Tata Sons will invest Rs 500 crore as fresh equity into its real estate subsidiary Tata Housing Development Company. The infusion will effectively triple its paid-up equity capital and reserves that now stand at close to Rs 250 crore.

“We believe this company can be the largest conglomerate backed real estate player. Hence, we are putting money into the company,” said a director on the board of Tata Sons.

The investment from the parent comes at a time when several traditional real estate companies are facing cash flow problems and an uphill struggle to sell apartments and raise funds to complete new and ongoing projects.

Anuj Nangpal, director (investment advisory), DTZ India, said Tata Housing has been very aggressive in their growth plans and has been growing almost 100 per cent every year. “As a result, the company’s base has become so large that for their future expansion they will have to infuse equity. Moreover, Cyrus P Mistry, deputy chairman of Tata Sons, comes from real estate background and no one knows the value of equity infusion better than him.”

“Tata Housing is quite an extra ordinary company that straddles many brand categories right from affordable housing, middle class to premium housing developments. It has built a very fine portfolio of projects some of which are quite large. We thought that rather than starve it for capital we should give it the means to grow. We could equally have gotten in a private equity partner or done an IPO but given the scale of improvement in the company’s operations we feel that we should fund this internally itself,” RK Krishna Kumar, chairman of Tata Housing Development Company and a director on the board of Tata Sons, told Financial Chronicle.

Ravi Ahuja, executive director at Cushman & Wakefield, said, “Tata Housing has a lot of projects and has been very aggressive in acquiring land and launching of new projects in the affordable segment and is doing fairly well. The company is expanding across geographies and need funds whereas Tata Sons has surplus money which it’s seeking to invest.”

The company plans to leverage the capital infusion to fund its foray into global markets. Govinder Singh, CFO at Tata Housing, said, “We will invest the equity money we receive for our ongoing projects in domestic market as well as in Sri Lanka and Maldives. We are also exploring opportunities in other Saarc countries also.” The funds infusion clearly shows that Tata Sons is confident over the approach of Tata Housing specially in the affordable segment. Moreover, this is the right time to raise funds through equity infusion as cost of debt is very high. Unlike other developers they don't have to be highly leveraged for raising funds, said Ahuja.