SEZ builders must have the capacity to inject the capital early and wait for returns — it takes a minimum of eight years to take the project into the payback stage. This is where the serious players will score over the speculators. Their returns will be far higher than those who parcelled out the land earlier. “IRRs of 35 per cent are not unheard of. The average IRR could be 20-25 per cent,” says Magazine. After this, the final annuity phase becomes easy. Here, the SEZ generates a steady stream of income and needs minimum management. Utilities and facilities management are, perhaps, the only requirements.
...Unfortunately, many SEZ builders see this more as a grand realty development opportunity than as an infrastructure business — buy, build, sell. That model may bring profits in the short to medium term, but is unlikely to help the nation’s objectives of investment and export promotion. On the contrary, they could wreck India’s SEZ dreams by increasing competition and affecting the profitability of the serious players. They may also leave investors with bitter experiences or may simply unproductively lock up land. “Large numbers of SEZs will limit the success of all zones,” observes a Feedback report. It believes that only a few zones near metros will be successful. The rest will be a drain. “Only 25 per cent of the projects will see the light of the day,” says Gupta.
Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.