Keep it affordable

While consolidating his position in the residential sector, Sunil Mantri, CMD, Sunil Mantri Realty Ltd is making quiet but firm forays into SEZs, hospitality, IT & Textile parks, townships, malls and even power generation. In this interview, he tells Niranjan Mudholkar why affordability will be the key across sectors

It is interesting the way life comes back in a full circle. Picture this. In early 2009, Sunil Mantri, a leading realty player won the bid for three sick textile mills in Maharashtra where he plans to develop integrated garment and textile parks. More than a couple of decades back, his family ran a garment retail shop in the Marathwada region from where it spread business to Pune. The business thrived in Pune with the distributorship of then well-known brands like Binie’s, Mafatlal, Lalbhai’s, etc. In 1986, a small piece of land was bought in Pune as an investment. Gradually, it was decided to develop the land. Luckily, the project clicked. And then? In the words of Sunil Mantri himself, “Buoyed by this success, we undertook couple of more construction projects in Pune in 1988. These two projects too turned out very well. Our offerings as a construction company were admired by customers and there was no looking back.” Indeed, since then, the Sunil Mantri Group has successfully executed over 150 projects spread over 15 million sq ft of built-up area across 13 cities.

Of course, he is in not stopping here. Nor is he limiting his reach to the residential segment – where he intends to be amongst the country’s top ten players in just 8 years. His company will soon have considerable presence across a wide range of segments. He has already started to spread his Group’s wings internationally with the prestigious Cyberport project at Johor, Malaysia. But irrespective of the segment that he will operate in, Sunil Mantri will stick to his philosophy of providing a competitive product at a reasonable price. ‘Affordability is the key,’ he declares.

Your Group has embarked on an international project with the Multimedia Super Corridor (MSC) Cyberport in Johor, Malaysia. Please tell us more about this project. What role is your company playing in it and what is the current status?

We were lucky to get this project last year. We signed a Memorandum of Understanding with the Government of Malaysia for the development of the Cyberport in Johor Bahru, Malaysia. The contract was signed in the presence of the then Prime Minister of Malaysia.

Dubbed as Asia’s most exciting investment location for information and communication technology, the MSC was conceptualised in 1996. Spread across 750 sq Km, this Corridor is governed by business conducive cyber laws, policies and practices. The Johor Cyberport being developed by us will be a part of this growth Corridor. This development is partly inspired by the success of Cyberjaya, a thriving IT hub with the presence of who’s who from the Global IT industry.

Johor Bahru is situated just across a channel from Singapore. While hosting global MNCs and Malaysian companies, this Cyberport could also work as back end office operations for companies from Singapore where the lease rentals are extremely high. The project is spread over 150 acres where the Government of Malaysia has given my company unlimited FSI. We call it Mantri Cyberport and estimate 20 million sq ft of development over a period of 7 to 8 years. The Government of Malaysia – our treaty partner – is providing us the land and basic infrastructure including road, water, sewage and drainage. Our part of the deal involves fund raising, financing, planning, structuring, execution, sales and after sales servicing. Importantly, we also have a good local partner who is quite influential in the region.

Along with the IT hub, we will also be developing residential and commercial segments. A hotel is also planned. Basically, Mantri Cyberport will be a mixed use integrated township development.

We have just completed the land acquisition and are hoping that we will be able to commence the project in October 2010 subject to the receipt of required permits. We have a majority stake in this project – approximately 70%. Although the original MoU was for 50-50 partnership, my local partner has given me a bigger stake saying that our company has better expertise.

You bought three sick textile mills from the Maharashtra State Textile Corporation (MSTC) Ltd for Rs68 crore early this year. What was the strategy behind these acquisitions?

MSTC had called the bid for these three mills located in the heart of the cities. The mill in Solapur is about 28 acres, the mill in Kolhapur is 25 acres and the mill in Nagpur is 14 acres. We were the highest bidders at a consolidated price of Rs68 crore. Although we have won the bid, the final documentation is still in the process.

We are planning to develop textile and garment parks in these properties. Forty per cent area within these properties is earmarked for textile and garment parks while 50% – after leaving 10% open space – will developed for commercial and residential complexes. I want to create at least 5000 jobs in these three locations. My idea is to have all activities related to the textile market with all other basic facilities under one roof. That’s why we are calling it the integrated textile complex.

Mantri Realty has a massive land bank of about 1400 acres. Can you give us a break-up of the acreage in terms of geographical locations? How do you plan to utilise this key asset?

My land bank is spread across 13 cities – more or less equally divided. We have a reasonably good quantum of land in the metro cities of Mumbai, Bengaluru and Hyderabad; plus we have land parcels in the Tier II cities of Pune and Nagpur as well as in Tier III cities like Solapur, Kolhapur, Sangli, Gwalior, Belgaum, Hubli etc. We will develop these land banks as and when required.

You were planning to raise at least Rs1,000 crore from private equity (PE) to fund forays into new markets and for the development of your land bank. Have you succeeded in this?

The pace of PE activities has slowed down in the recent times. The kind of excitement that was seen with PEs about two years back has come down substantially. Basically, even they too are struggling to raise new funds and have become more cautious now.

However, we are confident that we will be able to raise the funds by the closing of 2010 either through PE or through our associations. Luckily for me, my land acquisition has not been at a very high price. It has been at a controlled price. This has brought down the investor risk considerably.

Secondly, I believe a good change has taken place in the investor environment. Now, besides the PEs, even high net-worth individuals and corporates who want to diversify in the field of construction are showing interest. And we are welcoming these players. They have money, we have land. It is a win-win situation. More number of projects can now be executed at one time. Of course, all these partnerships would be done at the project level and not at the entity level. We are not planning to bring entity level investment at this juncture – the reason being we would like to retain our freedom and we are more comfortable at the project level.

You were developing a 540 MW thermal power plant near Nagpur through your subsidiary Mantri Power Ltd. What is the current status of this project?

We have slightly kept that on hold due to the coal linkage issue. We realised that till we have a proper coal linkage, we will not be able to offer a competitive price and hence we have deferred the power plant as of now. At the current location, the cost would be extremely high due to the logistics involved in getting coal. In fact, we are planning to shift to another location where coal linkage would be available even though some of the NOCs have been obtained for the current location.

What is your assessment of the Indian real estate sector? Has it fully recovered from the impact of the economic slowdown?

By definition, a recession is a long term phenomenon. I think we have been lucky that this recession did not last long enough. Having said that, it was of course a tough time for the Indian real estate sector. In fact, there were about a couple of months when there was no sale at all. The buyers were not taking decisions believing that prices would drop further. I think we were lucky that the revival could happen really fast. For the industry to bounce back to its fullest, I think it will have to price its products reasonably. The key would be to provide reasonably good products at a reasonable price. While the residential segment is better off now, commercial and retail segments will take some more time to fully recover.

My next question is to the President Elect of Maharashtra Chamber of Housing Industry (MCHI), member of Govt of Maharashtra’s New Housing Policy and member of FICCI’s Housing Committee. Affordable housing has become a key term in the industry today. Do you think the several ongoing and upcoming projects under this concept are truly affordable because many of these projects are coming up in far away suburbs or outskirts of metros? Please explain.

Basically, there are many misconceptions about the term affordable housing. Affordable pricing in housing is defined as six to seven times of an individual’s annual income. Secondly, affordability is area specific. For example, it will be different in South Mumbai than what it is in the suburbs.

That is because the housing cost is determined by land pricing in the metros. So, a house will demand the price based on its location. It is an international phenomenon. I believe the need of the hour is to develop good transportation, good roads, good communication systems, etc.; basically good infrastructure. The government should emphasise on cutting down the travel time for the person staying in the far suburbs or the outskirts by providing good infrastructure. Good infrastructure holds the key to the progress of the real estate sector. Why will a person mind staying in the outskirts if he can travel to the city hub in 40 minutes or one hour without any hassle?

I believe you are doing a big project in Gwalior under the public-private-partnership model. What type of project is this?

Actually, we are doing two projects in Gwalior. We have already acquired 375 acres of land for the first project. It will be a budget housing or a low cost housing project. The pricing would be in the range of Rs5 lakh to Rs 25 lakh. Cost is under control and we have obtained all the necessary permissions.

For the second project, we have signed a Memorandum of Understanding with the Government of Madhya Pradesh wherein they have agreed to give us 2000 acres of land in the vicinity of Gwalior through the Special Area Development Authority to carry out a residential project under the public-private-partnership model. We are following a different model for land acquisition in this project wherein in lieu of compensation we are providing a developed plot to the farmer. The idea is to make the land giver a stakeholder in the project.

I understand you are currently developing a four star hotel in Goa and another one in Solapur. Tell us more about your foray into the hospitality sector.

Yes, we have very ambitious plans in the hospitality sector. Basically, we have a very good land bank available and at some places the location is quite ideal for the development of a 3-Star or a 4-Star hotel property. I am not looking at 5-star hotels. I want to focus on the 3-Star and the 4-Star categories where I don’t have the mad rush and which is more affordable.

As you have rightly pointed out, affordable housing is the key mantra today. That’s because you can make more money in the affordable category with a volume game. Similarly in the hospitality segment, I believe a good 3-star matching with 4-star has a good potential in India. We are planning to set up 10 properties across India in 2010-2011 in the 3-star category. The average model that we are following is 100 to 200 keys at each place with a reasonable tariff and our in house management where the cost will be bare minimum.

Will you operate the hotels in-house?

Yes, we are acquiring the land, developing the properties as well as running and operating the whole portfolio. We will run and manage 3-star properties on our own. However, we are joining hands with 5-star operators for our 4-star properties at a couple of locations. You need a good brand in the higher category. We have an ‘in-principle’ tie-up with Oakwood for 4-star deluxe serviced apartments. It is a 200-key property on the outskirts of Mumbai – basically in the suburbs. It will take shape by March-April 2010.

Are you creating a new brand name for the 3-star properties?

Yes, we will be calling it ‘Man Tree’.

You are also developing IT SEZs in Nagpur, Maharashtra. Tell us more.

Yes, we have one very good project where the SEZ has been sanctioned at Nagpur. IL&FS is our partner in this project. We are planning to develop four million sq ft for this project. My idea behind this project is to give the affordable IT SEZ. The rentals for this project will be as less as Rs16. For most IT companies, cutting down costs has been a major challenge during the recession as well as in the face of growing competition from other countries. Their revenues are shrinking, their margins are at stake. Therefore, my endeavour is to provide affordable IT space that is built to suit to these companies. And I am sure that this kind of rentals can give leverage to the IT companies – for them it doesn’t matter whether they sit at Powai or at LBS Marg or at Nagpur.

Where do you intend to take your Group in the next 5-8 years?

We would like to focus on two things. First, we would like to be a large volume player. We have large numbers on our side where we can cut down the costs considerably. The second focus would be on reasonable pricing. I think only reasonable pricing is going to succeed. Basically, my philosophy is that if you give a competitive product at a reasonable price, people are ready to buy. If you notice, people who have priced highly, their products have failed. They did not have enough sales; they had to cut down their prices and they were begging like anything.

Our good factor is that we have delivered and we have a good track record. Currently we are present in the western and southern parts of the country. We have started moving towards the North with Gwalior and we would like to be present in the Delhi belt as well. I think our model of reasonable pricing would work there.

Eight years down the line, we would like to be a top realty player – may be even amongst the top ten in India.

Any plans about going public?

Not yet, but we may think about it in 2010 depending on the market scenario.

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