• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• BL Club
• Smartbuy

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

D. Sampathkumar

Chennai, Sept. 28 For the large corporates, the good news is that the cost of land is still a pittance in new projects.

But the bad news is that it is getting to be a little bit more expensive than five years ago.

Consider the evidence. Large non-banking companies spent close to Rs 16,300 crore in acquiring land out of a total fixed capital expenditure of nearly Rs 5.6 lakh crore in the last five years ended March 2008.

This emerges from an analysis of financials of companies having their shares listed under the ‘A Group’ of shares (essentially large cap stocks) at the Bombay Stock Exchange, as captured by the corporate database compiled by the Centre for Monitoring Indian Economy (CMIE), an economic think-tank. The expenditure on acquisition of land thus translates into 2.9 per cent of the total expenditure on fixed assets. But cost of land as a proportion of the gross value of fixed assets stood at only 1.8 per cent as of March 2003, clearly signalling the fact that fresh purchases in recent times are just that bit more expensive. Take Reliance Industries, among the handful of companies with a huge asset base in corporate India.

Its investments in land stood at close to Rs 1,350 crore as at the end of March 2003 on a gross fixed asset base of Rs 52,500 crore approximately then.

However, the nearly Rs 75,000 crore in additional fixed assets acquired by it resulted in even lower incremental investment in land (Rs 1,300 crore approximately) during the next five years, thus bringing down the proportion of land cost to the total expenditure in fixed assets even further.

While the phenomenon of a relatively modest land component to the total cost of fixed investments is true of the manufacturing sector as a whole, their counterparts in the services sector, especially those that grew at a relatively faster pace in recent years, have not been so fortunate.

Take Jet Airways for instance. It added nearly Rs 1,500 crore in acquiring fresh land in 2007-08 to take its tally of such investments to around Rs 1,850 crore by March 2008.

But its investments in other fixed assets (aircraft etc.) didn’t go up in the same proportion. Consequently, the proportion of investments in land relative to its total fixed investments stands at a relatively higher 11 percentage points as of March 2008.

Even software companies with their emphasis on land around existing urban agglomerates have had to bear a relatively higher burden of cost towards acquiring land.

Thus for Tata Consultancy Services, it is a healthy 13 per cent according to the latest audited figures. Banks too would have made an interesting case study in the context of relative significance of land cost to the total investments in the services sector compared to their counterparts in manufacturing.

However, data breaking up the total investments in land and buildings are not available. But development financial institutions such as IDBI and IFCI do offer some insight. Their investments in land measured as a percentage of the total stand at 34 per cent and 23 per cent respectively.

More Stories on : Corporate | New Projects | Real Estate & Construction

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Copyright © 2008, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line