December 10, 2018
What turns a run of the mill, resource hungry hotel into an Eco Hotel and why does it matter? Well, the clue lies partly in the question: an Eco Hotel isn’t resource hungry at all. Instead of gobbling away at all before it, an Eco Hotel sips and nibbles at its key resources: energy, water and raw materials. Eco Hotels are hard wired to save water and minimise on energy and waste material usage. But what about the second part of the question: why does any of this matter? Look no further than last week’s US National Climate Change Assessment, the work of 300 scientists and 13 Federal Agencies which concluded that “ Earth’s climate is now changing faster than at any point in the history of modern civilisation, primarily as a result of human activities…” Donald Trump may have dismissed the three-inch thick report out of hand as “largely based on the most extreme scenario”, but virtually nobody else is.
And for a President so intent on wrapping himself in a mantle of economic competence (and hotel owner to boot), the supreme irony is that key policies at the heart of a concerted response to adverse climate change are now proving to be drivers of commercial growth too. Eco Hotels are a case in point.
By definition, a non resource hungry hotel will also have reduced operating costs: it’s also likely to have reduced liabilities, will generally produce a higher return on relatively low risk investments and also deliver greater profitability across the board than its more resource hungry counterparts. Those are the hard conclusions arrived at in the seminal sector report for the subcontinent “Green Hotels and Sustainable Hotel Operations in India” and, perhaps inevitably, the markets haven’t been slow to see their potential either. Green hotels are more popular than ever on the subcontinent and if you need solid evidence of that, look no further than the explosive growth of Lemon Tree Hotels after the company’s successful IPO earlier this year.
Donald Trump could usefully brush up on his bedtime reading before leaving the West Wing to resume control of his own hotel chain …
The travelling public (business and leisure) is now increasingly aware of the importance of environmental compliance when it comes to choosing a hotel room, and the current surge in demand on the subcontinent is running well ahead of supply: not least because India’s tourist numbers have reached unprecedented levels in absolute terms as well.
But when it comes to meeting this burgeoning demand in practice, something much more is required than simply re-branding an existing hotel with “green credentials”. Key consumption variables have to be built in from the very beginning of the construction phase: making water saving devices and waste reduction part of the DNA of the hotel from the outset of the project. That’s why Eco Hotels are being built with solar tubing that reflects light across the hotel day and night, resulting in electricity bills that are roughly half those of a conventional hotel and its properties also has a single kitchen which dramatically reduces the carbon footprint. All those savings go straight to the bottom line.
Red Ribbon is the founder of Eco Hotels, the world’s first carbon neutral hotel brand which offers “green hospitality” as part of a progressive roll out across India designed to take advantage of current market opportunities on the subcontinent. The brand meets all key sustainability criteria without compromising on either quality or standards of hospitality and is designed to cater for commercial and recreational travellers alike.
The boom in Indian tourism (both domestically and internationally) is currently playing a huge part in driving forward the subcontinent’s resurgent hotel and hospitality sector, and as the article says eco credentials are playing a bigger part than ever in determining where this burgeoning tide of travellers are deciding to stay. Recent surveys confirm so called “green credentials” are high up on the scale of priorities when they come to make their choice.
And as the article also says, meeting that demand is certainly not just a matter of a last minute rebranding. To deliver properly on green credentials, the hotel has to be built with eco compliance as part of its structure (from the ground up). Only by doing this will cost savings and sustainability criteria properly come together in the future operation of the hotel, delivering the range of benefits described in the article.
I’m proud that Eco Hotels have done just that from the very beginning of the project, and proud too of the part Red Ribbon has played in developing the brand and its ambitions in the succeeding years, spearheading an environmentally friendly response to India’ resurgent tourism demands.
December 10, 2018
KPMG reported last month that Indian Real Estate Sector has now entered a “revitalisation mode”, with aggregate growth projected to reach $ 650 Billion by 2025 and topping $850 Billion by 2028: the average yearly contribution of real estate to the Indian economy will more than double from its current 7% by 2025. And CBRE India are equally optimistic: in their own quarterly report, snappily titled “India Real Estate: Variance in Construction Costs”, they forecast 17 Million new jobs will be added to the sector and an additional 8.2 Billion square feet of space released by 2025. It all resonates well with the ambitions objectives of Prime Minister Modi’s Affordable Housing Programme, with Real Estate now set firmly in growth mode, and growing stronger every year. But there’s a dark shadow in the garden…
Each of these influential reports has highlighted a potential issue relating to construction costs on the subcontinent, capable of acting as a brake on growth and with no less than six major conurbations (Chennai, Pune, Hyderabad, Mumbai and Delhi) causing particular concern. Perhaps predictably, Mumbai tops the list of areas where unit construction costs have spiralled over recent years and show little sign of slowing down despite the broadly stabilizing effect of GST legislation introduced by the Modi Administration which helped smooth out some of the worst supply and pricing differentials across the country.
The average cost of construction for a residential apartment in Mumbai is now Rs 3,125 per square foot, compared to the Rs 2,375 per square foot the same apartment will cost in Hyderabad. At one (macro) level the reason for all this is obvious: an increasingly urbanised population pushing up demand for units in the largest conurbations as part of a gradual drift away from the land, but the disparity in relative costs between conurbations is still striking. Inter market differentials of this kind are likely to be caused primarily to an uneven distribution of construction skills, with highly skilled workers drawn to areas of greater demand so increasing the unit cost of labour in specific areas of the subcontinent. Certainly we might expect other variables such as recent sharp rises in the wholesale price of steel to be more uniformly spread across the country.
In short, construction is becoming progressively more expensive in the very areas where more housing and commercial units are likely to be needed most…and that’s a real dilemma.
One answer is to make greater use of just in time delivery systems which are capable of dramatically reducing overall construction schedules: simple maths tells us that if an expensive worker is on site for a quarter of the normal building phase, costs will come down no matter how prohibitive the daily rate. And of course we have now grown used to the significance of just in time methodologies because of the prominence the issue has assumed as part of the current Brexit debate. Just as any significant inhibition on frictionless trade has potential to throw the UK economy into chaos after Brexit, so too the same frictionless technologies can help address systemic cost differentials across the Indian construction sector as well.
Modular Construction prefabricates all of the essential components of the building off site, everything from exterior walls, ventilation systems and internal wiring networks with the parts then arriving on location only when they’re needed: meaning field workers aren’t left waiting around (expensively) for the next phase of the project to get underway. Research has shown that through a combination of just in time delivery techniques and modular technology, otherwise complex units such as student accommodation blocks or hospitals can be erected on site in days rather than the months and sometimes years of conventional technologies. And an added advantage is that Modular Technology also reduces the potential for human error and snagging in the final building which can also be a major but hidden expense on any project.
Modulex Construction is the World’s largest and India’s first Steel Modular Building Company, setting out to meet the challenges posed by India’s urban housing shortages in a practical and dynamic manner. The company is at the heart of a project established by Red Ribbon to harness the potential of India’s markets and delivering opportunities for investors. Because, when it comes to investing on the subcontinent, nobody knows India and its markets better than Red Ribbon.
Prime Minister Modi has successfully appealed to the youthful and increasingly urbanised population that is currently driving India’s economic growth, not least through his Government’s re-energised Affordable Housing Programme the scale and scope of which has at times been breathtaking. So it should come as no surprise to learn that such an increasingly mobile population is also creating real estate hot spots (and cost differentials) through being attracted to a number of specific locations: by definition, a mobile population is difficult to keep still.
So as it seems to me the resulting cost differentials in construction across the subcontinent are likely to be a fact of life for some years to come yet. But that’s certainly not to diminish the problem, and cost disparities are a problem in India’s most expensive real estate markets, Mumbai in particular. They have real potential to distort the market.
In delivering a workable solution to that challenge most expert commentators now agree that Modular Construction is simply inescapable. No other technology offers the pace and scale of delivery needed to meet India’s housing needs and, as the article points out, it is the perfect corollary for just in time delivery systems. That’s why Red Ribbon was committed to Modulex Construction from the very beginning of the project and we remain committed to it today. I’m convinced it is not only a vital element in meeting market challenges but will also deliver on the unprecedented opportunities currently presented by the subcontinent’s burgeoning economy.
December 10, 2018
Most Indians work in agriculture but next comes construction, and according to the latest Economic Survey the subcontinent’s real estate and construction sector is likely to create more than 15 Million jobs over the next five years, that’s three million every year. To put that in perspective less than 3 Million people are currently employed in the entire UK construction industry. And of the 52 Million building workers employed by Indian companies, 90% are involved in on-site construction with the other 10% busily painting, plumbing and wiring the finished product. It’s fair to say all these painters, plumbers and electricians are skilled workers…but not so the other 90%.
Because the vast majority of India’s construction workers are either minimally skilled or have no skills at all: an astonishing 97% of them aged between 15 and 65 will receive no formal training of any kind before starting work on site and, plumbers and painters aside, most of the skilled workers won’t be getting any cement dust on their boots because they’re probably office based clerks, technicians and engineers. And that’s a real problem…
It’s a problem, because coming the other way down India’s infrastructure and logistics superhighway is an unprecedented surge in demand for urban housing, fuelled by an increasingly urbanised population projected to become the biggest on the planet by 2022. India’s National Skill Development Council predicts that by then the real estate and construction sector will require a workforce of more than 66 Million, so without any obvious core of skilled workers currently able to sustain anything like growth it’s no wonder the sector is starting to show signs of stress.
Of course all this was supposed to be addressed by 2016’s Real Estate (Regulation and Development) Act which was intended to act as a platform for local, State driven planning capable of creating an appropriate environment for improved training and regulatory structures, but so far six States out of 29 have failed to produce any plans at all under the legislation which means finding workers with the right skills in the right place will continue to be a source of real concern.
Billionaire developer Niranjan Hiranandani, head of Hiranandani Construction, has a simple enough solution: just pay unskilled workers less and reap the savings while you can. But that’s not a particularly attractive solution for anyone buying one of his apartments 76 floors up in the Mumbai skyline where quality assurance is far from being a dispensable extra. The behemoth that is Hindustan Construction Company perhaps takes a slightly more realistic approach, going on record last week to say that skills shortages have become a huge problem for the sector: 50% of its workforce needs advanced training just to use the complex machinery now prevalent on most modern building sites. With a heavy tone of understatement a spokesman for the company announced grandly that given these skilled workers are not available, “the only option is to train them”.
Well, it’s not quite the only option…
With no actual shortage of workers seeking employment in India’s urban conurbations, particularly in the light of a seemingly inexorable drift of former agricultural workers from country to town, what if the physical construction process itself could be de-skilled? Why not make a virtue of necessity and draw on this pool of former agricultural labourers to release the margins of between 20% to 70% that Deloitte India predict would follow from a wholesale deskilling initiative? These savings would go straight to the bottom line without endangering the quality and safety of the finished building. Skilled construction workers earn Rs 1,000 a day as opposed to their unskilled counterparts who earn an average of Rs 200.
And there is just such a business model on the market right now, a model with the potential to uncouple construction projects from a seemingly insoluble skills conundrum: it’s called Modular Construction.
Modern Modular technologies allow all of the building’s key components to be put together off site by specialist workers and then assembled locally at the same time as the site works are completed, not only reducing overall completion schedules by as much as 50% but also significantly reducing the need for skilled workers in the construction phase. All of the design and engineering disciplines are instead concentrated at the offsite manufacturing facility leading to labour, financing and supervision costs. Which will all be music to Mr Hiranandani’s ears…
Modulex Construction is the World’s largest and India’s first Steel Modular Construction Company, meeting the challenges of the subcontinent’s current urban housing shortages in a practical and focused manner. The company was founded by Red Ribbon as part of an innovative project to harness the potential of India’s dynamic and evolving real estate markets whilst at the same time delivering opportunities for investors through Red Ribbon platform. Because, when it comes to investing on the subcontinent, nobody knows India’s markets better than Red Ribbon.
Delivering on India’s stringent housing targets over the next five years presents an enormous challenge for the subcontinent, and that challenge is likely to get more testing still given the underlying demographics of a rapidly increasing and ever more urbanised population. Existing skills shortages within the construction sector have the potential to be a crucial block to meeting these targets, especially given the scale and scope of the training programmes necessary to release a further 3 Million workers into the sector every year for the next five years: never mind the attendant costs which are likely to be eye watering on any basis.
That’s why to my mind the answer has to be Modular Construction. No conventional technologies can beat it for sheer pace of delivery and, with a centralising of skilled labour in the offsite manufacturing facility, it will beat conventional construction methods hands down on overall profitability too.
December 10, 2018
Arun Jaitley is having a crypto kind of year. First he popped up with dramatic effect in this year’s Union Budget Debate, sending the price of Bitcoin spiralling worldwide, and the Finance Minister had barely sat down at this week’s meeting of the Financial Stability and Development Council when the “B” word came up again. Sir Humphrey Appleby (of “Yes Minister” fame) would surely have been proud of the gloriously opaque press release issued after the meeting: “The Council has deliberated on the issues and challenges of crypto assets and currency and was briefed about the deliberations in the high-level committee chaired by the Secretary of Economic Affairs to devise an appropriate legal framework to ban use of private crypto currencies in India”. That rarest of political beasts: a limp statement with a punch.
But what does it actually mean, and what does it mean in particular for the future of e-retailing in India?
The subcontinent’s lawyers are already enjoying a feeding frenzy on crypto currency regulation (more of that in a moment), so this type of woolly language is unlikely to stifle further legal challenges. What, for example, does “use” mean? Will it be acceptable to hold a crypto currency if you don’t actually use it? Will it be like having a gun under the bed with a vague intention of using it to shoot ducks out of season, or more like having a gun in a holdall on your way to rob a bank? Nobody knows.
What we do know for certain though is that India’s financial sector is unlikely to be comfortable with this level ambiguity in such a key policy area where, like their counterparts worldwide, the subcontinent’s banks have for some time been edging closer to accepting (and investing heavily in) a Blockchain based e-retail market, and crypto currencies are an integral part of the Blockchain platform. That’s why Bank of America’s Kash Rangan stated last month that Blockchain technologies will eventually be embedded into every software platform globally; and its why IBM and Microsoft already have Blockchain offerings on the market, and why in India the likes of Apurva Enterprises (a building supplies company lets remind ourselves) is following their lead and investing heavily in its Tradescrypt affiliate.
And its also why the Reserve Bank of India (along with everyone else) has been expecting the subcontinent’s Crypto Currencies Panel (“CCP”) to come up with a workable regulatory regime for the sector by its (self imposed) deadline of July this year. That’s why in February the Reserve Bank restricted future crypto dealings engagements in the firm belief that the CCP would have done something by the beginning of August. In fact it has done nothing and this bewildering inactivity seems to the real behind this week’s consignment of crypto fudge from the Financial Stability and Development Council.
But don’t bet against the fudge melting away as quickly as a Chequers Brexit.
First of all, the simple fact is that Blockchain and Crypto Currencies now have too much potential simply to be ignored which is the reason why IBM and Microsoft have been investing so heavily in the technology, and India alone has more than 6 Million crypto currency users: all of them ready and willing to deal with more or less whatever platforms these behemoths have to offer. The market is simply way bigger than any quick political fix (whatever its flavour), and as Milton Friedman so ineloquently put it: you can’t buck the market.
Secondly, the very public failure of the CCP to come to a conclusion by July rapidly caught the attention of all those voracious lawyers (acting for Indian Crypto Exchanges), and they’ve brought an action before the Supreme Court asking for an order that the Reserve Bank of India should “clarify its position”. The Court ordered last week that the Minister should file an affidavit doing just that by the end of next week. This is most likely the real reason behind the statement issued from New Delhi.
The deliberate vagueness of the statement’ language seems not so much intended to be market resilient as to buy the Government more time to arrive at a final position before going back to Court. Not only that, the more astute observer may already have spotted that the Securities and Exchange Board of India has now dispatched delegates to Japan, Switzerland and the United Kingdom to study and make recommendations on regulatory structures relating to cryptocurrency trading. Why do that if crypto currency trading is never going to happen?
And finally, just take a look at the sheer scale of e-retail markets on the subcontinent: projected to have more than 50 Million trading participants by the end of 2018 and with sales in the two weeks running up to Diwali alone running at over $2.3 Billion. Between them Amazon and Flipkart have spent £54.01 Million on Diwali related promotions, Amazon has invested $79.8 Million this quarter in its digital payment arm and Flipkart invested $65.8 Million in its own payments wing (PhonePe). Amazon has also sold well over 1 Million mobile devices in India in the last six months, not just to the urban middle class but in rural and semi rural areas as well, helping fuel the rise of an entirely new electronic economy on an entirely new scale. As Milton Friedman would probably say, that’s an awful big market to buck.
It might just be unbuckable…
Nobody understands this market potential quite like Red Ribbon, which has placed India at the heart of its investment strategies since the company was founded more than a decade ago. Drawing on a pool of established expertise on Indian market conditions, Red Ribbon Asset Management offers a unique opportunity to share in that potential.
Whatever the virtues or otherwise of Bitcoin, and everyone has their own views, the role crypto currencies will have to play in the development of future Blockchain technologies is something regulators simply cannot ignore. And that applies particularly to India, where the opportunities offered by its rapidly expanding e-retail markets are likely to be exponentially greater than in most other economies worldwide. Together Blockchain and e-retail combined are a formidable agent for growth.
So I have no doubt that Blockchain technologies will ultimately change the way we all do business: it’s a question of ‘when’ and not ‘if’. And on that point I agree with Kash Rangan of Bank of America, at some stage these technologies will become embedded in every software platform so India is now in an almost unique position to take a lead in its global regulation. I will be looking with interest to see what happens next…
December 10, 2018
Currently locked in a peculiar species of death roll with her backbenchers, Theresa May still (to her credit) seems intent on securing an orderly exit from the EU by 2020, but most economic commentators are forecasting a long term decline in UK GDP however “soft” the exit terms might be. Price Waterhouse for one are predicting that within a decade of exit, by 2030 the United Kingdom will have fallen to tenth place in Global GDP, behind Mexico and Indonesia and a whisker ahead of Turkey and France (which has a certain irony in the circumstances). And the same survey predicts that by 2030 India will have risen to third place in the global league, treading hard on the heels of China and the United States in first and second place respectively. But unlike the former mother country there is no suggestion that the subcontinent’s remorseless ambition for growth will lose any of its momentum over the course of the next half century.
China had better watch out…
The subcontinent’s economic ambition has been powered by a combination of progressive (some might say revolutionary) economic policies on the part of Prime Minister Modi’s Government (think demonetisation), coupled with a burgeoning and increasingly middle class population fuelling an unprecedented surge in consumer demand. But in a subtle and complex take on that dynamic, McKinsey this month published a fascinating report concluding that India’s explosive growth has just as much to do with interlocking trends in agriculture, urbanisation and mobility.
Take the first element in that triumvirate: agriculture. For decades now (at least the last thirty years), India has pursued an aggressive policy of agricultural self-sufficiency which has not only made the farming lobby one of the most powerful political forces in the country but has also delivered growth rates in the sector that are the envy of most of its near neighbours (indeed, the envy of most farmers anywhere in the world). But despite this, as McKinsey also point out, Indian agriculture still faces a spectrum of uniquely local challenges: severe water shortages alternating with devastating monsoons, combined with often antiquated supply structures and what McKinsey quaintly call a “limited exposure to high productivity practices”: in other words, a lack of investment in the latest farming technology.
That’s where the subtlety comes in…The Indian Government has re-calibrated its agricultural policy to shift the emphasis away from output targets, replacing them with a system of local subsidies designed to buttress farmers’ income (a policy that roused the never less than exuberant President Trump to bring proceedings against India again before the WTO). It was a smart shift in direction too because the new policy will almost certainly double agricultural wage rates by 2022 and, in a characteristically Keynesian frame of mind, the Modi Government are betting that with more money in their pockets India’s farmers will now start investing more in new technology. It can’t do much to stop monsoons but it can, as McKinsey would no doubt put it, “increase exposure to high productivity practices”.
That same factor feeds into the second limb of McKinsey’s triumvirate: urbanisation. More than 200 Million of India’s rural population are expected to move into its urban conurbations over the next 15 years and for those with the instinct to move rather than invest locally, improved agricultural subsidies are giving them a store of money to do it with. And, the Modi Administration is playing to its strengths on this too with a new Smart Cities Mission designed to meet the additional, affordable housing required to cope with resulting surges in demand, reducing urban pollution levels and increasing resource productivity and economic development through enhanced infrastructure programmes. You don’t need to look any further to find the real roots of India’s economic miracle.
And what about mobility: the third element of the McKinsey triumvirate? Well, that’s coming along nicely too with India now expected to become the world’s third largest passenger vehicle market by 2021. It’s not just that the subcontinent offers the same, parallel opportunities and challenges as other western and developing markets, it is offering them with a turbo charger attached. Many of those 200 Million people who are moving from village to town over the next 15 years will want (and get) a car, paying for it with the increased wages earned from working on all those new infrastructure projects; and their family and friends who stayed in the country and invested in new agricultural technology will probably want (and get) a new car too. You need to keep up with your cousins in town!
That, in essence, is what we mean by an interlocking economic structure, and it’s here that we can find the real roots of India’s explosive growth. Just wait to see what happens next…
Nobody understands that potential for growth better than Red Ribbon Asset Management, which has placed India at the very heart of its investment strategies since the company was founded more than a decade ago. With an unrivalled knowledge of market conditions on the subcontinent, Red Ribbon offers a unique opportunity to share in that vast potential.
At Red Ribbon we are very proud to have been playing our own part in India’s economic resurgence over the last decade, investing in just the kind of projects that are at the heart of the interlocking triangle of growth mentioned in the article: everything from the modular construction technologies now being developed by Modulex so as to deliver affordable housing at the pace demanded by the subcontinent’s urban expansion, through to innovative sustainable energy infrastructure investment. And to see India now firmly established at its place on the economic top table, uniquely well placed to move further forward still is, of course, a particular source of pride for us.
We look forward to continuing to play our part in India’s future, participating to the utmost in the opportunities the subcontinent’s explosive growth has to offer and at the same time providing above market rate returns from our investors in what I am convinced will continue to be one of the world’s most exciting markets for many years to come.
December 03, 2018
Affordable Housing for India: A Perfect Storm of Opportunity
Mumbai’s skyline has, of course, been transformed beyond recognition over recent years, but its glass pinnacles are well beyond the reach of all but its wealthiest residents. So you need to look closer to the earth to find the true driver behind the subcontinent’s resurgent real estate sector.
India’s increasingly youthful population is moving out of the countryside at an increasing rate in search of better work, pay and living conditions and this is precisely the demographic the Affordable Housing Policy is designed to appeal to, because the dream of having a home (or a flat) of one’s own resonates like nothing else with this new wave of discriminating voters on the subcontinent…and nobody knows that better than Narendra Modi. His Government has aggressively pursued legacy policies on housing with the introduction of a raft of new tax incentives over the course of the last two Union Budgets, including giving infrastructure status to qualifying affordable housing, offering developers increased tax concessions and providing buyers with a range of fiscal incentives including subsidised interest payments.
And it’s not just voters who are being energised: investors are responding positively too in increasingly ingenious ways. For example, because banks in India aren’t allowed to finance land acquisitions the Private Equity Fund KKR has moved into the sector to offer development funding directly to contractors, taking an equity stake in the completed project. In what might be taken by some as a statement of the obvious, Sanjay Nayar of KKR India pointed out that “with the right project and partners, there’s good money to be made”.
There is indeed Mr Nayar.
Chris Wood of Citic Securities perhaps put it a little more eloquently: “Affordable housing in India remains one of the most straightforward bull stories in Asian equities. There will be an acceleration in economic activity in India in the coming 18 months driven by housing.”
But there is, of course, at least one (more or less hidden) difficulty with all of that. Given such a voracious and burgeoning consumer appetite coupled with capital market ambition and expansionist government policies, where are all these new homes going to come from? As we have noted previously on this site, stoking up such high levels of demand means India is now committed to building 856 new homes every hour between until 2050. Traditional construction technologies simply aren’t up to that kind of challenge, which is why commentators (including KPMG India’s Director of Real Estate Neeraj Bansal) have pinpointed Modular Construction as the single most important innovator in the sector.
By prefabricating units at scale and off site, Modular Construction is capable of delivering affordable housing on the required scale and at a reasonable cost: three times quicker and half as expensive as traditional construction methods. It is perfectly positioned to meet the demands and opportunities being created by this perfect storm in India’s real estate markets.
As Mr Nayer would probably say over at KKR: “there’s good money to be made”.
Modulex Construction is the World’s largest and India’s first Steel Modular Building Company, working to meet the Challenge of India’s urban housing shortages in a practical and focused manner. It was established by Red Ribbon to harness the potential of India’s dynamic and fast evolving markets, delivering exciting opportunities for investors. Because, when it comes to investing on the subcontinent, nobody knows India and its markets better than Red Ribbon.
Modulex Modular Buildings Plc is the World’s largest and India’s first Steel Modular Building Company, working to meet the Challenge of India’s urban housing shortages in a practical and focussed manner. It was established by Red Ribbon to harness the full potential of India’s dynamic and fast evolving markets, delivering exciting opportunities for investors because, when it comes to investing on the subcontinent, nobody knows its markets better than Red Ribbon.
For me, the key determinant of exponential growth in India’s real estate sector over recent years is the combination of an unprecedented growth in the subcontinent’s population and a rapid trend for its urbanisation: largely, as the article rightly points out, a product of this rapidly expanding population becoming progressively more youthful and more affluent. In time honoured fashion, India’s younger demographic is streaming from village to city with money in its pocket (in the hope of making more).
This is the demographic that Prime Minister Modi has so successfully appealed to through his Government’s re-energised Affordable Housing Programme: the other key factor driving growth in the sector. As with some of his other radical initiatives, the scale and scope of the programme has at times been breathtaking, but in truth it has to be to meet the sheer scale of the challenge.
And when it comes to delivering a workable solution to that challenge it seems to me, as most expert commentators now recognise, that the attraction of Modular Construction is simply inescapable. No other technology offers the pace and scale of delivery needed to meet India’s housing needs. That’s why Red Ribbon was committed to Modulex Construction from the very beginning of the project and we remain committed to it today. I’m convinced it is a vital element in meeting the challenges as well as making the most of the opportunities currently being presented by the subcontinent’s markets.
But none of that should beguile us from forgetting the sheer scale of the housing challenge India currently faces, in common with other leading global economies. Traditional construction technology simply can’t deliver to the scale and pace required by projected demand on existing governmental programmes. No wonder then than Modular Construction is a policy priority for Prime Minister Modi’s Government. It’s only a question of time before others follow suit…
October 08, 2018
Jawaharlal Nehru famously championed “hospitality with responsibility” and riding high as it is on the crest of an unprecedented surge in tourism, India is holding hard to the father of the nation’s message. Not least because public awareness of environmental imperatives has never been higher on the subcontinent, leading Prime Minister Modi’s Government to respond (characteristically) with a programme of market driven “green hospitality” initiatives that embrace everything from streamlined Visa procedures through to water sustainability programmes and everything in between. The result is a striking pattern of explosive growth in India’s important mid market sector where the bulk of those initiatives are currently taking root.
And it’s not all about the environment either, with most analysts also pointing to the importance green hospitality is having on financial performance as well, and not just on the bottom line either where reduced energy costs and leaner waste targets have an obvious potential to cut operating costs. Environmentally friendly policies also have an almost unique potential to attract the new generation of business and social travellers who are placing sustainability at the top of their checklists, with even the hardest nosed business travellers supporting the trend: Deloitte’s, scion of the pinstriped traveller, has published polling results taken from 1,000 businessmen and women, no less than 95% of whom wanted more green initiatives with 38% admitting to checking whether their chosen hotel was sufficiently green before deciding to book.
Put it another way, in less desiccated language not favoured by Deloitte, Eco Hospitality has now become an essential part of Mid Market’s success story on the subcontinent… and there’s no sign of it losing any of that importance any time soon.
Just look at Lemon Tree Hotels and Eco Hotels both of which are blazing a trail in making the most of the opportunities India’s mid market hospitality sector has to offer, each of them pursuing ambitious expansion programmes and delivering above market rate returns for investors.
Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, which has “green hospitality” built into its genetic structure. The company has embarked on an ambitious programme to roll out a chain of new facilities across the subcontinent, designed to take full advantage of market opportunities currently available in India’s mid market segment. The brand offers sustainable living without compromising on quality and will cater for commercial and recreational travellers alike.
India has become something of a crucible to test out trends in the hospitality sector. As most of us will have observed over recent years “green tourism” and “green hospitality” have become increasingly dominant in determining the choice of hotel for business and recreational travellers alike: part of a global environmental trend that seems, ironically, to have picked up pace even more following Donald Trump’s withdrawal of the United States from the Paris Climate accords.
But what makes India different from other bellwether economies worldwide is the sheer pace of the change that is currently taking place on the subcontinent. Number of travellers choosing to travel to and across India has reached an all time high, carriers are reporting exceptional volumes and occupancy rates and the mid sector is picking up a larger percentage of these travellers than ever before. I’m sure that will all in lead to an acceleration of the rate at which the trend for “green tourism” evolves in India as opposed to other markets across the world, meaning we can expect to see green tourism’s importance on the subcontinent before anywhere else.
As the article also points out, Eco Hospitality is an essential part of this trend so I’m very much looking forward to seeing how things develop, especially with Red Ribbon’s Eco Hotel project playing such an important part in the market.
September 14, 2018
This year’s Sustainable Travel Report has reinforced the continuing momentum of Eco Hospitality in India: 84% of business and recreational travellers now confirm a preference for sustainable destinations, and as the saying goes, “sustainability starts where you stay”. Two thirds of travellers are willing to spend 5% more on accommodation if it meets sustainable criteria, meaning everything from water and energy consumption through to macro environmental management systems. But to get a real feel for the importance of those findings, you have to place them side by side with tourist and business statistics on the subcontinent and, in particular, for the first half of this year. It helps explain why India is currently experiencing an Eco Phenomenon.
The subcontinent will be the fourth biggest tourist economy in the world within the next four years, bigger than Italy, the United Kingdom and Australia put together and a major factor in this explosive growth is internal demand. In May alone airlines in India reported a 16.6% growth in passenger numbers, carrying 11.9 million customers with 80% occupancy (Spicejet reported an astonishing 94.8% occupancy rate). And with tourist numbers on the subcontinent riding at such an all time high with 84% of tourists preferring sustainable destinations (they have to stay somewhere when they arrive), even the most rudimentary of economists could spot an emerging trend.
Certainly Lemon Tree Hotels and Eco Hotels haven’t been slow to pick it up: both companies are currently spearheading key innovations in India’s hugely significant mid market hotel segment, with eco hospitality at the heart of each of their business models.
No surprise then that JP Morgan reported Lemon Tree in June to be delivering better than average cost control and execution ratings as well as higher return rates on room occupancy. Better Eco credentials aren’t just a honey pot for prospective travellers, they make sound business sense too with reduced commodity use (and costs) delivering straight to the bottom line. JP Morgan have also pinpointed enhanced operating leverage as a driver for future growth for at least the next three years, which is likely to deliver improved capacity for better pricing and capacity structures.
Lemon Tree and Eco Hotels continue to roll out new hotel units across the subcontinent, with the former last month investing another Rs 850 Crore into its aggressive expansion programme. Interestingly enough, Lemon Tree’s President Vikramlit Singh has also again highlighted a continuing mismatch between demand for hotel rooms and availability as a likely source of future profitability, so there’s no sign of those capital programmes losing their momentum anytime soon.
Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, offering “green hospitality” as part of a progressive roll out across India, designed to take full advantage of market opportunities available on the subcontinent at the moment. The brand offers sustainable living without compromising on quality and will cater for commercial and recreational travellers alike.
Market changes rarely come about in isolation, with one revolutionary event: the iPhone would have been an expensive mirror without something to plug it into. And the same goes for economic trends generally where we should look for the confluence of a number of key factors before drawing any conclusions. That certainly applies to the Indian Eco Hospitality sector where a huge uptick in business and recreational travel on the subcontinent has coincided with a surge in demand for sustainable destinations. With mid market hotels already roaring ahead, added eco credentials are giving the platform a turbo charger.
And I would add a third factor too. As may not be generally known the whole, vast expanse of the subcontinent currently has less hotel rooms that the island of Manhattan alone. So the point mentioned at the end of the article also has considerable importance to my mind: demand for hotel rooms is in any event seriously outstripping supply and that is bound to make for a more profitable outlook. A turbo charge for the turbo charger perhaps?
September 14, 2018
What exactly do we mean by Eco Hospitality? McDonalds has its own unique take on things, announcing plans to serve rice at tourist resorts on the subcontinent: rice with extruded cheese or spicy packet sauce. Take your pick. And PepsiCo India has a global sustainability agenda as well, planning to reduce the size of its Lays and Kurkure snacks in a valiant effort to “limit the company’s global footprint”. No sign yet of any plans to reduce the price of the smaller bags though. But beneath these slightly risible gestures there is a serious point. We have all witnessed the cruel after effects of the recent monsoons in Kerala, which have displaced hundreds of thousands and claimed the lives of hundreds more. And global warming is widely identified as a key factor behind the unusually heavy rainfalls.
So its welcome news that with or without extruded cheese on our rice and smaller bags of crisps, the subcontinent is already working at the forefront of global climate change policies, especially since the United States withdrew from the Paris Climate Accords last year, and India certainly knows what Eco Hospitality means because Eco Tourism is now an integral part of its economy.
Take one small example: operating at the epicentre of this month’s flooding in Kerala, the Tourism Department announced an initiative last month which will literally light up tourist spots by installing solar powered street units, including along the entire length of the beautiful Kovalam Beach where LED lighting systems link the seashore to local thoroughfares. The solar units are also hooked up to the Internet through a mobile app that will monitor power usage and report in if units are damaged or tampered with. It all costs Rs 31 Lakh but will save the State much more in electricity costs and, much more importantly, will help preserve the State’s precious environment for the future. There are also plans to extend the project to Varkala and Akkulam.
It might seem slight and insignificant given the scale of the recent disaster, but when Kerala recovers (as it will), it is one step further forward towards addressing the environmental issues that contributed to last week’s events. And on any basis it’s a lot better than extruded cheese and a bag of crisps.
Another good example of an Indian business looking to work in harmony with its environment is Lemon Tree Hotels where every hotel in its chain on the subcontinent will now adopt a stray dog from the local area and give it a home in the lobby. As history tells us, small steps can make a difference if we take them together. And as Eco Hotels has also demonstrated with its innovative “green hospitality” brand, the concept doesn’t just make environmental sense: it makes good commercial sense too, with lower operating and capital costs factoring into a leaner business model. Lemon Tree’s shares jumped 2% in a single day on 17th August, so the model is obviously working.
Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, offering “green hospitality” as part of a progressive roll out across India which is designed to build and expand on economies provided by the platform in conjunction with explosive growth in the Indian tourism sector (and mid market hotels in particular). The brand offers sustainable living without compromising on standards of hospitality and will cater for commercial and recreational travelers alike.
I think we were all shocked to witness the scale of the devastation that has unfolded in Kerala this month, and our best wishes and sympathies go out to all of those who have been so severely affected. But it is right too that we try to understand the reasons behind this, the worst monsoon flooding in India for more than a hundred years and its difficult to resist expert suggestions that global warming and avoidable harm to the environment could well be a major cause. So it is obviously important that we should try to do something about those long-term trends as well.
I am proud that India is working at the cutting edge of climate change policies across the globe and, in however small a way, those policies will I am sure help to make Kerala a safer and more secure, even more beautiful place to live in the future. Eco hospitality is a vital part of that equation for an area which is so heavily dependant on international and domestic tourism. As the article says, small steps taken together can change the world.
August 16, 2018
How do you spot a Private Equity Investor at the Opera? He’s the one scouring the lobby for the best exit.
You’ve probably heard that one before. Its an old joke but still speaks to a fundamental truth about all private equity strategies: whilst looking resolutely to the long term (often more than ten years ahead), as soon as the initial investment is made Private Equity Investors will also be searching for the best exit strategy, and in today’s markets that usually means an IPO or a Merger. So next time you’re welling up with emotion at Turendot, keep an eye out for anyone scribbling one or other of those magic words in their programme: they’ll probably be managing a Private Equity Fund.
And given India is now the best performing Private Equity market in the world, it should come as no surprise to learn that the subcontinent is also at the cutting edge of the latest and most innovative of these long term exit strategies.
Take, for example, the Platform Acquisition model: not in itself a novelty, but now being given a fresh lease of life in India. In its new guise the strategy focuses on selected market quadrants and brings them together to create synergies for a targeted return as opposed to more traditional growth through capital infusions into the platform company itself. Think Indian IT and the subcontinent’s burgeoning consumer market, then think Flipkart and you’ll get the idea. Its an intelligent version of the old fashioned roll up strategy where multiple small companies in the same or complementary sectors are acquired or merged prior to being rolled up for exit, and in its new format it has made Private Equity a real force for consolidation and growth within the Indian economy.
Warburg, Pincus and KKR have all launched Platform Acquisition models for projects on the subcontinent, with chosen sectors including business services, media, hotels and hospitality all of which are, of course, already high growth areas. Mid market hospitality in particular is going through something of a renaissance at the moment with this year’s IPO of Lemon Tree Hotels being oversubscribed by a factor of 1.19 and Eco Hotels continuing to make strong inroads into the environmentally friendly segment. Everstone has a Food Services Platform following its acquisition of Modern Foods through which it has subsequently gobbled up Cookie Man; and Goldman Sachs, never slow to spot a trend, has a new Business Services Platform on the subcontinent, appropriately named First Meridian and focusing on HR and staffing companies for later roll up. Sutra HR had better be watching their backs…
Head of M&A at EY India, Ajay Aroa sums it all up nicely: “ The platform acquisitions and their roll ups have made private equity investors the main consolidation force in a number of India’s high growth sectors, standing to benefit equally from growth as well as multiple arbitrage”.
That last point is also interesting (and incontrovertibly right): smaller aggregated acquisitions, characteristic of those completed through a Platform Acquisition model, are very often delivered at a comparatively low exit multiple, giving the platform owner an enhanced arbitrage opportunity. Bearing in mind Blackstone’s private equity investments in India have delivered annualised returns of 30% since 2011, PE Platform Investors will usually lift the aggregate multiple by leverage or arbitrage (or both) in order to compete… and at the moment they’re competing very well indeed.
Red Ribbon Asset Management has placed India at the heart of its investment strategies since the company was founded more than a decade ago, and nobody understands the subcontinent’s potential for growth better than Red Ribbon. Benefiting from an unrivalled knowledge of local conditions and more than a hundred local advisers reporting from some of India’s fastest growing markets, the Red Ribbon Private Equity Fund offers a unique opportunity to share in that potential.
As any Private Equity investor will tell you, nothing is more important than having a clear and deliverable exit strategy, set out in detail at the earliest opportunity. Especially so as most funds will look to lock their investors in for an extended period, often for as long as ten years so that investors need to have a clear understanding from the outset of just how they will exit the fund to secure an optimal return on their investment. That used to be an issue in India where traditional family run companies were resistant to exit by private sale, but the subcontinent’s modern markets have now made the task a lot easier through the increased efficiency of IPO and M&A mechanisms: now, as the article points out, the two most favoured modes of exit for Indian companies.
I’m not surprised, either, to hear of the innovations currently taking place in the subcontinent’s private equity sector. After all India is the fastest growing Private Equity market in the world and it would be surprising if it should prove resistant to the innovative policies being rolled out elsewhere in the economy. You only need to look at the participants involved (KKR, Goldman Sachs and Blackstone) to get a feel for the underlying strength of the sector.
And of course I’m proud too that the Red Ribbon Private Equity Fund is part of this process. We will always be looking for the most exciting opportunities India’s markets have to offer, using the most innovative strategies available so as to deliver the best above market rate returns for our investors.