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Modular Construction Housing Needs - Red Ribbon Asset Management Plc

Modular Construction: The Answer to Housing Needs

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Modular construction is the answer to housing needs

Modular construction is an option for building homes that’s been available for over a century. Its popularity has ebbed and flowed with various significant events and global developments. However, one thing that remains clear about the system of preparing a property in a factory and then constructing that same building on site, in a matter of a few days or even just hours, is that it’s one that builders and policy makers return to whenever a new crisis or real need for homes arises.

Modular homes quickly gained in popularity in the US when they were developed and then sold by Sears at the end of the 19th century. That was fuelled by increasing wealth and an abundance of land to live and build on. The Great depression which began in 1929 soon put paid to the growth of buy and build your own home. And by 1932, Sears’ modular construction home sales were down by 40%. That was enough for them to put an end to that particular part of the business.

World War II ends

However, it wasn’t so very long from then, until the end of World War II in 1945 when soldiers and Governments could fully take in the sheer size of decimation across the UK and Europe, following years of fighting, destruction and bombing.
Add to that the returning soldiers needing homes to live in with their families and it was clear new homes needed to be built. Quickly. Pre-fabrication proved popular once again, with several areas in the UK benefitting from this fast and economical construction method.
However, once things began to settle, the workforce was back in balance and skilled builders were willing and able to work and modular construction, fell out of favour once more.

Confluence of developments

Fast forward to 2019 and there are a broad array of developments that have combined to once again push modular construction to the forefront of residential home building, but this time on a global scale:

  • The UK’s housing crisis where a lack of building during the credit crisis means there aren’t enough homes for the still growing population – the Government is supporting modular construction options to quickly build suitable housing for Britons across the country.
  • Geo-political unrest and refugees moving from place-to-place with nowhere to live – the RICS recently awarded a young home designer its top prize for his low-cost bamboo home that takes just 4 hours to build, to help with the slum crisis in the Philippines.
  • Economic prosperity and demand for homes and commercial properties in rural and city regions – India’s economy is among the fastest growing in the world and the changing needs of the country for less rural workers, to more city-based jobs, means more urban homes are required, quickly.
  • More and more people have developed an eco-conscience, either through their own nature or the growing number of ecological changes and concerns the global population is faced with – home-buyers and developers around the word are actively seeking green homes that are built with sustainable materials and are also powered that way, too.

Together, these separate crises and changes have led to greater demand for modular homes from a wide variety of consumers and policy makers. Meanwhile, that demand combined with a larger business desire to consider sustainability and green options, has encouraged further investment in the sector, too.

Modulex Construction is the World’s largest and India’s first Steel Modular Building Company, setting out to meet the challenges posed by India’s urban housing shortages in a practical and dynamic manner. The company is at the heart of a project established by Red Ribbon to harness the potential of India’s markets and delivering opportunities for investors. Because, when it comes to investing on the subcontinent, nobody knows India and its markets better than Red Ribbon.

Red Ribbon CEO, Suchit Punnose said:

When we think about how modular construction has time and time again proved the right answer to a crisis, problem or change, it becomes a much simpler decision as to whether or not it’s the right investment choice. Add to that the fast-growing knowledge about the importance of eco options and sustainability and modular construction becomes an even more compelling proposition.

Modular construction is already part of India – and the world’s – property development needs. And that’s something that is only going to increase as it becomes a major element of the construction landscape. Not only due to its speed of delivering the finished, habitable product, but also its cost-effectiveness, green credentials and sustainable factors it brings.  That’s why Red Ribbon was committed to Modulex Construction from the very beginning of the project and we remain committed to it today. I’m convinced it is not only a vital element in meeting market challenges but will also deliver on the unprecedented opportunities currently presented by the subcontinent’s burgeoning economy.

Modulex is the answer to many of India’s immediate needs and beyond. By creating sustainable, cost-effective homes and buildings across the country, Modulex is part of a growing industry that will remain relevant and profitable for many, years to come.

India Economic Ambition Planning - Red Ribbon Asset Management Plc

Broad-based planning supportive of India’s economic ambition

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Broad-based planning supportive of India’s economic ambition

It may be a New Year, but in many countries, old worries remain.

Take the UK, for example. Brexit is as uncertain as ever and that’s unlikely to change any time soon. Not only have forecasts for economic growth in the country been tempered by the lack of a clear path for Brexit, the latest survey data from IHS Markit have served to underscore the worry felt by consumers and businesses, with the country’s dominant services sector close to stagnation during December

However, the UK isn’t the only country experiencing uncertainty as to how 2019 will unfold.

India has an interesting 12 months ahead as incumbent Prime Minister Narendra Modi must work hard to maintain his position, after recent state election results make the likelihood of a new leader a real possibility. However, Modi has begun 2019 with ideas and a plan to show his support of the large farming industry, which is unhappy with the lack of fiscal support from the Government.

Speaking at the India Science Congress this week, the India PM urged scientists to find low-cost solutions for ‘social good’, including the creation of a more affordable and balanced agriculture industry and using big data analytics to improve crop yields for farmers with smaller holdings.

Introducing this element to the PM’s broader outlook for India’s economic development may always have been the plan. Although, there will likely be many who will say its merely a move to encourage more votes in an election year.

Regardless of the truth, this latest step is a further sign that Modi’s economic ambitions for the country remain front-and-centre.

Economic outlook

Even before this latest speech, the outlook for growth in the country was upbeat, particularly when compared with global competitors.

Despite some GDP forecast downgrades from the likes of Fitch Ratings and the OECD – to a still healthy 7.2% and 7.3% respectively – India is assessed to have outpaced China during 2018 and to do so again in 2019. India’s finance ministry, meanwhile, forecasts economic expansion of 7.8% during 2019, which would likely be similar to the average pace of growth across 2018, despite the slowdown to 7.1% in the third quarter.

Indeed, it appears that the third quarter GDP number is partly behind most of the forecast reductions, although other details also weigh. They include:

  • Generally weaker global GDP outlook.
  • Global trade worries.
  • Liquidity squeeze.

Modi and his Government, however, are upbeat and standing firm on their positive outlook. Many would say, with good reason.

Despite the difficult global scenario, some developments have been in India’s favour. The high price of crude oil has receded, despite the sanctions against Iran. Meanwhile, the country has moved up the World Bank’s ‘ease of doing business’ rankings. And while there has been some disagreement over the Government’s demands for the Reserve Bank of India to relax some restrictions on weaker banks, inflation has remained under control.

The decision to remain firm on many fiscal elements of governance while creating a more supportive backdrop for businesses and consumers, has been a core driver of the strong level of economic expansion across India. It appears that focus on moving forward with policies designed to encourage start-ups and innovation is very much still in place.

Modi told delegates at the Science Congress that following on from its success of improving its ‘ease of doing business’ score, it must now work to improve the ‘ease of living’ in India. That requires a broad-based plan; working to support businesses across every industry, supporting innovation and new ideas, job creation across every industry and providing a stronger and more reliable infrastructure for consumers.

At Red Ribbon we understand the importance of introducing innovative developments into an existing industry, which is why we believe the Eco Hotel industry is one that can help ensure India’s economic growth ambitions will succeed and even exceed expectations.

Red Ribbon CEO, Suchit Punnose said:

An economy the size of India’s will only flourish if a broad-based outlook is in place that also supports innovation and allows every industry to move in an agile fashion, particularly when it becomes clear that a new approach is required.

India’s leisure and tourism industry is a case in point. It draws tourists from within and without the country to its variety of regions and attractions. Introducing a new type of accommodation, such as Eco Hotels, will work to add yet another string to India’s bow as the destination of choice for an even broader range of holiday-makers and business travellers, while supporting jobs growth and industry innovation at the same time.

As long as business start-ups and industry innovations are supported and encouraged, they will only have a positive impact on India’s economy, the standard of living and the global environment.

Key Benefits Modular Construction - Red Ribbon Asset Management Plc

Key Benefits of Modular Construction

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Right now, the demand and requirement for residential and commercial property across India remains elevated. And, true to form, the relevant industries are supporting that need in the best way they can – constructing buildings. However, having relied upon mainly traditional methods for so long, that’s the go to option in many cases.

Enter modern, modular construction.

Modular construction techniques have come a long way since the first attempts in the 1800s. Indeed, they’ve even evolved and improved vastly in the past 10 years. That’s part of what makes it a big part of the answer to India’s requirement for homes and business premises. Add to that the easier property construction regulation under forward thinking Prime Minister Modi’s RERA act and modular construction is most definitely an option drawing increased interest. Not only across India, but globally, too.

There are many reasons why that should be the case and is now becoming so.

Why modular construction is an essential part of the solution to India’s housing needs

Because modular construction is an excellent way to create housing and commercial properties of all shapes and sizes, quickly and relatively affordably. This has helped encourage thought and investment into the industry, with extremely positive results.

That’s not to say it should completely take over traditional property construction methods. There’s absolutely room for all kinds of skills and ways of building. However, modular construction is no longer a final thought or last option. It’s right up front with all the other property construction methods, which is exactly where it should be.

Its cost-effective

When it comes to building property, its not something that could ever realistically be described as ‘cheap’. One thing that makes modular construction a more cost-effective building option is the use of set, factory-based methods.

This is particularly relevant for apartment blocks, or developments where properties will feature the same internal layout. Having a set pattern for the off-site, factory construction, means fewer plans, designs and templates are required. This also helps support a more efficient work-rate. In addition, among the various ‘major costs’ of on-site construction, is the wages of builders, supervisors and other professionals, who need to be there. With modular construction, many of the builders only need to be on the actual building site for between a quarter and half of the time they would on traditional build.

Eco-credentials

Building property will always have pros and cons. Among the cons is the amount of waste and also the often-difficult task of ensuring all required energy efficiencies are made-to-measure and in place from the beginning. Utilising a purpose-built modular factory dramatically improves waste control. That’s borne of working to specific measurements in an environment that makes it easy to order only exactly what you need.

That’s not to say that traditional building methods aren’t precise and materials ordered accordingly. But, without such controlled conditions, over-ordering and materials waste is notably higher. But that’s not the only green credential modular construction techniques lay claim to.

By constructing all the internal wall panels and other elements of a modular building in a factory, it’s much simpler to ensure all the required energy efficiencies are fully installed, at source in the right way. This makes any eco-friendly options easier to safely install in the factory. Solar panels, water saving features and suitable heat conservation, or air circulation requirements can be handled in a controlled, measurable way, using the right materials and methods.

Modulex Construction is the World’s largest and India’s first Steel Modular Building Company, setting out to meet the challenges posed by India’s urban housing shortages in a practical and dynamic manner. The company is at the heart of a project established by Red Ribbon to harness the potential of India’s markets and delivering opportunities for investors. Because, when it comes to investing on the subcontinent, nobody knows India and its markets better than Red Ribbon.

Red Ribbon CEO, Suchit Punnose said:

India’s housing needs are no secret. But nor are the advances in techniques to help support faster and more cost-effective construction options. Add to that a supportive Government regulatory environment it begins to make sense that all types of reliable and suitable methods are put to good use. We, along with an increasing number of professionals, investors and industry specialists, know that modular construction is a major part of the answer to India’s housing needs.

Modular construction is already part of India – and the world’s – property development needs. And that’s something that is only going to increase as it becomes a major element of the construction landscape. Not only due to its speed of delivering the finished, habitable product, but also its cost-effectiveness, green credentials and sustainable factors it brings.  That’s why Red Ribbon was committed to Modulex Construction from the very beginning of the project and we remain committed to it today. I’m convinced it is not only a vital element in meeting market challenges but will also deliver on the unprecedented opportunities currently presented by the subcontinent’s burgeoning economy.

10 Reasons to Invest in India by Red Ribbon Asset Management Plc

The place to be: 10 reasons to invest in India

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India’s economy and business landscape are changing, ushering in a period of growth, prosperity and investment opportunities. All the ingredients are in place for India to become a world leader investment destination.

Let’s look a little more closely at just a few of the more compelling reasons why investing in India is an opportunity you can’t afford to miss:

1. The Perfect Demographic For Growth: India is the fastest growing large economy on the planet. Its rapidly increasing population is predicted to overtake China by 2022, and become the largest in the world.

2. Exceptional Consumer Led Demand: A large part of the 1.34 billion people are increasingly sophisticated, technologically literate and wealthy.

3. Supportive Fiscal Regime: The government has been making radical changes to create a more business friendly environment. There is now a uniform tax regime (GST) across all 29 states of India, and introducing an affordable housing programme with additional tax breaks.

4. Dynamic Real Estate Market: India is experiencing an unprecedented demand for both domestic housing and commercial property. Real Estate investment in India’s six major cities doubled in the first half of 2017.

5. Vibrant Private Equity Sector: 2017 was the busiest year for more than a decade for private equity deals in India, with total investments of £16.84 billion.

6. Unprecedented Infrastructure Spending: There is a public infrastructure programme of moving scale. This includes 83,677 km of new road being built over the next 5 years (The UK’s motorway network is a little over 3,000 km).

7. Regulatory Certainty: The government has been decisive. Demonetisation has removed much of the ‘black economy’ and over 6,000 companies suspected of improper activities have been closed. Arbitration and court procedures have been overhauled and sped up.

8. Global Trading Hub: Major international companies, such as Virgin and Amazon are now moving to India to invest in and participate in the expansion.

9. World Leading Computer Technology: India is now recognised globally as a technology powerhouse, with an increasingly IT literate population.

10. Stable Federal Structure: India’s federal structure offers highly effective risk management, that helps protect the economy from any unpredictable events. Which means that investors are more than ever protected against localised market risk.

For these reasons and more, India is now one of the most exciting places to invest. At Red Ribbon, we use our expertise and resources to identify the investment opportunities that have the potential of delivering superior returns to our investors.

Nobody understands that potential for growth better than Red Ribbon Asset Management, which has placed India at the very heart of its investment strategies since the company was founded more than a decade ago. With an unrivalled knowledge of market conditions on the subcontinent, Red Ribbon offers a unique opportunity to share in that vast potential.

Red Ribbon CEO, Suchit Punnose said:

India is more than just an exciting investment opportunity, it’s also a driver to global economic growth and that’s why Red Ribbon has long held the view that no investment portfolio can be considered properly balanced unless at least 10% of its holdings are deployed in Growth Markets and, of course, for us that has always meant India in particular.

At Red Ribbon we are very proud to have been playing our own part in India’s economic resurgence over the last decade, investing in just the kind of projects that are at the heart of the interlocking triangle of growth mentioned in the article: everything from the modular construction technologies now being developed by Modulex so as to deliver affordable housing at the pace demanded by the subcontinent’s urban expansion, through to innovative sustainable energy infrastructure investment. And to see India now firmly established at its place on the economic top table, uniquely well placed to move further forward still is, of course, a particular source of pride for us.

We look forward to continuing to play our part in India’s future, participating to the utmost in the opportunities the subcontinent’s explosive growth has to offer and at the same time providing above market rate returns from our investors in what I am convinced will continue to be one of the world’s most exciting markets for many years to come.

The Eco Hotel Phenomenon and Donald Trump’s observations- Red Ribbon Asset Management Plc

The Eco Hotel Phenomenon and Donald Trump’s observations

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What turns a run of the mill, resource hungry hotel into an Eco Hotel and why does it matter? Well, the clue lies partly in the question: an Eco Hotel isn’t resource hungry at all. Instead of gobbling away at all before it, an Eco Hotel sips and nibbles at its key resources: energy, water and raw materials. Eco Hotels are hard wired to save water and minimise on energy and waste material usage. But what about the second part of the question: why does any of this matter? Look no further than last week’s US National Climate Change Assessment, the work of 300 scientists and 13 Federal Agencies which concluded that “ Earth’s climate is now changing faster than at any point in the history of modern civilisation, primarily as a result of human activities…” Donald Trump may have dismissed the three-inch thick report out of hand as “largely based on the most extreme scenario”, but virtually nobody else is.

And for a President so intent on wrapping himself in a mantle of economic competence (and hotel owner to boot), the supreme irony is that key policies at the heart of a concerted response to adverse climate change are now proving to be drivers of commercial growth too. Eco Hotels are a case in point.

By definition, a non resource hungry hotel will also have reduced operating costs: it’s also likely to have reduced liabilities, will generally produce a higher return on relatively low risk investments and also deliver greater profitability across the board than its more resource hungry counterparts. Those are the hard conclusions arrived at in the seminal sector report for the subcontinent “Green Hotels and Sustainable Hotel Operations in India” and, perhaps inevitably, the markets haven’t been slow to see their potential either. Green hotels are more popular than ever on the subcontinent and if you need solid evidence of that, look no further than the explosive growth of Lemon Tree Hotels after the company’s successful IPO earlier this year.

Donald Trump could usefully brush up on his bedtime reading before leaving the West Wing to resume control of his own hotel chain …

The travelling public (business and leisure) is now increasingly aware of the importance of environmental compliance when it comes to choosing a hotel room, and the current surge in demand on the subcontinent is running well ahead of supply: not least because India’s tourist numbers have reached unprecedented levels in absolute terms as well.

But when it comes to meeting this burgeoning demand in practice, something much more is required than simply re-branding an existing hotel with “green credentials”. Key consumption variables have to be built in from the very beginning of the construction phase: making water saving devices and waste reduction part of the DNA of the hotel from the outset of the project. That’s why Eco Hotels are being built with solar tubing that reflects light across the hotel day and night, resulting in electricity bills that are roughly half those of a conventional hotel and its properties also has a single kitchen which dramatically reduces the carbon footprint. All those savings go straight to the bottom line.

Red Ribbon is the founder of Eco Hotels, the world’s first carbon neutral hotel brand which offers “green hospitality” as part of a progressive roll out across India designed to take advantage of current market opportunities on the subcontinent. The brand meets all key sustainability criteria without compromising on either quality or standards of hospitality and is designed to cater for commercial and recreational travellers alike.

Red Ribbon CEO, Suchit Punnose said:

The boom in Indian tourism (both domestically and internationally) is currently playing a huge part in driving forward the subcontinent’s resurgent hotel and hospitality sector, and as the article says eco credentials are playing a bigger part than ever in determining where this burgeoning tide of travellers are deciding to stay. Recent surveys confirm so called “green credentials” are high up on the scale of priorities when they come to make their choice.

And as the article also says, meeting that demand is certainly not just a matter of a last minute rebranding. To deliver properly on green credentials, the hotel has to be built with eco compliance as part of its structure (from the ground up). Only by doing this will cost savings and sustainability criteria properly come together in the future operation of the hotel, delivering the range of benefits described in the article.

I’m proud that Eco Hotels have done just that from the very beginning of the project, and proud too of the part Red Ribbon has played in developing the brand and its ambitions in the succeeding years, spearheading an environmentally friendly response to India’ resurgent tourism demands.

India Real Estate - Red Ribbon Asset Management Plc

Time matters with India’s Real Estate revitalisation

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KPMG reported last month that Indian Real Estate Sector has now entered a “revitalisation mode”, with aggregate growth projected to reach $ 650 Billion by 2025 and topping $850 Billion by 2028: the average yearly contribution of real estate to the Indian economy will more than double from its current 7% by 2025. And CBRE India are equally optimistic: in their own quarterly report, snappily titled “India Real Estate: Variance in Construction Costs”, they forecast 17 Million new jobs will be added to the sector and an additional 8.2 Billion square feet of space released by 2025.  It all resonates well with the ambitions objectives of Prime Minister Modi’s Affordable Housing Programme, with Real Estate now set firmly in growth mode, and growing stronger every year. But there’s a dark shadow in the garden…

Each of these influential reports has highlighted a potential issue relating to construction costs on the subcontinent, capable of acting as a brake on growth and with no less than six major conurbations (Chennai, Pune, Hyderabad, Mumbai and Delhi) causing particular concern. Perhaps predictably, Mumbai tops the list of areas where unit construction costs have spiralled over recent years and show little sign of slowing down despite the broadly stabilizing effect of GST legislation introduced by the Modi Administration which helped smooth out some of the worst supply and pricing differentials across the country.

The average cost of construction for a residential apartment in Mumbai is now Rs 3,125 per square foot, compared to the Rs 2,375 per square foot the same apartment will cost in Hyderabad. At one (macro) level the reason for all this is obvious: an increasingly urbanised population pushing up demand for units in the largest conurbations as part of a gradual drift away from the land, but the disparity in relative costs between conurbations is still striking. Inter market differentials of this kind are likely to be caused primarily to an uneven distribution of construction skills, with highly skilled workers drawn to areas of greater demand so increasing the unit cost of labour in specific areas of the subcontinent. Certainly we might expect other variables such as recent sharp rises in the wholesale price of steel to be more uniformly spread across the country.

In short, construction is becoming progressively more expensive in the very areas where more housing and commercial units are likely to be needed most…and that’s a real dilemma.

One answer is to make greater use of just in time delivery systems which are capable of dramatically reducing overall construction schedules: simple maths tells us that if an expensive worker is on site for a quarter of the normal building phase, costs will come down no matter how prohibitive the daily rate. And of course we have now grown used to the significance of just in time methodologies because of the prominence the issue has assumed as part of the current Brexit debate. Just as any significant inhibition on frictionless trade has potential to throw the UK economy into chaos after Brexit, so too the same frictionless technologies can help address systemic cost differentials across the Indian construction sector as well.

Modular Construction prefabricates all of the essential components of the building off site, everything from exterior walls, ventilation systems and internal wiring networks with the parts then arriving on location only when they’re needed: meaning field workers aren’t left waiting around (expensively) for the next phase of the project to get underway. Research has shown that through a combination of just in time delivery techniques and modular technology, otherwise complex units such as student accommodation blocks or hospitals can be erected on site in days rather than the months and sometimes years of conventional technologies. And an added advantage is that Modular Technology also reduces the potential for human error and snagging in the final building which can also be a major but hidden expense on any project.

Modulex Construction is the World’s largest and India’s first Steel Modular Building Company, setting out to meet the challenges posed by India’s urban housing shortages in a practical and dynamic manner. The company is at the heart of a project established by Red Ribbon to harness the potential of India’s markets and delivering opportunities for investors. Because, when it comes to investing on the subcontinent, nobody knows India and its markets better than Red Ribbon.

Red Ribbon CEO, Suchit Punnose said:

Prime Minister Modi has successfully appealed to the youthful and increasingly urbanised population that is currently driving India’s economic growth, not least through his Government’s re-energised Affordable Housing Programme the scale and scope of which has at times been breathtaking. So it should come as no surprise to learn that such an increasingly mobile population is also creating real estate hot spots (and cost differentials) through being attracted to a number of specific locations: by definition, a mobile population is difficult to keep still.

So as it seems to me the resulting cost differentials in construction across the subcontinent are likely to be a fact of life for some years to come yet. But that’s certainly not to diminish the problem, and cost disparities are a problem in India’s most expensive real estate markets, Mumbai in particular. They have real potential to distort the market.

In delivering a workable solution to that challenge most expert commentators now agree that Modular Construction is simply inescapable. No other technology offers the pace and scale of delivery needed to meet India’s housing needs and, as the article points out, it is the perfect corollary for just in time delivery systems. That’s why Red Ribbon was committed to Modulex Construction from the very beginning of the project and we remain committed to it today. I’m convinced it is not only a vital element in meeting market challenges but will also deliver on the unprecedented opportunities currently presented by the subcontinent’s burgeoning economy.

India Mid Market Hotels - Red Ribbon Asset Management Plc

How and why mid-market hotels are taking over India’s branded sector

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In the late 1980’s Esso commissioned a survey of its UK customers and found less than 7% travelled onto Mainland Europe with their cars. Why this reticence on the part of families clearly capable of making their way from Poole to Provence in an overcrowded Metro? And no, it’s not what you think: back in those days we hadn’t even thought of Brexit. As Esso found out, there was a more homely explanation: the Continent simply had far fewer automated pumps on its forecourts, so drivers were in danger of having to talk with an attendant and you know how the English are with languages. Better leave the car behind than risk the unseemly spectacle of sign language on the forecourt with a Frenchman.

And when you think about it, that’s all quite interesting. It’s the reason petrol stations have gradually come to look exactly the same all over the world: with the pumps all roughly in the same place, all self service and roughly the same kind of shop to pay in. It’s why you can now buy a burger (from a screen) in identical McDonalds outlets from Vienna to Vladivostok without once having to speak a word of German or Russian, and it’s why Esso long made sure you can buy your petrol the same way. There’s simply no need to leave the car at home anymore…so we don’t. We buy more petrol instead and everyone’s happy.

Economists call this phenomenon Brand Synergy and until recently India’s mid-market Hotel Sector was widely perceived to be more or less dead to its charms. A senior analyst on the subcontinent memorably (and anonymously) put it as follows: “…it was like an airline that uses a Boeing 747 for travel between Delhi and Mumbai, a Dakota for Kolkata-Delhi, and a Dornier for Bengaluru-Pune”. The poor old travellers never knew what to expect when they got there. Just like trying to buy petrol by word of mouth.

But not anymore…

The subcontinent’s mid-market Hotels including Ibis Styles, Lemon Tree Hotels and Eco Hotels have all made progress over the last decade in adopting a much more uniform approach to product profiling, achieving a consistency in specification that has now seen the mid-market secure nearly half the branded hotel sector: spurred on, no doubt, by an increasing number of private equity investors, none of whom are noted for being slow in recognising brand synergies when they see them.

All of which has made the mid-market uniquely well placed to take advantage of the surge in India’s middle class and increasingly urbanised travellers that has doubled airline occupancy rates over the last seven years.  And with the average cost of building a mid-market room coming in at between Rs 3 Million and Rs 7 Million, breaking even within six years, it all makes bottom line economic sense too. Compare that with the larger branded chains where average construction cost for each room is Rs 15 Million and break even takes 15 years: more than twice as long.  In the past 10 years alone the mid-market has expanded at more than 15% annually (according to Howarth HTL) and now accounts for 43% of total branded stock.

Having got away its successful IPO earlier this year (raising Rs 311 Crore from key investors), Lemon Tree Hotels last week took the trend a stage further by launching its brand overseas: signing a deal for the first of its hotels to open in Dubai next year. It will be the first mid-market hotel on the luxury studded Al Wasi Road, sitting literally in the shadow of the Burj Al Arab and Al Waleed Real Estate’s CEO didn’t miss the significance:  “There was a need for a mid-market hotel of this calibre in this location and India has been the largest source of tourists into Dubai, as well as the UAE as a whole, for over three years now.” To save you Googling it up, the exact figure is 13%: India now accounts for a whopping 13% of total tourist numbers into the Emirates, which shouldn’t come as a surprise to anybody given the subcontinent’s wealth and proximity as well as the population’s found mobility.

And now they’ll recognise at least one familiar, distinctively Indian hotel brand when they get there…Plus ca change.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid-market hotel brand, offering “green hospitality” as part of a progressive roll out across India which intended to take full advantage of current market opportunities on the subcontinent. The brand offers sustainable living without compromising on standards of hospitality and is designed to cater to commercial and recreational travellers alike.

Red Ribbon CEO, Suchit Punnose said:

Working as part of the Eco Hotels Project has certainly taught me the importance of branding and product profiling in the hospitality sector, so I was pleased to read about the renewed emphasis on branding generally and unsurprised to see that it has now increased the mid-market share to just shy of 50%. Monolithic 2000 room hotel chains are no longer the first choice for travellers, especially given all the evidence suggests they are increasingly looking for accommodation that also complements their preference for sustainability.

And that’s important because the boom in Indian tourism (domestically and internationally) is playing a significant part in driving forward the subcontinent’s resurgent hotel and hospitality sector. It’s certainly an area that cannot be overlooked when seeking out the best investment opportunities over the coming years.

That’s why I’m very proud that Red Ribbon has played such a significant role in the creation and development of the Eco Hotels Project, spearheading the response to that demand in an environmentally friendly manner.

Modular Construction India - Red Ribbon Asset Management Plc

Modular Construction: the answer to the shortage of skills in India

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Most Indians work in agriculture but next comes construction, and according to the latest Economic Survey the subcontinent’s real estate and construction sector is likely to create more than 15 Million jobs over the next five years, that’s three million every year. To put that in perspective less than 3 Million people are currently employed in the entire UK construction industry. And of the 52 Million building workers employed by Indian companies, 90% are involved in on-site construction with the other 10% busily painting, plumbing and wiring the finished product. It’s fair to say all these painters, plumbers and electricians are skilled workers…but not so the other 90%.

Because the vast majority of India’s construction workers are either minimally skilled or have no skills at all: an astonishing 97% of them aged between 15 and 65 will receive no formal training of any kind before starting work on site and, plumbers and painters aside, most of the skilled workers won’t be getting any cement dust on their boots because they’re probably office based clerks, technicians and engineers. And that’s a real problem…

It’s a problem, because coming the other way down India’s infrastructure and logistics superhighway is an unprecedented surge in demand for urban housing, fuelled by an increasingly urbanised population projected to become the biggest on the planet by 2022. India’s National Skill Development Council predicts that by then the real estate and construction sector will require a workforce of more than 66 Million, so without any obvious core of skilled workers currently able to sustain anything like growth it’s no wonder the sector is starting to show signs of stress.

Of course all this was supposed to be addressed by 2016’s Real Estate (Regulation and Development) Act which was intended to act as a platform for local, State driven planning capable of creating an appropriate environment for improved training and regulatory structures, but so far six States out of 29 have failed to produce any plans at all under the legislation which means finding workers with the right skills in the right place will continue to be a source of real concern.

Billionaire developer Niranjan Hiranandani, head of Hiranandani Construction, has a simple enough solution: just pay unskilled workers less and reap the savings while you can. But that’s not a particularly attractive solution for anyone buying one of his apartments 76 floors up in the Mumbai skyline where quality assurance is far from being a dispensable extra. The behemoth that is Hindustan Construction Company perhaps takes a slightly more realistic approach, going on record last week to say that skills shortages have become a huge problem for the sector: 50% of its workforce needs advanced training just to use the complex machinery now prevalent on most modern building sites. With a heavy tone of understatement a spokesman for the company announced grandly that given these skilled workers are not available, “the only option is to train them”.

Well, it’s not quite the only option…

With no actual shortage of workers seeking employment in India’s urban conurbations, particularly in the light of a seemingly inexorable drift of former agricultural workers from country to town, what if the physical construction process itself could be de-skilled? Why not make a virtue of necessity and draw on this pool of former agricultural labourers to release the margins of between 20% to 70% that Deloitte India predict would follow from a wholesale deskilling initiative? These savings would go straight to the bottom line without endangering the quality and safety of the finished building. Skilled construction workers earn Rs 1,000 a day as opposed to their unskilled counterparts who earn an average of Rs 200.

And there is just such a business model on the market right now, a model with the potential to uncouple construction projects from a seemingly insoluble skills conundrum: it’s called Modular Construction.

Modern Modular technologies allow all of the building’s key components to be put together off site by specialist workers and then assembled locally at the same time as the site works are completed, not only reducing overall completion schedules by as much as 50% but also significantly reducing the need for skilled workers in the construction phase. All of the design and engineering disciplines are instead concentrated at the offsite manufacturing facility leading to labour, financing and supervision costs. Which will all be music to Mr Hiranandani’s ears…

Modulex Construction is the World’s largest and India’s first Steel Modular Construction Company, meeting the challenges of the subcontinent’s current urban housing shortages in a practical and focused manner. The company was founded by Red Ribbon as part of an innovative project to harness the potential of India’s dynamic and evolving real estate markets whilst at the same time delivering opportunities for investors through Red Ribbon platform. Because, when it comes to investing on the subcontinent, nobody knows India’s markets better than Red Ribbon.

Red Ribbon CEO, Suchit Punnose said:

Delivering on India’s stringent housing targets over the next five years presents an enormous challenge for the subcontinent, and that challenge is likely to get more testing still given the underlying demographics of a rapidly increasing and ever more urbanised population. Existing skills shortages within the construction sector have the potential to be a crucial block to meeting these targets, especially given the scale and scope of the training programmes necessary to release a further 3 Million workers into the sector every year for the next five years: never mind the attendant costs which are likely to be eye watering on any basis.

That’s why to my mind the answer has to be Modular Construction. No conventional technologies can beat it for sheer pace of delivery and, with a centralising of skilled labour in the offsite manufacturing facility, it will beat conventional construction methods hands down on overall profitability too.

An Ambition for Growth - India Economic Miracle - Red Ribbon Asset Management

An Ambition for Growth: The Roots of India’s Economic Miracle

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Currently locked in a peculiar species of death roll with her backbenchers, Theresa May still (to her credit) seems intent on securing an orderly exit from the EU by 2020, but most economic commentators are forecasting a long term decline in UK GDP however “soft” the exit terms might be. Price Waterhouse for one are predicting that within a decade of exit, by 2030 the United Kingdom will have fallen to tenth place in Global GDP, behind Mexico and Indonesia and a whisker ahead of Turkey and France (which has a certain irony in the circumstances). And the same survey predicts that by 2030 India will have risen to third place in the global league, treading hard on the heels of China and the United States in first and second place respectively. But unlike the former mother country there is no suggestion that the subcontinent’s remorseless ambition for growth will lose any of its momentum over the course of the next half century.

China had better watch out…

The subcontinent’s economic ambition has been powered by a combination of progressive (some might say revolutionary) economic policies on the part of Prime Minister Modi’s Government (think demonetisation), coupled with a burgeoning and increasingly middle class population fuelling an unprecedented surge in consumer demand. But in a subtle and complex take on that dynamic, McKinsey this month published a fascinating report concluding that India’s explosive growth has just as much to do with interlocking trends in agriculture, urbanisation and mobility.

Take the first element in that triumvirate: agriculture. For decades now (at least the last thirty years), India has pursued an aggressive policy of agricultural self-sufficiency which has not only made the farming lobby one of the most powerful political forces in the country but has also delivered growth rates in the sector that are the envy of most of its near neighbours (indeed, the envy of most farmers anywhere in the world). But despite this, as McKinsey also point out, Indian agriculture still faces a spectrum of uniquely local challenges: severe water shortages alternating with devastating monsoons, combined with often antiquated supply structures and what McKinsey quaintly call a “limited exposure to high productivity practices”: in other words, a lack of investment in the latest farming technology.

That’s where the subtlety comes in…The Indian Government has re-calibrated its agricultural policy to shift the emphasis away from output targets, replacing them with a system of local subsidies designed to buttress farmers’ income (a policy that roused the never less than exuberant President Trump to bring proceedings against India again before the WTO). It was a smart shift in direction too because the new policy will almost certainly double agricultural wage rates by 2022 and, in a characteristically Keynesian frame of mind, the Modi Government are betting that with more money in their pockets India’s farmers will now start investing more in new technology. It can’t do much to stop monsoons but it can, as McKinsey would no doubt put it, “increase exposure to high productivity practices”.

That same factor feeds into the second limb of McKinsey’s triumvirate: urbanisation. More than 200 Million of India’s rural population are expected to move into its urban conurbations over the next 15 years and for those with the instinct to move rather than invest locally, improved agricultural subsidies are giving them a store of money to do it with. And, the Modi Administration is playing to its strengths on this too with a new Smart Cities Mission designed to meet the additional, affordable housing required to cope with resulting surges in demand, reducing urban pollution levels and increasing resource productivity and economic development through enhanced infrastructure programmes. You don’t need to look any further to find the real roots of India’s economic miracle.

And what about mobility: the third element of the McKinsey triumvirate? Well, that’s coming along nicely too with India now expected to become the world’s third largest passenger vehicle market by 2021. It’s not just that the subcontinent offers the same, parallel opportunities and challenges as other western and developing markets, it is offering them with a turbo charger attached. Many of those 200 Million people who are moving from village to town over the next 15 years will want (and get) a car, paying for it with the increased wages earned from working on all those new infrastructure projects; and their family and friends who stayed in the country and invested in new agricultural technology will probably want (and get) a new car too. You need to keep up with your cousins in town!

That, in essence, is what we mean by an interlocking economic structure, and it’s here that we can find the real roots of India’s explosive growth. Just wait to see what happens next…

Nobody understands that potential for growth better than Red Ribbon Asset Management, which has placed India at the very heart of its investment strategies since the company was founded more than a decade ago. With an unrivalled knowledge of market conditions on the subcontinent, Red Ribbon offers a unique opportunity to share in that vast potential.

Red Ribbon CEO, Suchit Punnose said:

At Red Ribbon we are very proud to have been playing our own part in India’s economic resurgence over the last decade, investing in just the kind of projects that are at the heart of the interlocking triangle of growth mentioned in the article: everything from the modular construction technologies now being developed by Modulex so as to deliver affordable housing at the pace demanded by the subcontinent’s urban expansion, through to innovative sustainable energy infrastructure investment. And to see India now firmly established at its place on the economic top table, uniquely well placed to move further forward still is, of course, a particular source of pride for us.

We look forward to continuing to play our part in India’s future, participating to the utmost in the opportunities the subcontinent’s explosive growth has to offer and at the same time providing above market rate returns from our investors in what I am convinced will continue to be one of the world’s most exciting markets for many years to come.

Smart Eco Hospitality - Red Ribbon Asset Management Plc - Eco Hotels

Better Smart than Big: India’s Eco Hospitality Sector

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The problem with global conglomerates is that they have global reach but monolithic thinking. Look how long it took Facebook to respond to high profile data breaches, with the hardly media shy Mark Zuckerberg virtually disappearing from the ubiquity of his own platform for weeks on end. Think of IBM: slow to the point of near extinction in responding to software innovations in the market, and poor old Kodak, slow to the point of actual extinction in meeting challenges posed by a blizzard of new, digital based technologies. So it should be a sobering thought for our current crop of global empire builders that big certainly doesn’t always best, because all too often great size comes with an inbuilt decision making stasis …in business, it’s always better to be smart.

Even so the thickest commercial hides can sometimes let in a little oxygen, which is why economists still like to look at the interesting conundrum of scaled decision making: big companies deluded into thinking they are fleet enough of foot to react on time to critical and fast moving trends, rather like an elephant finding a discarded pair of tweezers and thinking they must be good for something.

The latest example is Hilton Hotels, which this month unveiled its “Travel with Purpose Campaign” designed to reduce the group’s global carbon emissions by, wait for it, reusing old bars of soap left behind by its guests. Good luck with that: the Hilton Hotel chain on the subcontinent has properties with in excess of 1000 rooms pumping out as much carbon as a Victorian glue factory, so you might be forgiven for thinking the odd bar of soap is unlikely to make much of a difference. But the Hilton monolith is simply reacting (monolithically) to the unsurprising revelation that most of its guests are now placing environmental concerns at the top of their list when deciding where to stay. Hilton knows this because it conducted an expensive survey of 72,000 of its guests in May this year.

Of course it could have saved its hard earned cash and had a look instead at earlier newsletters on this site (amongst other places): sustainability concerns have been a key trend in the Indian Hospitality sector for at least the last decade and are becoming progressively more important. Hilton’s laborious, too little too late response is yet another example of big not being better. Big, in this case, is positively bad.

The companies that are instead best placed to make the most of eco trends are not operating out of densely occupied concrete blocks. They are strategically positioned in India’s mid market hospitality sector, with Lemon Tree Hotels and Eco Hotels being prime examples: smaller in scale and with sustainability ingrained into the fabric of their buildings (rather than in last minute memoranda urging staff to pick up discarded soap). As a result Lemon Tree Hotels is currently valued at 17 times EV/EBITDA and since completing its successful IPO in March of this year the company’s shares have risen in price by an impressive 28 per cent.  

Both companies find themselves carried forward by a relentlessly upbeat market outlook, typical of which is JLL India: “The hospitality industry is witnessing a new buoyancy” and Anarock Capital, where Shobbit Agarwal had this to say: “Stocks of listed hotel companies are on a new high due to improving fundamentals increased occupancy levels, higher revenues and average room rates seeing 5 to 6 per cent year-on-year growth”.

Quite so, we don’t need an expensive survey to tell us that.

And it also has a great deal to do too with a recent surge in India’s domestic and overseas tourist numbers as well as an increasingly affluent middle class demographic prepared to put their money where their heart is…Hilton Hotels might take note.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, offering “green hospitality” as part of a progressive roll out across India which intended to take full advantage of current market opportunities on the subcontinent. The brand offers sustainable living without compromising on standards of hospitality and is designed to cater to commercial and recreational travellers alike.

Red Ribbon CEO, Suchit Punnose said:

I’ve always believed in the essential flexibility and virtue of smaller business platforms, capable of responding quickly and effectively to market opportunities as well as medium term market trends. Because, to paraphrase Keynes, over the medium term a business that finds itself rooted in a fixed strategy can also all to often find itself dead. Just look at the object lesson provided by the once all powerful Kodak Corporation.

And the sheer pace of change and market innovation in the subcontinent’s hotel and hospitality sector at the moment makes that lesson all the more compelling. Mid market groups like Lemon Tree Hotels and Eco Hotels are quite simply better placed to respond successfully to rapid innovation and key demographic changes. Not least because they have both been positioned from the outset to anticipate a sustained and progressive move towards sustainability based tourism and business travel. Sustainability is built into their DNA.

That’s why I’m particularly proud of the part Red Ribbon has played in founding Eco Hotels and helping with its strategic development, anticipating exciting developments in Indian markets capable of generating above market rate returns for our investors. So, whilst like the Hilton Group, I’m sure Eco Hotels will be encouraging guests not to waste soap, the company has a lot more to offer in the future.

Red Ribbon

At Red Ribbon we understand that the transition towards a resilient global economy will be led by well-governed businesses in mainstream markets, striving to reduce the environmental impact of their production processes on society at large and on the environment as well.

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