With a regulatory overhaul, infra boom, L&T plans to bet big on realty

Engineering conglomerate Larsen & Toubro (L&T) has identified the realty business, its only B2C business, as one of its growth engines, with plans to acquire land parcels and expand pre-sales multifold, said a senior company executive.

“L&T looks at businesses which have growth potential and alignment to the larger organisation. Whichever area L&T sees growth for the next 10 years, impetus is on that. That is how realty has been
recognised as one of the major growth businesses for the company,” said Anupam Kumar, managing director and chief executive officer of L&T Realty , in an interaction with Business Standard.

The engineering conglomerate entered this segment in 2010, predominantly relying on its existing land parcels. Kumar adds that this historic land bank will soon start to diminish.

“The real estate journey initially started with the monetisation of our land bank, which arose due to the relocation of factories from cities. Since the land bank is limited, it will get exhausted in a few years,” he said, adding that to scale up the business, L&T Realty has started looking to acquire land parcels and partnership development opportunities across markets.

“We are making some strides in that direction, albeit cautiously. We are looking for something in the range of 50-60 acres, mostly in Bangalore and NCR,” Kumar noted. At present, L&T Realty has a portfolio of 61 million square feet (SQFT) at various stages of development. Kumar now plans to add close to 25-30 million SQFT every year, “growing which can give pre-sales of Rs 30,000 to Rs 40,000 crore a year,” he said. The preference, Kumar stated, is not affordable housing, but premium and affluent housing segments.

In terms of fundraising, Kumar added that the company keeps looking for opportunities to lease or monetise commercial development profitably. He ruled out any plans for a real estate investment trust (REIT).

In the past, L&T developed its IT business and later listed them as separate entities on the exchanges. On similar plans for the realty business, Kumar said, “We are concentrating on building project pipelines for accelerated growth of the business. Of course, when the business attains the right size, the option of listing to raise growth capital will be considered, but I cannot indicate when. At the
moment, the focus is on growth.”

The conglomerate L&T clubs its real estate segment under “others” while reporting its financial results. For FY24, the others segment reported net revenue of Rs 7,630 crore and Ebitda of Rs 1,618 crore. Ebitda is earnings before interest, depreciation, and amortisation. Kumar noted that the real estate business’ current annual revenue is in the range of half a billion dollars (roughly Rs 4,200 crore in rupee terms).

At the consolidated level, L&T is executing India’s largest order book, valued at Rs 4.9 trillion as of June. This appears to have both set targets and provided opportunities for its realty vertical.

Kumar said, “L&T is number one in most of the verticals it operates in. The realty business in L&T can be sizable and be among the top players, given the steep market growth opportunities.”

Further, Kumar does not expect the historical cyclicality of the realty sector to return in the near future, “especially with urbanisation and the infrastructure drive being accelerated by the governments,” he said. In addition, the realty division looks to develop projects close to these transport infrastructure hubs “so that customers have a good mobility choice,” Kumar said

Kumar believes the time is right for corporates like L&T, as “the regulatory ecosystem changes like GST and RERA have cleaned the sector substantially, leading to consolidation. Smaller and unorganised players have largely vanished, making the sector attractive for corporates like us.”