Bengaluru: Affordable housing firm VBHC Value Homes Pvt. Ltd, which sells homes in the Rs.16-40 lakh price bracket, will also build premium homes and is planning an initial public offering (IPO), said senior company executives.
“The three fundamental positives for an IPO would be that the stock market has performed well, recent IPOs look good and the affordable housing sector continues to do good. The only negative would be that the real estate sector is still not doing well. So, the key to success (for an IPO) will be to separate affordable housing from the overall real estate sector,” said Jaithirth Rao, chairman, VBHC. He declined to comment on the possible size of the IPO.
VBHC, co-founded by Rao and P.S. Jayakumar, is backed by a number of investors including Japanese real estate conglomerate Daiwa House Industry Co. Ltd, The Carlyle Group, International Finance Corp. (IFC), Caspian Investment Advisors, Tano Capital and HDFC Bank Ltd. In February 2015, Mint had reported that VBHC is in early talks for an IPO to raise around Rs.500 crore. Later in the year, its managing director and co-founder Jayakumar quit to join Bank of Baroda, leaving VBHC without a head.
“2015 wasn’t a great year to consider an IPO and VBHC also didn’t have a CEO for a while to lead the IPO process, which is why it has taken the company some time to revisit the plan,” said a person familiar with the company’s plans, who did not want to be named. The firm appointed Ravi Ramu as chief executive and managing director in January at a time when VBHC was getting ready for the next growth phase.
“The plans we have lend themselves automatically to a large, listed company. We are looking at 2017 for an IPO and will evaluate both domestic and foreign listing options,” said Ramu. The IPO may also see its investors charting an exit route, partially or fully. Given the three-year-long slowdown the real estate sector has witnessed, not many realty firms have announced plans for a public listing. Pune-based Paranjape Schemes filed for an IPO with the Securities and Exchange Board of India (Sebi) on 9 July 2015. The plan was cleared in December, but the firm is yet to launch its IPO.
“Our DRHP (draft red herring prospectus) is still valid,” said a Paranjape executive, who did not want to be named.
Alongside a share sale, VBHC is also planning a different segment of homes, priced higher than what it has built till now. Homes may be priced from Rs.50-60 lakh to just below Rs.1 crore. “We will continue to build affordable homes, but will also build sub-Rs.1 crore homes because we need diversification and the entire range for the business. We could do separate projects for affordable and premium homes or build them as part of the same project. We may also have separate brands for the different segments,” said Rao.
He said that with a fair amount of stress in the sector, the company is exploring possibilities of taking up projects that are stalled for various reasons. “We will take up such projects both in affordable and premium segments. We are hopeful of launching one premium project this fiscal year,” Rao said. “IPOs need visibility of rapid growth and profitability to attract investors. Considering that sales guidance and launches in real estate have only shown a downward trend, I don’t think IPOs are an option in the current situation,” said Diwakar Rana, managing director, capital markets-India at property advisory Cushman and Wakefield.
“Rs.40-70 lakh is the sweet spot for most home buyers across India, except Mumbai which is more expensive. For developers, it’s a volume game and you can’t build in the Rs.20-40 lakh price segment in every geographical location. For that, you need to price it a bit higher,” Rana said.