Peninsula Land Ltd, a unit of the Ashok Piramal group, is deferring its plans to build business hotels by at least six months to preserve cash, a company official has said.
In May last year, Peninsula forayed into the hospitality sector with a joint venture with textile maker and real estate developer, Arrow Webtex. The JV planned to build hotels in Mumbai, Pune, Nagpur, Nasik and Kolhapur in Maharashtra. There were also plans to develop hotels in Ahmedabad, Surat, Jamnagar, Mundra port, Goa and Kerala.
"Currently, all outside initiatives are on hold. We do not think it is prudent to diversify rather than executing our current projects. We will look into new projects in the second half of this year when we expect markets to go up. It is more important to preserve cash in the downturn," said Rajeev Piramal, executive vice-chairman, Peninsula Land.
Real estate developers such as DLF, Parsvnath and Unitech are also going slow on their hotel plans due to tough credit environment and fall in occupancy rates. DLF, the country's largest property developer, is said to be pushing back its hotel plans by 12-18 months, another Delhi-based realtor Unitech, has sold its Gurgaon hotel to reduce its debt burden.
"Land values are not attractive and still there is more scope for correction to launch these projects," said Piramal.
Peninsula and Arrow Webtex were to create a special purpose vehicle, where they would hold 50 per cent stake each. In the first stage, the JV was to invest Rs 100 crore (Rs 1 billion) and build 10 hotels of 100 rooms each, aggregating 1,000 rooms.
Peninsula is also putting its plans to get into new areas such as project management, infrastructure and others on the backburner to save cash even as it is expanding into new cities such as Nasik, Hyderabad and Pune this year, amounting to 8 million square feet.
Peninsula is also looking at alternative options such as fund structures wherein capital is pooled in from different parties and invested in real estate projects as it is yet to close its Rs 1,400-crore (Rs 14-billion) Paramount offshore fund floated earlier.
The company is expecting nearly Rs 2,000 crore (Rs 20 billion) cash flows from its Mumbai projects mainly from the Peninsula Business Park project in Lower Parel area of Central Mumbai and from the Peninsula Technopark project in Kurla, which has been sold to the Essar group wherein it is yet to get full payment due.
The company posted 49 per cent increase in its profit after tax to Rs 35.96 crore (Rs 359.6 million) for the fourth quarter of FY 2009 as compared with Rs 24.06 crore (Rs 240.6 million) it posted in the corresponding quarter of the previous financial year.