SPORTING A SANDALWOOD tilak on his forehead, Abhisheck Lodha, managing director, Lodha Group, looks unassuming in his plain white shirt and black trousers. Trim, with neat, close-cropped hair, he is soft-spoken and smiles amiably before giving considered replies to questions; he could pass for an analyst working at a consulting firm. His unostentatious air could make you miss him in a crowd unless you spot the police constable following him closely—he’s a legislator’s son. However, Mumbai’s scrappy real estate business took notice of him in June 2005.
Abhisheck Lodha had just snapped up 7.5 acres on which the defunct Apollo Mills stood in Chinchpokli, south central Mumbai, for Rs 180 crore. That was 35% higher than the Rs 133 crore bid made by Akruti Nirman, which built office and residential complexes and was eyeing the tech park space. There were five parcels of mill land being auctioned by the National Textile Corporation (NTC). Only two hit the headlines: his purchase and Delhi-based DLF’s record offer of Rs 702 crore for Mumbai Textile Mills’ 17.5 acres (that triggered speculative rates later in Mumbai’s real estate).
“Who’s Lodha?” everyone asked. Their curiosity peaked when they learnt his company was primarily engaged in mass housing in Dombivli, a suburb 50 km east of Mumbai. Abhisheck Lodha had arrived.
Fresh-faced, and barely 26, he had just returned from the U.S.—he’d done a masters in engineering at Georgia Institute of Technology, Atlanta, and worked for two years thereafter at McKinsey—to take over at a modest, Rs 20 crore family-owned real estate business. His parents had given him two years after which he had to join the family business.
Abhisheck Lodha’s plans were ambitious, perhaps even revolutionary. Ask about the shock and awe that followed his bid for Apollo Mills, and he says, “Those were the beginnings of the mill land auctions; valuations, parameters, and methodologies, as we have now, were not established then. I believe we got a good-sized land parcel for a good price.” He announced he would build a swank residential tower called Bellissimo on the Apollo land. It was a run-down part of Mumbai that builders had previously ignored.
Abhisheck Lodha was being bold, maybe even foolhardy. He then went after bankers, consultants, and non-resident Indians to buy his “by invitation only” apartments.
“In Mumbai, people would be willing to pay a premium for the right neighbour,” says the head of a $250 million (Rs 1,356.8 crore) private equity fund, who bought an apartment in Bellissimo, but doesn’t wish to be named. “At first, an apartment at Chinchpokli didn’t excite me, but when I found that I had neighbours from the finance and consulting industry, that changed things.” Bellissimo’s bookings began at Rs 11,000 per sq. ft. in 2006; today they fetch Rs 40,000 on average, a 264% rise which is higher than that among other top-end apartments in Mumbai.
An even grander project is fast coming up. Abhisheck Lodha is building World One, which will be the world’s tallest residential tower at 450 metres when completed in 2015, pushing The Princess Tower (414 metres) in Dubai to second position.
For the World Towers project, of which World One is a part, the Lodhas have tied up with Italian couturier Giorgio Armani’s interior design studio Armani/Casa, New York-based architects and structural engineers Pei Cobb Freed & Partners and Leslie E. Robertson Associates, luxury spa brand Six Senses, and concierge company Quintessentially. Another project—Lodha Fiorenza in Goregaon, a west Mumbai suburb, due in 2015—targets the young, fashionable set, and has interiors designed by London-based Jade Jagger (Mick and Bianca Jagger’s daughter).
“From a mom-and-pop shop, the Lodha Group has transformed into a professionally managed, well-oiled organisation of enviable scale,” says S. Sriniwasan, CEO of Kotak Investment Advisors, which manages PE funds focussed on real estate.
Vallabh Bhansali, co-founder of investment banking firm Enam Securities, points out that scale makes it attractive for big names to partner the Lodha Group. “They [Armani] had to make sure they would get the right partner. It was a near 12-month process for them to understand our company, our commitment to a world-class project, and the fact that the partnership would enhance the value of their brand in a small but growing market,” says Abhisheck Lodha.
The market can’t stop talking about his chutzpah: the largest land deal in Mumbai at Rs 4,050 crore for 22.5 acres in Wadala, south central Mumbai; buying DLF’s land in Lower Parel for Rs 2,725 crore, nearly four times DLF’s cost price. All this despite the fact that in September 2007, there was a debt of Rs 1,640 crore owed to Deutsche Bank which put the Lodha Group at risk. The bank had been given convertible debentures for a PE investment in a key Lodha subsidiary, Cowtown Land Development, which has projects such as Bellissimo, and 3.47% of the company’s land reserves.
If the Lodhas failed to pay Rs 2,542 crore in 39 months, the debentures would have to be converted into shares and the bank would get 99% control over Cowtown. Without Cowtown, the Lodha Group’s value would be hugely diminished. So, they prepared for an IPO in 2009 to raise funds and repay the debt. But just then, the stock market tanked and real estate companies took an extra drubbing. The IPO was called off and there was much suspense. However, by February 2012, with a fresh debt of Rs 825 crore (non-convertible debentures this time) and internal accruals of Rs 1,720 crore, Deutsche Bank’s debt was cleared.
In a little over half a decade, Abhisheck Lodha’s tenure is already studded with milestones and many see him as a poster boy of real estate. So, who is Abhisheck Lodha?
IT WAS HIS FATHER Mangal Prabhat Lodha, Bharatiya Janata Party legislator from India’s richest constituency, Malabar Hill, who set up the Lodha Group in 1980. The senior Lodha was very close to Pramod Mahajan—one of the BJP’s most powerful leaders and its money man till his murder in 2006—and soon became Mahajan’s logistics man in Mumbai. “The seed capital for the Lodhas’ stupendous rise can be attributed to Mahajan’s blessings,” says a senior BJP politician, who wishes to remain unnamed. M.P. Lodha’s very first election in 1995 was headline grabbing—he defeated Maharashtra’s urban development minister, B.A. Desai. No one has been able to unseat him since—not even in 2004, when Raj Shroff, the son-in-law of the then chief minister Sushil Kumar Shinde, a heavyweight in Maharashtra politics and now the Union Home Minister, tried to wrest the constituency from him.
There’s no denying the importance of political clout in Mumbai’s real estate market, considered to be the country’s toughest. The nexus between builders and politicians ensures that land trickles in only when required by builders; so apartments are always in short supply. Builders call the shots: According to a June 2012 Knight Frank report, Mumbai’s biggest developers held on to unsold houses worth Rs 14,300 crore and outstanding debt of Rs 6,200 crore as buyers kept away expecting a price correction. Sales fell to 45,000 units—35% less than FY11 but the developers refused to undersell.
Builders also need at least 50 government approvals before apartments are handed over. “Political clout is a boon. Where others take six months for approvals to start a project, the Lodhas take two,” says a Mumbai-based realty broker, who does not want to be named. This helps them hit the market before their rivals. The senior Lodha has Mahajan’s touch of enjoying good relations across parties, including the Shiv Sena and the Congress. “Abhisheck, on his part, knows how to leverage his family’s political clout—besides, a sitting legislator has better access to government offices than most others,” says a company insider who is close to the family.
The senior Lodha has keen business instincts as well. Back in the mid-’90s, he figured that land belonging to the city’s defunct textile mills would be the next big thing for developers. The Lodha Group’s first big move towards buying mill land predates Abhisheck Lodha; M.P. Lodha bought up shares of Shree Niwas Cotton Mills in Lower Parel for roughly Rs 200 crore. His plans were to build on the land but the mill employees, fearing layoffs, took him to court. They withdrew after he offered them compensation and rehabilitation. The site is where World Towers is now coming up.
All this was happening when Abhisheck Lodha was studying at G.D. Somani Memorial School in Cuffe Parade, south Mumbai’s posh residential borough. “The scale was much smaller,” he recalls. Dealings weren’t straightforward and quality products were limited to the very wealthy. “In the ’90s, India had just opened up and we hadn’t figured out how to operate on a global scale. Even a garden or a swimming pool was a wow—and before that, even quality tiles. As for a world-class designer, they would have said this guy’s gone mad,” he says.
In those days, developers such as the Hiranandanis and the Rahejas reigned in Mumbai. The Hiranandanis focussed on large, mixed-use townships with a school, hospital, entertainment, and other facilities in Powai, Thane, etc. The Raheja family, meanwhile, underwent splits. So there are many Raheja companies in real estate, such as Raheja Universal, which has prominent office and residential projects but is largely confined to the suburbs. The 2000s saw the entry of many new players: Indiabulls Real Estate in south central Mumbai, and much later, big industrial houses such as Tata and Godrej.
However, the Lodhas differentiate themselves by offering a “lifestyle upgrade”, as Abhisheck Lodha puts it, with a focus on aesthetics, amenities, and comforts at different price points, ranging from Rs 37 lakh in Dombivli to Rs 100 crore in World One. “We don’t look at a house as a box.” So, at Dombivli, he’s made the most of the cheap land available and set up a golf course—a first in a Mumbai suburb. In expensive Lower Parel, south central Mumbai, he offers small apartments (two and three bedrooms) at a relatively affordable Rs 3.5 crore for people who aspire for a coveted Mumbai address.
It’s a ploy that’s worked. About 70% of his buyers avail of home finance for about 60% of the value of the home. This gives credence to his argument that there’s a market for high-premium flats among successful professionals; these aren’t people who pay up with cold, hard cash.
WHEN he and brother Abhinandan, two years younger, joined the family business, “it was a time of growing consumer aspirations in India, but good quality real estate was in short supply in Mumbai”, says Abhisheck Lodha. They noticed the huge scope in the premium and luxury segments, where margins can be as high as 40%. Nearly 5% of Mumbai’s 16 million population can afford high-end property.
“However, unless we deliver a superior experience, we can’t command good value and consequently higher returns—that’s the classic mould of almost all luxury companies which deliver higher profitability,” says Abhisheck Lodha. Such companies have, from time to time, “broadened their base but ensured they deliver high quality across different price points”.
Fortunately for Abhisheck Lodha, his father gave him complete freedom to introduce his big-ticket plans, even if the market was sceptical of this fresher. The latest from the Lodhas was an IPO-like mechanism in January for the project, Codename Blue Moon, in Lower Parel. Buyers had to pay Rs 25 lakh to apply and indicate the type of apartment they wanted. The actual purchase price, starting at Rs 3.2 crore, was announced only after bookings were closed. And yet, there were 1,330 applications for 770 apartments. “It’s a given now that the Lodha brand will deliver a high-end product,” says Abhisheck Lodha. One group offered to buy 10 apartments at a discount, but the company turned them down, says a Mumbai-based broker who didn’t want to be named.
Thanks to Blue Moon sales worth Rs 5,400 crore, Abhisheck Lodha claims that sales this fiscal will be the highest in the sector, at an estimated Rs 9,000 crore. Last fiscal’s sales of Rs 4,800 crore, too, compares favourably with DLF’s Rs 5,278 crore and Delhi-based Unitech’s Rs 3,808 crore. (A sale isn’t the same as revenue. The revenue from a sale is staggered over a few years, and the last installment is paid by the customer when the apartment is ready.) Being an unlisted company, the Lodha Group’s last revenue figure available is Rs 352 crore in FY11—that’s a growth of 61% annualised over five years.
But there are those who wonder if the meteoric rise of the Lodhas will result in a burnout soon. They believe Abhisheck Lodha is aggressively buying land because he wants to be the biggest player. He, however, says it’s not important whether he is the biggest or not. Five years down, he’d like the Lodha Group to be “the most profitable real estate company in the country”, and for his customers, “the company which delivers the best quality”.
But, since 2010, Abhisheck Lodha’s four land deals, valued over Rs 7,700 crore, account for more than 58% of the 13 transactions in Mumbai worth Rs 13,190 crore. Does his strategy put the group at risk?
THE MARKET KEENLY watched as he elbowed out DLF from its Lower Parel land in December, paying four times DLF’s purchase price, even though the deal involved taking over a debt of nearly Rs 1,500 crore. He outbid Indiabulls Real Estate, which has a significant project presence in Lower Parel. But with buyers’ commitments of about Rs 5,400 crore already, which is twice the land acquisition cost, Abhisheck Lodha stands vindicated: He will recover the initial outlay soon.
“In one stroke, the Lodhas could control 5 million sq. ft. in Lower Parel, giving them an edge over pricing in their ongoing projects and long-term competitive advantage,” says Shobit Agarwal, managing director for capital markets at Jones Lang LaSalle—a global real estate consultant.
In the Wadala deal, the Lodhas paid only Rs 400 crore initially, while the rest will be staggered over five years. The total outgo, including interest, works out to about Rs 5,700 crore until 2015. “The project has a top line potential between Rs 22,000 crore and Rs 25,000 crore over eight to 10 years. We got the land in late 2011 and have already sold over Rs 2,500 crore of property,” says Abhisheck Lodha. That’s always been his tactic: to bring the land to market within 12 months, giving him an edge over rivals, who rarely manage that.
“Bhai [brother] takes calculated risks and is the first to reject an unfeasible bid,” says Abhinandan Lodha, deputy managing director of the group. He has a master’s in business administration from the University of Cardiff, the U.K., and oversees sales and marketing, and finance. Abhisheck Lodha says he buys only 25% to 30% of the land that comes his way. “If you look at our acquisitions in south central Mumbai in the last five years, our costs are half, sometimes a third of what others pay. Newspapers report only what’s bought through open and competitive bids,” he says.
Bangalore-based Stuthi Vijayaraghavan, who worked with the group for three years as senior vice president and head of strategy before founding consulting company AgileStrat in 2010, says Abhisheck Lodha’s decision to invest was always backed by analytics. “Though instincts count, the evaluation is based on a long-term view of seven to 10 years,” she says.
Meanwhile, the Lodha Group’s debt has mounted to nearly Rs 4,800 crore but Abhisheck Lodha dismisses any cause for concern: “It’s significantly less than Unitech’s and about a fourth of DLF’s, while sales are significantly higher than both. Besides, there isn’t an absolute standard regarding debt.”
Balaji Raghavan, chief executive of IIFL Alternative Investment, a PE fund focussed on real estate, says: “If a project generates commensurate or higher cash flow and the debt is periodically repaid, there is nothing wrong.” The group has a net cash flow of nearly Rs 1,800 crore this fiscal, and the Dombivli projects alone average Rs 250 crore in a month, explains Abhinandan Lodha.
ABHISHECK LODHA BELIEVES one of his big contributions to his business is the introduction of professionalism and “talent from the best companies and B-schools”. With a headcount of 2,950, he claims to be the largest employer in real estate, “but it isn’t about quantity but quality”. He is also said to have a core group of about 30. “They are young, and from some of the best colleges—Harvard, Stanford, and the IIMs—besides consulting companies. Their job is to strategise,” says a company veteran who doesn’t wish to be named.
But the Lodha Group also has employees who have been working since the time Abhisheck Lodha would wander in as a schoolboy. “He behaves with the same deference, and still calls them ‘Uncle’. If he needs something, he’ll walk up to their desk,” says an employee. That hasn’t changed.
There is, however, one marked change. Till about a year ago, Abhisheck Lodha would walk into a media interview with sheafs of paper, and pull out consultant reports to drive home a point. This time, when he met Fortune India, he was self-assured. He walked in empty-handed.