New sales are slow, there is a large stock of customers that existing developers like Godrej properties has, which make them a loan against property (LAP) prospect or they have borrowed from someone who could potentially take the loan over.
By Ankur Mishra
In an interview after the launch of a housing finance company, Pirojsha Godrej, chairman, and Manish Shah, managing director (MD) and chief executive officer (CEO), Godrej Housing Finance, tells Ankur Mishra that they expect financial services to be one of the pillars of the group, just as fast moving consumer goods business or real estate business or agri business. Edited Excerpts:
What is the reason to launch Godrej Housing Finance in the middle of a pandemic?
Pirojsha Godrej: It is a difficult time in the market. Obviously, we need to be careful about the quality of underwriting and risk practices to make sure that we are prudent in all our activities. The other thing to keep in mind is that housing finance is probably the safest type of lending business today. We need to have a cashflow rich, long-lasting housing finance business. We feel that despite the time being challenging in some ways, it also offers a lot of opportunities in other words.
Do you plan an initial public offer (IPO) for Godrej Housing Finance in the long run?
Pirojsha Godrej: It is very premature as we are just launching the company, so thinking of an IPO is extremely premature. Our focus is always in this kind of ventures is the long term. So I think as a group we are not here to come in like a private equity firm, try and turn around and sell the business to someone else. We have every expectation many decades for now that financial services will be one of the pillars of the Godrej group, just as fast-moving consumer goods (FMCG) business or real estate business or agri business is today. So think that is the kind of mindset we are launching with, and we are not here to sell it or exit it in few years. That said, I think financial services in nature require a lot of capital to be invested, that capital is essentially the raw material.
So having the probability to list business does make sense. But, I think the time-frame for that would be somewhere between 5-7 years. So I think in the next 5 years we will not look to make the business public.
What gives you confidence to grow your balancesheet to Rs 10,000 crore over the next three years?
Manish Shah: First looking at the top down, from market size and how much business is done. It is a very small number. So from the top down, the market share will be in low decimal points . What this entails for us is that Rs 2,500 crore sanctions by year 2021-22, Rs 4,500 crore sanctions by year 2022-23 and Rs 5,000-6,000 crore by year 2023-24. What gives confidence are a few things. Our first partnership is with Godrej Properties. There will be large number of new property sales, that will happen in the course of next three years. We expect to get a share of that. It will be premature to give you the conversion rate. There will a large chunk of new home that we will look to convert into loans. The second is, we often tend to overlook that there is fairly large stock of customers.
New sales are slow, there is a large stock of customers that existing developers like Godrej properties has, which make them a loan against property (LAP) prospect or they have borrowed from someone who could potentially take the loan over. That is the second opportunity. Then there are certain allies, opportunities over a certain period of time , which are in the cashflow-based lending space, which are not necessarily lent against mortgage. So that is again another opportunity. Again, where the starting point is the group’s ecosystem. So looking at bottom-up and top-down perspective, gives us the confidence that we’ll be able to meet this target.
How much capital promoters will put in the company and what will be the time frame for that?
Pirojsha Godrej: The expectation is that in the first three years , promoters plans to infuse between Rs 1,000 and Rs 1,500 crore capital into the business. The exact amount would depend on how the business scales up and what are the requirements. Beyond that, as a promoter, you will put in more capital or you look to raise any external capital, would be something we will evaluate basis on the performance of the business. But, I think the initial thinking is that we have earmarked Rs 1,000-1,500 crore, and that would be needed in roughly three years.
Will there be co-lending with banks after Reserve Bank of India (RBI) has allowed Housing Finance companies (HFCs) to co-lending with banks?
Manish Shah: It is definitely an interesting prospect. I don’t see looking at it as we start. I think it’s too early right now, but it is an interesting proposition. We would like to start out serving the customer and owing them, that particular relationship end to end. That’s where we can come in and add more value in addressing the challenge in the home buying journey end to end.