India’s largest real estate company has outlined a major reorganisation of businesses with Abhishek Lodha, elder son of founder and BJP leader Mangal Prabhat Lodha, getting control of the sprawling real estate business and younger son Abhinandan set to head the financial services business.
Abhinandan, currently deputy managing director of Lodha Developers (LDPL), the flagship of the group, will be handling only the financial services business (which is Roselabs Finance) as part of the reorganisation. While Roselabs Finance has a market capitalisation of just Rs 30 crore and revenue of Rs 13.55 crore for fiscal 2014-15, the real estate business which is several times bigger with an expected revenue of Rs 9,000 crore in FY 2016 will be managed by Abhishek who is now the MD.
“The family was looking at setting up financial services business for more than three years now. We have a listed NBFC (Roselabs). Our chairman is turning 60 years old this year and wanted to ensure that the new business is carried by leadership forward. The ownership of the group, directorship… all that remains common. By the end of the year, we will be starting the financial services business. It will be led by younger brother, Abhinandan and I will focus on real estate,” Abhishek told The Indian Express.
According to Lodha, as the business has grown significantly, the board of directors have told both the brothers to focus on managing different businesses. “… sure that such management focus change is surely not a matter that is uncommon in corporate India,” it said.
The Lodhas have however quashed reports about a split in the group. “In relation to the reorganisation of the company’s management, the Lodha family (including Abhishek and Abhinandan) continue to remain the shareholders and directors of the real estate business as well as the financial services business,” the company said in an email reply to queries from The Indian Express.
However, when asked whether he has agreed to the board’s proposal, Abhinandan Lodha did not respond to both emails and phone calls from The Indian Express on the LDPL board’s proposal to concentrate on the financial services business and his plans.
The realty major, which is not listed on the stock exchange, has a debt burden of Rs 12,000 crore. India Ratings said LDPL has a repayment obligation of Rs 1,650 crore and Rs 2,700 crore in FY16 and FY17. It said the consolidated balance sheet is highly leveraged. Leverage (net debt/adjusted inventory) deteriorated to 93% in FY15 from 76% in FY14 and 61% in FY13. Pre-sales/gross debt declined to 0.66 time in FY15 from 0.86 times in FY14.
Moody’s, another rating agency, recently downgraded Lodha Developers rating outlook from negative to stable reflecting “the company’s weaker-than-expected cash collection for fiscal year ended March 2015”. Cash collection was Rs 5,400 crore in FY2015, compared to Moody’s expectation of Rs 7,500-8,000 crore. Another concern could be the cash outflow from the flag ship company to its recent overseas acquisition of a London property for Rs 3,000 crore. A higher-than-expected cash draw down from LDPL to its overseas joint ventures will result in a cash shortfall and impact ratings, credit rating agencies said.
However, the Lodha group refuted the observations of bankers and rating agencies. “As you must be aware, in August 2015, India Ratings recently gave Lodha Developers an investment grade rating of A. . This is one of the best ratings in the real estate industry and also much better than several marquee companies in other sectors. After this rating, another rating agency, Brickworks has also upgraded its rating on Lodha to A- from BBB-2 earlier,” the company said in an email.
“We believe that such upgrades, in the midst of a modest economic environment, reflect the prudent financial and management of our company. The Moody’s report referred to by you are almost 4 months old and merely reflect an outlook change — in any event, the subsequent rating upgraded are a reflection of the business’s performance,” the company said in an email response.
Rejecting charges of any issue on the liquidity front, Abhishek Lodha said, “we had our best sales in the first five months of Rs 3,000 crore. We are confident of hitting Rs 9,000 crore sales this year, which will be the highest for any realty company in India. We delivered over 5,000 units to our customers last year and this year we will deliver over 6,000 units.
The total land reserves of the Lodha group, which is building 117-storied World One, tallest residential tower in the country, add up to over 5,800 acres. Its other top projects include Palava, The Park and New Cuffe Parade, which accounted for 80% of the total sales in FY 2014-15.