Arihant Superstructures: A Navi Mumbai front runner desperately trying to take off

In the month of August one equity investor reached out to me for a query when I was visiting Delhi. It was pertaining to a real estate company called Arihant Superstructures. I knew of that company but I didn’t know it was listed on the exchange. Part of the reason is probably my ignorance of the stock markets. Part of the reason is that the company is low-profile. And part of the reason is that it is ignored by most watchers.

The query hovered around the business prospects of the company. I gave my first-hand view but I insisted that a trip to Navi Mumbai was scheduled on my return to Mumbai after which I would have a more informed and updated view on the company.

On my return the scheduled trip materialized and amongst other projects I saw a few of the projects by Arihant. The company is primarily focused on the satellite city of Navi Mumbai. Its target segment is the affordable and mid-level category of housing. I also had the chance to meet the Chairman of the company – Ashok Chhajer. He is a man with an interesting reputation in the market. Some consider him to be a man with a mercurial temperament. Some state that he is amongst the hardest working CEO’s without a reputation for pilferage that is otherwise common in the industry. Others say he is a micro-manager who refuses to decentralize.

All the perceptions will probably have some merit. At a personal level I found Chhajer as a man who is desperately hungry for growth. It’s overdue. It’s been a long journey of almost 3 decades for the company and it will not be incorrect to say that given the early-mover advantage as well as delivery record, Arihant should have been a much bigger entity today. That it has managed to yet clock annual revenues below INR 500 crore is a result of several factors.

Nevertheless the engine is picking up in the last 3-4 years. Sales in the last year crossed over 1000 units for the first time in its history. Land acquisition has been happening at a brisk rate from 2018 onwards in diverse micro-markets. Earlier a big project (Aalishan) was taken up at Kharghar where the company is building a set of skyscrapers with a Persian theme. At a revenue potential level of ~INR 800 crore, it will be the biggest project for the company. Currently it is running with about 17 projects – easily the most aggressive player in the local Navi Mumbai market.

I had the opportunity to view Aalishan as well as some other projects that were scattered around. Seeing the locations and the product offering of the projects – its clear that Arihant is aiming to be the Maruti Suzuki of the Navi Mumbai market: Have a product for every sort of customer.

Personally I like the model of Arihant and philosophy of Chhajer. Building products across micro-markets catering to a wide audience. And importantly operate on a factory model wherein prices move dynamically according to the demand.  Hence if demand is not attained at a certain price point, cut prices – get demand and move forward.

The intriguing element of the company is their approach to land acquisition. The pace, capacity and pricing are superior to most other players in the market. That allows it to get larger land parcels at a very aggressive price compared to many other peers. I noticed that there is a degree of goodwill that farmers have in dealing with the company when they are selling their land. Given the importance of land in the construction industry, if Chhajer & Co manage to keep it going – it will be a strong competitive advantage.

All of this may work if and only if – the company operates like an institution and not a centralized set-up. In that regard it is important that the perception of Chhajer of being a micro-manager is untrue. That model works effectively at a startup phase when activity is limited. As the number and nature of projects expands – decentralization is a must.

Personally, in my interaction I found him willing to give space to others – especially the company’s newly recruited Investor Relations and Strategy Head. Otherwise, there is nothing more nauseating in a conversation with a company management where only the CEO or MD is speaking. On that count atleast I can say that his reputation for a one-man show is perhaps exaggerated.

If it is – it would not come a day too late. The Navi Mumbai market has found the fancy of large developers who are finally making a move. L&T launched a project at Seawoods and got a favourable response initially. Godrej is set to launch in Vashi this month. Another listed player is eyeing Navi Mumbai very closely. That means local players like Arihant will have to raise the level of their game.

Arihant and others they will be facing a contest they have not dealt with previously. It won’t be easy. But core strengths in land acquisition and diverse offerings – will keep it going.

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