Lodha Developers plans to reduce cost of debt this year

October 27, 2016 Live Mint

reduce cost

Abhishek Lodha, managing director, Lodha Group. Photo: Hemant Mishra/Mint

Lodha Developers increases spending on construction to Rs4,000 crore to step up the pace of execution and deliver around 7,000 homes this financial year.

Bengaluru: Mumbai-based Lodha Developers Pvt Ltd, India’s largest realty firm in terms of sales, plans to reduce its cost of debt, though it does not expect debt levels to go down this year, a top executive has said.

Instead, the company has increased its spend on project construction by Rs1,000 crore to a total of Rs4,000 crore, in order to step up the pace of execution and deliver around 7,000 homes this financial year. In 2015-16, Lodha spent around Rs3,000 crore on construction and delivered about 6,400 homes across its projects in Mumbai.

Lodha, whose debt stands at around Rs13,000 crore, raised Rs2,320 crore in September from Piramal Fund Management Pvt Ltd for its signature World Towers project in central Mumbai, in what is probably the single largest debt financing deal in Indian real estate.
Mint had reported on 2 September that Lodha will use some of the capital raised from Piramal to give an exit to HDFC Property Fund, which would leave with about Rs1,500 crore on an investment of Rs500 crore in 2010.

On Wednesday, Lodha said the exit has been concluded, with a 3x return on investment.
Piramal’s investment was structured as a fixed-return debt investment with periodic coupon payments, which refinanced HDFC’s higher cost equity capital.

“We expect debt to remain flat this year, but we are consistently looking out to reduce the cost of debt,” Abhishek Lodha, managing director, Lodha Group said in a telephone interview.

“However, we have chosen to invest more on construction, because we aim to hand over a larger number of units to customers this year. We choose to spend a lot of our operating cashflows towards construction,” Lodha said.

“This transaction was one of our largest investments in Mumbai and came at a time when the real estate sector was facing sluggish sales and low investor confidence,” said K.G. Krishnamurthy, managing director and chief executive, HDFC Property Ventures Ltd.

“However, Lodha Group’s robust business performance and strong brand credentials continue to outperform market expectations,” Krishnamurthy added.

There is a second exit in the pipeline, which is expected sometime early next year. HDFC Property Fund, which had invested Rs 140 crore in Lodha’s residential project in Hyderabad, is expected to exit with around Rs 360-400 crore. Lodha clocked around Rs6,400 crore of net sales in 2015-16, the highest amongst all real estate firms in the country, ahead of DLF, whose net sales booking was at Rs3,150 crore.

Lodha said the company aims for net sales between Rs 7,000-8,000 crore in 2016-17. The firm is expecting to clock around Rs 1,200 crore of monthly sales in October alone, walking up to Diwali at month-end.

“Majority of exits by private equity funds from real estate projects are happening through the refinancing route. Today, most developers have better access to capital compared to a few years ago, and at lower costs, and they can refinance the high-cost equity with cheaper debt,” said Somy Thomas, managing director (valuations and advisory) at Cushman and Wakefield India, a property advisory.