“Today, the group has projects in hand covering 11 million sq ft under 15 projects to be completed in the next seven years, clearly indicating that the company is on the fast growth track. We have sufficient land bank in most of the micro-markets of our presence and a few new locations which provides visibility of more than 10 years. Selectively, the company is working on a few asset light models. However, future funding will be decided on the need of the business, balanced with financial prudence,” sums up an upbeat Parth.