MAHINDRA WORLD CITY was meant to be a catchy name for a premium 1,500 acre real-estate development 50 km from Chennai. There were no boundary walls, although it was a private property. Cities, its developers thought, should convey a sense of arrival but be unbounded. In the best spirit of fellow-feeling towards the communities around it, its brand managers even dropped the “Island of Excellence” tagline its advertisements carried.

More than a decade later, the legal team at Mumbai-based Rs 1,147 crore Mahindra Lifespace Developers (MLDL) is working overtime to stop competitors from claiming that they are a part of the World City. When the city, a public-private partnership (PPP) with the Tamil Nadu Industrial Development Corporation in which MLDL holds 89% stake, was launched in 2002, the location was considered the back of beyond. But as marquee companies like Infosys, BMW, and TVS Group set up base within the campus, it underwent a facelift, prompting rivals to freeload off the unfenced address.

The irony runs deeper. Real estate consultancy Cushman & Wakefield says that in 2013 alone, as many as 1,100 residential units aimed at low- and mid-income groups were launched in the neighbourhood, offering a case study on how “urban planning can help decongest city centres and lead to balanced regional development”. It’s a compliment to the pull of the Mahindra brand, but for MLDL, it became a liability: With competitors pricing their projects far lower, the company struggled to sell its own apartment blocks.

For Anita Arjundas, MLDL’s managing director and CEO, this was a whole new lesson after over a decade in the business: You can’t afford to be liberal when competition is sneaky. But then, she is no stranger to new lessons. In 2002, when she joined the $16.9 billion (Rs 1.1 lakh crore) Mahindra group’s real-estate business to head marketing for the World City, the industry was a mess. It was considered a hive for corruption, as firms bribed their way through local authorities to get sanctions. Arjundas was a rank outsider, coming after a decade at a confectionery company and two brief stints in software firms around the Y2K era. She couldn’t have chosen a worse time for the switch: Mahindra had almost written off the business as a non-starter, with no client signing up for the five years leading up to her joining. Today, notwithstanding the fiasco over the residential development, the World City is among the few successful multi-product private special export zones (SEZ) in the country, with exports of over Rs 7,800 crore in 2014-15. It hosts 64 companies, collectively employing over 29,000 people. When complete, it will house more than 100,000 people and generate employment for an equal number.

Marquee Projects: MLDL's World City in Chennai was an early example of successful PPP development. The Jaipur projet is pushing the envelope with a "smart city" focus.
Marquee Projects: MLDL's World City in Chennai was an early example of successful PPP development. The Jaipur projet is pushing the envelope with a "smart city" focus.

The infrastructure in the city has attracted global acclaim. Japan’s Ministry of Economy, Trade and Industry, which is a partner in the high-profile Chennai-Bengaluru Industrial Corridor, says Mahindra World City (along with Sri City in Andhra Pradesh) has “infrastructure conditions similar to what Japanese companies envision .... [and is rated] extremely highly as a site for expansion”.

The success opened other doors. In 2006, Rajasthan chief minister Vasundhara Raje extended an invitation to Infosys chairman N.R. Narayana Murthy to set up a software development centre in her state. Murthy said yes, but he wanted someone else to develop the infrastructure. Raje’s team visited the Chennai World City and wanted to know if MLDL could replicate the model in Jaipur. Her government was willing to offer 3,000 acres if MLDL came on board. The company agreed, and in 2007, Mahindra World City Jaipur was launched in partnership with the Rajasthan State Industrial Development and Investment Corporation. In addition to Infosys, a number of handicraft and engineering companies operate out of this campus. Arjundas, who was then chief operating officer of the Chennai project, was made COO of MLDL and tasked with overseeing the Jaipur development too, before being elevated to the top job in 2009.

Arun Nanda, a Mahindra veteran and chairman of MLDL, who recruited Arjundas, says he wanted an outsider because the real estate industry has a reputation for being closed to change. “Whoever came in would have had to fit with our culture, have a strong desire to learn, and lots of patience,” says Nanda. “My gut told me Anita was a learner. She proved to be a quick one at that.”

Note that attributes like risk-taking ability and aggression, staples of leadership literature, are missing from Nanda’s list. Anand Mahindra, Mahindra Group’s chairman and managing director, explains why: “Before Anita took the helm, there had been several CEO transitions, and that instability had prevented the company from developing a strong and original culture,” he says. “Anita brought much-needed stability and developed a culture of quiet professionalism, teamwork, and evolutionary growth. That culture is the reason I am confident of the future.”

To be sure, Arjundas oversees a tiny balance sheet in the giant Mahindra conglomerate. The industry itself isn’t known for innovation or management derring-do, leaving a CEO little room to impress the gallery. And yet, the relevance of Arjundas’s journey is obvious: She is a rare professional entry in the industry’s power list, dominated for decades by family-business satraps.

Real estate is also a notorious laggard when it comes to women—and not just in India. “On the property and ownership side, many of the largest real estate firms are run by family dynasties where the baton typically has passed to the sons,” writes Leigh Gallagher, co-chair of the Fortune Most Powerful Women Summit, about the industry in the U.S. “The homebuilding industry, on the other hand, is a close cousin of the male-dominated construction business. The investment side, too, has historically been run by men,” Gallagher notes. Add to those universal truths the morass in the Indian real-estate sector, with biggies like DLF reeling under billions of dollars in debt, and the odds of failure look overwhelming.

ARJUNDAS ISN’T MAKING IT any easier for herself. While the norm in the industry is to focus on residential and commercial developments—they are much easier to scale and have faster sales cycles—she wants to build more cities. (In India, settlements with population above 100,000 are classified as cities. Both the Chennai and Jaipur developments are projected to make the cut.)

The plan sounds too adventurous, at odds with Arjundas’s style. Building cities is a capital-intensive and time-consuming affair that requires companies to put money on large tracts of land, and hope that they will eventually fill up. The Chennai World City was cooking for over a decade, and in eight years in Jaipur, only 60% of the industrial land has been occupied and the residential part is yet to begin. Anuj Puri, chairman and country head of real estate consulting firm JLL India, says, “In India, developing cities is bound to be slow as land acquisition is still a big barrier. Housing requires smaller land parcels and therefore can be executed much quicker.”

In the ’80s, as a one-off project, Mumbai-based Hiranandani Group developed the lake-side suburb Powai after acquiring the land cheap. More recently, a group of farmers came together and built the Magarpatta City spread over 300 acres in the outskirts of Pune. The city, which was started with seed capital of Rs 2 crore from HDFC, sold over Rs 3,000 crore of real estate in a little over a decade. Then there is Sri City, 55 km north of Chennai, which managed to get cheap land from the Andhra government and has attracted tenants like Foxconn, Cadbury, Pepsi, and Colgate-Palmolive. Puri of JLL India says a few Chinese companies are also eyeing this space. Wanda Group, owned by China’s richest man Wang Jianlin, is reportedly working with the Haryana government to build an industrial township in the state.

Arjundas’s strategy to derisk and give competition the slip: hitching MLDL to Prime Minister Narendra Modi’s smart city bandwagon. Recently, she inked a deal with Japan’s Sumitomo Corporation to develop a 300 acre industrial zone on the Chennai-Bengaluru industrial corridor—one of the 100 sites the government wants to develop into smart cities in the next five years, at an estimated cost of Rs 100,000 crore. She has also zeroed in on two locations in Maharashtra and Gujarat, where she intends to develop industrial zones of similar size. “We want to take the lead in building integrated cities and infrastructure, as the government’s programme takes its own course,” she says.

Here’s the rub: Smart cities may be the future, but they are still extremely nebulous as a concept. The Ministry of Urban Development says there is no single definition, but counts “core infrastructure, a decent quality of life, a clean and sustainable environment, and application of ‘smart’ (read: ICT-based) solutions” among the desirables. It’s a massive canvas, and the ability to inject large funds will be key. Arjundas may have to fend for herself, because Mahindra is known to be conservative about funding its group companies.

“We got into this business to address the trust deficit associated with builders in this country,” says Anand Mahindra, echoing the logic of other conglomerates like Tata and Godrej which also run substantial real estate ventures. “We will not chase growth at the cost of losing the credibility we have built over the years. Having said that, there is a big opportunity for us to multiply the business significantly, now that we have established our focus areas and organisational capabilities. There is also a fortunate alignment of our objectives with national priorities.”

The government’s smart city agenda has three models: retrofitting an area of over 500 acres in an existing city, redeveloping more than 50 acres within an existing city, and greenfield development of more than 250 acres. The greenfield route would allow for a truly modern development from scratch. The flip side: It can take ages to get going, given the politics of land acquisition hangs like an albatross round the government’s neck. “With our experience, we are well placed to develop greenfield projects, as we can work with several land acquisition models, including joint development,” says Arjundas.

The Chennai World City predates the buzz around smart cities, but has several of the features built in. While decking it out with posh accoutrements—an Olympic-size swimming pool, for instance—MLDL left many of the area’s original features intact in order to preserve the feel of the old neighbourhood. There’s a railway station within its perimeters, the first in the country to have been built on the PPP model. It also has solid and liquid waste management stations, and Tamil Nadu’s first off-grid rooftop solar photo-voltaic power plant which generates around 1,18,000 KW of clean power annually. In July last year, it became the first township in India to be awarded Stage I certification by the Indian Green Building Council, based on site selection and planning, land use, transportation planning and infrastructure resource management, and innovation in design and technology. In Jaipur, MLDL is pushing the envelope further: In association with group firm Tech Mahindra, it is developing a comprehensive urban management framework which will make the city a laboratory for smart cities.

The big concern: bringing the residential developments in Chennai and Jaipur on track. “With greater stabilisation in the business zone, the focus is now on developing the residential and social infrastructure,” MLDL says in its 2014-15 annual report. “Mahindra World City, Chennai, has allocated 289 acres for the development of residential and social infrastructure that will cater to ... over 7,000 families. With the handing over of units in some phases ... the city has three operational residential projects, which together have around 500 families living in them.”

Meanwhile, the company’s bread and butter continues to come from selling homes outside the World Cities, which, despite their high profile, account for only 20% to 25% of its bottom line. Prices for these homes start at Rs 12 lakh and go up to a few crores. The lower-end constructions, branded Happinest, don’t use expensive riverbed sand, use minimal water, and sport modular parts to shrink costs, and have found brisk custom.

But challenges remain in this business too. Pankaj Kapoor, CEO of real estate research firm Liases Foras, says, “MLDL thrives on the Mahindra brand, but it is still not a mainstream player as all its projects are in far-flung areas.” The Happinest projects, for instance, are located at Boisar and Avadi, deep in the outskirts of Mumbai and Chennai, respectively. This means sales take longer than for other firms that are willing to buy and build on premium land within the city. Tata Housing recently announced a project near the Goa airport, which nearly sold out in under 10 days. To keep pace, MLDL is launching two projects in Andheri, a bustling suburb in Mumbai.

As the business grows, Arjundas will also have to watch out for construction delays—the bugbear of the industry, and a particularly thorny issue for a company that makes a big deal of credibility. Last month, a court ordered MLDL to pay a customer in Mumbai Rs 18 lakh in damages for a nearly 18-month delay in giving possession.

ARUNJDAS STARTED HER CAREER at Chennai-based Murugappa Group’s confectionery firm Parry after a degree in business management. She went to teach briefly at Ahmedabad’s MICA management school, before realising it was too early for her to quit corporate life. She held a couple of software jobs during the Y2K and the first dotcom era, which, she says, didn’t do her any good. “There was a feeling that if I failed at this job, my career would end,” she says about her beginnings at Mahindra.

At the time, Mahindra’s real estate business largely consisted of residential developments, carrying forward the legacy of converting its factories in cities like Mumbai to housing complexes, and its acquisition of Great Eastern Shipping’s real estate business. When work began on the World City in Chennai, the company was called Mahindra Gesco; it was renamed Mahindra Lifespace Developers in 2007.

The Chennai land was originally acquired to set up an auto component hub in the mid-’90s. The plan was to support a car-manufacturing joint venture with Ford. When that didn’t materialise, Mahindra mooted the idea for the World City. (It was the time Anand Mahindra would frequently meet Reliance Industries chairman Mukesh Ambani at his Ballard Estate office; Ambani too was planning an ambitious mixed-use SEZ across the Mumbai harbour, which never took off.)

It took nearly five years to sign up the first client, Infosys, which continues to be the largest tenant with a 130 acre facility and 16,000 employees. Nanda says Infosys had initially rejected the site as most IT development in Chennai was happening on the Old Mahabalipuram Road, but he met Narayana Murthy and urged him to pay a visit. Murthy showed up unannounced at 6 one morning, straight from the airport after an international flight. By 9.30 a.m., Infosys was sending out faxes saying that they wanted to sign a contract. Wipro, BMW, and TVS Group followed soon after.
Sangeeta Prasad, CEO of MLDL’s integrated cities business, who joined in 2008 after 19 years with Tata Steel, says that in the early years, there was a feeling that “we were floating around trying to build a business... Anita brought in operational urgency. She is comfortable with ambiguity, but coming from sales, she is also very focussed on short-term goals.”

Even so, the firm hasn’t skimped on long-term strategy. While partnering with state governments for the World City projects cemented vital alliances and eased regulatory approvals, Arjundas bought in Sumitomo as a partner to the new Chennai project so that it wouldn’t have to lock a lot of capital in land. Sumitomo also brings expertise in building and managing huge infrastructure projects. “We will follow similar models for our proposed projects in Gujarat and Maharashtra,” says Arjundas.

Her learning chops remain undiminished. In the Chennai project, MLDL acted like a typical developer. It appointed international architecture and engineering consultant HOK to design the project, and went about building infrastructure piecemeal. Income came from long leases of land parcels to industrial customers. To bring in IT clients, it leased a chunk of land to Singapore-based Ascendas, which built the facilities and leased them out to companies. In Jaipur, Arjundas is using the experience from Chennai to tweak its income model. For one, she has reduced the land allocation for residential units. Also, instead of relying entirely on third parties, MLDL will create its own infrastructure and lease it to users. In other instances, it will enter into tripartite agreements by allotting land to developers who will build and lease facilities to clients.

The company is already earning Rs 80 crore annually in lease rental, which is expected to increase as the development sees more traction. Says Puri: “Leasing income is like an annuity, and it has a certain stickiness to it compared with outright sales.”

Arjundas has her task cut out in every part of the business. In selling infrastructure, she needs long-term capital. In low-cost housing, she needs to turn around projects quickly as delays will add interest costs. To keep abreast of competition, she needs to deploy cash in buying expensive land in relevant locations.

In essence, her defining challenge will be to maintain financial self-sufficiency and fund her own growth. Last year, she sold prime land in Mumbai’s SoHo, raking in over Rs 200 crore in profits. She also pared debt as there were no land deals in the offing. “We are now in a better position to invest in joint projects that will reduce capital requirement but increase our involvement in the sector,” she says. ““We learnt everything as we went along in Chennai, but that won’t be the case with our future projects.”

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