For Getamber Anand, an aeronautical engineer by training and a first-generation real estate developer, building storm drains and culverts in Sector 59 for Noida Authority—the government body authorised to develop infrastructure in the region—was a formative experience in more ways than one. Apart from learning the trade, Anand also grasped the significance of seemingly simple approaches: Staying proactive, building goodwill and transparency with his staff, customers and suppliers all the time.
This was in 1989 and Anand, a 27-year-old at the time, is still grateful for those lessons. They, after all, helped him build his real estate company, ATS Infrastructure Ltd in the National Capital Region (NCR). More importantly, he is among the few players to have been able to withstand the pressures of dampened spirits and over-supply in the market. In fact, ATS is launching and selling new projects, even while maintaining its profitability: The company claims to have a total turnover of Rs 1,700 crore for 2015-16, with a projected turnover of Rs 2,500 crore for the current fiscal, and says its gross profit is at 20 percent of its turnover. The group has 22 projects—13 ongoing and nine completed—apart from more coming up in Mohali, Chandigarh, Dehradun and Ahmedabad.
What has worked for Anand is keeping the costs low and sticking to in-house construction. “A few companies have managed to buck the trend because of strong reputation, premium location for their projects, the negotiable price factor, and timely completion of projects,” says Anshuman Magazine, chairman and managing director, CBRE South Asia Pvt Ltd, a property consultant. And ATS has been ticking all these boxes.
But Anand, chairman and managing director of ATS Infrastructure and president of the Confederation of Real Estate Developers’ Associations of India (Credai), reiterates that it isn’t mere strategy that has allowed ATS to stay afloat and even prosper during turbulent times. “We are nothing if not for our goodwill and credibility,” says Anand, who looks more like an engineer than the CMD of a real estate company.
The foundation for the goodwill he speaks of is the consistent on-time delivery of houses—for the most part—and this has been meticulously built over the years. When project delays do take place, they aren’t glossed over but handled with sense and sensitivity. Often, Anand points out, support comes from customers themselves.
He cites the example of two projects, Heavenly Foothills in Dehradun and Golf Meadows near Chandigarh, which were delayed by over a year and a half. Another project in Noida called Paradiso was also stuck for eight to nine months. Consumer angst inevitably followed. “I remember one home buyer, who had already bought a property in one of my completed projects in Noida, offering to speak to irate consumers and explaining that if there was a delay, it probably was a genuine one. I’ll never forget that day,” says Anand, who ensured that penalties were duly paid and consumers were compensated. He also bought back the apartments of the more jittery buyers, and paid them a higher rate than what they had paid. “I spent over Rs 50 crore through personal funds as well as through equity and debt. I sold off some equity in the Chandigarh project and raised funds for it,” says Anand.
This effort to maintain credibility has helped ATS build a loyal home buyer base of around 20,000. When an opportunity to invest in a new property comes up, these customers are the first to be alerted through emails. Some of them upgrade an existing ATS property while others spread the news among their social and familial networks.
It helps that Anand works very closely with his team and tries to visit as many sites as possible in a day. This personal inspection and supervision has ensured that the company always runs a tight ship. “He [Anand] is a very hands-on leader and the best part of our organisation is that ownership has been created down the line. Every individual takes responsibility,” says Vipul Maheshwari, chief financial officer, ATS. This was reaffirmed by on-site employees who Forbes India met while surveying one of ATS’s upcoming projects, ATS Pristine in Sector 150 on the Noida Expressway. “Every real estate project is a separate special purpose vehicle (SPV),” adds Anand. “It’s not like the materials from one project can go to another. We do things very professionally here.”
ATS also has its own in-house construction and post-delivery maintenance staff that handles everything from architectural drawings, plumbing and electrical work to the actual construction. By not outsourcing to external companies, ATS is able to maintain a competitive per-square-feet cost of between Rs 1,800 and Rs 2,250, which other developers overshoot by at least Rs 500, claims Anand.
The focus at ATS is, quite simply, construction. Every employee has to visit the construction site irrespective of job profile. “The biggest mistake that construction companies make is that they do construction out of Excel sheets,” says Anand. With backward integration, the profit margin of the contractor is also reduced and the money is ploughed back into the project. His philosophy is reflected in the composition of ATS’s 4,000-plus staff strength: 1,500 are qualified engineers and technical staff, over 1,200 on-site supervisors and about 300 senior staff.
These employees, much like their customers, have proved loyal through tough times. In 2008-09, employees across the board opted to take a 30 percent cut in salaries. In 2014-15, those earning monthly salaries of over Rs 1 lakh gave up their increments so that the lower grade staff could benefit. During a particularly difficult phase, one senior staff member was ready to hand over his savings to him, another supervisor his land, Anand recalls. “This makes me want to do better for the entire ATS family,” he says. “So whenever there is a downturn I tell the employees that we are not in the business of selling; we are in the business of making homes.”
His words may sound odd in the context of the business he is in. The real estate market is murky in NCR, and different from other parts of India. It is a market that is dependent on brokers; rarely do developers deal directly with the end buyer of the property. But ATS was one of the first companies to take a direct route to its customers. Initially, because of limited stock, ATS had to rely on direct selling and continues to do so in Noida, which is responsible for almost 70 percent of ATS’s inventory in the NCR market.
When ATS entered the Gurgaon market in 2011, they had started selling through brokers. The results were muted. It now wants to completely exit the third-party arrangement and sell directly in Gurgaon. ATS, which claims to have projects that are worth a total of about Rs 20,000 crore, has already reduced its dependence on brokers there to 40 percent of sales.
ATS’s aversion to brokers not only helps efficiency, it also adds to its credibility, especially since it creates a distance between the company and Delhi-NCR’s peculiar propensity for trading flats like company stocks. Helped with low transaction costs and pushed by brokers, many flats are resold at least three or four times before reaching the end user. “In NCR, a property is registered only upon completion of the construction or after 100 percent payment of its price. Hence properties can be bought and sold at any stage prior to complete payment,” says Magazine.
Real estate fund managers often jest (only in part) that while people trade equity stocks on weekdays, rich Delhi residents trade properties on weekends. Brokers play intermediaries, taking money from one client with the promise of re-selling the property and providing an attractive exit. The broker will then offer the same apartment to another buyer, making a commission at each resell. Real estate companies encourage this as it creates an illusion of demand, thus allowing them to increase prices.
“Any builder who did not fall into this trap was well placed despite testing times,” says Piyush Pushpak, chief operating officer, Shubhkamna Advert (SBPL), a developer operating in Noida. “If you have your basics right and look at end users, construction and delivery even during this time, you can be sure of good results and sales. Consumer habits have changed. They will invest their hard-earned money only if they are confident that they will get their dream home.” And ATS did just that. “We targeted the end user,” says Anand. With the help of Credai, Anand urged real estate developers to circumvent the broker network and sell directly to home buyers.
Anand, in fact, believes that the trend of trading flats like stocks is flagging. And the reason for this is linked to the overall lull in the real estate market in India. According to a December 2015 Knight Frank report, NCR is the “worst” market in India—it will take over four years for the existing unsold inventory of 2,06,000 units (as of December 2015) to get sold.
This is a longer time frame than the average three years other cities will take to sell their inventories. This has affected the launch of new projects, with the average number of units coming down from 86,000 in 2010 to 31,700 in 2015. It also led to a price correction, especially in the premium market in NCR, of 5 percent from Rs 17,123 per sq ft to Rs 16,372 between June and December 2015.
Those who are stuck with three or four flats with the intention of reselling them have not been able to find buyers, nor do they have the money to pay further installments to the developers. This has led to problems for the developers, who have had to start borrowing from private equity (PE) funds that were ready to lend at high interest rates.
ATS too turned to PE funds while acquiring land. “You require money while acquiring land and it is at an SPV level,” says Maheshwari. In 2007, IL&FS became the first PE to invest in the company’s Chandigarh project, pumping in Rs 145 crore. But ATS has been careful to not become over-leveraged, he says. “It’s mostly structured debt. We give [housing] stocks to our investors and profits are shared during exit,” says Maheshwari. ATS’s debt to banks is approximately Rs 1,000 crore and PE debt is of around Rs 700 crore.
ATS has raised money most recently from ASK Group and Piramal Fund. Having borrowed from other companies like HDFC PMS, ICICI Prudential, Motilal Oswal and Milestone, the real estate developer has been able to provide them attractive returns. “ASK invested Rs 127 crore and we are going to give them an exit with 1.85x,” says Maheshwari.
The ASK real estate fund has been recommending the hands-on model followed by Anand to its investee companies. “There is a lot of learning that other real estate companies can take from ATS,” says Amit Bhagat, managing director and CEO, ASK Property Investment Advisors. He is particularly referring to ATS’s relationship-management with employees, customers and even suppliers.
But it may not be possible to learn much of ATS’s approach, drawn as it is from its founder’s early experiences. It all goes back to his time working with Noida Authority in the 1980s. Today, sitting in his office in Noida’s Sector 132, Anand talks about one incident that defined how he was going to do business.
With limited funds at his disposal, Anand used to work on credit. One day, Anand, who was recovering from a broken leg, missed paying a supplier. That supplier confiscated his brother-in-law’s blue Maruti 800, the car that Anand had been driving. At that point, Anand knew that he had two options: Go home and break the news to his sister and brother-in-law, or man up and convince the supplier to trust him, return the car keys and wait for a slightly delayed payment.
“I told the supplier that one day I will become big and I won’t give him a single contract if he keeps the car with him,” says Anand. The supplier, half-shocked and half-amused, handed over the keys to the young man standing in front of him with his leg in a cast. The harder option had proven more fruitful to Anand then, as it does now.