Milestone sees around 25% yields from warehouse investments
November 3, 2009
Pallabika Ganguly (ML): What are your expansion and investment plans for warehouses?
Ashish Joshi (AJ): We are investing mostly in warehouses located in Tier I cities, basically the National Capital Region of Delhi and Mumbai. We have also invested Rs1,000 crore in a few income-yielding assets, like the rental yields from the properties.
In the past three years, we raised $650 million through private equity and till date, have invested about 70% of the amount in affordable and warehousing projects in Tier I cities, like Delhi, Mumbai, Chennai, Bengaluru and Kolkata. We have invested approximately Rs2,500 crore in new properties at Nagpur, Ahmedabad and Jaipur.
ML: Which are the other cities where you are interested in setting up warehouses? What kind of growth do you see in the warehousing segment?
AJ: We have already invested in two cities and are planning to expand our warehouses to eight more cities or logistics hubs like Hyderabad, Bengaluru, Chennai and Kolkata. Over the next five years, there is a need or demand for some 300 million sq ft for warehouses that would require a capital expenditure of over Rs40,000 crore. Currently, this segment has been growing at 10%-12% but over the next ten years, we expect it to grow at a rate of 30%-35% per annum and would be worth $25 billion. I expect retail, fast moving consumer goods and pharmaceutical sector to be the major contributor for this growth.
ML: Why are you bullish on investing in the warehousing sector? How much yield you expect from it?
AJ: At present warehousing is dominated by unorganised players who do not have a pan-India presence or network. Someone like Milestone who can set up warehouses across the country will certainly get more benefits from it.
Currently, the warehouse rentals are between Rs14 to Rs20 per sq ft per month while the construction cost comes at Rs600-Rs700 per sq ft. In short, we can say the business offers an annual yield of about 25%.
ML: For the warehouses, do you see more demand from the fast growing retail industry?
AJ: There is a misconception that only retail industry needs warehouses. No doubt, retail industry is growing at a fast speed; I can say every industry from auto companies to consumer goods and pharmaceuticals need warehouses. As any industry can use our warehouses, we are neutral about industry preferences or choices.
ML: For your warehouses you have bought land across the country. What is the average land purchase price and what is the progress at these sites?
AJ: We bought land for our warehouses at an average of Rs200 to Rs300 per sq ft and so far have built warehouses of around 5 million sq ft in total at certain logistics hubs such as Delhi, Panvel, Bhiwandi and Ahmedabad. Out of the total 5 million sq ft, some 1.2 million sq ft is already being used for warehousing operations.
ML: At present, how many development projects are you investing in?
AJ: We are investing in more than 25 developmental projects in various cities like Chennai, Nagpur, Hyderabad, Jaipur, Kolkata and Mumbai.
ML: The realty sector is known for its cyclical nature. How do you cope with a downturn and fall in prices?
AJ: One has to be very choosy while investing in the real estate sector. We focussed on investing in warehouses and affordable housing three years back when nobody was talking about it. We chose our segments very carefully. We neither have invested nor are interested in luxury housing and commercial spaces like Information Technology parks and malls. During the downturn, we smartly negotiate the land prices.
ML: Besides warehouses and affordable housing, are you planning to invest in other projects?
AJ: We are always looking at various good opportunities for investment where the risk factor is low. In next couple of months, we would be investing in some Mumbai redevelopment projects.