Parsvnath goes slow on hotel expansion

New Delhi-based Parsvnath developers is going slow on hotel expansion to conserve cash in the business, a top company official has said.

Parsvnath had planned to open 100 hotels in seven years with about 10,000 rooms Now, the company is not buying a land for hotels apart from what it has for its 20 hotels projects, of which six are under ay.

“We will not buy new land for now. We are focusing on six projects and will start the other 14 in due course of time,” said Parsvnath Chaiman Pradeep Jain.

Most real estate developers, like DLF, Unitech and others, are scaling down or slowing hotel plane due to the current slowdown in the property sector and the cash crunch. While property prices have dropped as much as 50 from their peak in 2008 in metros and sales have declined 70 percent compared with last year, banks have tightened lending to property developers.

According to experts 20-30 percent of the room capacity planned by 2010 would be deferred by at two to three years.

DLF, the country’s largest property developer, is said to be pushing back its hotel plans by 12-18 months due to the tough credit environment, while Unitech, another New Delhi-based developer, has sold its Gurgaon hotels to reduce its debt burden.

Even hotels chains are passing through a rough patch with occupancies falling 58 percent in January 2009 average room rates reclining 14 percent in the month.

Analysts expect Parsvnath’s balance sheet to be under pressure in the current quarter and the next financial year due to decline in execution, high receivables and overall slowdown in the property market.

The company’s consolidated third-quarter profit fell 95 percent to Rs5.42 crore and sales dropped 80 percent to 90.52 crore. In the fourth quarter, on a year-on-yea basis, analysts expect revenues and net profit drop further.

The company’s execution slowed in every quarter of the current financial year. The company has an executed space of 1.3 million sq ft in Q3 of FY09, compared with 2.2 million in 2. Receivable from buyers went up to Rs 1,496 crore by the end of the December quarter, from Rs 1346 crore in the September quarter.

“Developers cannot launch new projects when sales are slow and cash is hard to come by,” said an analysts with a Mumbai-based brokerage firm.

Parsvnath is developinf six hotels in
Mohali, Shirdi, Hydrabad, Lakhnow, Ahmedabad, and expect to start the rollout by the second half of 2009. the company is in the process of getting approvals for 14 other projects, which are expected to start in the next 12 months.

Jain said the company was looking at diluting stakes in individual hotel projects and dropped its earlier plan to dilute stake in the entire portfolio.
“today, there are no takers for consolidated assets. That is why we are looking at divesting stakes in individual projects,” said Jain.

The government has decided to provide Rs100 for liquidity support to Emaar-MGF, the developer of the Commonwealth Games village project, as against the developer’s demand for Rs300 crore.

The Ministry of Urban Development plans to ask the Delhi Development Authority (DDA) to buy the flats in the village to provide liquidity to the company. The DDA is expected to sell the flats after the prices revive.

Cash-strapped Emaar-MGF had sought Rs300 crore liquidity support from the government as it wasn’t able to sell the houses in the project.

“After analyzing the project’s funding requirements, we have decided that the company should be given Rs100 crore, against which the DDA will buy some flats. However, the number of flats id still to be decided by our committee as it is working on the issue.” Said M Ramachandran, secretary, Minister of Urban Development.

The committee, set up by the Ministry of Urban Development, is analyzing the actual price of the apartments. The developers has quoted Rs 12.750 per sq ft.

The Market price of flats in the area has fallen by 20-30 percent and the government would not like to pay an amount higher than the current market price.

Emaar MGF, under a private-public partnership with the DDA, had won the contract to develop 1,168 flats. The company had hopped to sell 70 percent(778) of these and to use the cash to finance the construction.

The Commonwealth Games Village site is being built to house the 8,500 odd athletes and those who accompany them.

Ramachandran said the project was on schedule, with almost 42 percent of the work done. The project would be completed by April2010, a few months before the Games, he added.

An Emaar MGF spokeswoman declined to comment on the development.