For any company, an internal risk management framework
is an important ingredient of its sustainable business
model. It counters the impact of unfavorable internal and
external events and attempts to ensure business continuity
across different stages of the economic cycle. Peninsula
Land has put in place a robust risk management framework
that is periodically reviewed and updated. The framework
facilitates risk assessment and mitigation procedure, lays
down reporting procedure and enables timely reviews by
the management. Company’s key risk areas are similar to
other players in the business of real estate development.
A few of the key risks and the mitigation measures are as follows:
1. Economic Risk
a. Risk: An unexpected development in any of the
macroeconomic variables that may adversely
impact the company’s profitability or viability. Real
estate being a cyclical industry gets impacted
more by the changes in macroeconomic variables
like interest rate, GDP Growth, employment,
purchasing power, inflation, et al than a non
cyclical industry like FMCG.
b. Mitigation Plan: Peninsula Land strives to be
conservative and has defined internal prudential
norms. The company maintains a low debt equity
ratio, high liquidity, strong brand premium and focus
on select markets minimize the impact in adverse.
2. Execution Risk:
a. Risk: Execution delay may results in cost overruns
and may also negatively impact company’s
reputation. A real estate project generally is
a long gestation project and generally spans
across multiple years. Also being an asset heavy
business, any execution delay can impact the
project viability due to increase in interest burden
and also increase in project cost especially in
high inflationary environment like we have in India
currently. A drop in project quality also negatively
impacts company’s reputation.
b. Mitigation Plan: Peninsula Land has put in place
processes that include milestone based time &
quality checks that help to ensure adherence
to quality, cost and delivery as per the plan.
The company deploys a well-defined standard
operating procedure – from project planning to
delivery – and adheres to rigorous internal checks
and balances with regard to every project.
3. Land Acquisition Risk
a. Risk: Risk to project earning and viability
due to delay in acquisition of land due to title
ambiguity, interference from local residents or
any other reason may impact. For real estate
companies, land is nearly irreplaceable raw
material and also the largest contributor to the
overall expenditure.
b. Mitigation Plan: Peninsula Land undertakes
meticulous due diligence and multi layered
verification of title ownership. It deploys its
pool of competent counsels. It also undertakes
physical verification of the land to be acquired for
ascertaining the development.
4. Credit Risk:
a. Risk: Risk to earnings arising from vendor’s
(borrower’s) failure to meet the terms as stated
in the contract. A vendor may not be able or
willing to meet the commitment as indicated in
the contract.
b. Mitigation Plan: Given the strong history and
lineage of Peninsula Land, the company has
developed a list of preferred vendors and strong
working relationship with them. The company
due to its close association is also aware of their
financial condition.
5. Input Price Risk
a. Risk: Risk to earnings arising from the volatility in
the price of input. Many of the real estate projects
are usually sold on “no price escalation” basis,
leaving the adverse impact of rise in input cost
to be borne by the Company. Also given that
real estate projects generally are long gestation
project, the likely hood of such event happening
is high.
b. Mitigation Plan: Peninsula Land takes this risk
into account at the time of launch, and usually
sells the projects it offers, in a phased manner.
The phases launched later cover the rise in cost
of construction due to higher ticket size.
