After studying law I vectored towards journalism by accident and it's the only job I've done since. It's a job that has taken me on a private jet to Jaisalmer - where I wrote India's first feature on fractional ownership of business jets - to the badlands of west UP where India's sugar economy is inextricably now tied to politics. I'm a big fan of new business models and crafty entrepreneurs. Fortunately for me, there are plenty of those in Asia at the moment.
He was considered a rising star in the Tata firmament. Eight years into the elite Tata Administrative Service (TAS) and he had notched up several credits that proved he had what it takes to go the distance.
Brotin Banerjee had a stint with Tata Chemicals. He launched a lower cost variant of Tata Salt and also a new distribution model. Success noted. Next, he got a big up with a promotion to chief operating officer of Barista—at the ripe young age of 29. Banerjee fixed a sagging bottom line at the coffee chain. He’d seen the vibrancy of a young brand and led a passionate team.
It was then that he—and the system—got a shock. In 2006, when everybody would have expected a plum assignment in a major Tata company, he got a dud—an almost defunct company. Among the close to 100 businesses that existed under the pater familias Tata Sons, there was a housing company that few knew much about—or cared about. In fact, things were so bad that Tata Housing Development Company was then known more by its acronym THDC since it could not afford to pay the royalty to carry the Tata name.
THDC was an oddball player in 2006 because the rest of the industry was booming. Developers were fiercely bidding up land prices to build large land banks. DLF, the country’s largest real estate company, got a dream valuation of Rs 20,000 crore when it launched its initial public offering (IPO). The Tatas were then just waking up to the realisation that they were missing something here.
And so Banerjee found himself in a small flat in Emerald Court in Mahim, Mumbai (THDC’s office) as deputy CEO of a company that had a negative net worth of Rs 10 crore, which means its liabilities exceeded its assets by Rs 10 crore.
Cut to the present, and Tata Housing has seen nothing but a dizzying climb. Over the last half decade, it has grown at a compounded annual growth rate (CAGR) of 100 percent and clocked revenues of Rs 1,097 crore in the year ended March 2013. Simply put, the business has doubled every year and the company is currently constructing 70 million square feet of saleable properties across the country. “They’ve managed to get here due to their focus. Unlike other developers they never sacrificed long-term stability for short-term gain,” says Shobhit Aggarwal, managing director, capital markets, at Jones Lang LaSalle, a real estate services firm.
The Initial Days
How did Banerjee do it? Without a land bank, and without any borrowing capacity worth speaking about? People in the industry grudgingly admit today that not many of them had given Tata Housing much of a chance.
Banerjee was also hamstrung by the fact that no one wanted to join the company. “I would have people come in through the door and their first question was—why can’t you use the Tata name?” he says. He knew he needed to do things differently. So he hired people from different sectors (not real estate) who came with new business ideas and attitudes.
The next crucial phase was to get business flowing. Here too it was Banerjee’s contrarian approach that worked. Tata Sons pitched in with Rs 100 crore of equity. But in the go-go years before 2008, that was hardly enough to purchase land. And the company didn’t have a balance sheet to support large borrowings from banks.
That was when Banerjee realised that, to get started, he needed to look outside the traditional housing business model. He and his management team noticed that while there was a bubble building up in the premium and luxury housing categories, the affordable and low-cost housing space was experiencing a huge shortage. The company estimated a shortage of 24.7 million units with most of the shortage falling in the affordable housing space.
Among the first projects the company launched was a low-cost housing development in Boisar, an exurb (commuter town) of Mumbai. Here they constructed over 2,000 units at costs ranging from Rs 5 lakh to Rs 15 lakh. Now, affordable housing is not something developers were looking at in 2007. But when the real estate market cracked in 2008, it proved to be a wise bet.
While working on the project, Banerjee realised that he needed to re-engineer the entire process of how real estate development was thought of. Traditional developers usually sell their inventory in tranches. As real estate prices keep rising, it helps them realise gains. Moreover, developers, and at times buyers, are not too perturbed about project delays as the value of the property keeps rising.
But with low-cost housing, the dynamics completely change. Low-income buyers with stretched budgets need deliveries quickly. Selling inventory in lots doesn’t make sense as demand is usually more than supply, and the cash realised from sales helps in getting working capital. “We monetise how a manufacturing company would,” says Govinder Singh, CFO at Tata Housing.
Unlike the skills needed in the real estate industry, here manufacturing-like skills were needed.
And it was here that Banerjee decided to adopt an approach that is different from the usual cookie-cutter one. It paid off richly. His mantra: Construct quickly, hand over apartments and move on to the next project. It’s hardly a surprise that five years on, low-cost and affordable housing makes up almost Rs 500 crore of Tata Housing’s top line. The company has spun it into a new business unit called Smart Value Homes and it aims to become a leading player in the space.
The Land Issue