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June 09, 2009

Will Lavasa deliver HCC to the big league?

Businessworld has an article on engineering & construction firm HCC's ambitious hill station project.

HCC entered real estate development in 2001 when it kicked off land acquisition for the Lavasa project. Today, it has power projects in Kargil and Ladakh, and is also executing irrigation and water supply schemes from Godavari river in Andhra Pradesh to the Vaitarna lake, near Mumbai. But it is the Lavasa project that has taken centre-stage in the company’s business plans; and it is evident that HCC’s future is dependent on the fate of Lavasa Corporation.

The commitment is humungous: HCC has acquired 10,000 acres, and aims to push up the resort town’s sprawl to around 13,000 acres spread over seven hills and involving the construction of 15 dams. Of the land acquired, it has mortgaged 7,694 acres to raise Rs 1,200 crore in debt so far. And now HCC is hoping to raise money through the QIP route while Lavasa Corporation itself is trying to interest new investor

...The looming cash crunch for the project is apparent. Lavasa Corporation was looking at generating Rs 1,500 crore by divesting about 10 per cent of the equity through an IPO. This has been now postponed and this door may remain closed for at least a year. Raising private equity for what is primarily a real estate project is not going to be easy, while any further debt, when the debt-equity ratio is already a high 2:1, is also a tough call.

...Kumar Gera, president of the Confederation of Real Estate Developers Association of India (CREDAI), however, judges Lavasa as “ambitious”, but well positioned. “Unlike Sahara’s Amby Valley that was marketed as a luxury project and was overpriced at Rs 8,000-10,000 per sq. ft, Lavasa is relatively more affordable.”

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in