Signature Global IPO this week: Affordable realty firm pivots to mid-income housing, avoids luxury projects

Signature Global IPO is set to open for bidding on September 20. The real- estate company, focused on affordable housing in the Delhi-National Capital Region (NCR), has now made a pivot to the mid-income housing segment.

This shift is a result of COVID-19, following which people are wanting bigger homes, Signature Global founder and chairman Pradeep Aggarwal, and chief executive officer, Rajat Kathuria, tell Moneycontrol in an exclusive interview.

However, the company is staying back from moving towards the luxury segment in the near term. Edited excerpts:

In 2020, Signature Global's market share in the budget category was 17 percent. In 2022, it was 9 percent. It hasn't recovered much since the pandemic. When do you see a revival?

Rajat Kathuria: You're probably referring to market share in terms of volumes, not in terms of value. If you look at FY21 to FY23, we've consistently grown, rather almost doubled our pre-sales level. Sales in FY21 were about Rs 1,600 crore. In FY23, it is about Rs 3,430 crore. We have doubled our sales number.

However, we have pivoted our products towards mid-income housing. Because post pandemic, we got a lot of customer feedback and people wanted one extra room and more space. To address that, we increased the supply of the mid-income product. So, when you look at the budget category, the number might have dropped a little.

Also read Signature Global to develop 21 msf of affordable, mid-income housing in 6-7 years

So your market share in the mid-income category has grown while the budget category has depleted, right?

Rajat Kathuria: Correct.

You mentioned that Signature Global would be in the top five real-estate players, rather than in the top three. But the top five have a pan-India presence, while Signature Global is focused on just the NCR. How do you think this will pan out?

Rajat Kathuria: We feel there are still a lot of supply constraints. This means that even if we increase our current scale of supply, there's enough demand for that supply to be consumed. So, it is a promising situation in the Delhi-NCR market at this stage and in the foreseeable future. We do not want to deviate from that strategy. Also, we are not in a race to be in any of these top three or five lists. It is more like a derived situation rather than a situation we are striving for.

How do you plan to expand in NCR, considering the fact that there is limited scope for real-estate development in the region. Even your Red Herring Prospectus mentions that availability of developable land in Haryana and Delhi NCR is limited. So, the acquisition of new land in such areas might face some challenges. What is your take on that?

Pradeep Aggarwal: In the last 5-7 years, the infrastructure in Gurugram has improved a lot. Dwarka Expressway, which has been pending for many years, can be flagged off anytime. An elevated road from Rajiv Chowk towards Sohna is already operational since July last year. So, the entire Delhi-Mumbai corridor is connected.

Today, Gurugram is the hub of IT and automobile companies, and there are some very good IB schools. In such a situation, a lot of job opportunities are created. So, there is demand for homes in Gurugram. Also, after COVID 19, a lot of people are shifting to Gurugram as property rates have surged. We also have marquee investors like IFC and HDFC, which have been with the company for a long time. So, our corporate governance is very strong.

Also read Signature Global to float its IPO on Sept 20 to mop up Rs 730 crore

So, will Gurugram be your major focus region?

Pradeep Aggarwal: In the next 3-5 years, we will be focused on Delhi-NCR. We are focused on affordable housing and mid-income housing and not towards ultra-luxury as our customers are mostly from the salaried class. Salaried class customers mostly opt for home loans. So, we have stable customers and this will benefit our company.

When luxury and premium housing segments are gaining momentum, what makes you focus on affordable housing? Do you believe that there is a chance for you to earn more in the affordable housing segment, rather than in the luxury segment?

Pradeep Aggarwal: Post COVID 19, there has been a little more demand for bigger houses. This is the reason why we have pivoted from affordable housing to mid-income housing. The demand for luxury housing is very high during this period. Whatever be the type of project, there is demand across all segments. The demand for affordable housing and middle-income housing has always been there and it will be there in times to come, as the population in Gurugram will be more than 50 lakh in the next 15 years. So, my intent is very clear. We want to keep our focus on affordable housing and mid-income housing in the next 3-5 years.

Your revenue from operations has grown from Rs 930 million in FY21 to around Rs 15,535 million in FY23. The number of units sold have reduced from 6,000 to 4,000 in the same period. Was this more because of a pricing- led growth, or because of cost per house going up?

Rajat Kathuria: We’ve pivoted from more of an affordable centric player to mid-income housing. While in FY21, a majority of the sales were in the affordable category, in FY23, a majority was in the mid-income category. Thus, FY23 sales were higher in value terms.

Do you expect to sell more units in future than in FY21?

Rajat Kathuria: We do not create land resources from the next five years or with a seven-year perspective. Our intent is to buy land from a raw material perspective. So, the entire 21 million sq ft is well mapped out and we have a fairly strong planning team in place. So, this entire set of forthcoming projects will be getting larger in the foreseeable future, and we are hopeful of a strong performance in the years to come.

There were two instances when your promoter company, Sarvpriya Securities, acquired agricultural land and converted it into residential land. What exactly happened there and what is the ongoing legal proceedings?

Rajat Kathuria: Sarvpriya Securities is a holding company of Signature Global. It has not taken up any new project. We had agreed not to create any competing business. Hence, Sarvpriya Securities has been completing whatever two or three small projects it had for the last 2-3 years. We do not intend to do any real-estate development business with this entity, going forward.

What is your guidance for revenue and net profit in FY24?

Rajat Kathuria: We cannot share futuristic numbers. However, we've been growing very fast in the previous years. And given the current demand situation, we are very positive on the demand side of the business. We've created a fairly strong land resource and have ongoing projects of almost 17 million sq ft, which are already under development. There is another in inventory of almost 21 million sq ft, which will be launched in days to come.