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Textile mills ride realty boom to sell land, raise cash

Reporting by Aniruddha Basu; Editing by Harish Nambiar

Reuters, Mon May 31, 2010

India’s top textile firms are generating additional revenue streams by developing or selling precious real estate as land rates rise in a buoyant economy.

Bombay Dyeing & Manufacturing, Century Textiles & Industries, Provogue India and Alok Industries are some of the firms intent on developing or selling valuable land parcels to boost cash flow and cut debt.

Property prices in major Indian cities such as Mumbai and Delhi have nearly doubled in the past year, as home and office buyers return and mortgage rates are still in single digits.

Mumbai is rated among the most expensive office locations in the world.

"There are a lot of companies who have huge land banks. But the issue is market gives valuations to only those companies which have come into the market for development of these landbanks," said Kishor P Ostwal, chairman of brokerage CNI Research.

Ostwal has a "buy" rating on both Bombay Dyeing and Century who have premium large tracts in central Mumbai.

Bombay Dyeing, which has around 9 million square feet in Mumbai alone, recently sold a property to Axis Bank for 7.8 billion rupees, according to a statement by Shree Nath Commercial & Finance, the broker to the deal.

The firm has relocated its textile mills outside the island city near Pune and the land freed has been earmarked for two real estate projects in central Mumbai, Ostwal added.

Century Textiles, with 16 hectares in Worli in central Mumbai, is constructing two commercial buildings to be completed in 12-15 months.

Most old mills in Mumbai received huge tracts of land "almost free of cost" during colonial times from the British, who were keen on developing the city as textile centre for cotton because it had the right conditions, Chandrashekhar Prabhu, an urban development expert said.

"A number of mills had got land for a nominal lease for industrial use," making Mumbai an important textile producing centre, Prabhu said.

A crippling industrial strike in the early eighties saw the textile sector collapse and mills silenced. Over the past five years the state government of Maharashtra, of which Mumbai is the capital, allowed more land from textile mills to be used for real estate development.

Analysts said mill owners are finally getting to reap the benefits of this provision with land rates on the rebound.

"It is a strategic move. It would unlock financial value for the mills and help the city as well, because you would have real estate coming onto the market," said Devangshu Dutta head of Third Eyesight, a textiles consultancy.

Not all firms are developing their land, though. Alok Industries for instance, is planning to exit its real estate portfolio lock, stock and barrel to cut debt.

Alok expects about 7 billion rupees through sale of four large blocks, including properties in the heart of Mumbai.

"We should be able to sell a major chunk in a year. We have a big land parcel at Lower Parel (in central Mumbai), that’s a major portfolio. We will look at selling that property within one year," Chief Financial Officer Sunil Khandelwal said.

BUILDING TO GROW

Not all are selling land in premium metros of India. Apparel retailer Provogue India, for instance, is getting ready to launch a residential project in tier 2 cities.

Provogue is planning to launch three residential projects in Indore, Nagpur and Coimbatore by the year-end, on land owned by Prozone Enterprises in which Provogue holds 75 percent.

The first phase of the housing project will span 34 acres across the three cities, its deputy managing director, Salil Chaturvedi, said earlier this month.

The developed value in the first phase of the residential project at Indore alone was pegged at 3.5 billion rupees, Chaturvedi said.

"The question is will this prove to be a sustainable source of income or just one-time gains. That would depend on a company’s capability to handle it. Different companies would handle it differently," Third Eyesight’s Dutta said.

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