Category: Excerpts

“Most people do not realise how difficult the ice cream industry is. It is capital-intensive in nature with a long gestation period,” he says morosely. Top that up with a mediocre 2-3% net profit margin that most players in this industry, including Vadilal, bring to the table and the result isn’t as sweet as you’d expect. “It is so challenging that there is not too much money available to the promoters,” says Gandhi with a wry smile. What is available, though, is far from insubstantial — Gandhi’s income is not restricted to just his salary or dividend from the approximately 22% stake he holds in Vadilal Industries. “There is also some money that comes through partnership firms and royalty from the Vadilal brand,” he says, without giving away details.

And most of it, since the early 1980s, has been invested in land. More precisely, agricultural land. “People might think this is an unconventional kind of investment but it is one that has worked for the family. It started off as an experiment the first time and now this is a big part of our personal portfolio,” he says. It certainly is: land accounts for 80% of the Gandhi family portfolio, with the rest distributed in more predictable avenues such as FDs or cash, with equity being the smallest component. “Equity is a volatile investment and my mindset is not in line with that. Land is more stable and offers a steady return,” rationalises Gandhi

Gandhi’s views are just reflective of the state of the market that we find ourselves in: over the past five years, the Sensex has just about managed to yield around 16% return. As for the other asset classes, the recent National Spot Exchange fiasco has taken the sheen off commodities, while volatility has left investors with marked-to-market losses in fixed income as yields suddenly spiked when foreign investors pulled out money from the debt market. Against such a backdrop, the preference for real estate has continued, despite concerns of a bubble building up in the sector.

In the case of the Gandhis, at any point in time, the family owns at least 100 acres of agricultural land in Gujarat, at places such as Gota, Bardoli and Bavla. “We have sold about 10% of our holding to date for a reasonable return,” says Gandhi. “Reasonable” here is defined as 1.5 times the number of years the asset has been owned; that is, land held over a five-year period has given a return of close to eight times. The 10% that was sold was in the form of plots of 400-500 sq yards, apart from 15 fully constructed bungalows. Gandhi is no hurry to monetise the rest of his land holding. “It is not just about making money right away. This allows us the option of possibly looking at an area like property development at a later date. We want to keep our options open,” he says.

Gandhi is only one of the many wealthy entrepreneurs Outlook Business spoke with who were convinced of the merits of real estate, in one form or the other. Consider CK Ranganathan. “In the long run, I am convinced no asset class can beat real estate,” says the chairman and managing director of the Rs 1,000-crore FMCG rising star, CavinKare. As much as 95% of his personal wealth is in real estate, where Ranganathan prefers buying land to residential or commercial buildings. “Land offers the best returns,” he declares. The tilt towards this asset class came after he tried investing in stocks, financial instruments and commodities between 2005 and 2007. After the 2008 meltdown, the 52-year-old Ranganathan recalled his grandparents’ advice to him as a youngster. “They always advised me to buy land, and I decided that was the best thing to do. Asset allocation changed from 50% in stocks in 2007-08 to 95% in real estate,” he goes on to say. The remaining 5% is divided between gold and stocks.-from OutlookBusiness