Management Discussion And Analysis
1. ECONOMIC OVERVIEW
India continued its momentum of growth in the year with impressive growth in its GDP.According to the Reserve Bank of India, the GDP growth in the 4Q 2010 stood at 8.7 %against 7.9% for the same period last year. This was driven by improved performance of theagricultural sector as well as buoyancy in the industrial and services sectors. Financialservices, insurance, real estate and business services are expected to have maintainedtheir momentum with a growth of 10%.
Manufacturing continued its strong growth, driving the Index of Industrial Production(IIP) by 8.7% in the first three quarters of the year, as per Centre for Monitoring IndianEconomy (CMIE). Despite the steady growth in the economy, inflation continues to remain aprime concern for the government. The RBI has increased interest rates 6 times during theyear in a sustained effort to curb inflation. This had an effect to taming inflation to acertain degree, as evidenced by a decline in the Wholesale Price Index by 7.4% in the lastquarter on 2010 as against 8.6% in the same period.
The government continues its focus and spend on infrastructure. The government has setup an ambitious target of spending almost 9% of GDP on infrastructure by the terminal yearof the Eleventh Five Year Plan (2007 – 11). Large and long term investments and newglobal players are expected to continue in this space, as government realises itsimportance and has allowed 100% FDI into the segment.
The Indian Rupee remained strong against the US Dollar and the Euro closing at 44.58and 63.34 respective, primarily due to slow rate of recovery both in the US as well asEurope.
The flow of FDI into the real estate sector in India was moderate when compared to theprevious year. This follows the general declining trend of the overall FDI in India.During the first 6 months of the year, FDI flow was down by 24% due to heighted riskaversion among global investors. The flow of FDI into the real estate in India stood atINR 37,000 million for the first half of the year compared to almost INR 98,000 millionduring the same period in the previous year, a decline of 62%. However, India stillcontinues to remain a favourite destination for global investors due to its sustained androbust growth and strong consumer demand. India still ranks as the 5th favouritedestination for investors as per United Nations Conference on Trade and Development(UNCTAD). As per Ernst & Young’s 2010 European Attractiveness Survey, Indiaranked 4th attractive FDI destination in 2010. Due to the slowdown faced by the realestate sector in the past 2 years, the share of FDI into real estate is a 8%, but isexpected to rise much higher with improvements in spending in infrastructure, customerconfidence, and an overall betterment in the economy.
2. INDUSTRY OVERVIEW
After a slump and struggle in the previous year, the real estate industry in India sawa positive start to the year and continued to build and consolidate on this. Backed byincrease in salaries by about 10.8% and a rise in hiring and job creation, there was ahealthy revival of demand in all the asset classes, with the residential sector witnessinghighest demand. Apart from the major asset classes (housing, hospitality, commercialoffice and retail spaces), the year also saw an emergence of new sub-sectors and nichemarkets in education and healthcare. New segments like amusement parks, sports facilities,although still at a very nascent stage, are also made their presence felt during the year.
Contrary to popular perception, absorption across the major segments improved visiblyduring the year. Residential sector saw the highest spike in demand based on strongerconfidence levels and better affordability. A general all-round improvement in the economyalso led to increased corporate spending as well as most retailers returning back to theirexpansion plans. In the commercial office and retail sector too there was an improvementin demand. With Improvement in absorption rates across segments and across key markets sawinvestors return and an increase in activity in residential, office and land markets.
On the funding side, the year saw much moderate inflows of FDI into the real estatesector. In the domestic funding, the year saw a renewed interest in the industry by bothprivate equity and public equity markets, especially toward the end of the year. SpecialPurpose Vehicles (SPVs) continued to be the preferred investor option accounting fornearly 90% of all transactions since 2H 2009 indicating their cautious approach. Thepublic equity market witnessed similar levels of activity and fund raising as compared tothe previous year. During the first 3 quarters of 2010, nearly Rs. 23,000 million wereraised through the QIP route by three players. Most of the funds raised in 2010 were tomeet requirements of ongoing projects and land acquisitions, as compared to 2009 when itwas used for repayment of debts.
RESIDENTIAL SECTOR
This sector continues to remain the mainstay of the Indian real estate sector. Therewere visible and positive improvements in key drivers like increase in disposable income,increase in the number of nuclear families/households, tax savings on mortgages products.These, coupled with correction in prices and better affordability led sustained end-userdemand in the sector, especially the mid income segment. Apart from the end-user demand,there was also increase in investment from the non-resident Indians (NRI) and the High Networth Individual (HNI) who are key buyers in the high-end and the premium end residentialcategories across India.
The demand supply gap in residential sector across key cities in India continues to bewide, with demand picking up in the last two to three quarters while supply remainsconstrained due to slow pace of construction activity in 2009. In the top seven cities ofthe country, demand is expected to be three times higher than the supply and this gap isexpected to remain till 2014, as per Cushman & Wakefiled’s Research report.Within the segment, the gap for mid income housing is expected to be three times supply,where in case of premium and luxury housing, this gap reduces to 1.5 times supply (Cushman & Wakefield Research).
In the second half of the year, many developers started enhancing their prices,especially in the key markets of Mumbai and Delhi, pushing the capital values by upto 30%- 40% in the premium locations in Mumbai. This has impacted sales and slowed downabsorption in the last months of the year.
NCR Focus
Capital values have risen by more than 30-35% in Gurgaon and by 10%-15% in selectpockets of Noida. Majority of the new projects being developed in Gurgaon are in the rangeof Rs. 3000-4000/ sq.ft., while those in Noida are between Rs. 2500-3000/sq.ft (CBREReport 2010). However, in the Gurgaon market in particular, a disturbing trend that hasemerged over the past 12-18 months is the entry of a lot of speculators, especially in newprojects. New launch prices in areas such as Sector 70-72 have seen prices touching Rs.5000-6000 as compared to Rs. 2600-2800 in 2009. In the last quarter of 2010, a number ofresidential projects were launched in Gurgaon. These were launched in micro-markets likeSohna Road, Golf Course Road Extension and Dwarka Express Way. Most of these projects areexpected to get completed by 2013. The NCR market (mostly Gurgaon and Noida) registeredmore than 100,000 units being launched in 2010, as per The 2010 India Real Estate Reviewby CBRE. There has also been a significant demand in the affordable segment, anddevelopers have rushed to position their projects in the low and mid income segment of themarkets.
RETAIL SECTOR
Confidence and consumerism returned to cheer up the sluggish retail sector. Positivefactors like rising income levels, rapid urbanisation and increased brand consciousnessall contributed to a general uplifting of confidence in the Indian retail space, makingboth domestic and foreign retailers resume their expansion plans. Developers also becamemore accommodating in asking for rentals and lease terms. There was a marginal decline invacancy levels with 15.5% from 17% in 2009. While supply remained much in excess ofdemand, an important point to note is that 2010 saw less than 40% of the initial estimatedsupply materialsing. Concentration of pre-lease commitments also witnessed a decline in2010 due to lack of proper catchment areas and concentration of retail developments incertain pockets.
The year also saw a lot of international brands like Jack & Jones, Vero Moda,Timberland, Forever 21, Diesel, Ecko, Gloria Jean and many others setting up theirflagship stores in India, and many more are considering entering the Indian retail spacein the coming year. Large format retailers like Shoppers Shop, Funcity and Lifestyleopened their first outlets in South Delhi, while anchor hypermarket brands such as BigBazaar, Bharti Easy Day and Shoppers Stop committed spaces in new completions.
NCR Focus
NCR accounts for almost 30% of total of 200 malls in India with a retail space ofapproximately 56 million sq.ft. NCR witnessed a supply of around 3.6 million sw. ft whichis significantly higher than in 2009. The increase in supply has been somewhat balanced byincrease in demand by new brands/retailers looking to establish/expand their presence. Inthe markets of west Delhi and other high street locations, rentals have started toappreciate, while in Noida and Gurgaon, rentals have remained largely stable. In Delhi,rentals across prime locations have been in the range of Rs. 300-350 per sq. ft., while inNoida and Gurgon these are in the range of Rs. 200-220 per sq.ft.
COMMERCIAL OFFICE SECTOR
The Indian commercial office sector is dominated by the IT and ITES. During the year2010, this sector also saw entry of new segments like Pharmaceuticals, Biotech, Telecomand Manufacturing. Demand for commercial office space continued its revival in thebeginning of 2010. As the year went on, the size and frequency of transactions in thesector also increased, helped by developers’ flexibility to reduce prices and alsooffer better leasing terms and incentives like free parking and rental discounts. Thislead to pre-commitment in various under-construction projects, which in turn led todevelopers launching new projects in suburban locations pan India. Absorption ratesremained good with NCR (Gurgaon), Bangalore, Hyderabad and Mumbai leading absorption ofmore than 32 million sq. feet offered in 2010 across top 7 cities. Overall absorptionstood at 33 million sq.ft. in 2010 as against 20million sq. ft. in 2009. In the lastquarter of the year, there was an increase in vacancy levels due to sustained oversupply,particularly in suburban areas.
According to CBRE Report, almost 55 million sq.ft. of office space was added in theyear 2010 across the 7 top cities. Rentals have declined by 30%-40% due to large suppliesacross key markets (IDBI sector report, 2010).
NCR Focus
In the NCR, 2010 saw a larger volume of transactions and increased demand for largerfloor sizes based on sustained economic growth and stability during the year. However,this was matched with inflow of substantial supply, notably in Noida and Gurgaon withvacancy hovering around 25%-30% in these areas. NCR has also witnessed a cumulative supplyof more than 45 million sq.ft. by the Q4 of 2010, as per CBRE Report.
Rentals in select micro-markets of Gurgaon like MG Road and Golf Course road havewitnessed appreciation. Rentals for high quality office space in Delhi are in the range ofRs. 250-300/ sq. ft., while in the range of Rs.60-70/sq.ft. and Rs. 30-35/ sq. ft. inGurgaon and Noida respectively.
HOSPITALITY
Compared to the previous year, this year has seen a marginal revival in this sector.Average Room Rates (ARR) continued to remain between 55% - 65% across key markets. Thesector continues to attract new players both domestic and international on the back of taxincentives and additional FSI offered. In metropolitan cities of NCR and Mumbai, a newtrend of luxurious serviced apartments is also emerging quite visibly. As economycontinues to improve, niche segments like stand-alone meeting and event facilities arealso driving this sector.
3. BUSINESS OVERVIEW
Anant Raj Industries Limited (Anant Raj) is today synonymous with high-qualitydevelopment in construction and infrastructure. Based out of Delhi, it is one of theoldest and most experienced companies that has for almost four decades consciouslyfollowed a clear and well-thought strategy to focus and concentrate in NCR. The companyhas developed over 11.5 million sq.ft. of property and is well on its way to fulfil itsvision of positioning itself as an "integrated development enterprise in NCR withhigh quality of construction, ethics, business standards and customer satisfaction on acontinuous basis’.
The company continues to build and develop residential properties, commercialproperties, hotels, IT parks and SEZs. The company continues to consolidate and strengthenits position in NCR. The company is among the largest land owner in Delhi with 500 acres.Over the last 3 decades, the company has consciously and continuously focused on NCR. Thisclear geographic focus has allowed to company to gather substantial strength of both scaleand scope, and as economic conditions keep improving, the company is positioned to reaphigh rewards and benefits. All sectors of the industry – from residential to retailand from office space to IT parks, are expected to see one of the highest growth rates inthe country in NCR and the company is firmly placed to leverage this opportunity.
The company has a diversified portfolio with a pragmatic mix of developments in IT/SEZ,Residential, Hospitality and Commercial Retail. This enhances the company’s stabilityand insulates it against vagaries of market fluctuations.
LAND BANK
Of a total land-bank of 1200 acres (developable area of 75 million sq.ft), the companytoday is among the largest land owner in Delhi with 500 acres. The balance 90% of land iswithin 30 kms.of Delhi. Most of this land is paid for, and is acquired in prime locationsat low cost. During the current year, the company acquired 218.40 acres of prime land witha developable area of 10.70 million sq.ft. and 2.80 Lac Sq. Yards for Plotted Development.The cost of this new land is Rs. 837.83 crores.
NEW LAND PURCHASED IN 2010
| Location | Area in Acres | Land Cost |
| Gurgaon -Sector-91 | 15.50 | 70.00 |
| Gurgaon | | |
| TOWNSHIP | | |
| Residential Plotted Development | 106.60 | 369.60 |
| Commercial | 4.40 | 15.40 |
| (Residential) | 43.00 | 150.50 |
| Commercial | 6.95 | 24.33 |
| Manesar | 12.45 | 52.00 |
| Rai- Sonipat | 10.00 | 17.00 |
| Neemrana | 18.00 | 13.00 |
| 1/2 Portion at Bhagwan | | |
| Das Road, New Delhi | 1.50 | 126.00 |
| Total | 218.40 | 837.83 |
RESIDENTIAL
During the year the company launched three residential projects. These are underdevelopment and work is going on in full swing. The Del-37 residential project inKapashera has 112 flats which have been already sold out. The project is expected to becompleted in March 2013 on schedule. The 670 flat MADELIA project in Manesar is also fullysold out and is on schedule for completion in March 2014. The MACEO project in Sector91-Gurgaon has also attracted a lot of interest having 770 flats. The flats are expectedto be sold in the coming year and much before the scheduled date of completion of project.
The company also has residential projects in Neemrana and Rai (Sonepat) in thepipleline. The Neemrana project is scheduled to be launched in July 2011 and has 2840flats, while the Rai (Sonepat) project of 500 flats is to be launched in January 2012.
Residential plotted development (over 106.6 acres land area) and residential (over 43acres land area) projects in Gurgaon are also expected to be launched in October, 2011 andApril 2012. For all these projects, land also already been acquired and is fully paid for.
The company also have ambitious plans for two ultra luxury residential projects inextremely prime locations in New Delhi – at Hauz Khas and Bhagwandas Road.
HOTELS/RESORTS/ENTERTAINMENT
During the year, the company successfully completed and delivered HOTEL TRICOLOR. HOTELTRICOLOR is located on the main NH-8 (Delhi –Jaipur Highway) near the Delhi Airportand is also connected by the Delhi Metro. The 55 room hotel is spread over 8.3 acres ofland. The hotel is leased out to Royal Orchids Hotels Limited from August 2011.
Besides this, the company has the following hospitality projects on lease :
| Property Name | Location | Area in Acres | Area in Million Sq.Ft. | Run by |
| 1. Hotel Mapple | At NH-8 New Delhi | 4.73 | 0.06 | Mapple Emerald near Airport |
| 2. Hotel Mapple | At NH-8 New Delhi | 2.88 | 0.04 | Mapple Emerald near Airport |
| 3. Parkland Retreat | Near Mehrauli, Delhi | 7.37 | 0.08 | Parkland Hospitality Ltd. |
| 4. Parkland Exotica | Near Mehrauli, Delhi | 5.75 | 0.07 | Parkland Hospitality Ltd. |
| Total | | 20.73 | 0.25 | |
| New hospitality Project Dhumaspur (Resort) | Gurgaon, Haryana | 10 | 0.65 | (New Project) |
COMMERCIAL / RETAIL
The MOMENTS Shopping Mall at Kirtinagar, New Delhi was completed during the year. 60%of the 0.6 million sq.ft. mall is already leased out and rents have already been startedin June 2011. The company has significant plans in this segment. The township projectsthat are in the pipeline at Gurgaon and the industrial park project at Manesar both havecommercial space. The project has 11.35 Acres of land with 1 mn. sq.ft. of saleablecommercial area, while the industrial park at Manesar has 3 acres of land and 0.23 millionsq.ft. area designated for commercial development. Both these projects are scheduled forcompletion in March 2015.
IT / SEZ / INDUSTRIAL PARK
Details of properties with ownership:
| Property/ Location | Ownership %age | Area in acres | Area in Million Sq.ft |
| IT Park, Manesar | 100% | 10 | 1.8 |
| IT SEZ, Rai | 100% | 25 | 2.1 |
| IT Park, Panchkula | 50.1% | 10 | 0.54 |
| IT Park, Jaipur | 100% | 10 | 1.0 |
| IT Park, Noida | 100% | 25 | 3.3 |
| Industrial Park, Manesar | 100% | 75 | 135608 Sq.Yards(plots) |
| | | 0.57 Million Sq.Ft.(residential) |
| | | 0.23 Million Sq.Ft.(Commercial) |
With work in full swing, the company’s two IT projects in Rai and Panchkula areexpected to be completed in the next two years. IT SEZ at Rai is the nearest notified SEZfrom Delhi with a distance of only 5 kms. Situated on NH 1, it is proposed to be connectedby the Delhi Metro and the new KMP expressway connects it to Gurgaon, Manesar and theDelhi Airport. Phase I of this project is spread over 25 acres and has a leasable area of1.4 million sq. ft. Phase I is expected to be ready by March, 2012.
The company’s IT Park project is situated at Panchkula – the modern citydeveloped by Haryana government close to Chandigarh. It is also just 10 kms. from Baddi,the new hotspot industrial area developed by the Himachal Pradesh government that has seena phenomenal shift of manufacturing/production units by most large players. The project isspread over 10 acres of land and 0.54 million sq.ft. will be ready in Phase I, expected tocomplete by September, 2012.
4. FINANCIAL PERFORMANCE
1. Turnover : The company recorded a turnover of Rs. 452.96 crores againstRs. 362.99 crores in the previous year, an increase of 24.79%
2. EBIDTA : The company registered an EBIDTA of Rs. 264.43 crores as againstRs. 311.95 crores during the previous year, a decrease of 15.23%.
3. Profit Before Tax : For the current year, the company’s Profitbefore Tax stood at Rs.229.98 crores against Rs. 296.30 crores in the previous year.
4. Profit After Tax : For the year, the company’s Profit after Tax wasRs. 167.84 crores against a profit after tax of Rs. 238.25 crores last year.
5. SWOT ANALYSIS
Strengths
The company today has one of the most impressive land bank in the NCR region amountingto almost 1200 acres. In Delhi, the company has the largest land bank of over 500 acres.The company acquired 218 acres in the year 2010-11. The total developable area is about 75million sq.ft. The company has consciously built its land bank even during the years ofrecession in the industry. Moreover, the land bank of the company has been acquired at avery low cost, thus allowing the company the flexibility to develop and deploy this landin an asset class which has highest returns as well as immediate monetisation. As theeconomic situation improves and there is a revival of demand, the company is in a verystrong position to leverage its dominant land bank.
The company also has project that are on the anvil of completion in the near futureproviding strong monetisation opportunities and stronger cash flows. With the overalleconomic scenario looking positive, the company is favourably positioned to leverage thisupswing in market condition.
The company also have a very strong in-house execution team that ensures that most ofthe projects are completed within set time frames. The company has a proven track-recordof delivering projects in terms of committed time-frames as well quality in design andconstruction.
Opportunities
The company has entered into the residential space with renewed focus and vigour duringthe year. The growth in demand has been most pronounced in the residential space amongstall the traditional asset classes in the wider real estate space. Delhi and NCR areexpected to have one of the highest rates of growth in residential demand. The company hasacquired about 11 million sq.ft. of land that is ready for development and will bedeployed for luxury residential projects in the heart of Delhi, mid-income residentialprojects in Kapashera and Gurgaon, and affordable homes in Manesar and Neemarana. Withprojects across market-segments, the company’s confident to address growthopportunities in this space.
Weakness
Being a focussed player in the Delhi and NCR region, the company is dependent on theeconomic climate in the region.
Threats
The real estate business is correlated to the speed of execution. Some of our projectsare long term, and take upto 3 years for completion. Any delays in execution of projectscan expose the company to risks of higher costs as well as affect its profitability.
6. INTERNAL CONTROL SYSTEMS
The company has appropriate and sufficient internal control systems in line with itssize and the industry it operates in. The company has a well-laid framework of systems,processes, procedures and policies that ensure compliance to statues and laws, as well asensure optimum and efficient use of resources. The company monitors expenses on a regularbasis to ensure that these are within the budgeted targets.The company also carries outregular internal audit through external agency to test the adequacy and effectiveness ofits internal control processes and also suggest improvement and upgrades to themanagement.
7. HUMAN RESOURCES
At Anant Raj, we firmly believe that it is our people who are our most importantvaluable assets and resources. The company strives to ensure best working conditions forits people and that there are no compromises on the health and safety of its employees.The company has a professional and healthy work culture built around strong corporatevalue. The company also encourages and supports its employees to upgrade their skills on acontinual basis through organising skill development programmes. Employees are alsoencouraged to participate on professional skills and training development courses.
8. RISK REVIEW
The company understands that risk recognition and its effective management is criticalto deliver sustained shareholder value. The risks and uncertainties that the company islikely to face and how the company plans to address are as under :
Real estate business is exposed to cyclical fluctuations. These fluctuations occur dueto complex interplay of external and macro-economic factors that affect demand and supplysituation in the industry. A downturn in cycle can result in sluggish demand that willhave a negative impact on the rentals as well as capital values, and therefore, have asimilar affect on profitability.
CYCLICAL FLUCTUATIONS
The real estate industry actually experienced a difficult phase in 2008 and 2009 due toglobal economic downturn. The company has been resilient and managed this risk of due to
(A) focus on Delhi and NCR, where the effect of global downturn in demand was mitigatedby a sustained demand for real estate. Delhi and NCR, as a pocket, have been experiencinghigh growth momentum. With the company’s projects and land-bank in Delhi and NCR, thecompany was not as much affected due to the cyclical downturn. The company’s in-houseexecution team is also one of the best in the industry.
(B) The company has a Strong In-house Team of professionals including highly skilledarchitects, engineers and designers. The company has not had any major labour problem.This ensures that there are no delays in execution and the company continues to deliverprojects in time.
(C) The company has a strong balance sheet with comfortable cash flows, and therefore,does not need to engage in distress sales.
(D) The company has been judiciously avoiding acquiring land at high costs. The companydoes not usually participate in land auctions where prices tend to be high.
(E) The company has been pragmatic in balancing its revenue stream with incomes bothfrom rentals as well as development income. With more commercial properties nearlycompletion, the company is expecting a more steady stream of annuity incomes from rentals,that will ensure a healthy cash flow to tide over cyclical fluctuations in the industry.
OVERALL MACRO ECONOMIC CONDITIONS
The company has its business focussed in the Delhi and NCR region, and is highlydependent on the economic situation in the region. This does make the company morevulnerable than if it were spread geographically.
However, the Delhi and NCR region is one of the fastest growing geographic markets inthe country today. There is a big upswing in demand for all real estate asset classes,driven by overall improvement in confidence levels. This growth in demand is expected tosustain over the next few years as the Indian economy continues to surge aheadaggressively. Moreover, the company is well-diversified by having presence in all assetclasses and hence, in spite of being geographically focussed, the company has mitigatedthis risk through diversification into all asset classes.
DEVELOPMENT AND EXECUTION
Execution is the key in real estate business and is crucial to customer satisfaction,profitability and value to shareholders. In case of any inordinate delays in execution,the company will be exposed to risks of market fluctuations, loss of reputation as well ascustomers moving to competition. To mitigate this risk, the company has one of thestrongest execution teams in the industry. The strong in-house team ensures that allprojects of the company are executed as per set time-frames. Being an in-house team givesthe company a direct control over execution, and the company is not affected by issuesrelating to contracting execution to third party, and delays thereof.
COMPETING PROPERTIES
Presence of competitors’ properties in the same vicinity as the company’sproperties may affect demand, and thereby, lead to unsold inventory.
At Anant Raj, we have always ensured that our projects deliver maximum value for money.We do this by judiciously acquiring land at rates that are reasonable and which therefore,result in more value for the customers. Besides low land rates, the company developsprojects that are differentiated through their better designs and higher constructionquality. The company’s track-record of timely execution of projects have created anexcellent reputation with the customers. The company believes that with a combination ofbetter value, better design and construction quality added with timely delivery has putthe company in an advantageous position compared to its competitors, and has thus largelymitigated this risk.
9. OUTLOOK
With the economy expected to continue its positive trend and grow at more than 8% inthe coming year, all key drivers of growth like disposable incomes in middle classfamilies, rapid urbanisation, retail spending are estimated to further drive demand in allsectors of real estate and further improvement in absorption and appreciation of values isexpected.
The residential sector continues to attract highest demand in the industry. Accordingto a Cushman and Wakefield Research report, housing demand is to register a CompoundedAnnual Growth Rate (CAGR) of 15% by 2014. India’s cumulative demand for homes standsat 4.25 million units. 60% of this demand is expected to be from top 7 cities, with Tier Icities of Mumbai and NCR accounting for more than 40% of this demand. Mumbai is expectedto witness the highest cumulative demand growth of 23%, followed by NCR at 20%.(Cushmanand Wakefield Research report). Supply is expected to remain much less than demand, with ademand supply gap of 3 times in affordable and mid segment and 1.5 times in luxury andhigh-end segment. Mumbai and NCR are expected to have the highest demand supply gap overthe next five years.
In the commercial office space sector, Cushman and Wakefield Research report estimatesthe Pan India demand for office space to be 240.7 million sq.ft. by 2014, of which 46% isexpected from the top three cities. Bangalore and Mumbai are expected to have the highestcumulative demand owing to high interest from IT/ITES and commercial sectors. With supplyin excess of demand, prices are expected to undergo a further correction. Mumbai is likelyto witness the highest stock addition of almost 39.7 million sq.ft. by 2012, as per thisreport, followed by NCR and Bangalore.
The commercial retail market demand is expected to reach 55.26 million sq.ft. by 2014.Besides malls, demand for high street locations is also expected to rise and reach 106million sq.ft. by 2014 as per Cushman and Wakefield Research Report. 53% of thiscumulative demand is expected to come from the top seven cities across India, withBangalore expected to have highest mall space demand at 7.7 million sq.ft., followed byMumbai at 6.5 million sq.ft.
The sector continues to have large oversupply, which is likely to restrain launch ofnew projects. This is expected to have a moderating effect on rentals in the short term,and unless demand picks up substantially, this situation is unlikely to change. However,projects which have a distinct differentiation in design and concept, branding andlocation are likely to be attract investors.
The hospitality sector is seeing industry giants getting ready to penetrate newermarkets, and the sector is expected to grow in the short and medium term. Newer conceptslike serviced apartments are also witnessing growth, albeit it is still a very nichesegment. According to Cushman and Wakefield Research Report, the year on year growth forfive years in the top eight markets is pegged at 10%. NCR leads this with 18% expectedgrowth in demand.
10. CAUTIONARY STATEMENT
Statements made in this Management Discussion and Analysis describing thecompany’s objectives, projections, estimates, expectation or predictions, may be‘forward looking statements’ within the meaning of applicable securities lawsand regulations. Actual results could differ materially from those expressed or implied.Important factors that could make a difference to the company’s operations includeeconomic developments in the country and improvement in the state of capital markets,changes in Governmental regulations, taxes, laws and other statues and other incidentalfactors.