IVRCL's Strategic Shift Amidst Real Estate Downturn
City-based construction firm IVRCL Infrastructure and Projects is navigating the challenges posed by the current real estate downturn with a multifaceted strategy. At the forefront of this approach is the planned sale of its high-value land holdings, with a notable example being the twenty-five-acre Information Technology Special Economic Zone (IT SEZ) plot in Noida.
Chairman's Vision for Adaptation
According to E Sudhir Reddy, Chairman and Managing Director of the ₹4,200 crore company, "With the real estate being what it is now, our first priority is selling high-cost land and filling our land bank with low-cost lands. We will also go for low-cost housing."
Current Land Holdings and Market Value
IVRCL's extensive land portfolio includes:
- Noida: 120 acres
- Bangalore: Approximately 1,000 acres
- Pune: 400 acres
- Panvel (Navi Mumbai): 200 acres
- Hyderabad, Nagpur, and Visakhapatnam: Significant, though unspecified, extents of land
The total market value of these plots is estimated to exceed ₹4,000 crore.
IT SEZ in Noida - A Unique Situation
- Allotment Details: IVRCL was pre-qualified and allotted 120 acres in Noida about a year and a half ago. This includes 25 acres for an IT SEZ, purchased at ₹7.5 crore per acre, and the remaining 95 acres at about ₹12 crore per acre.
- Sale Strategy Due to Regulatory Restrictions: Since SEZ land cannot be sold outright, IVRCL plans to construct unfinished structures and then dispose of the property.
- Financial Strategy for SEZ Land Sale:
- Construction Cost: ₹2,000 per square foot.
- Transfer Strategy: The built-up area will be transferred to the purchaser at the same cost, with the company seeking a premium on the land cost.
- Comparative Market Value: Initially purchased for about ₹17,000 per square meter, the minimum upset price in the area now stands at approximately ₹25,000 per square meter.
Shift to Low-Cost Housing
In light of rising interest rates and input costs, IVRCL is focusing on low-cost housing projects:
- Current Projects: Building approximately 9 million square feet of low-cost houses spread over 3,000 acres across different cities.
- Pricing Strategy: The highest price point for these low-cost houses is ₹2,200 per square foot.
Diversification into Cement Production
- Strategy Overview: IVRCL plans to partner with about ten construction firms to establish cement plants nationwide for captive consumption.
- Investment Plan:
- Initial Investment: Approximately ₹25 crore each, totaling ₹250 crore.
- Funding Approach: Seeking additional capital through bank funding and private equity (PE) firms to setup six cement plants.