Malhotra: strategic move paid rich dividends
Scope to expand
“Our strong business development over the past few years has ensured that our launch pipeline is the best it has ever been,” he adds. “On the other hand, Indian home buyers have been increasingly gravitating towards buying from leading, organised developers. This has resulted in rapid consolidation in the sector. Our focus on four core markets, strong brand and existing portfolio leaves us on a strong foot to take advantage of this opportunity.”
In the next two to three years, Pirojsha has been looking to double GPL’s market share in these four focussed markets, from the current 2 per cent-plus. He is of the view that, despite GPL being a leading player in these markets, its share is quite low and there is ample scope to expand it going ahead in the changing landscape.
“The market is consolidating and a player like GPL is strongly placed to explore the opportunities in the market,” feels Pranay Vakil, founder and chairman, Praron Consultancy. “Over the years, they have ramped up their team and execution capability in a big way and in the recent sluggish years too, the company has performed much ahead of the overall industry. On the one hand, they have all the requisite ability and resources; on the other, buyers are increasingly looking to transact with reputed developers and this definitely provide a clear-cut edge to GPL which also has a big brand like Godrej in its favour. Going forward, GPL will further strengthen its position in the market.” Vakil was previously an independent director on the board of GPL.
While most developers have recently struggled to complete their existing projects and found it hard to clear their inventories, the 124-year-old Godrej Group’s real estate entity has gone ahead and added as many as 11 new projects during the recently-concluded fiscal year of 2021. In pandemic-afflicted, uncertain market conditions where most realty players are finding it tough to attract buyers, GPL has sold about 275 flats, worth Rs475 crore, in a single day in one of its projects – Godrej Woods in Noida. Other projects have done just as well since buyers have shown great trust in the Godrej brand and its ability to execute and deliver projects on time.
In residential project Godrej Green Cove, Pune (launched in November 2020), 83 per cent of launched inventory (booking value: Rs312 crore) was sold within 60 days; while in Godrej Retreat, NCR (launched in October 2020), 97 per cent of launched inventory (booking value: Rs279 crore) was sold within 60 days, And, in The Highlands, Panvel project (launched in November 2020), 54 per cent of the launched inventory was once again sold within 60 days.
“GPL has positioned itself quite strongly in the market, with buyers reposing immense trust in them as a brand and their ability to execute and deliver projects. In this challenging market scenario too, where buyers are treading cautiously and mostly preferring ready-to-move projects, GPL’s new launches have generated an extraordinary response. It clearly shows how much buyers trust them and feel safe to park their hard-earned money,” says Vishal Raheja of InvestoXpert Advisors. This Noida-based channel partner of GPL, has sold GPL properties worth about Rs350 crore in 2020-21. A leading PropTech brokerage firm, InvestoXpert has been selling its properties since 2016, and also has a presence in other markets like Pune, Gurugram and Bengaluru.
“Backed by its corporate structure and impeccable track record of execution and delivery, GPL has today emerged as an established player, which buyers are heavily banking on, for realising their real estate requirements,” observes Ashish Agarwal, founder & CEO, PropertyPistol Realties. “The Godrej brand arouses a significant level of confidence in the minds of buyers who today look for a brand they can depend upon. During this pandemic when buyers have been reluctant and needed to be hand-held, GPL has responded remarkably well to bridge the existing gaps.” PropertyPistol, the largest channel partner of GPL and a new age real estate brokerage firm based out of Mumbai, sold GPL properties worth Rs630 crore in 2020-21 across multiple geographies, in Mumbai, Pune, Bengaluru, Chennai, Hyderabad, NCR, Gurugram and the Middle East.
Makhijani: focus on digital marketing
Bridging the gaps
“We are happy the way things have panned out for us,” remarks Pirojsha. “During this pandemic also, despite all challenges, we pulled off a great sales volume. In fact, buyers have continued to repose their trust in us and we have done everything possible to live up to their expectations. Our customer-centric approach to serve our buyers with the right kind of products and our efforts to ramp up our execution towards providing them with a greater degree of customer experience have helped in establishing ourselves strongly in the market. In the consolidating market scenario, we see immense opportunities and we are preparing to explore these avenues and ramp up our share in the market.”
With a bachelor’s degree in economics from Wharton School, University of Pennsylvania, a master’s in International Affairs from SIPA, Columbia University, and a master’s in Business Administration from Columbia Business School, Pirojsha Godrej took over as executive chairman, GPL, in 2017, having been its managing director & CEO since 2012. Named after Godrej group founder Pirojsha Burjorji Godrej (1882-1972), he has led the company through a phase of rapid growth, through which it established itself as one of India’s leading and fastest growing real estate developers.
When, in April 2012, he took over the reins of GPL, Pirojsha became the youngest chief executive in the group. The youngest of group chairman Adi Godrej’s three children, he had joined the company in 2004 as a management trainee. He went on to complete an MBA from Columbia Business School in 2008 before rejoining GPL as its executive director. In 2010, Pirojsha led the initial public offering through which the company raised $100 million.
Prior to joining GPL, he served as the additional private secretary to the Minister of State for External Affairs in New Delhi and worked as an intern in the New York Senate Office of Hillary Clinton. Pirojsha, who is married to Karla Bookman (founder, The Swaddle) is the proud father of two young daughters, has travelled to over 70 countries in six continents and is interested in cricket, food, politics, chess, scuba diving, and rare-book collecting.
Under Pirojsha’s leadership, GPL has been at the forefront of the sustainable development movement. In 2013, GPL received an award from APJ Abdul Kalam, former President of India, for being one of the companies in India from across sectors, to have driven the green building movement. The Clinton Foundation is a partner of GPL in its large township project, Godrej Garden City, which was selected as one of two projects in India and 17 from around the world to work with the Clinton Climate Initiative towards the goal of creating a Climate Positive Development. GPL, in 2016, was ranked #2 in Asia and #5 in the world in terms of its sustainability performance in the Global Real Estate Sustainability Benchmark Report.
The Indian Green Building Council (IGBC) has awarded Pirojsha the IGBC Green Champion Award 2016 for his contribution to the sustainability of India’s built environment. He was selected as the ‘Real Estate Person of the Year’ at the Construction Week India Awards 2013 and the ‘Person of the Year’ at the GIREM (Global Initiative for Restructuring Environment and Management) Awards 2013. In 2014, he received the Best People CEO Award from the National Human Resource Development Network. Pirojsha was also chosen as a ‘Young Leader’ at the Global Leadership for Business Excellence 2016 Awards.
Under Pirojsha’s leadership, GPL has made impressive progress in the last decade or so. Recently, the company emerged as the highest bidder in the CIDCO e-auctioning process, with a total bidding value of Rs166 crore for the two adjacent plots in Sanpada, Navi Mumbai. In a market where liquidity is hard to come by, GPL raised Rs3,750 crore through sales of shares to institutional investors to expand the business and support the future growth of the company. As against this, in 2020, PE investment in the real estate sector was down to about $4.0 billion from $6.8 billion in 2019.
In recent years, GPL has received several awards and recognitions – the latest being ranked #1 globally amongst listed residential developers by the Global Real Estate Sustainability Benchmark (GRESB) 2020. Earlier, it had won the Porter Prize, The Most Trusted Real Estate Brand, and the Brand Trust Report and Builder of the Year at the CNBC-Awaaz Real Estate Awards – all in 2019.
The company has grown its revenue and profit by nearly 100x in the last 12 years. “Under difficult market conditions, where builders are struggling to sell their products, GPL has not only shown a great deal of resilience, but also posted encouraging performance,” says Vakil. “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 have become more discerning in recent years.”
Vakil also believes that, over the years, GPL has ramped up its team and capabilities in a big way and has meticulously pursued its philosophy of innovation and excellence in the real estate business as well, which is something that has fetched the company rich dividends.
“Being a part of a reputed group and having also followed its corporate philosophy, GPL had a distinct edge over others. Over the last few years, the market has undergone a transition where both the demand and supply side have consolidated in a major manner, helping players like GPL to enhance its share substantially in this transformed marketplace,” says Sunil Rohokale, managing director & CEO, ASK group, which had invested in the company at a project level.
Experts are of the view that, in the last decade or so, buyers are showing a distinct preference for corporate developers with better transparency levels and a strong management structure. And that is where a player like GPL scores over other promoter-driven and smaller developers. In fact, this process, along with a series of shocks in recent years, has prompted consolidation in the real estate sector, where weaker and smaller players are struggling and giving way to stronger ones with proven capabilities and track records.
“Given that there is a separation in ownership and management, corporate developers are typically managed more professionally than many family-owned businesses,” says Sankey Prasad, FRICS, chairman & managing director (India), Colliers. “We have seen that corporate developers usually focus on implementing long-term strategic plans rather than getting involved in speculative or opportunistic development projects. This ensures that most of their projects are completed as per approved plans, timelines and within costs, which help them to build up a good delivery track record.”
The Trees, a 34-acre mixed-use development project at Mumbai’s Vikhroli suburb, is progressing well
“Further, wherever they are subsidiaries of large corporate houses, their focus is on customer satisfaction and building on the brand name,” adds Prasad. “Consequently, many of them enjoy higher goodwill with customers and investors alike, which also helps to achieve not only higher sales but access to more capital at favourable terms. It has also been seen that many local developers are looking at tying up with corporate developers to design, build and market projects instead of doing this on their own.”
In the last few years, GPL has responded quite well to market changes and revisited its strategy and business model more than once to take advantage of the emerging market opportunities more effectively. In 2018, the company, which had created a presence in 12 cities (currently in 10 cities) took a conscious decision to focus on the top four major markets (MMR, Delhi-NCR, Pune and Bengaluru) and go slow on the other markets.
GPL is among the few other established builders, which has pursued a pan-India presence, like some of its other peers including Tata Housing and Shapoorji Pallonji Real Estate. However, other large firms like DLF, Prestige, Puravankara, Lodha and Oberoi Realty have remained focussed on limited geographies. Experts are also of the view that real estate development has always been a regional play and specific geographical domain knowledge and expertise is required to pursue business in a particular region.
Separate business units
In another unique move, GPL, in order to explore these markets in a more effective manner, decided to create separate business units, headed by regional CEOs for these markets. This changed strategy has worked quite well for the company which in the last few years despite the market slowdown, has kept its momentum going.
“It was a conscious but unique move on the part of a real estate developer,” says Mohit Malhotra, managing director & CEO, GPL. “But realising the inherent requirements of the real estate business, where each region has its own dynamics and needs, we decided to carry out this structural change within our organisation. Moreover, we could also visualise the changing landscape of the real estate business in the country and the opportunities that can be availed of in a more efficient and effective manner. This strategic move, at the right time, has paid rich dividends.” Malhotra, who joined the company in 2010, was elevated to the present post with effect from 1 April 2017.
A management graduate from the Indian Institute of Management, Kolkata, he was associated with Unilever, AT Kearney, Unitech and Redevco in various strategic roles, prior to joining GPL. Under his leadership, GPL has added over 41 new projects (61 million sq ft). During his tenure as head, north business, GPL became the market leader in Gurgaon and also became the largest listed player by booking value in the country.
In another major diversion from its earlier business model, where the company primarily pursued an asset-light model (development management) to aggressively expand the business, particularly in an expanded geography, GPL decided to pursue a capital-heavy model as well, in order to explore the emerging opportunities in the wake of the consolidation of the real estate market.
To take advantage of these opportunities, GPL raised Rs3,750 crore in March this year through a Qualified Institutional Placement (QIP) of 25.9 million equity shares to global investors, including Goldman Sachs Funds, Government of Singapore and Invesco Oppenheimer Developing Markets Fund. Monetary Authority of Singapore, Universities Superannuation Scheme and Baron Emerging Markets Fund are also among the investors that have been allotted more than 5 per cent equity shares offered in the issue. Singapore’s GIC made an investment of $110 million, while the largest participant in the QIP was a new investor, Invesco Developing Markets Fund. Certain other funds managed by Invesco Advisers Inc, put in $150 million.
This is the third fund raised by GPL in the last four years. Previously, in June 2018, the company raised Rs1,000 crore through private placement which was followed by the QIP issue of Rs2,100 crore in June 2019.
“The market is consolidating in a big way, particularly in the last few years,” observes Pirojsha. “And there are a plenty of attractive opportunities available for those who have resources and we are going to deploy this capital in new development opportunities. This capital will play an important role in supporting our growth aspirations and provide us significant opportunities to rapidly scale in the years ahead.”
“Apart from strong group support that enables easy access to capital, GPL has also successfully raised capital from external sources consistently over the last few years,” says a report by Antique Stock Broking. “This demonstrates the company’s ability to raise funds even in a tough economic environment. Moreover, GPL has amongst the lowest cost of borrowing in the industry at less than 8 per cent (as against the indus, which reflects the company’s creditworthiness and established track record.”
“With its indisputable reputation to deliver, low cost of capital and strong business development focus, GPL is well-placed to ride the ongoing consolidation in the residential sector,” adds the report. “Sales velocity as well as acquisition of new projects are expected to gather further pace in the current consolidating market, especially post the Covid-19 crisis. With Tier II and Tier III developers still continuing to face a liquidity crunch and low customer confidence, we expect a recovery and consolidation in residential segment big players such as GPL, which is expected to enter into a virtual growth cycle and become bigger.”
In the consolidating marketplace, looking at the emerging avenues, GPL, which had primarily focussed on the asset-light model in the past (of the total ongoing/forthcoming development potential of about 160 million sq ft, about 80 per cent of the total projects are on JV/DM or development management basis), is now also looking at the high capital deployment model. Here, it is now purchasing attractively priced land parcels available in the market (in difficult market many developers are cash-strapped and are selling their assets for liquidation).
Shift in strategy
In the last fiscal, GPL emerged as the highest bidder for two adjacent land plots in Navi Mumbai at a total bid value of R166 crore in an e-auction conducted by the City & Industrial Development Corporation. GPL will construct a residential project on the land located in Sanpada, Navi Mumbai. Spread over 1.5 acres, the project will offer about 400,000 sq ft of development potential, consisting primarily of premium residential apartments of varied specifications. In December last, GPL bought 18 acres in suburban Bengaluru’s Whitefield to develop a premium residential project.
In another shift in its strategy, the company, increasingly looking to diversify its business model in the changing real estate scenario, has also entered into plotted development. Under this new business, GPL is actively scouting for large land parcels on the outskirts of Bengaluru, Pune and the NCR region.
Having successfully launched the Godrej Reserve project in Bengaluru in September 2018, the company launched two more projects in the last fiscal – Godrej Retreat (Faridabad) and Godrej Woodland (Bengaluru). All these projects have generated a massive response. According to property advisors, there is good demand for plotted land, particularly in the outskirts and smaller towns, depending on the location, accessibility and connectivity to the main city areas.
Godrej Icon: an iconic tower from the group
“Plotted development is a part of our changed strategy and, going forward, we will expand this business further, since there is opportunity,” says Malhotra. “This additional spurt will make our business model more robust in nature in the consolidating market.”
Meanwhile, GPL’s flagship venture, The Trees, a 34-acre mixed-use development project at Mumbai’s Vikhroli suburb, is progressing well. It sold over Rs1,200 crore worth of space within six months of launching this project in 2015, making it one of the country’s most successful residential project launches. The Tree project is a joint development (60:40) with two other Godrej group companies – Godrej Industries and Godrej & Boyce.
The Tree is a part of Godrej group’s strategy, where it has been monetising the massive historical land parcel it owns in this central suburb. GPL has collaborated with several of the world’s most renowned architects and engineering consultants to design this futuristic project. Out of the 34 acres, the development of over 28 acres is either under development (Taj Hotel/Sculpture park) or handed over (G1/G2/Residential). The remaining seven acres is the amenity open space, which has already been handed to MCGM as per rules and regulations.
All the three residential projects/phases, comprising a total of 865 units, under The Tree project, are already constructed and fully sold out. The first two projects are already delivered, while phase III – Godrej Origin – has been in the process of being delivered since November 2020. In the commercial segment of the project, Godrej One, a Platinum-rated office building has been fully operational (this also hosts the Godrej Group’s global headquarters) for some time now, while Godrej Two, another Grade A office building, is also ready.
Amazon India has leased 260,000 sq ft office space at Godrej Two, which is designed by Tokyo-based Nikken Sekkei. The e-commerce giant occupies about 40,000 sq ft in Godrej One and is looking to expand its presence with this new lease deal , where JLL was the exclusive advisor for this office space transaction. In July last year, GPL leased 200,000 sq ft to a Denmark-headquartered integrated container logistics firm, which will bring seven of its business units from four locations to Godrej Two.
“We are delighted to welcome Amazon India to Godrej Two and look forward to further strengthening this partnership across our office portfolio,” says Karan Bolaria, managing director & CEO, Godrej Fund Management (GFM). “Godrej Two is a true grade-A building that is future-ready, flexible and sustainable and will cater to the changing needs of global organisations operating out of India. This deal is a further validation of our funds’ investment strategy that is focused on creating a portfolio of world-class office buildings across the country.”
GFM, the real estate private equity arm of the Godrej group, manages over $1 billion of capital across four funds. GPM was initially formed way back in 2013 as a development fund ($200 million residential development platform, followed by another platform worth $275 million in 2016) by GPL, in association with a clutch of global investors, led by Dutch pension fund APG, which has continued to support the investment arm. In 2017, GPL spun off the realty investment arm as a separate business.
Godrej 101: another aesthetically designed tower
Recently, GFM achieved the first closure of its $500 million (about Rs3,700 crore) office development platform, GBTC II, in partnership with the Netherlands-based APG Asset Management NV, which, as an anchor investor, has put in $200 million in the fund, which is the fifth fund in GFM’s kitty. The real estate private equity arm of the Godrej Group now manages three office and two residential funds.
APG, which has backed a bunch of funds in India, is a repeat partner for GFM. “The build-to-core strategy for Indian offices aligns well with our broader investment aspirations for our pension fund clients and our desire to invest alongside partners that offer best-in-class execution capabilities,” says Graeme Torre, managing director, APG Asset Management Asia.
While the Godrej group is strengthening the supply side of its real estate business, it is also looking to boost the demand side. In November last year, it forayed into the financial services business with Godrej Housing Finance (GHF), with the aim of building a sustainable retail franchise. The new company aims to grow its balance sheet to Rs10,000 crore over the next three years. GHF will partner with developers, including Godrej Properties. The group plans to infuse Rs1,000-1,500-crore capital into the company in the next three years. GHF will offer home loans across India starting with customers in Mumbai, National Capital Region, Pune and Bengaluru.
“The increasing formalisation of the real estate sector, combined with the dislocation in the residential real estate and housing finance markets, makes this a particularly interesting opportunity at the current moment,” says Pirojsha. Concurs Manish Shah, managing director & CEO, GHF: “We want to give customers a home loan that is customised to what’s important to them, based on their housing needs, financial capability and convenience.”
Enjoying a distinct edge
With all these developments in place, GPL has positioned itself quite strongly in the market. The changing regulatory landscape and the subsequent acceleration in the consolidation process, has lent it a distinct edge in the market which, in the coming years, is expected to transform further.
In the last few years, the company has ramped up its capabilities. In a conscious move, the company, showing agility and an aggressive approach, recently changed its strategy. From having limited itself to an asset-light DM model, GPL has diversified its strategy and is now increasingly interested in a capital-intensive approach also, even as it has decided to remain primarily in the residential segment.
Under this new business model, the company is now looking to purchase land parcels instead of primarily confining itself to a JD approach with land owners. However, while doing so, its main objective is to explore the opportunities emerging in the consolidating marketplace. Moreover, rather than simply pooling its long-term strategic land bank inventory, its focus is on land parcels that have a quick turnaround and shorter go-to-market time.
To support this capital heavy model and ramp up its capability, the company has raised a significant equity capital, even as it enjoys one of the lowest borrowing costs – about 7.3 per cent, as against around 16-18 per cent for the industry. Investors have wholeheartedly supported GPL and its approach, where it is building up its presence across micro markets with multiple launches. However, while doing so, its focus remains on four micro markets which together provide almost 80 per cent of the business.
In another strategic move, the company has created separate ‘business units’ for these markets. This is undoubtedly an apt move since real estate, being a regional play where each micro market has its own dynamics, requires to be dealt with differently. Moreover, since a large chunk of business comes from these four markets, this focused approach will optimise the resources and provide much better RoC.
In all these four markets, GPL has already proved its mettle and emerged as one of the top three players and now, going forward, it is looking to strengthen its position further by launching a series of projects. Last year, when other developers were struggling to clear their existing investors, it launched more than 10 residential projects.
Backed by the consolidation process and in a rapidly changing market, buyers now increasingly prefer developers with proven track records and a corporate structure. This is where GPL, with its 124-year-old Godrej brand, has a distinct edge over its peers. With all these measures and activities in place, GPL is all set to commence its next growth phase, which will be quite rapid and robust, helping it significantly enhance its share in the market.