Tuesday, February 24, 2009

Hurt by realty, infra firms eye 'safe haven' govt deals

Mumbai: Mumbai-based infrastructure firm Patel Engineering has a land bank of over 500 acres in cities such as Mumbai, Hyderabad and Bangalore. But just when the company thought of developing the property through its subsidiary Patel Realty & Infrastructure, tough times in the realty market began and the company was forced to postpone plans.

The story is the same for many of its peers. Infrastructure firms that have a presence in the realty sector are not keen on expanding as the liquidity crunch has led to significant delays in payments by realtors.

Contractors just want to finish the ongoing projects and exit for the time being.
Companies that were looking to enter the sector -- either directly or as contractors for real estate developers -- have also deferred plans.

One of the strategies adopted by these companies to derisk business is to target government contracts, which tend to be far more reliable.

"With incremental order flows from the real estate sector slowing and concerns over payment delays, construction contractors are focusing on raising the proportion of government and infra orders where visibility is better," observed Citi Investment Research analysts Ashish Jagnani and Karishma Solanki in a recent report.

Arun Sahay, chief executive officer of New Delhi-based Ahluwalia Contractors, admitted that there has been a slowdown in real estate projects. "We have not taken up any real estate project in the last six months and would like to just complete the existing projects," he said.

Targeting government contracts would be a good strategy, Sahay felt. "Currently about 40-45% of our order book is in the public sector and we are working towards increasing that number," he said. The company has of late been focusing on contracts awarded by the Public Works Department.

Ashwin Parmar, director of business development at Patel Engineering, said the company's conservative attitude of sticking to government contracts has paid off. He added that there have been no delays in payments in public contracts. "We have never done private contracts and we will never do," said Parmar.

Simplex Infrastructures, which is executing six projects worth Rs 500 crore for developers like Unitech and Nitish Estates, has not taken any new initiatives in the past one year. Amitabh Mundhra, director of the company, said the payment cycle has gone up from 45 to 60 days. "All our projects are in advanced stages of completion... But, from now on, we will be very selective in choosing realty projects."

Realty in India constitutes 5% of Simplex's Rs 10,600-crore portfolio.

Even infra firms that are realtors themselves seem to be shunning the sector. H S Bharana, chairman & managing director of Era Group, does not see a revival in the sector soon. "It does not make any sense to look for new realty projects," he said. Era Landmarks, the group's realty subsidiary, is currently executing 15 commercial & residential projects.

DNA Money reported in January that Unity Infraprojects would be seeing a three-four month delay in the completion of its three malls in Nagpur, worth Rs 300 crore. Yogel Lal, chief operating officer, had said that the company was not looking at any more real estate projects.

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