MSME Steel Company Goes Into Real Estate
Micro and small enterprises are the backbone of the economy according to economists. This is the story of an MSME steel-first company spreading its wings into other areas. Their newest venture is in building apartment complexes, they are doing it solo because the real estate environment isn’t too conducive to joint projects at the moment.
Photo Credit : http://www.sarvome.com/,
Akhil Kumar Sureka, managing director of Sarvome Developers had this to say about their first real estate project.
How did the idea for Sarvome come about?
Sarvome Developers founded in 2013 comes under the group company which goes by the name Jotindra Steel & Tubes Ltd., which is categorized as a micro and small scale enterprise (MSME) and was founded in 1967. Jotindra Steel’s main production is its TMT steel bars used for construction. In addition we have other companies under the Jotindra banner dealing in bath towels, apparels for the 18-35 age range, and exporting LPG gas cylinders. For this last one we are one of the largest exporters in the world by capacity.
Our last year’s total revenue was rupees 288 crores and this year we expect it to be close to rupees 500 crores.
How did a steel manufacturing company end up selling apparels and now apartments?
It wouldn’t be fair to say that. We didn't end up selling anything; it’s an extension of our business.
But this isn’t our first foray into construction. We have been part of other real estate projects in collaboration with Rashi Developers in Mumbai and Amrapali in Greater Noida among others.
However most of the real estate developers are highly leveraged and in debt. So we decided that this time around we should go into this project named “Presdio” on our own.
Real estate is a capital intensive, heavily regulated undertaking for an MSME. Does Sarvome have all required licenses and capital to carry out such a development?
With respect to the funding required, yes it’s a large amount. However we have a good working relationship spanning ten years with Patiala bank, who is one of our main lenders so it wasn’t too difficult to procure the needed capital. Besides the largest capital outflow for a real estate project is purchasing the land, which we already had. This plot of land in Faridabad that the Presidio is being built is an existing company asset. It has been lying vacant since 1981 when the land bill was passed stating no manufacturing activities can take place in the vicinity. Given the residential feel of Faridabad at present, it made for a good location to start with.
With respect to the licenses, Yes, all the approvals have been taken. We have also uploaded copies of approvals on our website for transparency and better understanding of the customers.
These permits include map sanction letter; environment clearance; forest report; aviation authority; fire NOC; LOI;License-102, and bank approvals from Allahabad Bank, State Bank of India, DHFL, ICICI and State Bank of Patiala.
There must be some interested parties in the buying an apartment. What do they say?
Clients have appreciated the project. It has been more welcomed and liked by the end user category, who wishes to buy this property. The clients are happy with the transparency of Sarvome Developers. We have never over-promised to any of our clients.
They simply loved the proposed amenities, the options of customizing the interiors, the connectivity of the site, the facilities and the specifications offered in our very first project.
The project is in construction stage and most of the flats have already been booked.
Sarvome Developers Private Limited is funded by the subsidiary of The State Bank of India i.e. State Bank of Patiala. Also, the land of the project has been mortgaged to raise the fund. Jotindra Steel and Tubes Ltd. has also invested in Sarvome Developers.
How many competitors does Sarvome have?
We have just started with our first project “The Presidio”. We don’t see any competitors now. But to name a few in the market of Faridabad, we have Omaxe Forest Spa, Rise Sky Bunglows, Arihant Southwinds and Espire Hamilton Heights.
Where are the projects located? Where is The Presidio being built?
As of today, The Presidio is our very first project that we have launched. It is located at sector-31, Faridabad. Soon, we will have projects in Greater Noida and Delhi too.
We don’t plan to develop more than two projects at a time so we will be keeping Sarvome Developers at a small scale at least for now. Our maiden project will be completed by 2017. After that we will be looking to develop a 3 million square foot location which is a much larger undertaking and will take about five years to complete, so we will have our hands full with not too much time for handling several projects at a time.
Price of these properties?
The present price is 4,800 rupees per square foot (BSP). The prices of properties will range from 72 lakhs to 3.20 crores while accommodations range from simplex to duplex - 3 BHK/4 BHK.
We are targeting the working professionals in their 30s with an annual income ranging from 24 to 60 lakhs. These will be people who are just settling down to life and is looking for a moderately comfortable living space.
However selling real estate in this price bracket is not the most profitable for a company. It’s actually more profitable to build low cost, affordable housing valued at under 50 lakhs. We felt that with the environs and land density of Faridabad, an apartment building of 125 units targeting a niche audience in the middle value bracket was the best fit.
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