This Rs 1,382 Cr turnover firm is developing grade A+ office spaces in Noida, aims to grow despite pandemic

Over three decades, entrepreneur Analjit Singh built his venture Max India into a $3 billion conglomerate, with ventures in healthcare, insurance, and manufacturing packaging films.

In 2016, a demerger from Max India resulted in the formation of Max Ventures and Industries (MaxVIL). Following this, the group retained its packaging films manufacturing business, Max Speciality Films, its only subsidiary business.

Sahil Vachani, CEO and Managing Director, MaxVIL, says, “I joined the Max Group in 2016 with a focus on creating a powerful real estate brand – Max Estates Limited, and steering MaxVIL’s other businesses towards growth. Since then, our focus has been to create a trusted real estate brand in Delhi-NCR.”

MaxVIL entered the real estate market with a strong belief that the sector will offer plenty of growth opportunities. Within real estate, its focus has been on developing grade A+ commercial office spaces.

Today, MaxVIL’s turnover stands at Rs 1,382 crore, and it has an employee strength of over 470.

Despite the COVID-19 pandemic, Sahil is optimistic that MaxVIL’s niche business model focussed on Noida can take it to greater heights.

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In an exclusive interview with SMBStory, Sahil narrates the company’s history and explains why the COVID-19 pandemic may result in a bright future for MaxVIL.

Edited excerpts from the interview:

SMBStory [SMBS]: What was the 'aha' or 'ouch' moment that inspired MaxVIL to focus on real estate?

Sahil Vachani [SV]: We had observed there was a severe trust deficit in the Indian real estate sector, and more so in the Delhi-NCR region. This was due to unfinished projects, over-supply and over-leverage by developers, among others.

Further, while the residential part of real estate had been in deep trouble, commercial real estate was quite well placed. This was especially true for the Grade A commercial office space market where demand exceeded the supply.

This was a result of the demands from top Indian and multinational companies combined with the employee expectations from their workplaces. They expected their workplaces to enable not just high productivity but also have a lower eco-footprint — be it a hub for bonding with co-workers or having recreation options, allowing them to access the workplace services seamlessly.

The new office buildings being developed by others were creating only some of these features. We felt we were rightly placed to create a strong brand in this gap by leveraging the credibility of our Max brand. As a group, we had experience in real estate activities through building the Max Hospitals, senior living facilities of Antara, and a private side business Vana.

Eventually, we pooled teams and best practices from such past work to create a strong execution team to venture into real estate.

SMBS: A real estate construction business requires significant investment. How did you gather the resources to start?

SV: After the demerger, we did a series of fundraisers to finance our real estate vertical. In 2017, New York Life (NYL) picked up a 23 percent equity stake in MaxVIL, and the promoters also invested some money at that time.

They also brought in a JV partner for the packaging business. Japan-based Toppan Printing Company invested Rs 200 crore to acquire a 49 percent stake in Max Speciality Films.

We followed this with a rights issue of about Rs 450 crore in 2018, where the sponsor group participated and increased their stake from 38 percent to 47 percent. It was encouraging to see NYL’s participation in the rights issue.

Collectively, these fundraisers gave us a growth capital of about Rs 800 crore.

SMBS: What were your initial challenges and how did you solve them?

SV: Considering the speciality films business was already an established entity, our initial challenges were faced in the real estate vertical – Max Estates. The biggest challenge was experienced during the construction of the first flagship commercial project – Max Towers in Noida.

The tower was originally a part of a project called ‘Delhi One,’ whose developer could not deliver the project and went under liquidation. The Max Estates team quickly secured a direct lease from the Noida authorities to take the project forward.

The insolvent project was turned around into a world-class Grade A+ Commercial Project – Max Towers — within a short timeline of 24 months. This challenge provided us with the necessary experience and confidence to take on newer projects, including Max House in Okhla and Max Square, located on the Noida Expressway.

SMBS: Who is the target client base or /audience for your real estate business? How are you leveraging digital platforms to reach them?

SV: We have a reputed tenant profile at Max Towers. Our marquee list of tenants includes a few major coworking spaces, Indian legal firm Khaitan & Co., French water management giant Veolia, Indian power trading company IEX, US-based MNC Emerson, US-based data management company Delphix, Indian wellness company Kama Ayurveda, and more.

In Delhi-NCR, our projects are in and around Noida, which we feel is on the verge of becoming the next commercial hub in the NCR. Noida as a location is now a preferred choice for many companies as it offers high-quality commercial office space experience. It is minutes away from Delhi and is available at relatively competitive and attractive rentals.

Hence, there is a strong business case for companies to relocate to Noida from Delhi. So we target top companies which are currently occupying leased offices at expensive locations in Delhi and Gurugram, and of course, anyone who wishes to set up their first offices in the Delhi-NCR region.

We have a clear-cut digital strategy to reach out to our prospective clients. We run campaigns on all digital mediums and through social media, websites, and Google AdWords.

In fact, we have also created guided and interactive virtual video tours of our office space for anyone who wants to have a near-to-real experience of the office space from remote locations.

SMBS: What were some tough moments you faced? Has COVID-19 become a difficult challenge to address?

SV: Before COVID-19, one of the tough moments we faced was at our packaging films vertical which was severely impacted during FY19. The business was affected on multiple fronts due to rising raw material prices and over-capacity in the industry, leading to lower realisations.

But starting FY20, raw material prices cooled down, demand offtake improved, supply addition stabilised, and as a result, realisation for the products increased. The business has become profitable again.

Now, due to COVID-19, we anticipate a temporary slowdown in commercial real estate leasing activity. The slowdown will be maximum in Q1 and will start easing by Q2 of FY21. This will be counterbalanced by a shrinking supply due to the stalling of work at ongoing projects because of a lack of capital, conviction, or both.

The first generalisation making rounds is that work from home could impact demand for office space. While there are positives about the work from home concept in terms of time optimisation, the unavailability of safe and secured digital infrastructure would take time for this concept to gain momentum.

Further, one factor which may increase demand for office space is the de-densification of office spaces. De-densification will increase the space required per employee in an office on account of adherence to social distancing and following protocols on a safe working environment.

So, we still believe that office culture is here to stay, and expect the demand for office space to remain fairly stable in the long run.

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SMBS: Considering the pandemic, what does the future look like for the business?

SV: There is likely to be a strong preference for office spaces that undertake proper measures to contain the virus spread like screening, sanitation, air filtration, and social distancing, which will be essential for a safe working environment.

The developer managed offices such as ours will be in a much better position to implement these measures in offices versus the strata sold offices.

We also expect that demand for Grade A office space in the Delhi-NCR will be least impacted post-COVID-19 as compared to other major cities in India. This is because supply was already constrained in this region, and would be further curtailed due to overstretched balance sheets of the developers.

Further, cost optimisation by corporates will likely lead to the migration of tenants from expensive, old, and strata sold assets to developer-owned and managed Grade A+ assets within the NCR.

Thus, in the short term, the new leasing in office space may move slowly, but eventually, I expect the leasing activity to increase as the economic activity picks up.

Considering these circumstances, we have not let this crisis go unproductive. Our business development and leasing teams have used the time during the lockdown to get a digital toolkit ready for creating virtual video-based interactive tours, identifying a list of prospective clients, curating innovative office space solutions, and more.

Going forward, the real estate business will be built on an asset-light, partnership basis with the support of international funding to help us scale without creating undue stress on our financials. We aim to create a four to five million square feet, annuity earning Grade A+ commercial real estate portfolio in three to five years. We will also actively look at distressed opportunities in this space.