Netmagic signs a lease in perpetuity with Hiranandani and Balaji JV for INR 321 Crore in Mumbai, biggest in last 2 years

Netmagic has entered into an agreement in March 2017 with Hiranandani Group and Balaji Tele-Developers with total pay-out of INR 321 crores to develop a 2,86,691 sqft IT/ITeS building in Lighthall, Hiranandani Business Park, Chandivali, Mumbai. This transaction is a perpetuity lease at a one-time price of INR 11,198 per sqft with annual lease rent of INR 1.00 per sqft. Presuming 14% discount rate, the deals NPV would be at one-time price of INR 10,850 sqft as the total consideration of Rs 321 crores shall be made to the developers in a staggered manner over the next 13 months. We opine that Netmagic has negotiated a sweet deal primarily for two reasons: 1) they are investing in a building of their choice and specifications and 2) at a lower price as compared to the prevailing market capital values of INR 13,500 – 16,000 per sqft in and around Powai. The prevailing market capital values are derived using prevailing cap rates for fully leased commercial office assets of ~8.5 – 9.0% and current average rental values of INR 100-120 per sqft per month in and around Powai.

Feauted inBusiness Standard

The JV between Hiranandani Group and Balaji Tele-Developers is shared at 62.46% and 37.54% respectively. The proposed built-to-suit (BTS) IT/ITeS building has two basements + ground + six floors with total built up area of 2,86,691 sqft plus 27,571 sqft DG building. Lighthall, Hiranandani Business Park is currently occupied by Huntsman, Netmagic, Abbott, Piramal Enterprises, Bharti Airtel, Equity Packaging and Incredible Technology. The retail space in the complex is still majorly vacant except presence of Dominos and Maruti Suzuki showroom on Ground floor. The proposed BTS building in the complex is promised to be delivered with occupation certificate by April 2018.

In our view, currently, Powai is an under-rented market with average passing rent of INR 95 per sqft per month compared to higher average current market rent of INR 110 sqft per month. This indicates market robustness / strength as current rentals far exceed passing rentals. However, rentals in Powai could face some pressure in the future due to fresh supply of 1.3 million sqft commercial buildings planned by L&T in next 2-3 years.