Brigade Enterprises To Increase Focus On Hyderabad And Chennai

“The focus right now is to look for new land parcels, especially in Hyderabad and Chennai where we have done quite well and can support Bengaluru as an alternate location,” Pavitra Shankar, executive director at South-based developer, told BloombergQuint over the phone. “We are bullish on Bengaluru but we need to increase our presence in the other two markets.”

Economic activity wasn’t as severely affected by local lockdowns during the second surge of Covid-19 in April-May, unlike the first wave a year earlier when the nation was under a complete lockdown.

“There was a drop in footfalls but we have seen quite a strong comeback post the lifting of the lockdown. July was quite a good month,” Shankar said. “Last financial year we actual saw green shoots only in September and October but this year it has been sort of advanced.”

The Bengaluru-based company, with 66% of revenue coming from residential real estate—including affordable, mid-segment and luxury homes—raised Rs 500 crore through qualified institutional placement in the quarter ended June.

Q1 Highlights (QoQ)

• Brigade Enterprises reported a net loss of Rs 40.1 crore compared with a profit of Rs 39.6 crore in the preceding quarter.

• Value of properties sold dropped 53% to Rs 480 crore, while volumes dropped 54% to 0.76 million square feet.

• Revenue from operations fell 52% at Rs 382.8 crore amid lack of footfalls during the second Covid-19 wave.

• Price realisation increased 2% to Rs 6,275 per square feet and 5% year-on-year.

Focus On Mid Segment

Demand from the mid segment, with homes costing Rs 50 lakh to Rs 1.5 crore, is much stronger, Shankar said.

“It’s driven by dual-income households, people working in IT and salaried professional with the ability to take home loans. It is a very structured and transparent kind of customer profile that we have in that [segment] and we feel that it has the biggest potential for growth as well,” she said. “Not just in Bengaluru, but in Chennai and Hyderabad where we are focusing for our market” she added.

It’s driven by demand for larger homes because of work-from-home and online schooling during the pandemic.

Brigade Enterprises saw the average area of apartment sold increase by 150-200 square feet, which is the size of an extra small bedroom or a study, Shankar said. And it was supported by increase in affordability due to lower interest rates, she said.

The developer plans to launch 1.91 million square feet in the residential space over the next four quarters. “We will be launching predominantly in the mid-segment housing in Chennai and Bengaluru”.

And the company’s focus remains on Bengaluru, Chennai and Hyderabad before it considers markets like the National Capital Region and Mumbai “It's quite easy to pick up projects in multiple locations, but it isn't that easy to set the right theme there to make sure the project happens in the right way.”

Office Lease Collections Steady

Lease rental collections for office space are at 98-99% although occupancy on ground is less than 10% because of remote working, according to Shankar. The segment contributed 29% of the revenue for Brigade in the first quarter.

“Our tenancy profile is highly MNC related,” she said. “Many of them still have a work from home policy but many domestic companies are coming back to offices.”

India’s slowdown-proof commercial real estate couldn’t escape the pandemic's disruption, with occupancy declining even prior to the second wave. Leasing activity in the six major cities fell to the lowest in six years during in the first half of 2021, according to the real estate advisory Savills India.

Shankar however, said that the company hasn't seen tenants leaving. “We have actually been signing on a few smaller spaces. Last quarter, we did about 1 lakh square feet new lease, but we would obviously like to see that number increase.”

The strong hiring momentum in the IT sector will benefit the company as it’s highly exposed to the sector.

Mall Footfalls At 60% Of Pre-Covid Levels

Brigade Enterprise, the operator of three malls in Bengaluru, said while footfalls are at 60% of pre-Covid levels, sales are back at 90%. The occupancy at its malls is 85%, according to Shankar.

While rent billed in the first quarter was higher than a year earlier, it’s still not at the level the company would like it to be, Shankar said. “[But] we saw consumption recovery come back to 90% or more of pre-Covid level.”

BloombergQuint earlier reported that vacancies in malls remained ultra-tight even during the second wave of the pandemic.

Brigade charged half the rent during the first wave of the pandemic and offered similar relief during the second surge. “We basically focused on the minimum guarantee rather than the revenue share.”

Hotel Occupancy At 42%

Hospitality is one of the worst affected segments as demand is still low because of the pandemic and travel restrictions. Occupancy at eight hotels run by Brigade Enterprises fell to 25% of pre-Covid levels in the first quarter, according to Shankar. However, business picked up in July with occupancy at 42% of the pre-pandemic levels.

“The approach right now is to conserve costs (operating and overhead) and focus on occupancy rather than average room rent,” Shankar said.