Kumar Mangalam Birla enters commercial realty

From Business Standard

Kumar Mangalam Birla, chairman of Aditya Birla group, has carved out the real estate business of Century Textiles to make a foray into Mumbai’s lucrative commercial property market. Birla Estates was carved out by Century Textiles board last week and will redevelop its properties in and around Mumbai under a new chief executive officer (CEO).

Group insiders said Birla Estates has already spent around Rs 2,500 crore in building various projects, including a skyscraper called Birla Aurora in Prabhadevi. The property has been partially leased out and the company is currently constructing another office building and a food retail complex at its plant site in central Mumbai. The new CEO will be announced soon. “Due to the slowdown in Mumbai’s commercial properties, it was difficult to get tenants, but the commercial market is now looking up,” an insider said.

The group did not respond to an email questionnaire on Century’s plans.

Carving out the real estate business is one of the first steps taken by Birla after taking over the company’s reigns from his ailing grandfather, B K Birla. In the quarter ended December, Birla also increased his stake in the company to 50 per cent from 45 per cent by subscribing to the company’s preferential share issue.

Analysts said Birla will bring in wide-ranging changes in Century Textiles to align it with the Aditya Birla group.

Analysts had earlier said the cement business of Century is likely to be merged with Aditya Birla group’s Ultratech – India’s largest cement company with a capacity of 68 million tonnes per annum (mtpa). The Ultratech-Century combine will take the group’s cement capacity to close to Birla’s target of 100 mtpa. But Birla, had denied plans to merge Century’s cement business with Ultratech in the past.

With the realty plans, Birla will be one of the last players from the old generation of business houses to enter the sector. Earlier, the Wadias of Bombay Dyeing, Tatas, Godrejs and Piramals made successful entries into the sector by redeveloping old textile mills and plant properties into commercial and high-end residential complexes.

Real estate analysts said getting into commercial properties makes senses as lease volumes are up 10 per cent on a year-on-year basis in calendar year 2015. According to UBS, rentals are firming up and vacancy levels have dropped to 8-14 per cent from 20-30 per cent highs in 2008. UBS said with increased signs of this trend sustaining, it expects the commercial market to outperform the residential market over the next 1-2 years.

Century Textiles shares have lost over 20 per cent value since January 1 and closed at Rs 479 a share on Thursday.

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