Slump in real estate leads to the fall of Ashok Piramal's Peninsula Land

The Indian real estate sector has been witnessing a major slump over the last few years, especially the luxury segment. There has been an increase in demand for affordable housing, however, the developers focus on luxury real estate markets have seen huge losses.

Ashok Piramal Group, the main promoter of Peninsula Land is one of the giants affected by huge losses. The company was a leading real estate company and has made a number of landmark projects in the last few years. It was credited with building India's first mall in South Mumbai- the Crossroads.

Peninsula Corporate Park was also developed by the company. It was among the first companies to set real estate funds with Brookfield of Canada and invest with a global fund manager.

The glory days are all but gone for Peninsula Land and the slump in the real estate segment has hit it hard. It has reported Rs 120 crores of operating losses during the first half of the 2019-20 fiscal year. The consolidated outstanding debt of the company is approx. Rs 2,240 crore as on March 2019, while its interest liability is currently of around Rs 80 crore during H1FY20.

Peninsula Group had first reported operating losses in 2016-17, since then the company's finances have taken a downward trajectory. The debentures of Peninsula Land have been downgraded from 'BB' to 'C' last month by ICRA, stating that the company has poor liquidity. Last year its non-convertible debentures had 'A'-rating.

The group is facing high refinancing risk as it has a debt of Rs 1,167 crore which needs to be paid in the current financial year, states ICRA. It had a consolidated debt of Rs 2,310 crore till July 2019. Over the last three years, the company has been making huge operating losses. The companies shared have fallen nearly 65 percent in the past 12 months and is valued at Rs 3.92 as on Thursday.

Market watchers believe that the reason behind the company's misfortunes was its focus on real estate Mumbai, and poor sales. The company was focused on the luxury segment which added to its woes. The non-operative debt was another reason for its current state.

Its cash flow has also been impacted due to poor collection of cash from its sold inventory. The weak sales velocity of its ongoing and completed projects has further added to its problems. The group has sold approx. 70 percent of its properties of approx. 4.97 million square feet which were worth over Rs 4000 crores, however, it is yet to recover Rs 1,685 crores from the sales.

The Delhi NCR property market has been witnessing a downtrend for the last 4 years, now this has also spread the Mumbai property market. This is mainly due to the non-banking financial company liquidity crisis which has affected the refinancing route of developers.

Analysts believe that developers which focused on the Mumbai market luxury segment have been impacted the most. The Mumbai Metropolitan Region has seen low sales of luxury units with nearly 11,000 units remaining unsold in South Central Mumbai in the last 3-4 years. The company has taken considerable loans on property in Mumbai and Pune.

The Piramal group is now reportedly trying to improve its liquidity situation by selling off some of its land parcels in Mumbai and Pune. The situation across India for luxury developers has become bad, and the companies are either looking at selling off land parcels or get funding from external sources.

Siya is a reality consultant working as an independent advisor specializing in the evaluation of properties. Her current focus project is Omkar Project Highway about which further details can be found at https://smartpropertyinmumbai.weebly.com/