Pradeep Jain is relieved that the worst is over. But, like almost every other real estate developer in the country, the 44-year-old founder-chairman of the Rs 2,098-crore Parsvnath Developers, has gone through a harrowing time over the last year.
House prices had risen over 100 per cent between 2004 and 2007, taking them out of reach of even upper middle class Indians. When the downturn hit India in the first quarter of 2007, and interest rates began to climb, demand collapsed.
Result: realtors were left with huge numbers of unsold flats as there were no buyers in sight.
“Last year was very bad as there was a huge liquidity crunch and construction work had completely stopped,” says Shailesh Kanani, research analyst at Angel Broking.
Parsvnath, like all other real estate companies, was badly hit. Net sales fell 86.5 per cent from a peak of Rs 534.15 crore in the January-March, 2008 quarter to Rs 72 crore corresponding quarters this year. Over this period, profits, too, collapsed 87.55 per cent from Rs 108.88 crore to Rs 13.55 crore.
Panicked investors began to dump Parsvnath in the stock market and Jain, ranked 840th on the 2007 Forbes list of billionaires with net worth of $1 billion (Rs 4,600 crore then), now finds his wealth reduced to Rs 1,678 crore.
Net sales have begun picking up once more, rising to Rs 108.67 crore for the quarter ended June 30, 2009, but net profit has inched up only marginally to 13.93 crore. This indicates a small pick-up in demand, but continuing pressure on margins. But it could have been worse. Jain, son of a grain trader in Uttar Pradesh’s Khekra village, 33 km North of Delhi, says he spotted the downturn early and took proactive measures to counter it.
“We sensed it in March last year and immediately changed our focus to fast execution of existing projects. Our priority was to complete projects for which we had accepted pre-sales bookings (a practice in the real estate industry where developers sell a few apartments at less than the market price in new projects prior to their formal launch to raise cash),” he tells HT.
Parsvnath divided its land bank of 193 million sq ft into two parts. Of this, it decided to put the execution of close to 42 million sq ft on fast track execution. Jain also focussed on internal restructuring and consolidation of its assets.
“When times are good, one does not focus on micro issues but in times like slowdowns, one has to address issues such as employee productivity and stretch (higher) targets,” he adds.
The senior management of the company, including Jain himself, took salary cuts. Parsvnath also shifted out of its rented office in central Delhi’s Barakhama Road area where it occupied two floors to its own complex in the Shahadara area.
“Shifting all employees to one place increased everyone’s productivity and improved results,” says Jain.
His is, literally, a rags to riches story. Jain, a graduate from Delhi’s Hans Raj College, began his career in real estate as a broker, finding buyers for flats built by big name developers like DLF, Unitech and the Ansals.
In 1990, he set up Parsvnath and made the transition from broker-consultant to developer. Rising from the grassroots has given him a 360-degree view of the industry that is recognised even by rivals. “This wasn’t the worst slowdown the real estate sector has witnessed over the last two decades,” he says. “This is, in fact, the fourth time the industry has slowed down, but the pain is behind us now.” He’s right.
A stable government at the Centre, lower interest rates, more affordable house prices and an improvement in the overall sentiment has brought some demand back to the market, albeit at lower price levels.
What now? Parsvnath, which has long-term debt of Rs 1,600 crore, is looking for ways to raise capital to fund projects and reduce debt. In June, private equity firm Red Fort Capital invested Rs 90 crore in the company’s luxury residential project in New Delhi. The company has also announced plans to raise Rs 2,500 crore through a private placement of shares by June next year.
“We survived the downturn,” says Jain, “but it taught us to think beyond luxury housing and refocus on affordable housing.”