Boman Rustom Irani, Chairman and Managing Director, Keystone Realtors Limited (Rustomjee)

9 Nov 2022 , 12:03 PM

How much is the promoters’ stake in the company now and what will it be after the IPO?

Currently, promoters stake stands at 96.7% and post IPO it will be 86.7%.

Part of the IPO proceeds will be used towards repayment of debt. How much is the debt currently and what will it be after the IPO?

The overall secured debt on our books is about Rs776 crore. Of this, we will be repaying debt worth Rs341.6 crore using the IPO proceeds. This debt repayment is towards a project which is nearing completion. So that will free some cash flows which will be utilized towards our new projects.

The company has an asset-light model. Help us understand what it means in terms of the specific role of the company.
We are, have been and will continue to be an asset-light real estate developer. We have been doing this since our first plot. Today around 70-72% of our entire portfolio comprises of Joint Ventures (JV)/Joint Development (JD) projects. We are an end-to-end development company. This means, we do everything from business development, going into design, approvals, execution, sales and marketing and property management. The asset-light part comes from the investment philosophy. We invest only upto 10% of the gross revenues of the project till such time that sales begin in the project. We only work on projects which we can complete within 4.5-5 years and can generate gross margin of ~35% – across redevelopment as well as JV/JD projects.

In Mumbai, the opportunity for redevelopment projects is immense. How important is this for the company?

Redevelopment projects are a sizeable part of our entire portfolio. We have been working on redevelopment projects in Mumbai since 2003. I believe that while everybody may have the knowledge of redevelopment projects, we also have the value add of experience. Historically, we used to see mom-n-pop shops in redevelopment. But we are one of the companies which has institutionalized the process of implementing redevelopment projects. We are able to go to multiple redevelopments and 65-70% of requirements are put down in our first offer itself. We know what is required by individuals, by society, the taxation structures in place, etc. All of these have been in a sort of Standard Operating Procedure for us. This is how we have institutionalized redevelopments. We have been a dominant and a sought after developer in this space. We want to grow our reach in redevelopment going forward. We can now pick and choose projects which can go through faster, have lower risks, better IRR, more margins in terms of overall profitability, and so on.

What makes the company stand out versus other listed peers?

We have over 600 employees. Our key managerial personnel have been with us for anywhere between 7-15 years. We are a partnership-focused company and have completed 8-10 projects with other developers as our partners. We have also done redevelopment projects wherein multiple land owners have been handled by us. All three promoters are hands on involved in the business and we have a decentralized operating and decision-making structure. We are an MMR-centric developer and are present across various types of development. This includes affordable segment (under Rs1 crore) to the mid-mass segment (Rs3 crore), the aspirational segment (Rs7 crore), premium (upto Rs15 crore) and super-premium (Rs100 crore+). At the same time, we are also working on townships, green field developments, brown field developments and so on.

What are the other opportunities for the company?

We already have two very large developments one in Thane and the other in Virar. In Thane, we are developing around 7 million square feet of residential properties. The Virar project is of similar size in JV with the Evershine Group. Recently, we have signed 1.4 million square feet in Dombivali along with a local land owner. There are other JVs with strategic partners. We will continue growing in the JD, JV, redevelopment segments. We are not averse to acquiring properties provided they fit in with our investment philosophy.

Residential real estate market in Mumbai is considered to be very unaffordable, which acts as a major deterrent on the demand side. Also, interest rates are on an upward trajectory. What are your on-the ground checks indicating?

Let us do a comparison of some metrics for the 3 quarters ending 2021 versus the 3 quarters of 2022. Last year we had new launches to the tune of 73,000. This year we have seen launch of 108,000 apartments in MMR. Absorption of these new launches was about 12,000 and has shot up to about 20,000 this year. Total absorption has gone up from 88,000 to 124,000 and the inventory levels (ready/nearly ready) has gone down from 202,000 to 179,000. This is as per Prop Equity data. So the absorption has increased while the inventory has gone down. This is despite rising interest rates and global pressures. Being a highly data driven company, we watch where we go. We choose what we want to do. So far the winds have been favorable and we have got out data reading right.

Give us a snapshot of the company’s financial profile, highlighting key strengths. What are the key margin drivers? What is the company’s approach towards paying dividends?

As of now, we have given an exit to all private equity investors. We have generated healthy operating cash flows in the last 3-4 years. Our focus has been on reducing our debt and our debt-equity ratio now stands at 0.80:1x (excluding unsecured loans). Under our asset light model, we are very conscious about the capital allocated into our new projects. We are confident of improving our margins over the next few years. As far as dividend payout policy is concerned, in the next 3-4 years will largely witness redeployment of cash into the growth projects. After that, the Board will take an appropriate call, depending on the available opportunities at that point in time.