Aversion to debt makes Kolte Patil a rare realty gem
Dec 12, 2013
Source : The Economic Times


MUMBAI: Sujay Kalele, a former Infoscion, is a different kind of a real estate CEO. He thinks a hundred times before taking on debt. If cash flows are not strong, he would rather prefer private equity or partnerships than loans. In three years since taking over as the chief executive officer of Kolte-Patil, revenues of the Pune-based real estate developer have jumped 70%, profit has risen 50% while shares have soared 60% compared with a 60% fall in the BSE realty index.

Kalele attributes this to the strong Pune realty market where selling reasonably priced homes to the city's growing band of software professionals and those desperate to escape Mumbai's congested and pricey market has become big business.

"Pune has seen a strong uptick in economic activity despite the rest of the country facing strong macro headwinds over the last few months," Kalele told ET. The city has one of the lowest inventories of 15 months (time taken to sell a flat) compared with over 30 months for Mumbai and 22-24 months for Thane and Navi Mumbai.

But there is another reason as well, one that is apparent to anyone who flips the pages of the firm's balance sheet. Its debt is incredibly low for a real estate company. At the end of March 2013, Kolte-Patil's debt equity ratio 0.2, debt-EBITDA was 0.75. Rivals such as DLFBSE -0.76 % have a much higher ratio.

In the real estate market, finding a company which eschews debt and focuses on cash flows is a bit like finding a private equity manager who is not interested in returns. Most firms have added so much debt in their balance sheets in the rush for bigger land banks that they are now being forced to survive by selling off assets.

Kolte-Patil uses its own cash for its projects and taps private equity partners such as ICICI Venture and IL&FS when cash is not sufficient. "We have always taken a conservative approach towards debt. Even with private equity we have a plain-vanilla structure with no guaranteed returns," Kalele adds.

The philosophy was practised before Kalele's arrival and he remembers a time when cash with the company was more than the market cap. The firm raised some debt after that but kept it low. "We believe in minimizing risk as much as possible," Kalele adds. Its current partners include firms such as ICICI Venture, IL&FS and the US based Portman Holdings.

From FY07 till FY10, sales dropped from Rs 230 crore to Rs 140 crore and profit after tax fell 54% to Rs 39 crore. Its share price fell to Rs 60 in early 2010, a 76% fall from 250 in 2008. Debt was flat at around Rs 160 crore and has continued to remain flat though net sales and profits have climbed sharply. The company became a market leader in Pune, one year after Kalele joined the firm and has retained its position since then.

An engineer from Pune University, Sujay worked with InfosysBSE -0.36 % for four years. After than he studied strategy and finance from ISB and headed capital markets team in Pune and the rest of Maharashtra for Jones Lang LaSalle, a real estate consulting firm. He joined Kolte Patil in January 2010.

Three-fourths of Kolte-Patil's offerings are in the Rs 30 lakh-1 crore bracket which is in good demand. In addition, over 50% of the projects that are already lined up and are likely to receive approvals. "Locations like Aundh, Hinjewadi and Wakad are likely to command good pricing as compared with traditional Pune markets," says Ravi Ahuja, head of research Cushman and Wakefield adding that the Rs 30-60 lakh bracket remains a sweet spot.

Kolte-Patil's revenues grew 40% in the first half of FY14 while operating profit grew 84% and PAT by 112% despite unit sales falling 40% due to delay in environmental clearances. Average realisation per unit was higher and that boosted profits. Kolte-Patil's stock fell 60% in the first eight months of 2013 but has risen 50% since then forcing funds like IDFCBSE -1.37 % and Goldman Sachs to buy into the stock.

Kolte-PatilBSE 1.37 % expects sales of 1.2-1.4 million sq ft inH2 of FY14 compared with 0.9 million sq ft in the first half. In FY15, Kalele expects a strong growth in sales as some projects are expected to get government approval. "We should get about 6 msf of additional saleable area added to our portfolio upon receipt of environmental clearance approval. We can then launch the project within 3-4 months of EC approvals (H1 FY15). Reflection in our quarterly revenues should happen within 6 months of official project launch," Kalele told ET.





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