Brigade Enterprises Aims To Boost Residential Portfolio After Rs 1,500-Crore QIP
There is a strong and positive demand on ground as well in the residential sector, MD Pavitra Shankar said.
Bengaluru-based real estate firm Brigade Enterprises Ltd. aims to bolster its portfolio in the residential segment with the investment of Rs 1,500 crore raised through qualified institutional placements.
"We will be using this predominantly to acquire land for the residential sector. We feel that this is a great time to expand across all verticals, but especially in residential because of the ability to monetise," said Pavitra Shankar, managing director, Brigade Enterprises.
Brigade Enterprises raised Rs 1,500 crore via QIP after its board of directors approved the allocation of more than 1.3 crore equity shares to eligible qualified institutional buyers. The shares were allotted at Rs 1,150 apiece. The QIP issue closed on Sept. 5.
ICICI Prudential, Kotak, Nippon Life India, Franklin India, State Bank of India, Axis Bank, Goldman Sachs and Smallcap World Fund were the major participants in the QIP. The issue was launched on Sept. 2.
Real estate players need to pay an upfront and substantial amount of money during a land acquisition, the top executive noted.
"Whatever opportunities that present themselves today, whether it is a joint development or outright acquisition, the fundraise will have us be prepared for them," she said.
There is a strong and positive demand on the ground as well in the residential sector. Despite price hikes, demand continues to be strong and new project launches are met with enthusiasm, Shankar said.
"We are seeing a lot of end users come to our site, respond to additional marketing campaigns, and have very serious conversations about investing in the residential sector," she explained.
Brigade Enterprises wants to continue to grow in single digits as far as pricing is concerned, capitalising on the rise in demand.
"The pricing that we have seen over the last couple of years is really healthy; the market is in a good place right now and it should continue to grow in a stable manner without touching the double digits," Shankar said.
The available inventory in the residential segment is at an all-time low in Bengaluru currently, adding that Brigade has about 4 million sq ft of residential inventory left to sell, she said. The city has one of the lowest quarters-to-sell, which is the time required to liquidate existing inventory.
"The entire inventory we have available to sell in the city is under four quarters to sell. So that means it’s very much a seller’s market and that’s why we are feeling very positive about things," Shankar explained.
Watch The Conversation Here
Here Are The Excerpts
Congrats on the QIP. Why this need to raise money at this current juncture?
Pavitra Shankar: Yes, we definitely wanted to capitalise on the trends that we're seeing in the sector for the foreseeable future and wanted to capitalise on that by raising money for growth capital. Basically, we'll be using this predominantly to acquire land for the residential sector.
We feel that this is a great time to be across all verticals, actually, but especially on residential, because the ability to monetise and also to serve the very strong demand that we see on ground is looking really positive.
Okay, how positive? Tell us about the sentiment because everybody talks about how real estate is a long cycle. You've spoken about this as well as multiple factors out there. How are things on the ground?
Pavitra Shankar: So, you know, we've already seen a couple of years of really strong price increase, despite that, any new launches are pretty much met with a lot of enthusiasm, which you can physically see by end customers. I'll talk about Brigade in Bangalore, Chennai and Hyderabad, our upcoming, soon our launch.
But basically, we are seeing a lot of end users come to our sites, respond to our digital marketing campaigns, have very serious conversations about, you know, investing in the residential sector. So, I think because of that and also seeing very quick conversions for the kind of units that they want to buy.
So, I think from that perspective, we're seeing that there is still very solid demand despite the price increases so far. Going forward, we are also not really expecting to push pricing so much. I think the pricing that we've seen over the last couple of years has been really healthy. The market is in a good place right now, and it should continue to grow in a stable manner without, you know, expectations also being like, you will still continue to see double digit and very high price increases. That's when people tend to get carried away.
So, if we can continue to grow in single digit price over the next couple of years, I think that's really very good. I did hear the previous speaker as well. So I think from that perspective, inventory is at all-time lows across most of the top developers, especially in markets like Bangalore. We specifically have about four million square feet of residential inventory left to sell. If you look at quarters to sell, Bangalore must be one of the lowest, which means of all the inventory that we have available in the city, it is under four quarters to sell. So that means that it's very much a seller's market, and that's why we're feeling very positive about things.
So just for historical context or understanding this properly, under four quarters is the lowest since a number of years?
Pavitra Shankar: Yes, a number of years. I would say an equilibrium point is that it should take about two to three years. So that's about 12 quarters to basically, you know, sell what is coming out into the market because I think the model has been in the past that, you know, if a developer can sell whatever is their project's inventory during the time of construction, then that is sort of the best-case scenario.
Over the last few years, we've seen that sort of really decrease because of the absorption that is possible, and customers are actually willing to, you know, buy earlier and earlier in the time of the launch and the inventory cycle itself.
So, the demand is so much that we are still able to achieve the pricing that we want for each project, even though we're moving the inventory much, much faster than before. This is a story we're seeing across multiple markets, across multiple developers as well.
So tell us what's happening to cash flows thereof because, I mean, after two really heady years, there was a bit of a pullback on the operating cash flow, let's say, for the year at large and there may be multiple reasons there, but because sales are so strong. Since you're saying inventory is also at four quarters lows, it's astounding to know that four quarter low is probably so low relative to what you ideally have, or ideally can have.
What's happening to cash flows, and would this fundraise that you've done be the last of the ones or it's difficult to call that right now?
Pavitra Shankar: On the cash-flow side, you know, the sales and pre-sales are just an indicator. They are sort of a leading indicator of what is to come. Now that we have sold, and in many projects, you know, we tend to sell like 50-60% of the inventory within the first two quarters itself.
So, a lot of the sales start to get locked in at pricing that we are happy with. So it's not that we are just trying to monetise as quickly as possible. This is pricing that we are happy with.
Basically, once the project starts to get constructed, that is how we are able to raise the payment demands from the customers due to RERA as well. So as the customers make their payments based on construction-linked milestones. So, the cash flow should be balanced.
In fact, that is why, you know, Brigade has in the past been able to pay off all of the residential debt across our project. So, we're basically zero debt on the residential segment. So, we can fund the construction with the customer advances, while they are also funding, you know, in tandem with the work that is happening, so the cash flows should still be matching.
We have done a fundraise because, you know, sometimes when you have land acquisitions, the amounts that are needed upfront are substantial. So in order to sort of be ready for whatever other opportunities that are presenting themselves today, whether it is joint development or outright acquisition, the fundraise was done to have us be prepared for those kinds of opportunities that are coming up across our target markets, Bangalore, Chennai and Hyderabad.
Okay, for the quarter gone by as well. I mean, while reported residential would have looked muted, annuity fared really well. So tell us about that side now. How strong is annuity looking and will you expand the annuity portfolio materially because different peers of yours are following different lines, and all could be great. There's no one holy grail. Just trying to understand, how are you thinking about it?
Pavitra Shankar: Brigade has always preferred, you know, a diversified strategy across different domains in real estate. We have actually, originally been a commercial real estate company for the first few projects before we started getting into residential. That's way back, you know, four decades ago.
But currently our annuity portfolio, we have almost 9 million square feet operating across commercial and retail, and it's almost fully leased out. We have very minimal vacancy.
One thing I would like to point out here is, despite having at least a 5 million square feet of SEZ space, we have been able to lease that out completely without having to denotify any of it. So I think that's testament to the strength of the kind of products that we're building and also the preference of tenants to be in our projects.
So that's the reason why the annuity portfolio is, you know, cash flowing well, and should continue to do so, because now all of all of the leases are basically locked in, and we'll basically be seeing escalations for the lease agreement. So as of now, the portfolio that we have is fully leased. We're looking to build out another 6 million square feet over the coming few years, and will basically be doing that across three markets of Bangalore, Chennai and Hyderabad.
So, there is a lot of positive outlooks for the office and retail segment as well. Office, I think, you know, the whole work from home, hybrid, has sort of settled even globally, most companies are pretty much back to work at least four days a week. You know, employers want quality spaces where the employees feel happy to be coming into work, all of that. So, I think, and absorption of the commercial space as well has been doing very well in the past year or so, and this year again, promises to be a bumper year in terms of leasing.
So, all things considered, the outlook is very good for the office. As far as we are concerned, we want to continue growing that portfolio, along with the residential segment as well, based on the kind of opportunities that we'll see.
You know, deal by deal will sort of decide whether that's good for office or residential, but that's kind of how we have been growing in the past, and how we'll continue to do so in the future as well.
