Can Signature Global bounce back by shifting from affordable to premium housing?

For Pradeep Aggarwal, Founder-Chairman of Signature Global (India), good corporate governance is not just about complying with rules and stating the said compliance in officialese in the annual report. Aggarwal is a stickler for corporate governance as he knows it defines success in any field—including the fields of the then Gurgaon’s Sector 107 in 2014.

That was where (and when) Aggarwal, after two decades in the stock markets, put together a crack team to enter the real estate business as the government pushed the concept of affordable housing.

Aggarwal announced his first housing project in 2014, and investors and buyers lapped it up. The project was oversubscribed three times. The prices clicked (up to Rs 25 lakh for 1BHK and 2BHK apartments, unbelievably affordable even then). The delivery schedule clicked (announced in 2014 and delivered in 2018). Construction quality clicked.

Solera, Signature Global’s first housing project, was born. Even today, the complex of six G+14 towers flanked by a G+3 row is a star draw in Gurugram (Gurgaon’s new name since 2016).

Around Solera, dozens of real estate firms in Delhi-NCR, of which Haryana’s Gurugram district is a part, went bust because of poor governance, leaving homebuyers high and dry. Some, like Amrapali Developers, got into unrelated businesses, diverted funds, and were accused of bouncing cheques. The Supreme Court bailed out some homebuyers. Parliament deployed the Real Estate Regulatory Authority, or RERA, in 2016. Unscathed by the crisis, Signature Global is one of the leading players today. Aggarwal ensures that the company’s projects align with the stringent RERA.

For Aggarwal, who started his career in 1986 as a 17-year-old in his father’s agri-commodities business in old Delhi’s Naya Bazar, becoming a realtor was not an obvious choice. After the Harshad Mehta scam of 1992 left the market in tatters, he saw an opportunity in arbitrage operations. “I started in 1993 and was primarily into arbitrage, which is considered a ‘risk-free’ business,” he says.

Today, at 55, dressed in his navy blue suit, Aggarwal is the picture of a go-getter in his corner room at Signature Global’s headquarters in Gurugram as we talk about his plans and how, in 2013, Aggarwal and his brothers (Lalit, Devender and Ravi) got into real estate. The trigger was the Haryana government’s policy to encourage private developers in the affordable housing market. “Being in the stock market, we have had this habit of extensively researching companies and sectors. We did door-to-door surveys in corporate offices and realised a high demand for homes priced at `25-30 lakh. But very few such apartments were coming up in Gurugram,” he says.

Although the Aggarwals had zero experience in the real estate sector, their expertise in management, finance, marketing, and team building proved useful. “But most importantly, we focussed on corporate governance,” he says.

Experts concur. Signature Global has flourished because of its stringent practices, says Anuj Puri, Chairman of Anarock Group, which is into real estate services. “It’s a wholesome team of four brothers. In a market where few developers have survived, they have done well given the focus on governance and financial discipline,” he says.

In 2015, ICICI Prudential lent `150 crore to the company for the Solera project. In 2016, leading global investment firm KKR came on board with project finance of Rs 200 crore. In 2017, HDFC Ltd, which had launched a fund for affordable housing projects, became a lender. Anarock’s Puri says, “It managed to bring in investors with pedigree at an early stage, which was a good sign.”

Signature Global’s entry and rise in the affordable housing market parallel the segment’s rise. After Narendra Modi took over as Prime Minister of a BJP government in 2014 and Haryana went the BJP way soon after, the government began pushing affordable housing.

It launched the Pradhan Mantri Awas Yojana in 2015 to help the poor become homeowners. Private developers were offered incentives to develop affordable housing. The government defined two segments: urban and rural. In urban areas, a housing unit with a carpet area of up to 60 sq. metres and priced up to `45 lakh is considered affordable, while in rural areas, the carpet area is more, at 90 sq. m. The government nudged banks to offer lower home loan interest rates for families earning up to `18 lakh a year. Soon, the share of affordable homes in India’s housing market peaked at 45% in 2017.

Riding the wave, Signature Global has since launched over 19,600 affordable homes and delivered 10,450 units. “Times were good. Affordable housing was the talk of the town. Even though profit margins may have been lower than those of other segments, we didn’t have to push our products. There used to be a long queue of customers,” Aggarwal recalls.

‘Affordable’ Becomes Unrealistic

By 2019, however, cracks began to appear. Rising construction and land costs strained developers’ margins. When the Covid-19 pandemic hit in 2020, wiping out the jobs and incomes of the millions looking for affordable housing, the segment became more unviable for developers.

Anarock Property Research, a market analyst, said the share of affordable homes (priced below `40 lakh) in the overall new launches in the top seven metros fell sharply after the pandemic upended lives. From 40% in early 2020, the share of affordable housing decreased to 20% (April-June 2021). Recent data shows that homes priced below `50 lakh now account for only 15% of India’s overall residential real estate market. But premium homes (those priced above `1 crore) are having a good run across the top seven metros, with their share rising to 43% in Q1 of 2023 and 47% in Q1 of 2024.

British real estate services company Savills, which came to India in 2016, says steel, aluminium, and cement became significantly costlier. Steel prices went up by 69% between 2019 and 2023, aluminium went up by 56%, and so did cement. Sumit Rakshit, Managing Director of Savills India’s project management services, says, “Thriving in this evolving market requires a deep understanding of fluctuating costs.”

Then ‘Affordable’ Moved Upmarket

Aggarwal says he had sensed an opportunity in mid-segment housing in 2019, as some homebuyers were looking for larger units. “It was also important to diversify the business, as depending on only one segment has its downside.” When the price of land began to surge (by 200-350% in and around Gurugram), building affordable projects did not make sense. At that time, the Haryana government announced its Deen Dayal Awas Yojana to encourage players in mid-income housing (`50-75 lakh) to offer smaller developed plots (80-100 sq. m). Signature Global used this scheme to launch its first project in Sohna.

“These projects had multiple benefits. Unlike in affordable housing, there was no price cap; we could sell these low-rise units at `60-70 lakh. And we also got first mover advantage,” he says. Moreover, in what Aggarwal calls the “luxury segment for the middle class,” measuring 1,200 sq. ft, these 3BHK units come with swimming pools and health clubs since there is no price cap. Now, Signature Global had something for middle-class buyers again. It took the chance. Soon, it was among the top developers in the Delhi-NCR region.

Ventura Securities, a stock market analysis firm, says, “Signature Global is the largest real estate development company in Delhi-NCR in the affordable and lower mid-segment housing in terms of units supplied (in the below `80 lakh price category) between 2020 and the three months ended March 31, 2023, with a market share of 19%.” Data from Anarock Research shows that in FY23, Signature Global sold 4.35 million sq. ft, next only to DLF, Godrej Properties, Prestige Estate, Brigade Enterprises and Sobha.

Signature Global was listed on the bourses in September 2023. Since its listing at Rs 458 a share, the stock surged to Rs 1,413 by early March. On May 15, its stock traded at Rs 1,257 a share on the BSE.

Anarock’s Puri says the consolidation in the NCR market has helped Signature Global. “It is now one of the most sought-after developers… there aren’t many good companies left in the NCR market. So, they are now among the only few reliable developers other than DLF in the residential space in a meaningful way. That’s why the markets are saluting them.”

After testing the waters with a project off the Dwarka Expressway, Aggarwal is ready to try his luck in premium housing. In Gurugram’s Sector 37D, it has launched its first premium high-rise project, with apartments at Rs 2.5-3 crore at Rs 13,000 a sq. ft. “There are some 1,000 units, and we have received nearly 5,400 applications,” he says. The project has generated sales of `3,600 crore, which, together with its April-December sales of Rs 3,124 crore, has boosted its FY24 sales to close to `8,000 crore. (Signature Global reported sales of Rs 3,431 crore in FY23.)

Moving towards pricier units has also helped the realtor improve realisation per sq. ft from less than Rs 4,000 in FY21 to Rs 11,762 at the end of FY24.

Profitability remains a concern. Since FY21, the company has been reporting losses at the net level. While Covid-19 had impacted its sales, when it moved into mid-income housing, it had to borrow money to buy land. In the first nine months of FY24, Signature Global’s net losses were primarily due to increased debt from significant land acquisitions.

“We booked a consolidated net profit of `21.7 crore in the December quarter. By 2025-26, we aim to complete and deliver over 17 million sq. ft of space across our mid-housing and affordable housing projects in Gurugram, with a projected revenue of Rs 11,000 crore,” Aggarwal says. “Strategically, we aim to do fewer land acquisitions in the coming quarters, and increased revenue would push up net profit.”

Premium to Wash Out Red

A third of Signature Global’s projects are in the affordable segment. Of the projects on the drawing board, only 1% are in the affordable segment, while premium projects will be in double digits.

ICICI Securities reckons Signature Global will turn profitable at the net level in FY24, with a net profit of over Rs 100 crore, which will go up to over `1,350 crore by FY26. Net revenue will grow to over Rs 6,900 crore from Rs 1,586 crore in FY23, given its lean banking business model that ensures rapid conversion from acquisition to delivery.

Adhidev Chattopadhyay, Vice President-Equity Research, ICICI Securities, says, “Signature delivered 43% sales booking CAGR over FY21-23, largely through affordable/mid-income housing projects.”

Given its strong launch pipeline of projects with a cumulative sales value of more than `40,000 crore over FY24 to FY26, “we estimate that Signature may clock a 38% sales booking CAGR over FY23-27 with sales booking at Rs 10,000-12,000 crore annually at average realisations of over Rs 13,000 a sq. ft,” he adds.

Looking to dominate premium housing, Signature Global plans to launch projects worth `12,000 crore in Sector 71 and Sohna (priced over `2.5 crore a unit) and in Sector 37D and 84 (priced over `1 crore).

But Aggarwal claims Signature Global is still a “common man’s company”, and he is ready to develop affordable housing again if the government tweaks the norms and offers cheaper land. For now, it is tallying the numbers for Q4FY24 to see if it has made a sequential profit after the net profit of `21.49 crore in Q3. That will show it is on the right track. 

@arndutt