You plan to enter a new business, a new segment. Tell us a bit more about this new launch. How did you come up with the plan and what will be the structure of this new business?
Pirojsha Godrej: We are very excited to launch Godrej Capital, which is intended to be the financial services arm of the Godrej Group. Godrej Industries is the parent company of Godrej Capital and under Godrej Capital we have two operating businesses – Godrej Housing Finance which as the name suggests is a home lending business and Godrej Finance which has an NBFC license and will do loans of other types.
This is an exciting opportunity for the group. On the housing finance side, we’ve been in the market for about 18 months and I’m very pleased with the kind of response we’ve seen from our customers, so the focus now is on really doubling that investment in financial services and doing our best to build a leading retail financial services company over the next few years.
Your plans to get ready with a balance sheet of around Rs 30,000 crore by 2026 are in place. How do you plan to create a super financing experience for consumers amidst the strong competition that also exists in the industry?
Manich Shah: The way we have set ourselves to achieve this goal is to build our business line by line as we start it. As Pirojsha mentioned, we started with the housing finance space. Over the next four years, we are expanding our housing finance business on the one hand. We have launched our loan against real estate activity which we are going to develop.
In these activities, we will double our presence this year, going from five to eleven sites. In the years to come, we want to expand geographically. While we do this, in parallel, we would also like to consider expanding our housing portfolio into affordable housing and then start looking for opportunities later this year and early next year in the area of business lending not guaranteed.
So both geographical growth and product portfolio growth is what we have planned as we move from where we are today towards our target of Rs 30,000 crore within three to next four years.
Godrej Capital is currently present in Mumbai, Bangalore, Delhi-NCR, Ahmedabad as well as Pune. Which regions are you going to focus on next?
Pirojsha Godrej: The immediate goal will be to take the five cities we are currently in and move them to 11 cities in the current year. We have identified these cities. In terms of longer term geographic expansion, we want to do this quite deliberately rather than entering all markets simultaneously, we are focusing on major cities first and working down. This will allow us to build a strong individual presence in markets where we become relevant and capable in those markets, and then expand that to the rest of the country. Over a period of time, we expect it to be a truly national company with a presence in all parts of India.
The low-risk weighting of housing loans has also been extended for one year, from March 31, 2022 to March 31, 2023. How do you see the housing finance market performing currently?
Manich Shah: This is very welcome, much needed. Not just for us, but across the board, housing has been a portfolio that has stood the test of time. In fact, if you look at the portfolios of the biggest players, despite two waves of Covid, the impact on NPAs has been negligible and quite welcome as rates have become so competitive.
This is something the industry needs so that we can maintain the current rate of growth and in fact accelerate it as we move towards Housing for All goals.
What is your vision for the real estate sector, which you also see continuing in FY23?
Pirojsha Godrej: This is a very exciting time for the real estate industry. Between 2012 and 2020, the real estate sector in India went through quite a long and difficult decline. Over this period, according to estimates, we have seen real estate sales decline by more than 40%.
Over the past two years, in part because of the pandemic and the kind of surge in real estate demand that has resulted, we are seeing the next stage of the real estate cycle. Usually, the real estate sector has fairly long cycles. It takes seven or ten years for things to turn around when they have gotten as bad as they have in the last few years.
But the recovery usually lasts just as long. We are in an exciting time. Godrej Properties is having its best year of sales in the year just ended. Most of our major competitors also posted record numbers. This trend is actually only in its infancy and we are starting to see not only demand volumes increase, but also property prices.
For example, Godrej Properties at all levels took price increases in April. We have seen a 10% increase in house prices year over year. And this is also necessary given the high commodity prices and severe input cost pressures the industry is currently facing. But overall, these will be great years for the real estate market and therefore a great opportunity for housing finance players, where the scale of the sector is expected to double quite rapidly over the next few years.