Alacrity Housing - Ethics First

Details

Themes: Coporate Governance
Period : 1990 - 2001
Organization : Alacrity Foundations Pvt. Ltd.
Pub Date : 2001
Countries : India
Industry : Housing and Construction

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Case Code : CGOV002
Case Length : 12 Pages
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Background Note Contd...

The customers thanked Alacrity not only for the good housing complex but also for the manner in which it was delivered. Karnad commented, "The publicity and the goodwill that we gained out of this story being told and retold more than justified the expenditure incurred in liquidated damages as an effective advertisement cost."

In another incident, the Chennai Metropolitan Development Authority (CMDA) did not withdraw a 'stop-work order' for a long time. The order was issued misguidedly against one of Alacrity's projects that also affected the processing of its new applications.

Alacrity resolved the problem, by addressing a letter to the Member Secretary of the CMDA (Refer Box for the concluding excerpt of the letter). The maturity and understanding displayed by Alacrity was applauded by the CMDA. A year later, CMDA approached Alacrity to carry out a study for improving the efficiency of its own approval procedures.

"Given the general ignorance and apathy of the environment at large, the task of town planning and urban development appears to us to be ambitious in itself. For its successful performance we would require to organise and direct all the available strengths in human resources, irrespective of whether they come from the private sector or government sector. These strengths would include:
• the stringency of the Development Control Rules,
• the procedural discipline of the 'green channel',
• the belief and conviction of honest entrepreneurship,
• and the commitment and enthusiasm of both government authority and private enterprise

Even more important, we believe, it will require an appropriate perspective in implementation which does not allow procedural lapses on either side to develop into a loss of mutual confidence.

By the middle of 1988, Alacrity would have completed more than 40 projects within the city, all of which would manifest the inherent values of the Development Control Rules. The apartments in these projects would have been priced nearly Rs.100/- per square feet less than the price charged by others for comparable quality and service, thereby laying to rest the myth that the Development Control Rules can be observed only at a prohibitive cost to the consumer. If, by then, Alacrity's buildings along with the constructions of other like-minded builders accounted for even 25% of the total area put up by apartment builders in the city, the Development Control Rules would be well on the way to gaining popular acceptance."

During its initial years, Alacrity continuously posted a net loss. In the first year of its operations, Alacrity reported a loss of Rs 42 lakhs. Karnad was surprised as he had followed the principle of moderation. Employee salaries were low and everybody led a fairly simple life style. Karnad called the loss product/business development cost.

In 1990, Alacrity reported a loss of Rs 32.5 million in its housing business. Though the company's revenues were growing rapidly, productivity had come down considerably. And due to huge losses, the company faced a cash crisis. Since no financial institution was ready to help the company, Alacrity decided to go public. In 1992, Alacrity incorporated Alacrity Housing Ltd., and transferred the ongoing housing business to the latter. In the same year, Alacrity Housing came out with a public issue. Alacrity had a 20% stake in Alacrity Housing Ltd. After the initial public offering, much of Alacrity Housing's financial problems were solved. In the next 2-3 years, Alacrity Housing declared dividends and established itself in the market.

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