Worli BDD Chawl Redevelopment project is ambitious and value-accretive: IIFL Securities

30 Jun 2022 , 12:08 PM

The project involves execution of ~25.5 million square feet (msf) in the next ~10 years, with ~14 msf of free sale FSI that has potential to generate ~Rs400 billion (IIFL estimate) topline for the state government. Onsite progress has picked up in recent months, post government intervention in resolving tenant issues. However, analysts at IIFL Securities see execution challenges continuing to weigh on timelines, leading to residential supply remaining calibrated in Central Mumbai markets rather than creating a supply glut.

BDD Chawl redevelopment − Most ambitious project since Mumbai Airport rehabilitation

The BDD Chawl project involves redevelopment of 3 clusters — one each at Worli, NM Joshi Marg (Lower Parel) and Naigaon (Dadar). The project involves rehabilitation of 195 chawls spread over ~200 acres with ~16,000 tenants. The Worli BDD Chawl cluster has seen maximum progress; it is the largest residential project in India, with construction area of 25.5 msf, and is expected to transform lives of ~50,000 residents in 121 chawls located at the heart of Worli. A consortium of reputed contractors like Tata Projects, Capacite and CITIC (TCC consortium) has undertaken project execution for total estimated outlay of Rs117 billion.

Potential to free up ~14 msf of free sale FSI in Worli

The project will generate a free sale portion of ~14 msf, which includes 10 residential towers − each with 76 floors, and a commercial building that is likely to be leased. Sale at the residential towers will be managed by MHADA and the consortium expects the free sale portion to start in the next 2-3 quarters. Given price of ~Rs30,000/sqft (on saleable area) prevailing in the micro market, analysts at IIFL Securities expect the free sale to yield top-line of ~Rs400 billion (IIFL estimate) over 10 years, with the construction cost expected to be ~Rs68 billion. MHADA will be managing the sale process; a launch is likely in the next 1-2 quarters given that the consortium has already started designing the free sale portion.

Progress positive over the last 3 months

This site visit aimed to understand the actual progress in moving the tenants and to gauge the tangible progress on construction. The project started in August 2021 and has picked up pace over the last 3 months − the consortium has been able to move ~160 families. Of the 16 rehab towers in Phase 1 (of the total 33 towers), the consortium has area available for 6 towers (with construction commenced on the first tower) and eligibility has been established for another 4 towers. For the sale towers, the consortium expects construction to commence on 4 towers by September 2022 (post complete removal of encroachments).

Not without its share of challenges, though

The project has had its share of challenges since it was first awarded in 2019. Construction was partly impacted by COVID-19 and partly by the opposition from residents. The government has recently started actively working on resolving such issues, having agreed to all conditions laid out by the residents − i) entering into single agreement with details of identified unit before vacating and moving to transit homes; ii) maintenance period being increased from 10 years to 20 years. The project has also ensured that it takes its learnings from previous unsuccessful projects like Airport rehabilitation (and hence included in-situ rehabilitation).

Project execution to boost growth for Capacite Infra

SPV management expects to progressively commence execution worth Rs40 billion on the work-front over FY23 (figure 6) and hence see boost in earnings growth for Capacite Infra (owns 37% stake in SPV). From the contracting perspective, the contract includes 2% mobilization advance @ 8% RoI (1% drawn so far, adjusted against running bills) and provides index linked pass-through for RM cost-changes (should potentially increase project size to ~Rs150 billion). Payments so far have been well on time, at a 30-35-day payment cycle for milestone-based billing. Required equipment and formwork are available on site and should see further ramp up as work-fronts expand over FY23.