Daiwa June Initiating

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IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCHCERTIFICATIONS, ARE PROVIDED ON THE LAST TWO PAGES OF THIS REPORT.

Global Equity Research

Industry Report

15 June 2010 (No. of pages: 73)

India Property Sector Construction & real estate: India

Positive

Amit Agarwal(91) 22 6622 1063

[email protected]

Initiation of coverage: slow and steady revival

Summary

Optimism in the market about an improving domestic economy and sentiment towardInformation Technology/Information Technology Enabled Services (IT/ITES) have led to a

revival in demand for housing. We initiate coverage of the India Property Sector with a

Positive rating, due to the revival of housing demand, improving balance sheets of most

property companies, and signs of a recovery in the commercial property sector. We have 1

(Buy ) ratings for Puravankara Projects (Puravankara), Orbit and Anant Raj Industries (Anant

Raj), and 3 (Hold ) ratings for DLF, Unitech and Housing Development & Infrastructure (HDIL).

We see revival in demand driven by an improving economy and IT/ITES sector: An

improving economy and sentiment toward the IT/ITES sector are driving demand for housing.

Residential sales have increased steadily over the past year, and inquiries in the commercialsegment continue to rise.

Improving balance sheets: Rising demand for residential property and an improvement in

companies’ ability to raise funds from the capital markets have helped to improve the balance

sheets of real-estate companies due to the improvement in cash flow. We expect the pick-up

in the commercial sector to lead to further improvements in the balance sheets of real-estate

companies.

We see the main share-price drivers as: 1) a pick-up in commercial-property leasing/sales

volume, and 2) an improvement in companies’ ability to raise funds in the capital markets.

We see the main risks as: 1) an international macro-economic slowdown that would lead to

lower hiring in the IT/ITES sector and sentiment weakening, and 2) interest rates rising.

India Property Sector: valuation summaryPER (x) EV/EBITDA (x) Dividend yield (%)Company

nameBloombergcode

Share price(local curr.) Rating

Target pri ce(local curr.)

+/-(%)

Year end 2009 2010E 2011E 2012E 2009 2010E 2011E 2012E 2009 2010E 2011E 2012E

Anant Raj Industries ARCP IN 105.80 1 159.00 50.3 Mar 15.1 13.1 16.6 10.7 12.6 11.0 14.5 8.7 0.6 0.2 0.2 0.2

DLF DLFU IN 258.20 3 278.00 7.7 Mar 9.8 25.3 31.5 13.9 10.5 18.4 18.8 10.8 0.1 0.1 0.1 0.1

HDIL HDIL IN 218.55 3 226.00 3.4 Mar 8.9 14.1 10.4 9.5 13.0 14.1 12.2 8.8 0.0 0.0 0.8 2.3

Orbit ORB IN 247.20 1 367.00 48.5 Mar 25.2 14.3 9.9 6.1 11.8 11.7 7.4 4.8 0.0 0.9 1.0 1.0

Puravankara Projects PVKP IN 102.60 1 150.00 46.2 Mar 15.2 15.1 17.7 12.6 21.8 17.7 20.9 12.8 0.0 1.0 0.5 1.5Unitech UT IN 69.05 3 77.00 11.5 Mar 9.4 23.8 22.5 17.4 12.6 20.7 20.5 14.6 0.3 0.3 0.3 0.4

Source: Company, Daiwa forecasts Note: based on share prices at the close on 9 June 2010



Amit Agarwal (91) 22 6622 1063 India Property Sector 2

Contents

The three most important charts in this report ... ..............................................................3

Executive summary...........................................................................................................4

Sector recovery – slow and steady....................................................................................5

An improving economy.............................................................................................5

IT/ITES has started hiring and salaries are rising......................................................5

Improving sentiment..................................................................................................6

Key factors likely to inhibit a recovery in the short term ..........................................6

Company comparison .......................................................................................................9

Landbank comparison................................................................................................9

NAV comparison by location ....................................................................................9

Peer valuation comparison.......................................................................................10

Company section

Anant Raj Industries ................................................................................................11

DLF..........................................................................................................................19Housing Development & Infrastructure ..................................................................28

Orbit .........................................................................................................................38

Puravankara Projects ...............................................................................................49

Unitech.....................................................................................................................60




The three most important charts in this report ...

Peer valuation comparisonShareprice

Shareso/s*

Marketcap. EPS (Rs) PER (x) PBR (x) ROCE (%) NAV

Premium/discount

Company name (Rs) (m) (Rs m) FY12E FY12E FY12E FY12E FY12E to NAV

DLF Ltd 258 1,697 437,876 18.6 13.9 1.8 11 278 (7)

Unitech Ltd 69 2,616 180,525 4.0 17.4 1.4 8 77 (10)

Orbit 247 55 13,580 40.3 6.1 1.2 18 367 (33)

Anant Raj 106 315 33,352 9.9 10.7 0.8 8 159 (33)

HDIL 219 372 81,062 23.1 9.4 0.9 10 226 (4)

Puravankara Projects Ltd 103 213 21,983 8.1 12.6 1.3 10 150 (31)

Source: Bombay Stock Exchange (BSE), Daiwa forecasts, * on a fully-diluted basisNote: based on share prices at the close of 9 June 2010Note: The shares of Orbit are not fully-diluted since the recent issue of 1:1 bonus shares will be effective from the date of Annual GeneralMeeting in June 2010. We will update our NAV and target price after it becomes effective

YoY changes in hiring by Infosys, TCS, and Wipro (IT/ITES companies)

(40)%

(20)%

0%

20%

40%

60%

80%

FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E

Source: Infosys, TCS, Wipro, Daiwa forecasts

Commercial vacancy rates (%) for Mumbai, NCR and Bangalore

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

CY2006 CY2007 CY2008 CY2009 1Q CY10

Mumbai NCR Bangalore

Source: Cushman and Wakefield




Executive summary

We initiate coverage of the India property sector with a Positive rating. In our view,the sector is poised for a recovery, due to a pick-up in demand driven by animproving economy and IT/ITES sector, signs of a recovery in the commercialsegment, and improving balance-sheet health. We initiate coverage of Puravankara,Orbit and Anant Raj with 1 ( Buy) ratings, and DLF, Unitech and HDIL with 3

( Hold ) ratings.

The above stocks have underperformed the SENSEX for the year to date, as webelieve they had run ahead of the fundamentals and therefore correctedsubsequently.

Stock performance relative to the SENSEX (%)1M 3M 6M

DLF Ltd (8.7) (15.2) (30.7)

Unitech Ltd (5.2) (5.9) (20.7)

HDIL (7.7) (27.4) (34.8)

Puravankara 1.6 1.5 9.2

Orbit Corp Ltd (13.5) (6.3) (11.6)

Anant Raj (11.3) (22.3) (19.2) Source: Bloomberg

Residential sales volume has improved; prices are stable

Residential sales volume has recovered from the trough in December 2008-January2009, although it is still 50-80% below the peak level. The revival in demand isbeing driven partially by the recovery in the IT/ITES sector as a result of increasedhiring and higher salaries, which has resulted in better job security, and partially bythe shift in developers’ focus to more affordable housing. However, with weak demand for commercial and retail property, the developers are depending onresidential sales to maintain cash flow, which we believe could lead toovercapacity and limit the upside potential for prices.

Commercial segment is improving

Our channel checks and discussions with various industry professionals indicatethat while there has been an increase in enquiries in the commercial sector, actualsales/rental volumes remain low, which has resulted in vacancy rates remaininghigh. We expect sales/rental volumes to improve from 1H11 onward.

Balance-sheet restructuring – slow and steady

The balance sheets of most of the property companies have continued to improvesince the trough in the property cycle in 4Q FY09, helped partially by being able toraise cash from the capital markets, which has enabled companies to reduce their

debt. Debtor amounts on balance sheet are declining and customer advances havestarted to increase, which have helped them meet their construction commitments.Credit ratios also look healthier, in our view.

Key share-price driver

We see an improvement in office leasing/sales as one of the main positive driversfor share prices for the sector, as we believe this would also signify an increase inhiring and implies an increase in demand for housing. Further, successful capitalraising by companies would help reduce debt and improve cash flow, in ouropinion.

Risks

We see the main risks to our views as: 1) an international macro-economicslowdown that would lead to lower hiring in the IT/ITES sector and sentimentweakening, and 2) interest rates rising.




Sector recovery – slow and steady

We believe we are witnessing a slow but steady recovery in the sector.

We are optimistic about the Indian economy, and expect the improvement indemand for IT/ITES to drive demand growth in the sector. The key reasons for our

optimism about the sector are: • the improving economy,

• hiring has resumed for the IT/ITES sector and salaries are increasing, and

• improving sentiment among potential buyers.

However, we see the main concerns as:

• continued weakness in the commercial and retail sectors, which has led toincreased pressure on companies to maintain cash flow from the sale of residential space,

• our expectation that an oversupply of newly-launched residential space couldlimit the upside potential for prices and thus NAV accretion over the next sixmonths,

• the balance sheets of companies in the sector are improving but remain weak,and

• concerns in the market about the macro-economic situation.

An improving economy

India’s economy expanded by 7.4% for FY10 compared with 6.7% for FY09. Theincrease was driven by rises in industrial production, up 10.4% YoY (compared

with 2.8% YoY for FY09), and manufacturing, up 10.9% YoY (FY09: 2.8% YoY).The expansion in the manufacturing sector was due mainly to an increase in capitalgoods, of 19.2% YoY (FY09: 7.3% YoY), and consumer durables, up 26.1% YoY(FY09: 4.5%).

Daiwa’s chief economist for Asia (ex-Japan), P.K Basu, forecasts India’s GDPgrowth to accelerate to 9.3% YoY for FY11 from 7.4% YoY for FY10. During arecent presentation, he said ‘We think the five-year moving average of real GDPgrowth (8.5%) is the new potential growth rate – especially as the gross domesticinvestment rate has risen to 36% at present (from 25% five years ago) on the back of an increase in investment, which is reflected in the continued strength of capital-goods output and imports over the past five years (the gross domestic savings rate

is 35%)’. The economic growth is visible, with hiring plans increasing acrossvarious industries, rising salaries and improving sentiment. Certain service sectorsare also witnessing a revival, with the IT/ITES sector ramping up hiring plans andraising salaries. The strong pick-up in sales of consumer durables (26.1% YoY forFY10, compared with 4.5% YoY for FY09) suggests an improvement in overallconsumer sentiment.

IT/ITES has started hiring and salaries are rising

The IT/ITES sector accounts for about 50-70% of demand in India’s propertysector. Since the detailed numbers are not available, our view is based on ourdiscussion with industry experts and anecdotal evidence. The following chart

shows the increase in planned hiring by the IT/ITES major companies (TCS,Infosys, Wipro) in FY11, and we believe that it indicates renewed confidence in arevival in the industry.

GDP increased by 7.4%YoY for FY10 compared

with 6.7% YoY for FY09

Daiwa’s chief economist for Asia (ex-Japan) forecasts GDP growth to accelerate to 9.3%YoY for FY11




The following chart shows that the pace of hiring declined sharply between 2008and 2010 due to the weak macro-economic climate. The three companies recordeda combined drop of 18% YoY for FY08, a 1% YoY rebound for FY09, followedby a further 33% YoY decline for FY10. R. Ravi, our IT analyst, expects hiring inthe sector to increase by 71% YoY for FY11 and 15% YoY for FY12.

Change in hiring (YoY) for Infosys, TCS and Wipro

(40)%

(20)%

0%

20%

40%

60%

80%


Source: Companies, Daiwa forecasts

Improving sentiment

The improving outlook for the domestic economy and the pick-up in the IT/ITESsector have resulted in an improvement in sentiment due to rising salaries andincreased job security, which usually drive residential sales. However, purchasersremain price-conscious, and any price increases are being met with declines in

sales volume.

Key factors likely to inhibit a recovery in the short term

Balance-sheet ratios improving, but still weak

Most real-estate companies in India took on large amounts of debt during theprevious bullish phase to fund their aggressive expansion plans. With the collapseof the real-estate market, cash flow became strained due to substantial debts andinterest payments, combined with business commitments. With the revival of salesvolume, the strains on cash flow have eased somewhat, but balance sheets are stillweak. We attribute this partially to continued weakness in the commercial andretail segments.

Residential sales volume improving, but stable residential priceslimit the NAV upside potential

Our interaction with brokers indicates that demand, while improving, is stillsignificantly lower than it was at peak levels. To give an idea of the improvementin demand in Gurgaon, which is located in the National Capital Region (NCR), if the peak sales volume in 2007 was 100 units a month, it dropped to 0-5units/month in December 2008-January 2009, and stands currently at 50units/month.

In Bangalore, performing a similar exercise, if 100 units were sold in the peak period, the trough was 0-5 units per month, and sales are currently around 20-25units per month. Therefore, while sales have improved since the trough, they arestill 50-75% below peak levels.

Balance sheets areimproving but still weak

Sales volume hasimproved, but remains

significantly lower than peak levels




In Mumbai, housing registrations with the local Government show that the housingsales volume increased sharply in May-June 2009, but has trended downward sincethen due to price increases by developers.

Due to weak demand in the commercial and retail segments, most developers havebeen focussing on the affordable residential segment to maintain cash flow to meettheir contractual obligations. Many developers have undertaken aggressive projectlaunches over the past year. Our interaction with industry participants suggests thatabout 50% of the units launched have been bought by investors/speculators.

The prices of these newly-launched projects remain range-bound, depending on thelocation. However, we have seen increases in prices of completed/nearly-completeproperties, but they are not relevant since we assume that the cash inflow is alreadyreflected in the balance sheet since the payment is made at pre-sale. The mainreason for this is that during the recession many projects were delayed, leading to abuyer preference for completed units. Also, nearly-complete/complete unitsrepresent only 10-20% of the total housing inventory.

In our opinion, the combined impact of oversupply due to aggressive project

launches by developers and rising, but still-low end-user demand, will limit theupside potential for prices. Also, purchasers have become extremely price-conscious, and any price increases are being met by declining volume.

Signs of a recovery in the commercial segment

The following chart shows the commercial-property vacancy rates in three keymarkets: Mumbai, NCR and Bangalore. Demand for commercial property is stilllukewarm, but we expect it to improve. During our discussions with propertyindustry participants, they indicated that while enquiries have increased sharply,the actual increase in rental volume remains limited. The main reason for the slowincrease is the lead time of about one year between when a company decides toincrease the space it hires to the actual hiring of the space. With the pick-up in the

IT/ITES sector, we expect rental volume to increase from first quarter of 2010.

Commercial vacancy rates in key markets

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

1 Q 0 8

2 Q 0 8

3 Q 0 8

4 Q 0 8

1 Q 0 9

2 Q 0 9

3 Q 0 9

4 Q 0 9

1 Q 1 0



The graph shows the actual commercial space which has been rented during 2003-1Q10. The actual commercial space rented reduced in FY08 and FY09, but hasshown signs of stabilisation in 1QCY10. The actual rental volumes have increasedin 1Q CY10 in Bangalore, indicating the optimistic outlook of IT/ITES companies.

We believe that the decline in the rental volumes in Mumbai is due to stock-marketweakness as a result of international economic trends. The Mumbai market isdriven primarily by the confidence of the financial services industry, which hastaken a hit recently due to international economic trends.

Developers launching projects aggressively to maintain cash flow as commercial and retail segments remain weak

Prices of new launches are range-bound; nearly complete/completed properties have seenincrease in prices

Consequent oversupply

will likely restrict the price increases, limiting the rises in NAV

Enquiries for commercial property areincreasing, but demand

has yet to reflect this




Rental volume (m sq ft)

0

2

4

6

8

10

12

C Y 2 0 0 3

C Y 2 0 0 4

C Y 2 0 0 5

C Y 2 0 0 6

C Y 2 0 0 7

C Y 1 Q 0 8

C Y 2 Q 0 8

C Y 3 Q 0 8

C Y 4 Q 0 8

C Y 1 Q 0 9

C Y 2 Q 0 9

C Y 3 Q 0 9

C Y 4 Q 0 9

C Y 1 Q 1 0



We see the main share-price drivers as:

1) a pick-up in commercial-property leasing/sales volume, and2) an improvement in companies’ ability to raise funds in the capital markets.




Company comparison

Landbank comparison

In the following table, we show the spread of landbank volume for the companiesthat we cover by location (city). While DLF and Anant Raj focus primarily on

NCR (which is comprised of Delhi, Gurgaon, Manesar, Bahadurgarh, Noida,Greater Noida and Faridabad), HDIL and Orbit focus on Mumbai, whilePuravankara is the only company under our coverage that focuses on South India.We prefer the locations of the landbank of Anant Raj, as a large percentage of itslandbank in NCR is located in prime locations of Delhi, compared with DLF whichhas most of its landbank in Gurgaon.

We expect HDIL and Orbit to benefit from the expansion of the financial-servicessector, since they are located in Mumbai. We prefer the landbank of Orbit to that of HDIL, because most of the former’s landbank is located in South and CentralMumbai, where prices are the highest in India.

Spread of landbank volume (%) by locationLocation DLF Unitech HDIL Anant Raj Orbit Puravankara

NCR 63 25 0 87 0 0Goa 5 0 0 0 0 0Chennai 3 15 0 0 0 12Kochi 1 1 8 0 0 10Bangalore 3 1 0 0 0 66Hyderabad 1 9 4 0 0 5Mumbai 1 0 88 0 100 0Vizag 0 23 0 0 0 0Kolkata 2 5 0 0 0 1Others 21 21 1 13 0 6Total 100 100 100 100 100 100m sq ft 404 420 193 66 6 115

Source: Companies

Spread of land bank volume (%) by cities in NCRLocation DLF Unitech HDIL Anant Raj Orbit Puravankara

Delhi 1 0 0 27 0 0Gurgaon 59 16 0 1 0 0Noida 2 5 0 4 0 0Greater Noida 0 3 0 0 0 0Faridabad/Bahadurgarh 0 0 0 3 0 0Manesar 0 0 0 52 0 0NCR 63 25 0 87 0 0

Source: Companies

NAV comparison by location

In the following table, we show the NAVs of all the companies we cover in thesector by location. While the NCR accounts for 63% of the total landbank of DLF, itmakes up 73% of the total NAV. For Anant Raj, the NCR accounts for 87% of thetotal landbank and 89% to the total NAV. For Orbit and HDIL, the biggestcontributor to the landbank and NAV is Mumbai, and for Puravankara it is Bangalore.

Spread of NAV (%) by LocationLocation DLF Unitech HDIL Anant Raj Orbit Puravankara

NCR 73 32 0 89 0 0Goa 2 0 0 0 0 0Chennai 0 16 0 0 0 13Kochi 0 2 11 0 0 9Bangalore 1 1 0 0 0 66Hyderabad 0 9 6 0 0 6Mumbai 7 0 83 0 100 0

Vizag 0 13 0 0 0 0Kolkata 0 4 0 0 0 0Others 16 24 0 11 0 4m sq ft 706,599 201,069 109,057 41,770 24,777 41,633

Source: Daiwa estimates




Peer valuation comparison

In the following chart, we provide a valuation summary of all the companies in thesector that we cover. We prefer to value companies using our end-FY12 NAVforecast, since this reflects the key aspect of the location of the landbank. In ouropinion, PER is not a good valuation methodology for real-estate companies due to

the usual wide fluctuations in earnings. A PBR approach does not take into accountthe location of the landbank, which is the key for any real-estate company.

We value all the companies at 1x our end-FY12 NAV forecast. Since 2007, DLFhas been the market leader, and all of its peers normally trade at a discount to DLF.However, its weak balance sheet and the slow revival of the commercial-propertysector (about 30% of DLF’s landbank is for commercial property) has led us tovalue DLF on a par with its peers. However, we would expect the valuationpremium afforded to DLF previously to re-emerge with an improvement in itsbalance sheet and a further pick-up in the commercial-property sector.

Our table shows that DLF, Unitech and HDIL are trading at around our end-FY12NAV forecasts, and therefore we have 3 ( Hold ) ratings on the stocks. On a PBR

basis, DLF and Unitech are the most expensive among their peers. While HDIL isattractive on PBR and PER bases, the stock is trading at close to our end-FY12NAV forecast. Our 3 ( Hold ) rating is supported by cash-flow concerns arising fromland acquisition and cash outflows for the airport project where the returns arelikely to be mostly back-end loaded.

We have a 1 ( Buy) rating for Orbit, since the stock is trading currently at a steepdiscount to our end-FY12 NAV forecast. Our recommendation is supported bywhat we believe as an attractive land bank, since this is located primarily in Southand Central Mumbai, which command among the highest prices in India.

We like Puravankara, as we believe it is attractive compared with our NAV-based

target price, and is well positioned to benefit from the expansion of the IT/ITESsector as its landbank is located primarily in IT/ITES-centric cities in South India.Anant Raj is also priced attractively relative to its NAV, in our opinion, and is wellsupported by an attractive landbank located in Delhi.

Peer valuation comparison

Share priceShares

o/s* Market cap. EPS (Rs) PER (x) PBR (x) ROCE (%) NAV Premi um/ discount

Company name (Rs) (m) (Rs m) FY12E FY12E FY12E FY12E FY12E to NAV

DLF Ltd 258 1,697 437,876 18.6 13.9 1.8 11 278 (7)Unitech Ltd 69 2,616 180,525 4.0 17.4 1.4 8 77 (10)Orbit 247 55 13,580 40.3 6.1 1.2 18 367 (33)Anant Raj 106 315 33,352 9.9 10.7 0.8 8 159 (33)HDIL 218 372 81,062 23.1 9.4 0.9 10 226 (4)

Puravankara Projects Ltd 103 213 21,983 8.1 12.6 1.3 10 150 (31)Source: Bombay Stock Exchange (BSE), Daiwa forecasts, * on a fully-diluted basis*Note: based on share prices at the close of 9 June 2010Note: The shares of Orbit are not fully-diluted since the recent issue of 1:1 bonus shares will be effective from the date of Annual GeneralMeeting in June 2010. We will update our NAV and target price after it becomes effective




Anant Raj Industries(ARCP IN) Materials: India

6-mth rating: 1Target price: Rs159.00

Share price: Rs105.80 (9 Jun)

Amit Agarwal(91) 22 6622 1063

[email protected]

Initiation of coverage: cash-rich

Coverage initiated with a 1 rating

We initiate coverage of Anant Raj with a 1 ( Buy) rating and six-

month target price of Rs159 based on 1x our end-FY12 NAV

forecast. Our rating is supported by what we consider a strong

balance sheet (net cash), an attractive landbank and theexperienced management. At our target price the stock would

trade at PERs of 25x and 16x on our FY11 and FY12 earnings

forecasts.

The company has a total landbank of 66m sq ft. About 90% is

located in the NCR with 27% of that in attractive locations in

Delhi.

It has maintained a net-cash balance throughout the recession

even as its peers were struggling to meet their debt commitmentsdue to weak sales volume.

Earnings and valuation

For FY10-13, we forecast a sales CAGR of 41% and an earnings

CAGR of 20%. The earnings growth is lower as we expect a

decline in the EBITDA margin (90% to about 60%) as the

impact of low-cost landbank declines.

The stock offers 50% upside potential to our target price from

the current level of Rs105.80. In terms of PBR, we believe the

stock is attractive relative to its peers, as it is trading currently at

0.9x and 0.8x our FY11 and FY12 BVPS forecasts, respectively.

The risks to our rating and forecasts are: 1) a slowdown in the

economy, and 2) the international macro-economic situation.

Reuters code ANRA.NS

Market dataSENSEX Index 16,657.89Market cap (US$m) 662.91EV (US$m; 10E) 607.323-mth avg daily T/O (US$t) 971.71Shares outstanding (m) 295Free float (%) 0.4Major shareholder Promoter family (61.4%)Exchange rate Rs/US$ 47.025

Performanc e (%)* 1M 3M 6M

Absolute (11.9) (24.1) (21.4)Relative (11.3) (22.3) (19.2)

Source: DaiwaNote: *Relative to SENSEX Index

Investment indicators2010E 2011E 2012E

PER (x) 13.1 16.6 10.7PCFR (x) 6.9 24.6 13.3EV/EBITDA (x) 11.0 14.5 8.7PBR (x) 0.9 0.9 0.8Dividend yield (%) 0.2 0.2 0.2ROE (%) 6.9 5.4 7.6ROA (%) 6.2 4.8 7.0Net debt equity (%) net cash net cash net cash

Source: Daiwa forecasts

Price and relative performance

0.0100.0200.0300.0400.0

07/6 07/12 08/6 08/12 09/6 09/12 10/6

(Rs)

03875113150

Rel to SENSEX Index

Source: Bloomberg, Daiwa

Income summaryRevenue EBITDA Net prof it EPS CFPS DPS

Year to 31 Mar (Rs m) (%) (Rs m) (%) (Rs m) (%) (Rs) (%) (Rs) (Rs)

2008 6,038 190.2 5,620 217.5 4,364 247.8 14.810 182.3 (2.598) 1.502 2009 2,508 (58.5) 2,207 (60.7) 2,071 (52.5) 7.028 (52.5) 5.360 0.601 2010E 2,863 14.2 2,586 17.2 2,386 15.2 8.098 15.2 15.391 0.202 2011E 3,533 23.4 2,017 (22.0) 2,010 (15.8) 6.388 (21.1) 4.308 0.160 2012E 5,492 55.4 3,422 69.7 3,108 54.6 9.877 54.6 7.949 0.247

Source: Company, Daiwa forecasts




Company background

Anant Raj is engaged primarily in the development and sale of residential, commercial and retail properties, and the lease of retail and

commercial properties in India.

Anant Raj Industries – financial summary

Profit and loss (Rs m) Balance sheet (Rs m)Year to 31 Mar 2008 2009 2010E 2011E 2012E

Revenue from Real Estate sales 5,678 2,193 2,295 2,543 3,514

Revenue from rental receipts 108 160 490 521 1,447

Other revenue 251 155 79 469 531

Total reven ue 6,038 2,508 2,863 3,533 5,492

Other income 0 0 0 0 0

COGS (232) (100) (27) (1,240) (1,730)

SG&A (185) (201) (250) (277) (340)

Other op. expenses (82) (86) (107) (132) (153)EBIT 5,538 2,121 2,479 1,884 3,269

Net-interest inc./(exp.) 196 603 342 463 435Assoc/forex/extraord./others 67 93 144 151 159

Pre-tax pro fit 5,800 2,817 2,965 2,498 3,864

Tax (1,438) (733) (581) (489) (756)

Min. int./pref. div./others 2 (13) 1 1 1Net prof it (reported) 4,364 2,071 2,386 2,010 3,108

Net pro fi t (adj.) 4,364 2,071 2,386 2,010 3,108

EPS (reported ) (Rs) 14.810 7.028 8.098 6.388 9.877

EPS (adj.) (Rs) 14.810 7.028 8.098 6.388 9.877

DPS (Rs) 1.502 0.601 0.202 0.160 0.247

EBIT (adj.) 5,538 2,121 2,479 1,884 3,269

EBITDA (adj.) 5,620 2,207 2,586 2,017 3,422

As at 31 Mar 2008 2009 2010E 2011E 2012E

Cash & short-term investment 6,048 6,257 4,860 6,342 5,789

Inventory 777 126 118 118 118

Accounts receivable 3,098 2,405 2,396 2,904 4,502

Other current assets 4,443 4,517 2,742 2,164 1,469Total cu rren t asset s 14,366 13,305 10,116 11,528 11,877

Fixed assets 16,208 20,824 26,922 28,372 31,618

Goodwill & intangibles 0 0 0 0 0

Other non-current assets 1,492 3,143 3,004 3,004 3,004Total assets 32,067 37,273 40,042 42,903 46,499

Short-term debt 0 0 0 0 0Accounts payable 197 99 833 680 946

Other current liabilities 2,261 1,161 1,047 806 1,118Total current liabil ities 2,458 1,260 1,880 1,486 2,064

Long-term debt 580 2,102 1,390 1,390 1,390

Other non-current liabilities 19 26 9 9 9

Total liabi liti es 3,057 3,388 3,279 2,885 3,463

Share capital 591 767 1,184 789 789

Reserves/R.E./others 28,415 32,431 34,722 38,373 41,390

Shareholders ' equity 29,006 33,198 35,906 39,162 42,179

Minority interests 3 687 856 856 856Total equity & liabil ities 32,067 37,273 40,042 42,903 46,499

Net debt /(cash) (5,467) (4,155) (3,470) (4,952) (4,399)

Cash flow (Rs m)Year to 31 Mar 2008 2009 2010E 2011E 2012E

Profit before tax 5,800 2,817 2,965 2,498 3,864

Depreciation and amortisation 82 86 107 132 153

Tax paid (1,438) (733) (581) (489) (756)

Change in working capital (5,223) 72 2,413 (324) (325)

Other operational CF items 13 (663) (369) (462) (435)

Cash flow from operation s (765) 1,579 4,535 1,355 2,501

Capex (3,588) (4,703) (6,205) (1,582) (3,399)

Net (acquisitions)/disposal (573) (1,605) 143 0 0

Other investing CF items (1) 691 152 0 0Cash flow from invest ing (4,162) (5,617) (5,909) (1,582) (3,399)

Change in debt (2,823) 1,522 (712) 0 0

Net share issues/(repurchases) 13,494 2,330 417 1,305 0

Dividends paid (518) (207) (70) (59) (91)Other financing CF items 196 603 342 463 435

Cash flow from financ ing 10,350 4,248 (23) 1,709 344

Forex effect/others 0 0 0 0 0

Chang e in cash 5,422 210 (1,397) 1,482 (554)

Key ratiosYear to 31 Mar 2008 2009 2010E 2011E 2012E

Sales – YoY % 190.2 (58.5) 14.2 23.4 55.4

EBITDA (adj.) – YoY % 217.5 (60.7) 17.2 (22.0) 69.7

Net profit (adj.) – YoY % 247.8 (52.5) 15.2 (15.8) 54.6

EPS (adj.) – YoY % 182.3 (52.5) 15.2 (21.1) 54.6

EBITDA margin % (adj.) 93.1 88.0 90.3 57.1 62.3

EBIT margin % (adj.) 91.7 84.6 86.6 53.3 59.5

Net-profit margin % (adj.) 72.3 82.6 83.3 56.9 56.6

ROAE (%) 21.5 6.7 6.9 5.4 7.6

ROAA (%) 17.5 6.0 6.2 4.8 7.0

ROCE (%) 24.8 6.5 6.7 4.7 7.6

ROIC (%) 21.9 5.9 6.3 4.4 7.1

Net debt to equity (%) net cash net cash net cash net cash net cash

Effective tax rate (%) 24.8 26.0 19.6 19.6 19.6Accounts receivable (days) 97.2 400.5 306.1 273.8 246.1

Payables (days) 6.7 21.5 59.4 78.2 54.0

Net interest cover (x) n.a. n.a. n.a. n.a. n.a.

Net dividend payout (%) 10.1 8.5 2.5 2.5 2.5

Key assumptionsYear to 31 Mar 2008 2009 2010E 2011E 2012E

Avg price - Residential Gurgaon(Rs/sq ft) n.a. n.a. n.a.

2,100 2,205

Avg price - Residential Delhi(Rs/sq ft) n.a. n.a. n.a.

21,000 22,050

Sale residential (mn sq ft) n.a. n.a. n.a. 0.3 0.4

PER bands

51.9x39.0x26.1x13.1x0.2x0

200

400

600

800

Mar-06 Mar-07 Mar-08 Mar-09 Mar-10

(Rs)

Source: Company, Daiwa forecastsNote: Detailed balance sheet and cash flow statements have not been published as yet.




A brief introduction to the company

Anant Raj was established in 1969 and is in engaged in property and infrastructure

development in India, with a focus on the NCR. The company has a landbank of

982 acres, of which 525 acres are in Delhi and 90% of the remainder is within

30km of the capital.

Valuation

We initiate coverage of Anant Raj with a 1 ( Buy) rating and six-month target priceof Rs159 based on 1x our end-FY12 NAV forecast. Our calculation for the NAV isas follows.

• We divided its entire landbank into projects, based on the information providedby the company.

• We calculated the sales price/sq ft and forecast the sales volume for each projectbased on our assessment of the market.

• We assumed an annual inflation rate on the sales and cost prices of 5%.

• From the sales price, we deducted the cost of construction. We arrived at ourcost estimates after discussions with industry experts.

• We also deducted marketing and other costs that we assumed to amount to 4%of the sales revenue.

• We then deducted income tax based on the tax applicable for the project.

• The resultant cash flow was discounted based on a WACC of 14%. We addedthe resultant project level NAV for all the projects to arrive at the NAV of thecompany.

• To the NAV we added the land cost for the landbank earmarked for future hotels

and added our forecast of the net cash as at the end of FY12 to arrive at ourvaluation for the company.

NAV calculation

Anant Raj has a total of 66m sq ft under development. Using our valuationmethodology, we arrived at an NAV of Rs41,745m, based on a discount rate of 14%. We also added the land cost for the site of future hotels and then adjusted forthe net cash as at 31 March 2012 to arrive at our NAV/share of Rs159.

Anant Raj: calculation of NAV(Rs m) Comment

Gross NAV 41,770 NAV based on our valuation methodology

Site for hotels 3,980 Valuation assumed at land costNet cash 4,399 Cash as at the end of FY12

NAV 50,149

Shares outstanding (m)* 315

NAV(Rs/share) 159

Source: Company, Daiwa forecasts, *fully-diluted basis

In our view, the stock should trade at 1x on our end-FY12 NAV forecast. Webelieve a discount is not appropriate to the NAV due to the underlying economicgrowth in India and the expansion in the sector that we expect to limit thedownside to the NAV. We have not provided any premium to the NAV as weexpect residential prices to be range-bound over the next one year.

Relative comparison

In our opinion, an NAV-based valuation is the most suitable for real-estatecompanies. Valuations based on earnings multiples are not appropriate, we believe,




due to the inherent volatility in earnings. Also, PBRs do not take into account thedifference in the valuations based on the locations of the landbank. We believe thatAnant Raj should be valued on a par with DLF. While we believe DLF has superiorexecution capability and a good brand name, Anant Raj has a better-quality balancesheet (net cash) and a relatively better-located landbank.

We believe Anant Raj’s current valuations are attractive when compared with itspeers, as the stock is trading at a 33% discount to our estimated end-FY12 NAVand is among the cheapest in terms of PER and PBR.

Risks to our valuation

We believe a slowdown in the IT/ITES sector due to changes in the macro-economic conditions would reduce demand, driving down property prices. Weestimate that a 1% change in the property price results in a 1% change in the NAVof the company.

Key assumptions

Sales volumeWe expect a gradual improvement in FY11 sales in the residential sector, as it isdependent on a recovery in the IT/ITES sector. While residential sales in most of the cities have started to pick up, they are still about 50-80% below the peak salesvolume (depending on the city and its location). We expect sales in the commercialsector to increase from 1Q11. While commercial sales enquiries have risen over thepast six months, it takes about one year for the leases/sales to materialise.

Anant Raj: sales-volume forecasts (m sq ft)2011E 2012E 2013E

Residential sales 0.3 0.4 0.9

Retail sales 0.0 0.0 0.0

Total sales volume 0.3 0.5 0.9Commercial IT leases 0.7 1.3 1.7

Commercial leases 0.2 0.2 0.2

Retail leases 0.1 0.5 0.5

Total lease volume 0.9 1.9 2.4

Total volume 1.2 2.4 3.3 Source: Daiwa forecasts

Our forecasts for the sale of the entire landbank are shown in the following table.About 15m sq ft of the landbank is under construction.

Anant Raj: forecast landbank sales volume (m sq ft)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E

(m sq ft)





Sales-price assumptions

The following table shows some of our key price assumptions based on the currentprices in the market. We expect residential sales prices to remain stable over thenext 12 months due to the strong pipeline of projects. Most of the developers arefocusing on launching residential projects due to weak demand from thecommercial and retail segments.

Anant Raj: average current sales-price assumptionsResidential Sales price (Rs/sq ft)

New Delhi/Delhi 3,630

Gurgaon 2,500

Manesar 2,500

Bahadurgarh 2,000

Others 2,000 Source: Daiwa estimates

Discount rate

Our key assumptions for the discount rate are shown in the following table. We

have assumed a WACC of 14%.

Anant Raj: calculation of WACCCost of debt

Pre-tax cost of debt (%) 15

Tax rate (%) 24

Cost of debt (%) 11

Cost of equity

Risk-free rate (%) 7

Beta 1.5

Market premium (%) 6

Cost of equity (%) 16

WACC (%) 14

Debt (%) 50

Equity (%) 50

Source: Bloomberg, Daiwa estimates

Other assumptions

Anant Raj: assumptions for NAV (%)Discount rate 14

Rate of inflation – sales 5

Rate of inflation – cost 5

Other costs (as a % of sales) 4

Tax rate 33

Tax rate -80IB 11

Capitalisation rate 10


Sensitivity analysis

Our base-case valuation is based on the NAV. The following table shows theeffect on the NAV of a 1% change in the key assumptions mentioned earlier.

Anant Raj: sensitivity of NAV to change in assumptions1% change in the average selling price 1% change in NAV

1% change in sales inflation 13% change in NAV

1% change in cost inflation 6% change in NAV

1% change in sales and cost inflation 7% change in NAV

1% change in the discount rate 7% change in NAV

1% change in the capitalisation rate 8% change in NAV





Landbank details

The following tables show the geographical spread of the company’s landbank interms of volume and NAV. From these it is clear that it is focused on the NCR,which for Anant Raj includes Delhi, Gurgaon, Manesar, Bahadurgarh, Noida andGreater Noida. It has about 87% of its landbank in the NCR and derives 89% of its

NAV from the region.

Anant Raj: spread of land by location Anant Raj: landbank spread by NAVCity (m sq ft) (%)

Delhi 18 27

Gurgaon 0 1

Manesar 35 52

Bahadurgarh 2 3

Noida 3 4

Jaipur 1 2

Others 8 11

Total 66 100

Location NAV (Rs m) (%)

Delhi 23,425 56

Gurgaon 153 0

Manesar 12,320 29

Bahadurgarh 695 2

Noida 646 2

Jaipur (575) (1)

Others 5105 12

Total 41,770 100 Source: Company, Daiwa forecasts Source: Company, Daiwa forecasts

Profit and loss analysis

For FY10-13, we forecast an earnings CAGR of 20% and a sales CAGR of 41%.We expect the earnings growth to be back-ended as we believe there will be amarginal decline in net profit for FY11 due to a reduction in the EBITDA margin.Anant Raj has been selling land and property mainly constructed on very cheapland. This has led to an extremely high EBITDA margin of about 90% for FY08-10,which we believe is unsustainable. The company expects to launch three newresidential properties in FY11. Although the properties are located in primelocations, we forecast the EBITDA margin to fall and stabilise between 55-65% forFY11 and beyond.

Anant Raj’s focus is mainly on the NCR region, which is dependent on theIT/ITES sector. Given our expectation of an improvement in staff hiring in theIT/ITES segment and anecdotal evidence of salary increases, we believe house-buying sentiment will improve and lead to sales growth from FY12.

Anant Raj: revenue Anant Raj: EBITDA margin

0

2,000

4,000

6,000

8,000

10,000

12,000

FY06 FY07 FY08 FY09 FY10 FY11EFY12EFY13EFY14E

(Rs m)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY06 FY07 FY08 FY09 FY10 FY11EFY12EFY13EFY14E

Source: Company, Daiwa forecasts Source: Company, Daiwa forecasts

We expect a marginal year-on-year decline in net profit for FY11 due to areduction in the operating margin. However, we expect net profit to rise from FY12onwards as sales volume starts increasing.




Anant Raj: net profit

0

1,000

2,000

3,000

4,000

5,000

6,000

FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY14E

(Rs m)


Balance-sheet analysisAnant Raj is the only company that we cover in the sector that has maintained anet-cash balance throughout the period of the recession.

Anant Raj: net debt-to-equity

(0.25)

(0.20)

(0.15)

(0.10)

(0.05)

0.00

0.05

0.10

0.15

0.20

0.25

0.30

FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY14E

(x)


Cash-flow analysis

Anant Raj is one of the few companies that have enjoyed a positive operating free-cash flow during the period of the recession. With net cash on the balance sheet,we believe the company is well-positioned to exploit any opportunity to purchaseproperties at distressed prices as the economy recovers.




Anant Raj: operating free-cash flow

(2,000)

(1,000)

0

1,000

2,000

3,000

4,000

5,000

6,000

FY07 FY08 FY09 FY10 FY11E FY12E FY13E

(Rs m)


Shareholding patternThe shareholding pattern shown in the following chart clearly indicates that foreigninstitutional investors (FII) hold the majority of free-float shares. The FIIshareholding increased from 2Q FY10. As at the end of 4Q FY10, FIIs held27.95% and domestic institutional investors (DII) held 1.24%. The free-float sharesaccount for 38.65% of the total outstanding shares.

Anant Raj: shareholding pattern of FII and DII (%)

0

5

10

15

20

25

30

35

4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10

FII DII

Source: BSE




DLF(DLFU IN) Construction & real estate: India



Amit Agarwal(91) 22 6622 1063

[email protected]

Initiation of coverage: balance-sheet worries

Coverage initiated with a Hold rating

We initiate coverage of DLF with a 3 ( Hold ) rating and six-month

target price of Rs278, based on 1x our end-FY12 NAV forecast.

We expect the company’s share-price performance to be weighed

down over the next few months by market concerns about theweak balance sheet following the integration with DLF Assets

(DAL), and continued weakness in the commercial sector despite

rising residential-sales volume.

We are concerned about the weak balance sheet

We forecast the net-debt-to-equity ratio to rise to 0.9x for FY11

from 0.7x for FY10 due to the purchase of a 41% stake in DAL

from Symphony Capital Asia (SC Asia) for Rs31.84bn and the

integration of DAL, with DLF’s balance sheet leading to a rise in

other debt liabilities and weak cash inflows from its operations.

Residential prices expected to remain stable

We expect residential sale prices to be stable over the next year

and commercial sales volume to rise from 2011, limiting NAV

accretion.

Catalysts

We believe a strong revival in demand for commercial property

would enable DLF to monetise its commercial assets.

The successful listing of the proposed real-estate investment trust

(REIT) in Singapore and the sale of the non-core assets would

help improve cash flow, in our opinion.

Reuters code DLF.NS

Market dataSENSEX Index 16,657.89Market cap (US$bn) 9.32EV (US$bn; 10E) 13.733-mth avg daily T/O (US$m) 54.21Shares outstanding (m) 1,697Free float (%) 21.4Major shareholder Promoter family (78.6%)Exchange rate Rs/US$ 47.025





PER (x) 25.3 31.5 13.9PCFR (x) 5.6 43.3 5.4EV/EBITDA (x) 18.4 18.8 10.8PBR (x) 1.8 1.8 1.6Dividend yield (%) 0.1 0.1 0.1ROE (%) 7.3 5.6 12.2ROA (%) 3.1 2.2 4.8Net debt equity (%) 67.5 93.4 75.9



100400700

1,0001,300

07/6 07/12 08/6 08/12 09/6 09/12 10/6

(Rs)

050100150200

Rel to SENSEX Index




2008 144,530 266.3 97,306 247.8 78,120 304.0 45.824 262.4 (4.478) 0.796 2009 100,354 (30.6) 55,900 (42.6) 44,696 (42.8) 26.335 (42.5) (1.482) 0.342 2010E 74,210 (26.1) 35,024 (37.3) 17,287 (61.3) 10.186 (61.3) 46.284 0.342

2011E 89,945 21.2 37,042 5.8 13,926 (19.4) 8.205 (19.4) 5.964 0.342 2012E 128,272 42.6 61,771 66.8 31,598 126.9 18.618 126.9 47.714 0.342





Company background

DLF is the largest listed real-estate company in India. It is primarily involved in the sale of developed residential units and the sale

and rental of commercial units.

DLF – financial summary


Real Estate sales 140,431 84,802 60,330 69,594 102,150

Lease income 2,847 5,054 6,375 12,094 17,595

Other revenue 1,252 10,497 7,506 8,256 8,527

Total reven ue 144,530 100,354 74,210 89,945 128,272


COGS (39,998) (32,295) (25,836) (39,308) (50,535)

SG&A (7,227) (12,159) (13,350) (13,596) (15,967)

Other op. expenses (901) (2,390) (3,245) (3,365) (3,506)EBIT 96,406 53,511 31,779 33,677 58,265

Net-interest inc./(exp.) (3,100) (3,195) (11,107) (17,408) (16,289)Assoc/forex/extraord./others 2,573 1,345 3,475 1,687 1,771

Pre-tax pro fit 95,878 51,661 24,147 17,955 43,747

Tax (17,391) (6,754) (6,960) (4,130) (12,249)

Min. int./pref. div./others (367) (211) 100 100 100Net pro fi t (reported ) 78,120 44,696 17,287 13,926 31,598

Net pro fi t (adj.) 78,120 44,696 17,287 13,926 31,598

EPS (reported ) (Rs) 45.824 26.335 10.186 8.205 18.618

EPS (adj.) (Rs) 45.824 26.335 10.186 8.205 18.618

DPS (Rs) 0.796 0.342 0.342 0.342 0.342

EBIT (adj.) 96,406 53,511 31,779 33,677 58,265

EBITDA (adj.) 97,306 55,900 35,024 37,042 61,771

As at 31 Mar 2008 2009 2010E 2011E 2012E


Inventory 94,544 109,282 124,120 140,312 163,059



Fixed assets 100,031 136,006 277,300 301,793 332,078

Goodwill & intangibles 20,931 22,651 12,670 12,670 12,670


Short-term debt 0 0 0 0 0Accounts payable 17,046 23,249 25,836 15,956 15,764

Other current liabilities 55,111 54,995 66,675 64,824 106,198Total current liabil ities 72,158 78,244 92,511 80,780 121,961

Long-term debt 122,771 163,201 216,769 261,769 255,769

Other non-current liabilities 4,254 6,336 8,910 8,910 8,910

Total liabil it ies 199,182 247,782 318,190 351,459 386,641

Share capital 12,905 17,354 62,590 33,340 33,340


Shareh old ers' equi ty 196,883 241,538 307,720 275,596 303,478


Net debt /(cash) 101,349 151,245 207,639 257,389 230,206



Depreciation and amortisation 901 2,390 3,245 3,365 3,506

Tax paid (17,391) (6,754) (6,960) (4,130) (12,249)

Change in working capital (94,305) (53,602) 46,925 (24,974) 29,587

Other operational CF items 7,284 3,791 11,197 17,905 16,389

Cash flow from operation s (7,634) (2,515) 78,554 10,123 80,979

Capex (59,203) (38,283) (148,811) (27,858) (33,791)

Net (acquisitions)/disposal (18,990) (6,643) (15,173) 18,360 0

Other investing CF items 0 12 0 0 0Cash flow from invest ing (78,194) (44,914) (163,984) (9,498) (33,791)

Change in debt 23,444 40,431 53,568 45,000 (6,000)

Net share issues/(repurchases) 90,731 4,458 43,844 (29,250) 0

Dividends paid (7,981) (3,716) (3,716) (3,716) (3,716)Other financing CF items (3,100) (3,195) (11,107) (17,408) (16,289)

Cash flow from financ ing 103,094 37,978 82,590 (5,374) (26,005)


Chang e in cash 17,267 (9,451) (2,841) (4,749) 21,183


Sales – YoY % 266.3 (30.6) (26.1) 21.2 42.6

EBITDA (adj.) – YoY % 247.8 (42.6) (37.3) 5.8 66.8

Net profit (adj.) – YoY % 304.0 (42.8) (61.3) (19.4) 126.9

EPS (adj.) – YoY % 262.4 (42.5) (61.3) (19.4) 126.9


EBIT margin % (adj.) 66.7 53.3 42.8 37.4 45.4


ROAE (%) 73.2 21.5 7.3 5.6 12.2

ROAA (%) 27.1 10.1 3.1 2.2 4.8

ROCE (%) 42.4 14.8 6.8 6.3 10.6

ROIC (%) 36.8 13.5 5.0 4.9 7.9

Net debt to equity (%) 51.5 62.6 67.5 93.4 75.9


Payables (days) 24.9 73.3 120.7 84.8 45.1

Net interest cover (x) 31.1 16.7 2.9 1.9 3.6



Avg price - Residential Gurgaon(Rs/sq ft)

n.a. n.a. n.a. 2,750 2,888

Avg price - Residential Chennai(Rs/sq ft)

n.a. n.a. n.a. 2,400 2,520

Avg price - Residential Bangalore(Rs/sq ft)

n.a. n.a. n.a. 2,300 2,415


PER bands

35.2x27.5x19.8x12.0x4.3x37

537

1,037

1,537

Jul-07 Jul-08 Jun-09

(Rs)






DLF is India's largest listed property company in terms of revenue, earnings,market capitalisation and developable area. It was established 62 years ago. DLFhas completed 238m sq ft of developments since its establishment and has 405m sqft of planned projects. It has a presence in 30 cities across India.

The company’s primary business is the development of residential, commercial,and retail properties. It has also been involved in the infrastructure, specialeconomic zone (SEZ) and hotel businesses.

Valuation

We initiate coverage of DLF with a 3 ( Hold ) rating and six-month target price of Rs278 based on 1x our end-FY12 NAV forecast. We calculated the NAV asfollows.

• We divided DLF’s entire landbank into projects, based on the informationprovided by the company.


• We assumed an annual inflation rate on the sales and cost prices of 6%. Further,we assumed residential property prices would rise by 30% each for FY13 andFY14 based on the historical trend over the past 10 years.




• We discounted the resultant cash flow based on a WACC of 12%. We added theresultant project level NAV for all the projects to arrive at the NAV of thecompany.

• From the NAV we deducted our forecast of the net debt as at the end of FY12and the unpaid landbank to arrive at the final valuation of the company.

• We have added the receivables expected by the company from the stategovernments of Haryana and Delhi from the proposed projects of the DwarkaConvention Centre in New Delhi and land in Haryana. DLF won the bid for theconstruction of the Dwarka Convention Centre and had paid the deposits for the

land to the government of Haryana.

DLF: calculation of NAV (end-FY12)(Rs m) (Rs/share)

NAV (landbank) 706,264 416

Less unpaid land cost 15,860 9

Add assumed non-core asset sales 11,500 7

NAV (landbank) adjusted for changes 701,904 414

Less net debt (FY12E) 230,206 136

NAV 471,698 278

Shares outstanding (m) 1,697

NAV(Rs/share) 278





Key assumptions

Sales volume

We expect a gradual improvement in FY11 sales in the residential sector, as it isdependent on a recovery in the IT/ITES sector. While residential sales in most of the cities have started to pick up, they are still about 50-80% below the peak sales

volume (depending on the city and its location). We expect sales in the commercialsector to increase from 1Q11. While commercial sales enquiries have risen over thepast six months, it takes about one year for the leases/sales to materialise.

DLF: sales-volume forecasts by type (m sq ft)Sales volume FY11E FY12E FY13E

Residential 10.6 17.7 24.8

Office 3.1 3.9 6.6

Retail 0.6 1.0 0.4

Total 14.3 22.6 31.8 Source: Daiwa forecasts

The following table shows our forecasts for the sale of the entire landbank. About58m sq ft of the landbank is currently under construction, of which 39m sq ft isbeing constructed as residential units and small commercial units for sale, and 19msq ft is office and retail space.

DLF: forecast landbank sales volume (m sq ft)

0

5

10

15

20

25

30

35

40

45

FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21E FY22E

Assumed sales (m sq ft)



The following table shows some of the our key price assumptions based on thecurrent market prices. We expect residential prices to remain stable over the next12 months due to the strong pipeline of projects. Most of the developers arefocusing on launching residential projects due to the weak demand in thecommercial and retail segments.

DLF: average current sales-price assumptionsKey price assumptions Residential sales (Rs/sq ft) Office rentals (Rs/sq ft/month)

Gurgaon 2,750 85

Kolkata 2,400 40

Chennai 2,400 50

Bangalore 2,300 38

Pune 2,050 36





Discount rate

Our key assumptions for the discount rate are shown in the following table. Wehave assumed a WACC of 12%.

DLF: calculation of WACCCost of debt

Pre-tax cost of debt 11%Tax rate 24%

Cost of debt 8%

Cost of equity

Risk-free rate 7%

Beta 1.49

Market premium 6%

Cost of equity 16%

WACC 12%

Debt 50%

Equity 50%


Other assumptions

DLF: NAV assumptionsDiscount rate 12%

Rate of inflation-sales 6%

Rate of inflation-cost 6%

Other costs (as a % of sales) 5%

Tax rate (%) 33%

Tax rate -80IB (%) 11%

Capitalisation rate 10%



Our base-case valuation is based on the NAV. The following table shows theeffect on the NAV of a 1% change in the key assumptions mentioned earlier.

DLF: sensitivity of NAV to change in assumptions1% change in the average sales price 3% change in NAV



1% change in sales and cost inflation 2.5% change in NAV

1% change in the discount rate 3.5% change in NAV

1% change in the capitalisation rate 3.5% change in NAV


Peer comparison

Compared with its peers, DLF’s current NAV, PBR and PER valuations areexpensive. In terms of NAV, the stock is trading at a discount of only 7% to NAVcompared with Orbit, Anant Raj, and Puravankara, which are trading at discountsof more than 30% to NAV. From FY08-09, DLF’s stock traded at a premium to itspeers in terms of NAV. However, we do not expect it to trade at a premium to itspeers over the next 12 months as:

1) DLF is focused on commercial property, which we expect to see animprovement in sales/lease volumes over the next six-to-12 months, and

2) it has a relatively weak balance sheet, especially following the integration withDAL.

Landbank details

The following tables show the geographical spread of the company’s landbank interms of volume and NAV. From these it is clear that it is focused on the NCR,




which includes New Delhi/Delhi, Gurgaon, Manesar, Bahadurgarh, and Noida andGreater Noida. It has about 63% of its landbank in the NCR but derives 73% of itsNAV from the region.

Landbank spread by volume Landbank spread by NAVCity (m sq ft) (%)

Gurgaon 239 59

New Delhi/Delhi 6 1Noida 7 2

Goa 21 5

Kolkata 9 2

Chennai 12 3

Kochi 4 1

Bangalore 12 3

Hyderabad 6 1

Chandigarh 12 3

Nagpur 10 2

Pune 13 3

Mumbai 4 1

Metropolitan cities 9 2

Tier-1 cities 9 2

Tier-II cities 4 1

Others 26 6

Total 404 100


Gurgaon 461,896 65

New Delhi/Delhi 42,835 6Mumbai 52,191 7

Noida 13,022 2

Panipat 12,669 2

Jalandhar 8,292 1

Baroda 8,576 1

Bangalore 7,873 1

Ahmedabad 8,585 1

Chandigarh 11,505 2

Nagpur 8,113 1

Pune 6,577 1

Goa 13,868 2

Metropolitan cities 8,898 1

Tier-1 cities 9,183 1

Tier-II 7,240 1

Others 25,276 4

Total 706,264 100 Source: Company Source: Company, Daiwa estimates

Financial-statement analysis


The following table shows that the company’s residential sales have been risingconsistently after their worst quarter (since DLF was listed in FY08) in 3Q FY09.We expect residential sales to continue to rise on the back of increased demand.

Most of the sales for FY10 were from the premium city-centre project (CapitalGreens) sold in New Delhi. The average selling price and consequently theEBITDA margin for the project was higher than the average selling price weestimate for the landbank.

DLF: quarterly home sales (m sq ft)

0

1

2

34

5

6

7

8

9

1 Q F Y 0 8

2 Q F Y 0 8

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

Source: Company

However, we expect the company’s average selling price to decline in FY11, asmost of the income booked for FY10 was from the sale of premium flats located inNew Delhi. In our opinion, an increase in the proportion of sales from theaffordable residential segment will lead to a reduction in the EBITDA margin forFY11. Given our expectation of an improvement in the commercial segment from




4Q FY11, we believe an increase in sales from this segment will lead to a rise inthe EBITDA margin.

DLF: gross margin

52%

54%

56%

58%

60%

62%

64%

66%

68%

70%

FY09 FY10 FY11E FY12E FY13E FY14E


Balance-sheet analysis

Rising debtors/unbilled receivables

Our analysis of the past 12 quarters indicates that after hitting a low in 4Q FY09,sales rose for the subsequent quarters, pointing to a revival in the sector. DLF wasable to sell its Capital Greens project over the past three quarters. While we expectsales to improve in the future, we are concerned about the rising debtors/unbilledreceivables, which imply a reduction in cash flow over the medium term.

DLF: quarterly sales

Sales have been risingquarter-on-quarter since

4Q FY09 …

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

1 Q F Y 0 8

2 Q F Y 0 8

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

(Rs m)

Source: Company

The following chart shows the steady rise in debtors and other current assets(primarily unbilled receivables). The decline for 4Q FY10 was due to the removalof the debtors pertaining to DAL after the latter’s merger with DLF. The DALdebtors accounted for about Rs35bn of DLF’s Rs100bn of debtors/unbilledreceivables as at the end of 4Q FY10.




DLF: quarterly debtors and unbilled receivables . . . as have the

debtors/unbilled receivables, indicatingweak cash flow

0

20,000

40,000

60,000

80,000

100,000

120,000

1 Q F Y 0 8

2 Q F Y 0 8

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

(Rs m)


This has led to an increase in the company’s net debt. The sharp rise in net debt for4Q FY10 was due to additional loans taken to meet the company’s commitment topurchase the cumulative convertible preference shares of DAL, which had beensold to SC Asia by the promoters and have now been bought by DLF. The amountto be paid to SC Asia is about Rs30.84bn.

DLF: quarterly net debt Rising debt

0

50,000

100,000

150,000

200,000

250,000

1 Q F Y 0 8

2 Q F Y 0 8

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

(Rs m)


The sale of non-core assets has been slow

DLF had planned to sell non-core assets valued at Rs55bn in FY10 to helpmaintain adequate cash flow to meet its commitments. However, it was able to sellonly Rs18bn worth. The successful sale of its remaining non-core assets will helpimprove the balance sheet by reducing the debt.

The merger with DAL has led to a weaker balance sheet

The merger of DLF and DAL has resulted in a weaker balance sheet due to themismatch of increased liabilities and currently non-producing assets. Totalliabilities rose by Rs37bn on the balance sheet and a further Rs30.84bn has to bepaid to SC Asia for the purchase of the cumulative convertible preference shares,which accounted for about 41% of DAL’s total share capital. This does not include

an amount of Rs35bn payable to DLF for the purchase of commercial assets, whichis included in the other liabilities of Rs44.9bn as DAL has merged already withDLF.




However, of the 13m sq ft of commercial office property taken over by DLF, 7msq ft is still under construction and therefore is not generating any income.Meanwhile, lease rentals of 6.5m sq ft of the assets under lease are being paiddiscounted with the banks for a period of five years, and therefore the rental cashflow is not available to DLF.

DAL: balance sheet at the time of the merger with DLFLiabilities (Rs m) Assets (Rs m)

CCPS - promoters 15,970 Fixed assets 75,970

CCPS - investors 29,270 Capital work in progress 53,030

Capital reserve 11,510

Other liabilities 44,910

Loans 21,210

Current liabilities 6,130

Total 129,000 129,000

Source: DLF

Shareholding pattern

The following shareholding pattern chart shows that FIIs hold the majority of the

free-float shares. FII ownership increased in 1Q FY10 due to the sale of 10% of thetotal shareholding by the promoters. The total holding of FIIs has decreasedsteadily in the past few quarters. The free-float shares account for 21.4% of thetotal outstanding shares.

Shareholding pattern (%)

0

2

4

6

8

10

12

14

16

18

3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10

FII DII

Source: BSENote: promoters hold 78.6% of the total shares




Housing Development& Infrastructure

(HDIL IN) Construction & real estate: India



Amit Agarwal(91) 22 6622 1063

[email protected]

Initiation of coverage: we see cash-flow strains


We initiate coverage of HDIL with a 3 ( Hold ) rating and six-month

target price of Rs226 based on 1x our end-FY12 NAV forecast. We

expect the company’s cash flow to come under pressure due to the

out-flow of Rs6bn for land for the Mumbai Airport project. Further,

we believe the stock is fully valued as it is trading currently at only

a 3% discount to our target price.

Aggressive launch of commercial, residential spaces

HDIL launched about 8.3m sq ft of residential and 1.5m sq ft of

commercial projects in FY10. In our view, the success of the

projects will depend on their timely execution.

Airport project on track

HDIL has completed more than 75% of the first phase of the

Mumbai Airport project and plans to relocate about 25,000 families

in the next three months. The project accounts for 23% of NAV, by

our estimates.

Cash flow likely to be strained in FY11

We expect cash flow in FY11 to be under pressure from a Rs6bn

payment for airport-project land. For FY11-13, we forecast an

earnings CAGR of 29% and a 30% sales CAGR. We expect

earnings to be driven by transferable development receipt (TDR)sales in FY11 and residential and commercial sales in FY12-13.

Catalyst. 1) A rise in residential prices in Mumbai. Risks. 1) A

delay in the airport project, and 2) a deterioration in the

international macro-economic situation or the financial markets.

Reuters code HDIL.NS

Market dataSENSEX Index 16,657.89Market cap (US$bn) 1.67EV (US$bn; 10E) 2.373-mth avg daily T/O (US$m) 40.27

Shares outstanding (m) 359Free float (%) 49.9Major shareholder Promoter family (50.2%)Exchange rate Rs/US$ 47.025





PER (x) 14.1 10.4 9.5PCFR (x) n.a. n.a. 4.0EV/EBITDA (x) 14.1 12.2 8.8PBR (x) 1.1 1.0 0.9

Dividend yield (%) 0.0 0.8 2.3ROE (%) 10.1 10.3 10.2ROA (%) 5.4 6.3 6.6Net debt equity (%) 47.0 42.1 21.7



0300600900

1,200

07/6 07/12 08/6 08/12 09/6 09/12 10/6

(Rs)

063125188250

Rel to SENSEX Index



Year to 31 Mar (Rs m) (%) (Rs m) (%) (Rs m) (%) (Rs) (%) (Rs) (Rs) 2008 23,804 97.7 16,921 156.2 14,099 157.2 65.797 116.1 (171) 4.960 2009 17,284 (27.4) 7,782 (54.0) 6,772 (52.0) 24.581 (62.6) (48.422) 0.000 2010E 15,021 (13.1) 7,893 1.4 5,779 (14.7) 15.540 (36.8) (16.694) 0.000 2011E 16,815 11.9 9,458 19.8 7,814 35.2 21.014 35.2 (7.731) 1.700 2012E 21,975 30.7 11,364 20.1 8,584 9.9 23.086 9.9 54.577 5.000





Company background

HDIL is engaged in the development and sale/lease of residential and commercial and retail property, primarily in Mumbai.

Housing Development & Infrastructure – financial summary

Profit and loss (Rs m) Balance sheet (Rs m)

Year to 31 Mar 2008 2009 2010E 2011E 2012ERevenues from sale of residential/commercial 23,804 3,062 828 4,704 8,773

Revenues from sale of TDR 0 14,131 13,875 11,483 12,057Other revenue 0 92 318 629 1,145

Total reven ue 23,804 17,284 15,021 16,815 21,975


COGS (6,329) (8,358) (6,186) (6,505) (9,646)

SG&A (553) (1,144) (943) (852) (966)


Net-interest inc./(exp.) (1,408) (332) (462) (80) (36)

Assoc/forex/extraord./others 529 290 345 362 380Pre-tax pro fit 16,021 7,715 7,052 9,630 11,446

Tax (1,922) (943) (1,330) (1,816) (2,861)

Min. int./pref. div./others 0 0 56 0 0Net prof it (reported) 14,099 6,772 5,779 7,814 8,584

Net pro fi t (adj.) 14,099 6,772 5,779 7,814 8,584

EPS (reported ) (Rs) 65.797 24.581 15.540 21.014 23.086

EPS (adj.) (Rs) 65.797 24.581 15.540 21.014 23.086

DPS (Rs) 4.960 0.000 0.000 1.700 5.000

EBIT (adj.) 16,899 7,756 7,169 9,347 11,101

EBITDA (adj.) 16,921 7,782 7,893 9,458 11,364

As at 31 Mar 2008 2009 2010E 2011E 2012ECash & short-term investment 3,505 755 7,918 1,063 6,108

Inventory 55,229 69,128 87,567 96,011 100,031

Accounts receivable 566 1,669 2,030 1,034 1,446

Other current assets 13,132 17,097 15,677 21,677 15,677

Total cu rren t asset s 72,432 88,649 113,191 119,784 123,262

Fixed assets 596 749 2,047 2,217 4,992

Goodwill & intangibles 91 478 2,591 2,591 2,591


Short-term debt 0 0 0 0 0

Accounts payable 396 3,293 3,773 5,027 1,172

Other current liabilities 7,081 3,400 4,987 6,290 19,990

Total current liabil ities 7,476 6,693 8,760 11,317 21,162

Long-term debt 31,127 41,433 41,017 35,017 25,017Other non-current liabilities 15 30 63 63 63


Share capital 18,042 18,042 38,826 41,946 41,946

Reserves/R.E./others 18,373 26,176 31,603 38,677 45,086Shareholders ' equity 36,415 44,218 70,429 80,623 87,032


Net debt /(cash) 27,622 40,678 33,100 33,954 18,909



Depreciation and amortisation 85 413 2,836 111 263

Tax paid (1,922) (943) (1,330) (1,816) (2,861)

Change in working capital (52,251) (19,775) (15,312) (10,891) 11,412

Other operational CF items 1,415 (750) 546 92 36

Cash flow from operatio ns (36,652) (13,340) (6,208) (2,875) 20,294

Capex (464) (179) (2,022) (281) (3,038)

Net (acquisitions)/disposal (337) (576) 62 0 0

Other investing CF items (61) 1,371 (4,576) 0 0

Cash flow from invest ing (862) 616 (6,536) (281) (3,038)

Change in debt 27,371 10,306 (416) (6,000) (10,000)

Net share issues/(repurchases) 16,242 0 20,784 3,120 0

Dividends paid (1,243) 0 0 (740) (2,175)

Other financing CF items (1,408) (332) (462) (80) (36)Cash flow from financ ing 40,962 9,974 19,906 (3,699) (12,211)


Chang e in cash 3,448 (2,750) 7,163 (6,855) 5,045


Sales – YoY % 97.7 (27.4) (13.1) 11.9 30.7

EBITDA (adj.) – YoY % 156.2 (54.0) 1.4 19.8 20.1

Net profit (adj.) – YoY % 157.2 (52.0) (14.7) 35.2 9.9

EPS (adj.) – YoY % 116.1 (62.6) (36.8) 35.2 9.9


EBIT margin % (adj.) 71.0 44.9 47.7 55.6 50.5


ROAE (%) 64.4 16.8 10.1 10.3 10.2

ROAA (%) 29.8 8.1 5.4 6.3 6.6

ROCE (%) 43.0 10.1 7.3 8.2 9.8

ROIC (%) 39.6 9.1 6.2 7.0 7.6


Effective tax rate (%) 12.0 12.2 18.9 18.9 25.0

Accounts receivable (days) 28.2 23.6 44.9 33.3 20.6

Payables (days) 11.5 38.9 85.9 95.5 51.5




Avg price - Residential MumbaiCity (Rs/sq ft)

n.a. n.a. n.a. 5,958 7,066

Avg price - Residential Mumbai(Rs/sq ft)

n.a. n.a. n.a. 2,000 2,344

Avg price - TDR (Rs/sq ft) n.a. n.a. n.a. 2,250 2,363


Sale TDR (mn sq ft) n.a. n.a. n.a. 5 5

PER bands

23.5x18.1x12.7x7.2x1.8x25

525

1,025

1,525

Jul-07 Jul-08 Jul-09

(Rs)






HDIL is a property company with a focus on the Mumbai Metropolitan Region.The HDIL group has completed more than 100m sq ft of construction in allsegments of the property sector and has rehoused about 30,000 families in the pastdecade.

The company has operations spanning every aspect of the property business, fromresidential, commercial and retail projects, to the redevelopment of slum areas andland development.

Its key focus includes slum-rehabilitation projects under a local-governmentscheme administered by the Slum Rehabilitation Authority (SRA), offeringdevelopment rights in exchange for clearing and redeveloping slums, whileproviding replacement housing for the displaced slum-dwellers.

HDIL was awarded the Mumbai International Airport Slum Rehabilitation projectin October 2007, a critical component of the modernisation and expansion plan forMumbai Airport and one of the largest urban-rehabilitation projects in India.

Valuation

We initiate coverage of HDIL with a 3 ( Hold ) rating and six-month target price of Rs226 based on 1x our end-FY12 NAV forecast. Our calculation of the NAV is asfollows.

• We divided HDIL’s entire landbank into projects, based on the informationprovided by the company.






• We discounted the resultant cash flow based on a WACC of 14%. We added theresultant project level NAV for all the projects to arrive at the NAV of thecompany.

• From the NAV we deducted our forecast of the net debt as at the end of FY12to arrive at the final valuation of the company.

HDIL: calculation of NAV(Rs m) Comments

NAV 89,843 NAV based on our valuation methodology

Mumbai Airport project 19,214

Gross NAV 109,057

Unpaid land 6,000 For the airport project

Less net debt 18,909 Debt as at 31 March 2012

RNAV 84,148

Shares outstanding (m) 372 As at 30 April 2012

RNAV/share 226

Source: Company, Daiwa estimates

HDIL has a total saleable landbank of 193m sq ft, located primarily in Mumbai andincluding TDRs. Based on our discussions with HDIL, we expect the Mumbai




Airport project to generate 53m sq ft of TDRs. Based on our valuationmethodology, we arrived at a gross NAV (excluding the airport project) for end-FY12 of Rs89,843m. We added the NAV from the airport project of Rs19,214mand then subtracted our forecast of the net debt as at the end of FY12 of Rs18,909m to arrive at an NAV of Rs226/share.

Relative valuation

The stock is trading currently at a 3% discount to our target price, which is basedon 1x our end-FY12 NAV forecast. While it appears attractive on a PBR basis, weare concerned about a slowdown in the TDR sales and the strong likelihood that theprices for the TDRs will not increase significantly from the current levels. Themain reasons for this is that the TDRs can only be sold for locations north of wherethey are generated. As most of the TDRs are being generated in North Mumbai, theupside on the prices remains limited, as prices decline the further north you go inMumbai. Further, we expect cash flow in FY11 to be under pressure due to thepayment of Rs6bn for land for the airport project.

Key assumptions

Sales volume

We expect sales volume to continue to rise on the back of improving sentiment inthe financial-services sector. HDIL’s landbank is mainly in Mumbai, whereproperty sales are driven mainly by this sector. The company’s residential salesvolume increased sharply following the general election in May 2009 but havedeclined over the past eight months due to rises in prices, which indicates to us thatbuyers remain very sensitive to prices. Commercial sales and rental volume areimproving gradually, but the number of enquiries from potential customers hasincreased sharply over the past nine months. It usually takes about one year for thelease/sale to materialise following an enquiry. We expect residential andcommercial sales for FY11-12 to be very weak as HDIL recognises income on a

full-completion basis, and we expect the projects under construction currently to becompleted from FY12 onwards.

We expect the company to sell about 5m sq ft of TDRs annually in the next twoyears compared with 6.5m sq ft of TDRs sold annually from FY09-10.

HDIL: sales volume forecasts by type (FY11E-13) (m sq ft)FY11E FY12E FY13E

Plots - - 0.6

Residential - 0.9 1.9

Commercial 0.1 0.1 0.6

Retail 0.1 0.1 0.7

Institutional - - -

TDR 5.1 5.1 5.1Total 5.3 6.2 8.8


The following table shows our sales-volume forecasts for FY11-20. As at the endof FY10, HDIL had 7m sq ft of residential and 5.4m sq ft of commercial projectsongoing. However, as the company recognises income on a full-completion basis,we expect the sales booked in FY11-12 to remain limited. Given a strong launchschedule in the years ahead, we expect HDIL’s sales to peak in FY16 and trenddown thereafter.

The sales volume includes the sale of TDRs. Over the next two-to-three years we

expect sales to continue to be driven by TDRs.




HDIL: sales-volume forecasts (m sq ft)

0

5

10

15

20

25

30

FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E


Sales-price assumptionsThe following table shows some of our key price assumptions based on the currentprices in the residential and commercial markets. We expect residential prices toremain stable over the next 12 months due to the strong pipeline of projects. Mostof the developers are focusing on launching residential projects due to the weak demand in the commercial and retail segments.

Sales-price assumptionsLocation Saleable area Sales price

(m sq ft) ( Rs/sq ft)

Mumbai 98 1,983

Mumbai - city 12 6,400

Pune 1 4,010

Kochi 15 3,117

Hyderabad 8 3,091

TDR 53 2,500 Source: Daiwa estimates

Discount rate


HDIL: calculation of WACCCost of debt

Pre-tax cost of debt 14%

Tax rate 34%Cost of debt 9.2%

Cost of equity

Risk-free rate 7%

Beta 1.4

Market premium 8%

Cost of equity 18%

WACC 14%

Debt 50%

Equity 50%





Other assumptions

HDIL: NAV assumptionsDiscount rate 14%

Rate of inflation - sales 5%

Rate of inflation - costs 5%


Tax rate (%) 33%





Our base-case valuation is based on the company’s NAV. The following tableshows the effect on the NAV of a 1% change in our key assumptions. Our priceassumptions for the residential-property sector are based on actual transactions. Forthe commercial and retail property sectors, where there are relatively few details onsales transactions, we have determined the sales prices by using the currentcapitalisation rate.

HDIL: sensitivity of NAV to change in assumptions1% change in the average selling price 1.8% change in NAV



1% change in sales and cost inflation 4% change in NAV




Landbank spread

The following tables show the geographical spread of HDIL’s landbank by volume

and NAV in Mumbai and other cities. Mumbai accounts for 38% of our end-FY12NAV forecast but only 6% of the total landbank. The Mumbai Airportredevelopment scheme is the largest project with a share of NAV of 18%. Theproject includes 53m sq ft of TDRs expected by the company to be generated fromthe project.

HDIL: spread of landbank in volume HDIL: spread of landbank by NAVCity (m sq ft) (%)

Mumbai - city 12 6

Virar - Mumbai 51 27

Vasai - Mumbai 24 13

Navi Mumbai 2 1

Palghar - Mumbai 12 6

Panvel - Navi Mumbai 8 4Pune 1 1

Kochi 15 8

Hyderabad 8 4

Airport Mumbai 59 31

Total 193 100


Mumbai - city 41,857 38

Virar - Mumbai 14,726 14

Vasai - Mumbai 6,427 6

Navi Mumbai 3,290 3

Palghar - Mumbai 2,027 2

Panvel - Navi Mumbai 2,469 2Pune 329 0

Kochi 11,923 11

Hyderabad 6,796 6

Airport Mumbai 19,214 18

Source: Company Source: Company, Daiwa estimates

Balance-sheet analysis

We expect an improvement in the company’s credit ratio from FY11. The quarterlycredit ratio started improving from 2Q FY10. We expect the reduction in net debtto continue as the company benefits from customer advances from the sale of

residential and commercial projects. We forecast TDR sales to trend down from thecurrent level of 6.5m sq ft a year to about 5m sq ft for FY11-12.




HDIL: quarterly net debt (Rs m) HDIL: net debt

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

0

5,000

10,000

15,000

20,000

25,00030,000

35,000

40,000

45,000

FY08 FY09 FY10 FY11E FY12E FY13E

(Rs m)

Source: Company Source: Company, Daiwa forecasts

The net debt/EBITDA ratio has also declined from 1Q FY10 and has stabilisedsince 2Q FY10. We expect it to decline further from FY12 as a result of animprovement in cash flow. Our forecasts do not factor in the cost of purchasing anyland.

HDIL: quarterly net debt/EBITDA (x) HDIL: estimated annual net debt/EBITDA (x)

0

2

4

6

8

10

12

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

0

1

2

3

4

5

6



Interest coverage

The interest-coverage ratio (EBIT/I) improved from a low of 0.9x for 4Q FY09 to1.6x for 3Q FY10. The 4Q FY10 ratio fell to 1.5x due to an increase in debt,leading to a rise in interest costs and a relatively lower EBITDA compared withprevious years.




HDIL: interest-coverage ratio (x)

0

1

2

3

4

5

6

7

8

9

3Q FY08 4Q FY08 1Q FY09 2Q FY09 3Q FY09 4Q FY09 1Q FY10 2Q FY10 3Q FY10 4Q FY10


ROCEWith the fall in FY10 revenue, due to lower year-on-year sales volume and prices,EBIT also dropped, leading ROCE to decline to 7% for the year. With increasingsales volume and the higher prices relative to the low in 4Q FY09, we expect theROCE to increase over the next few years. The WACC for the company is 14%.For the purpose of calculating the quarterly ROCE we have assumed annualisedEBIT.

HDIL: annualised ROCE HDIL: ROCE

0%

10%

20%

30%

40%

50%

60%

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

0%

10%

20%

30%

40%

50%

60%

70%



Profit and loss account

We believe sales bottomed out in FY10 and will increase steadily over the nextthree years. For FY11-13, we forecast a sales CAGR of 30% and a profit CAGR of 29%. However, we expect the increase in sales to be back-ended, as HDIL bookssales on a percentage-of-completion basis and all the projects started in FY10 aredue to be completed in FY12-13. Property prices have increased in the past fivemonths and we expect them to decline by about 10-20% over the next three-to-sixmonths. Our sales-price assumptions are based on the levels before the recent riseand we are confident that prices will stabilise at our assumed levels.




HDIL: sales

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000


(Rs m)


EBITDA margin has stabilised

The quarterly results since 2Q FY10 show that the EBITDA margin has stabilisedin the range of 40-50%. As we expect sales volumes to increase, we forecast theEBITDA margin to rise to about 50-55% for the next few years, which was thelevel before the recession.

HDIL: quarterly EBITDA margin HDIL: annual EBITDA margin

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

0%

10%

20%

30%

40%

50%

60%

70%

80%

FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12EFY13E


We expect a sharp improvement in profit from FY13 as the properties underconstruction start to be booked after their completion.




HDIL: net profit (Rs m)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E


Shareholding patternThe following chart shows the shareholding pattern for HDIL. FIIs hold about 28%of the company’s outstanding shares while DIIs hold about 1.5%.

HDIL: shareholding pattern

0

5

10

15

20

25

30

2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10

FII DII

Source: BSE




Orbit(ORB IN) Construction & real estate: India



Amit Agarwal(91) 22 6622 1063

[email protected]

Initiation of coverage: we see attractive landbank


We initiate coverage of Orbit with a 1 ( Buy) rating and six-

month target price of Rs367 based on 1x our end-FY12 NAV

forecast. Our target price is supported by what we consider as

attractive valuations, a well-located landbank, and anexperienced management. At our target price the stock would

trade at PERs of 15x and 9x on our FY11 and FY12 EPS

forecasts, respectively.

An attractive landbank

The company has an attractive landbank based primarily in the

affluent areas in Mumbai. Mumbai property sales are driven

mainly by the financial sector, which has been recovering

recently.

Sales volume has risen since 3Q FY09

Orbit’s sales volume has increased consistently from a low of no

sales in 3Q FY09 to 125,339 sq ft of sales for 4Q FY10.

We believe concerns about rising debtors will ease

There have been rising concerns in the market about the increase

in the debtors since 4Q FY10. The management has confirmed

that the rise is due primarily to two projects, and the debtors

should start reducing in FY11-12.

Risks. 1) Rising market concerns about the international macro-

economic environment could have a direct and sustained adverse

effect on the financial markets, driving down the demand for

property in Mumbai, and 2) a rise in interest rates.

Reuters code ORCP.NS

Market dataSENSEX Index 16,657.89Market cap (US$m) 289.02EV (US$m; 10E) 471.723-mth avg daily T/O (US$m) 10.19Shares outstanding (m) 55Free float (%) 56.5Major shareholder Promoter family (43.5%)Exchange rate Rs/US$ 47.025





PER (x) 14.3 9.9 6.1PCFR (x) n.a. 2.8 3.2EV/EBITDA (x) 11.7 7.4 4.8PBR (x) 1.6 1.3 1.2Dividend yield (%) 0.9 1.0 1.0ROE (%) 13.6 14.8 20.8ROA (%) 5.4 6.5 10.6Net debt equity (%) 101.2 42.6 16.2



0275550825

1,100

07/6 07/12 08/6 08/12 09/6 09/12 10/6

(Rs)

088175263350

Rel to SENSEX Index




2008 7,055 268.4 3,465 368.2 2,358 312.1 65.014 208.7 (93.738) 5.500

2009 2,835 (59.8) 1,329 (61.7) 355 (84.9) 9.792 (84.9) (79.428) 0.000 2010E 4,871 71.8 1,893 42.5 951 167.7 17.291 76.6 (52.271) 2.162 2011E 6,029 23.8 2,408 27.2 1,378 44.9 25.061 44.9 87.811 2.500 2012E 7,558 25.4 3,223 33.8 2,216 60.8 40.309 60.8 78.155 2.500





Company background

Orbit is a property developer engaged mainly in developing and selling residential, commercial and retail projects. It is focused

mainly on the property market in Mumbai.

Orbit – financial summary


Completed 1,465 73 0 0 0

Projects in progress 5,590 2,763 4,871 6,029 7,558

Other revenue 0 0 0 0 0

Total reven ue 7,055 2,835 4,871 6,029 7,558


COGS (3,236) (1,144) (2,465) (3,199) (3,806)

SG&A (354) (363) (513) (422) (529)


Net-interest inc./(exp.) (544) (768) (908) (809) (641)Assoc/forex/extraord./others 29 18 65 68 71

Pre-tax pro fit 2,934 543 1,004 1,621 2,607

Tax (575) (188) (53) (243) (391)

Min. int./pref. div./others 0 0 0 0 0Net prof it (reported) 2,358 355 951 1,378 2,216

Net pro fi t (adj.) 2,358 355 951 1,378 2,216

EPS (reported ) (Rs) 65.014 9.792 17.291 25.061 40.309

EPS (adj.) (Rs) 65.014 9.792 17.291 25.061 40.309

DPS (Rs) 5.500 0.000 2.162 2.500 2.500

EBIT (adj.) 3,448 1,294 1,847 2,362 3,177

EBITDA (adj.) 3,465 1,329 1,893 2,408 3,223

As at 31 Mar 2008 2009 2010E 2011E 2012E

Cash & short-term investment 1,841 9 485 3,501 4,000

Inventory 4,123 5,894 5,484 5,484 5,484



Fixed assets 121 229 303 257 212


Other non-current assets 102 1 74 74 74Total assets 13,834 14,722 20,566 21,608 20,372

Short-term debt 0 0 0 0 0Accounts payable 393 497 301 316 332


Long-term debt 5,302 6,713 9,072 7,813 5,813


Total liabi liti es 8,675 9,267 12,074 11,481 9,185

Share capital 364 364 646 1,196 1,121




Net debt /(cash) 3,461 6,704 8,587 4,312 1,813


Profit before tax 2,934 543 1,004 1,621 2,607


Tax paid (575) (188) (53) (243) (391)

Change in working capital (6,319) (4,039) (4,778) 2,595 1,394

Other operational CF items 544 768 908 809 641

Cash flow from operation s (3,400) (2,881) (2,874) 4,828 4,297

Capex (96) (142) (120) 0 0

Net (acquisitions)/disposal (101) 101 (74) 0 0

Other investing CF items (2) 506 10 0 0Cash flow from invest ing (198) 465 (184) 0 0

Change in debt 4,384 1,411 2,359 (1,259) (2,000)

Net share issues/(repurchases) 2 (59) 2,319 0 285

Dividends paid (234) 0 (139) (322) (328)Other financing CF items (542) (765) (904) (804) (635)

Cash flow from financ ing 3,610 587 3,635 (2,385) (2,678)


Chang e in cash 12 (1,829) 577 2,443 1,619


Sales – YoY % 268.4 (59.8) 71.8 23.8 25.4

EBITDA (adj.) – YoY % 368.2 (61.7) 42.5 27.2 33.8

Net profit (adj.) – YoY % 312.1 (84.9) 167.7 44.9 60.8

EPS (adj.) – YoY % 208.7 (84.9) 76.6 44.9 60.8


EBIT margin % (adj.) 48.9 45.6 37.9 39.2 42.0


ROAE (%) 57.6 6.7 13.6 14.8 20.8

ROAA (%) 24.1 2.5 5.4 6.5 10.6

ROCE (%) 47.8 11.4 12.4 13.3 18.2

ROIC (%) 51.6 8.1 12.0 12.7 19.7



Payables (days) 13.0 57.3 29.9 18.7 15.7




Avg price - Residential NapeanSea Road (Rs/sq ft)

n.a. n.a. n.a. 42,000 44,100

Avg price - Residential Lower parel (Rs/sq ft)

n.a. n.a. n.a. 18,000 18,900


PER bands

24.3x18.6x12.8x7.1x1.3x11

511

1,011

1,511

Apr-07 Apr-08 Apr-09 Apr-10

(Rs)






Orbit has about 10 years’ experience in the property market. In that period it hasdeveloped property totalling more than 1.5m sq ft in the prime areas of SouthMumbai, such as Babulnath, Tardeo, Worli, Prabhadevi, and Gamdevi. Thepromoters have about 20 years of experience in the property sector. The company

is also involved in the local-government scheme to redevelop dilapidated buildingsin Mumbai, which gives the company landbank in attractive locations in the city.

Valuation

We initiate coverage of Orbit with a 1 ( Buy) rating and six-month target price of Rs367 based on 1x our end-FY12 NAV forecast. Our calculation of the NAV is asfollows.

• We divided Orbit’s entire landbank into projects, based on the informationprovided by the company.

• We calculated the sales price/sq ft and forecast the sales volume for each project

based on our assessment of the market.





• We discounted the resultant cash flow based on a WACC of 14%. We added theresultant project level NAV for all the projects to arrive at the NAV of the

company.

• From the NAV we have deducted our forecast of the net debt as at the end of FY12, the 35% stake of the private-equity investors in the Mandwa project, andthe unpaid landbank to arrive at the final valuation of the company.

Orbit: calculation of NAV(Rs m) Comments


Less net debt 1,813 Net debt as the end of FY12

Total NAV 22,964

Less Mandwa stake 2,766 Adjustment for the 35% private-equity stake in Mandwa

Adjusted NAV 20,198

Shares outstanding (m) 55 Not adjusted for the 1:1 bonus and promoter warrantsNAV(Rs/share) 367


Orbit has a total landbank of 6.6m sq ft of saleable area in Mumbai. Based on ourvaluation methodology, we arrived at a gross NAV value as at the end of FY12 of 24,777m. We subtracted our forecast of the net debt as at the end of FY12 of Rs1,813m and the minority interest of the Mandwa project (Rs2,766m) to arrive atan NAV of Rs367/share.

Our NAV/share is based on the shares outstanding as at the end of FY10 and doesnot include the bonus issue (1:1) or the warrants issued to the promoters.

The company has sold 35% of its stake in the Mandwa project already to investors.In our calculation of NAV, we valued the Mandwa project assuming the full 100%stake of Orbit and then deducted the 35% stake of the minority investors.




The following chart shows that most of the NAV is derived from three projects: Mandwa, NS Roadblock , and Lalbaug. The NS Roadblock project is located in theprime area of Napean Sea Road, while Lalbaug is in Central Mumbai. Mandwa isabout 40 minutes by boat from Mumbai and is emerging as a place for weekendhomes for affluent people.

Orbit: spread of NAV by projects (Rs/share)

-33.8

9.3

132.5

29.27.24.4

121.593.4

0.00.01.21.5

(90)

0

90

180

270

360

450

O r b i t H a v e n

O

r b i t R e s i d e n t i a l

O r b i t T e r r a c e s

O r b i t G r a n d

M a n d w a

N S R o a d b l o c k

O r b i t S k y C h a t e a u

V i l l a O r b A n n e x

O r b i t G r a n d e u r - S a n t a c r u z

L a l b a u g

L a b u r n u m

N e t d e b t

T o t a l


Relative valuation

We believe Orbit is attractively priced relative to its peers. The stock is tradingcurrently at PBRs of 1.3x and 1.2x on our FY11 and FY12 BVPS forecasts,respectively. Our rating is further supported by what we consider as the company’swell-located landbank. Most of its land is in attractive locations within Mumbaithat command the highest prices in the country.

Key assumptions

Sales volume

We expect a continuous improvement in FY11 sales for the residential-propertysector as the recovery in the financial sector continues. Orbit expects to launchprojects in Napean Sea Road and Andheri among others in FY11.

Orbit: sales-volume forecastsFY11E FY12E FY13E

Residential (m sq ft) (m sq ft) (m sq ft)

Villa Orb 0.00 0.00 0.00

Orbit Arya 0.00 0.00 0.00Orbit Haven 0.01 0.02 0.01

Orbit Residential 0.08 0.14 0.02

Orbit Terraces 0.13 0.09 0.00

Orbit Grand 0.02 0.05 0.00

Mandwa 0.00 0.09 0.57

NS Roadblock 0.00 0.00 0.06

Orbit Sky Chateau 0.01 0.01 0.01

Villa Orb Annex 0.01 0.02 0.02

Orbit Grandeur - Santa Cruz 0.00 0.01 0.03

Lalbaug 0.00 0.00 0.11

Laburnum 0.00 0.00 0.01

Total 0.25 0.43 0.84 Source: Company, Daiwa forecasts

The following table shows the sales schedule factored into our valuation. We haveassumed sales of the Mandwa project begin in FY12, while the company says it




expects to launch it in FY11. For NS Roadblock we have assumed a launch inFY13 and for Lalbaug we have assumed a launch in FY13.

Orbit: forecast sales volume schedule (m sq ft)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

FY11E FY12E FY13E FY14E FY15E FY16E FY17E



The following table shows some of our key price assumptions based on the currentmarket prices. We expect residential prices to remain stable over the next 12months due to the strong pipeline of projects. Most of the developers are focusingon launching residential projects due to the weak demand in the commercial andretail segments.

Orbit: sales-price assumptions (Rs/sq ft)Location Sales area Sales price

Residential (m sq ft) (Rs/sq ft)Villa Orb - Napean Sea Road 0.1 40,320

Orbit Eternia - Lower Parel 0.0 16,000

Orbit Arya - Napean Sea Road 0.1 40,400

Orbit Haven - Napean Sea Road 0.0 40,000

Orbit Residential - Andheri 0.3 10,000

Orbit Terraces - Lower Parel 0.3 19,000

Orbit Grand - Lower Parel 0.1 18,000

Mandwa 3.3 6,500

NS Roadblock - Napean Sea Road 0.3 40,000

Orbit Sky Chateau - Napean Sea Road 0.0 40,000

Villa Orb Annex - Napean Sea Road 0.1 40,000

Orbit Grandeur - Santa Cruz 0.3 15,000

Lalbaug - Lalbaug 0.9 18,500

Laburnum - Gamdevi 0.1 25,000Source: Company, Daiwa forecasts

Discount rate





Orbit: calculation of WACCPre-tax cost of debt 14.00%

Tax rate 24.00%

Cost of debt 10.64%

Cost of equity

Risk-free rate 7.50%

Beta 1.5

Market premium 6.00% Cost of equity 16.50%

WACC 13.57%

Debt 50.00%

Equity 50.00% Source: Company, Daiwa forecasts

Other assumptions

Orbit: NAV assumptionsDiscount rate 14%




Tax rate (%) 33%Tax rate -80IB (%) 11%




Our base-case valuation is based on 1x our end-FY12 NAV forecast. The followingtable shows the effect on the NAV of a 1% change in our assumptions. The effecton the capitalisation rate is zero because, with exception of Orbit WTC , all theother residential projects are meant to be sold. Our price assumptions for theresidential-property sector are based on actual transactions. For the commercial andretail property sectors, where there are relatively few details on sales transactions,

we have determined the sales prices by using the current capitalisation rate of 10%.

Orbit: sensitivity of NAV to change in assumptions1% change in the average selling price 1.8% change in NAV

1% change in sales inflation 4.5% change in NAV

1% change in cost inflation 1.6% change in NAV


1% change in the discount rate 2.1% change in NAV



Landbank spread

The following tables show the geographical spread of Orbit’s landbank in Mumbaiand the NAV spread. The Napean Sea Road and Lalbaug projects account for 59%of NAV but only 26% of the total landbank. While Napean Sea Road is an affluentarea where properties command a price of Rs40,000/sq ft, Lalbaug is in CentralMumbai and is becoming attractive due to its proximity to business centres, such as

Nariman Point and Bandra Kurla Complex.

The NAV for the Lower Parel landbank is zero as our NAV is based on our end-FY12 forecast when we assume the projects will have been fully completed andsold.




Orbit: landbank by location in Mumbai Orbit: landbank by NAV

Lower Parel

6.9%

Mandwa

57.1%

Lal Baug

15.6%

Gamdevi

0.9%

Napean Sea

Road

10.1%Santa Cruz

4.5%

Andheri

4.9%

Santa Cruz

6.5%

Mandwa

31.9%

Lower Parel

0.0%

Lal Baug

29.4%

Gamdevi

2.1%Napean Sea

Road

29.9%

Andheri

0.3%

Source: Company Source: Company, Daiwa estimates

Balance-sheet analysisWe expect a sharp improvement in the company’s credit ratio from FY11. Thequarterly credit ratio started to improve from 2Q FY10 but deteriorated due to asharp increase in debt in 4Q FY10. The main reason for the increase in debt wasthe payment schedule for two residential projects (Villa Orb and Villa Orb Annex),which are back-ended, and led to a sharp rise in debtors (from Rs2.8bn for 2QFY10 to Rs4.6bn for 4Q FY10). The management said that home sales werenormally on a pre-sale basis and therefore we expect debtors to start to improvefrom FY11, leading to the reduction in debt. In our forecasts of the company’s debt,we have assumed it will not purchase any other properties.

Orbit: quarterly net debt Orbit: annual net debt

Net debt (Quartely)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Q 4 F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

(Rs m)

Net debt (Annual)

(6,000)

(4,000)

(2,000)

0

2,000

4,000

6,000

8,000

10,000


(Rs m)


The net debt/EBITDA ratio declined in 2Q FY10 and stabilised for 3Q FY10.However, the increase in debtors mentioned above led to an increase in debt, whichresulted in the ratio rising for 4Q FY10. We expect the payments for these projectto be booked in FY11 and believe an increase in sales will reduce debt for FY11.




Orbit: net debt/EBITDA

(1)

0

1

2

3

4

5

6

3Q FY09 4Q FY09 1Q FY10 2Q FY10 3Q FY10 4Q FY10 FY11E FY12E FY13E

(x)

Source: Company, Daiwa forecastsNote: Quarterly EBITDA are trailing 4Q

Interest coverage

The interest-coverage ratio (EBIT/I) improved from a low of 0.9x for 4Q FY09 to2.9x for 3Q FY10. The 4Q FY10 ratio fell to 2x due to an increase in debt, leadingto a rise in interest costs.

Orbit: interest coverage (x)

0

2

4

6

8

10

12

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

F Y 1 1 E

F Y 1 2 E

F Y 1 3 E


ROCE

With the fall in FY09 revenue, due to lower year-on-year sales volume and prices,EBIT also dropped, leading ROCE to decline to 11% for the year. With increasingsales volume and the higher prices relative to the low in 4Q FY09, we expect theROCE to increase from FY10. The WACC for the company is 14%.




Orbit: ROCE

0

5

10

15

20

25

30

35

3Q FY09 4Q FY09 1Q FY10 2Q FY10 3Q FY10 4Q FY10 FY11E FY12E FY13E

(%)


Changes in the capital structureIn FY10, Orbit raised Rs1.5bn through a qualified institutional placement (QIP) byissuing 7.8m shares at Rs185 each. Warrant conversion led to further dilution,amounting to 8m shares at Rs42.85 each and 0.78m shares at Rs51.2 each. Thecompany also issued 4m warrants to the promoters at a conversion price of Rs189.75. Two-million shares were converted in FY10 and we expect theremainder to be converted in FY12. The company announced bonus shares in theratio of 1:1 in March 2010, which will increase the share base substantially.

Orbit: changes in the share capital

Shares (m) Par value PremiumTotal value(Rs/share)

Total premium raised(Rs m)

Total capital raised(Rs m)

Shares as at end-FY09 36

Warrant conversion July 2009 8 10 33 43 266 81QIP 8 10 175 185 1,372 78

Warrant conversion 1 10 51 61 40 8Conversion of the promoter warrants 2 10 180 190 360 20Shares as at end-FY10 55 2,037 187

Bonus issue (1:1) 55 10 10 (550) -Shares as at end FY11 110 1,487 187

Warrants of the promoter converted in FY12 2 10 180 190 360 20Shares as at end-FY12E 112 1,847 207


Profit and loss account

Sales bottomed out in 3Q FY09 and have improved steadily since then. We expectsales to continue to rise as the financial markets improve. Property prices haverisen in the past five months and we expect them to decline by about 10-20% overthe next six months. Our assumed sales prices are lower than the current prices byabout 10-20%. We expect prices to stabilise after the anticipated decline as buyersare extremely price-conscious and any increase in price has led to a decline in salesvolume.




Orbit: quarterly revenue and area sold Orbit: revenue and sales-volume forecasts

0

300

600

900

1,200

1,500

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

0

20

40

60

80

100

120

140

160

180

Revenue (LHS) Area sold (sq ft) (RHS)

(Rs m) ('000 sqft)

0

2,000

4,000

6,000

8,000

10,000

FY11E FY12E FY13E

0

100

200

300

400

500

600

700

800

Revenue (LHS) Area sold (sq ft) (RHS)

(Rs m) ('000 sqft)


EBITDA margin has stabilisedThe results for 3Q-4Q FY10 showed that the EBITDA margin had stabilised in therange of 30-40%. As we expect sales volume to increase over the next few years,we forecast the EBITDA margin to rise to about 50% by FY13, the level prior tothe recession.

Orbit: quarterly EBITDA margin Orbit: annual EBITDA margin

0

10

20

30

40

50

60

70

80

1 Q F Y 0 8

2 Q F Y 0 8

1 H F Y 0 8

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

(%)

0

10

20

30

40

50

60


(%)


Shareholding pattern

As at the end of 4Q FY10, FIIs held 20.8% of the total shareholding shares, whileDIIs held about 3%. The promoters held 43.5%.




Orbit: shareholding pattern (%)

0

5

10

15

20

25

4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10

FII DII

Source: BSE




Puravankara Projects(PVKP IN) Construction & real estate: India



Amit Agarwal(91) 22 6622 1063

[email protected]

Initiation of coverage: Looks well-positioned for a recovery


We initiate coverage of Puravankara with a 1 ( Buy) rating and

six-month target price of Rs150, based on 1x our end-FY12

NAV forecast. Our rating is supported by what we see as the

company’s attractive valuation, its well-located landbank, itspremium brand, and an experienced management. At our target

price the stock would trade at an FY11 PER of 26x and FY12

PER of 18x on our EPS forecasts.

Looks well-positioned to benefit from IT/ITES recovery

The landbank is located in IT/ITES-centric towns. A return of

confidence in the IT/ITES sector implies job security and higher

salaries, which should lead to a rise in demand for housing.

We forecast an earnings CAGR of 20% for FY10-13. We project

back-ended earnings growth, due to a revival in demand for mid-

to high-end housing from FY12.

Puravankara’s net-debt-to-equity has been maintained at about

0.5x throughout the recessionary period (FY09-10). Further, the

company’s net debt has remained at around Rs8bn, indicating to

us management’s ability to manage a crisis situation.

The stock is trading currently at 32% below our target price. We

feel comfortable with our valuation, as our property-price

assumptions for FY11 are 10-15% below the current market

prices.

Risks. 1) The global macroeconomic scenario, which could

impact the IT/ITES sector adversely, and 2) interest-rate hikes.

Reuters code PPRO.NS

Market dataSENSEX Index 16,657.89Market cap (US$m) 465.65EV (US$m; 11E) 698.653-mth avg daily T/O (US$t) 818.81Shares outstanding (m) 213Free float (%) 10.0Major shareholder Promoter family (90.0%)Exchange rate Rs/US$ 47.025


Absolute 0.9 (0.8) 6.2Relative 1.6 1.5 9.2






0.0137.5275.0412.5550.0

07/6 07/12 08/6 08/12 09/6 09/12 10/6

(Rs)

0316394125

Rel to SENSEX Index




2009 4,449 (21.4) 1,367 (35.8) 1,444 (39.8) 6.767 (39.8) (3.466) 0.000 2010 4,784 7.5 1,693 23.9 1,453 0.6 6.809 0.6 (1.323) 1.000 2011E 4,875 1.9 1,573 (7.1) 1,238 (14.8) 5.800 (14.8) (8.121) 0.500 2012E 7,550 54.9 2,476 57.4 1,733 40.0 8.119 40.0 20.004 1.500 2013E 11,289 49.5 3,787 52.9 2,481 43.2 11.627 43.2 23.028 3.500





Company background

Puravankara is a property developer focused on developing and selling residential, commercial and retail projects. It is focused

primarily in South India.

Puravankara Projects – financial summary


Residential/commercial 4,375 4,729 4,820 7,496 11,191

Rental Income 38 25 25 25 68


Total reven ue 4,449 4,784 4,875 7,550 11,289


COGS (2,596) (2,650) (2,960) (4,621) (6,824)

SG&A (486) (440) (341) (453) (677)


Net-interest inc./(exp.) (16) (3) (6) (4) 9Assoc/forex/extraord./others 174 172 173 174 175

Pre-tax pro fit 1,470 1,751 1,547 2,166 3,102

Tax (26) (298) (309) (433) (620)

Min. int./pref. div./others 0 0 0 0 0Net prof it (reported) 1,444 1,453 1,238 1,733 2,481

Net pro fi t (adj.) 1,444 1,453 1,238 1,733 2,481

EPS (reported ) (Rs) 6.767 6.809 5.800 8.119 11.627

EPS (adj.) (Rs) 6.767 6.809 5.800 8.119 11.627

DPS (Rs) 0.000 1.000 0.500 1.500 3.500

EBIT (adj.) 1,312 1,583 1,381 1,996 2,918

EBITDA (adj.) 1,367 1,693 1,573 2,476 3,787

As at 31 Mar 2009 2010 2011E 2012E 2013E

Cash & short-term investment 268 782 354 1,601 2,053

Inventory 6,871 7,881 13,700 19,769 24,528



Fixed assets 463 362 1,709 4,503 8,058



Short-term debt 0 0 0 0 0Accounts payable 1,052 577 869 1,365 2,027


Long-term debt 8,146 8,811 11,311 11,311 11,311



Share capital 9,056 9,056 9,056 9,056 9,056




Net debt /(cash) 7,878 8,029 10,957 9,709 9,257




Tax paid (26) (298) (309) (433) (620)

Change in working capital (2,116) (1,684) (2,922) 2,203 1,724

Other operational CF items (123) (162) (241) (147) (160)

Cash flow from operation s (740) (282) (1,733) 4,269 4,915

Capex (22) (10) (1,539) (3,274) (4,425)

Net (acquisitions)/disposal (151) (153) 0 0 0

Other investing CF items (1,005) 397 324 480 676Cash flow from invest ing (1,178) 233 (1,215) (2,794) (3,749)

Change in debt 1,622 665 2,500 0 0

Net share issues/(repurchases) 78 0 0 0 0

Dividends paid 0 (250) (125) (375) (874)Other financing CF items 135 148 145 147 160

Cash flow from financ ing 1,835 563 2,520 (228) (714)


Chang e in cash (83) 514 (428) 1,248 452


Sales – YoY % (21.4) 7.5 1.9 54.9 49.5

EBITDA (adj.) – YoY % (35.8) 23.9 (7.1) 57.4 52.9

Net profit (adj.) – YoY % (39.8) 0.6 (14.8) 40.0 43.2

EPS (adj.) – YoY % (39.8) 0.6 (14.8) 40.0 43.2


EBIT margin % (adj.) 29.5 33.1 28.3 26.4 25.8


ROAE (%) 11.2 10.2 8.1 10.5 13.8

ROAA (%) 5.8 5.4 4.0 4.4 5.1

ROCE (%) 6.5 7.0 5.4 7.2 9.9

ROIC (%) 6.5 5.9 4.4 5.9 8.5



Payables (days) 80.9 62.1 54.1 54.0 54.8

Net interest cover (x) 83.9 556.1 218.8 487.9 n.a.


Key assumptionsYear to 31 Mar 2011E 2012E 2013E

Avg price - Residential Chennai(Rs/sq ft)

2,142 2,249 2,362

Avg price - Residential Bangalore(Rs/sq ft)

2,321 2,437 2,558

Sale residential (mn sq ft) 2.0 3.0 4.2

PER bands

56.7x43.4x30.1x16.7x3.4x20

120

220

320

420

520

620

Aug-07 Aug-08 Aug-09

(Rs)






Puravankara has more than 35 years’ experience of development and sales in the

housing sector, with developments located mainly in the cities of Bangalore,

Chennai, Kochi, Coimbatore, Hyderabad, and Kolkata in India, and Colombo in Sri

Lanka. It has a total landbank of 115m sq ft.

Investment summary

We initiate coverage of Puravankara with a 1 ( Buy) rating and six-month targetprice of Rs150, based on 1x our end-FY12 NAV forecast. Our rating is supportedby what we see as the company’s attractive valuation, its well-located landbank,which should benefit from the IT/ITES recovery, its premium brand, and anexperienced management. At our target price the stock would trade at an FY11PER of 26x and FY12 PER of 18x on our EPS forecasts.

Looks well-positioned to benefit from the IT/ITES recovery

Puravankara’s entire landbank is located in IT/ITES-centric cities, including

Bangalore (66% of total volume), Chennai (12%), Hyderabad (5%) and Kochi(10%). With the recovery in the economy, we expect hiring and salaries in theIT/ITES sector to improve, and for this to lead to a return of confidence. Theresulting increase in demand for housing should lead to an improvement in thecompany’s sales going forward, in our view.

We expect earnings CAGR of 22% for FY10-13

We forecast a back-ended earnings CAGR of 20% for FY10-13 on a sales CAGRof 33%. We expect the net profit for FY11 to be affected by marginal sales growthand a decline in the EBITDA margin due to the impact of the sale of affordablehousing. However, given our expectation of an increase in demand for mid- tohigh-end housing from FY12, we expect the company’s sales and EBITDA margin

to improve.

Balance sheet remains healthy

Puravankara has maintained a healthy balance sheet, with a net-debt-to-equity ratioof about 0.5x throughout the slowdown in the economy. Its net debt remained atabout Rs8bn during FY10, despite the sharp slowdown in demand, implying astrong ability to manage the balance sheet, in our view. Annualised debtor days fellto 83 for 4Q FY10 from a peak of 361 for 2Q FY10.

We see attractive valuation; comfortable with our valuation

Puravankara is trading currently at a 32% discount to our NAV of Rs150. We are

comfortable with our valuation, as in our forecasts we have assumed propertyprices at about 10-15% below the current prices. We have also extended ourdevelopment period to 10 years compared with the management’s estimate of seven years.

Risks

1. A slowdown in the IT/ITES sector due to global macro-economic conditions.2. A slower-than-expected increase in demand, which could drive down property

prices.3. Execution risk.




Valuation

We initiate coverage of Puravankara with a six-month target price of Rs150 basedon 1x our end-FY12 NAV forecast. Our methodology for the calculation of theNAV is given below:

• We divided Puravankara’s entire landbank into projects, based on the

information given by the company.• We arrived at the sale price/sq ft and the anticipated sales volume for each

project based on our assessment of the market.

• We assumed an annual inflation rate on the sale and cost price of 5%.

• From the sale price, we deducted the cost of construction. We derived our costestimates after discussions with industry experts.

• We further deducted marketing and other costs that we assumed to be 6% of thesales revenue.


• We discounted the resultant cash flow based on a WACC of 14%. We added theresultant project level NAV for all the projects to arrive at our NAV estimate forthe company.

• From the NAV, we deducted our forecast of the net debt as at the end of FY12and the unpaid landbank to arrive at the final valuation of the company.

NAV calculation

Puravankara has a total landbank under development of 115m sq ft. Based on theour valuation methodology, we arrived at an NAV of Rs41,633m based on adiscount rate of 14%. We made further adjustments for the net debt as at 31 March2012 to arrive at our NAV/share of Rs150.

Puravankara: Daiwa calculation of NAV(Rs m) Comments


Less net debt 9,709 Debt as at the end of March 2012

NAV 31,923

Shares outstanding (m) 213 As at the end of March 2012

NAV/share 150


In our view, the stock should trade at 1x our end-FY12 NAV forecast. In our view,a discount is not appropriate on the NAV due to the underlying expansion in theeconomy and the sector, which we would expect to limit the downside to the NAV.

However, we expect slow sales- and lease-volume growth in the commercialsegment and the oversupply of commercial space to cap rises in property prices,limiting the upside potential for the NAV.

The following tables show the geographical spread of the NAV and our keyassumptions.




Key NAV assumptions – properties for sale

LocationSaleable

area Revenue CostLandcost NAV

Baserevenue

Basecost Land cost NAV

(m sq ft) (Rs m) (Rs m) (Rs m) (Rs m) (Rs/sq ft) (Rs/sq ft) (Rs/sq ft) (Rs/sq ft)

Residential

Bangalore 61 170,770 92,317 9,530 18,336 2,210 1,200 156 300

Mysore 1 1,282 891 93 72 1,870 1,300 156 120

Colombo 1 4,490 2,113 215 679 2,550 1,200 156 492Chennai 11 30,783 18,108 1,772 3,631 2,040 1,200 156 319

Kochi 9 24,658 13,925 1,398 2,638 2,125 1,200 156 294

Hyderabad 4 12,481 6,293 626 1,927 2,380 1,200 156 480

Kolkata 1 2,316 1,090 128 200 2,550 1,200 156 244

Coimbatore 4 9,527 6,335 601 932 1,955 1,300 156 242

Total residential 92 256,307 141,072 14,363 28,416

Commercial

Bangalore 6 33,178 14,921 953 5,396 3780 1700 156 882

Chennai 1 5,048 2,554 177 917 3360 1700 156 806

Kochi 1 2,663 1,268 112 834 2940 1400 156 1,162

Total commercial 8 40,890 18,744 1,242 7,148

Total 100 297,197 159,816 15,605 35,564


Key NAV assumptions – leased propertiesLeasable

areaLease rentannualised

Capitalexpenditure NAV

Base leaserent

Capitalexpenditure NAV

Location (m sq ft) (Rs m) (Rs m) (Rs m) (s/sq ft/pm) (Rs/sq ft) (Rs/sq ft)

Bangalore 6.1 2,313 8,078 1,219 32 1,320 199

Mysore 0.7 206 1,614 147 25 2,306 210

Chennai 1.1 382 2,375 465 28 2,087 408

Kochi 0.9 264 1,428 239 25 1,591 266

Hyderabad 1.9 623 4,129 561 28 2,227 302

Total commercial 10.7 3,788 17,623 2,630

Retail

Bangalore 3.1 2,937 7,968 2,568 80 2,604 839

Chennai 0.6 478 730 527 70 1,284 927

Kochi 0.4 175 966 132 33 2,152 294

Hyderabad 0.3 169 730 212 46 2,363 686

Total retail 4.4 3,415 8,698 3,439

Total 15 7,203 26,322 6,069


Relative comparison

In our opinion, an NAV-based valuation is the most suitable for property stocks.Valuations based on earnings multiples are not appropriate due to the inherentearnings volatility. Also PBRs do not take into account the difference in thevaluations based on landbank location.

We believe that Puravankara should be valued on a par with DLF. While webelieve DLF has a better-located landbank, superior execution capability and agood brand name, we think Puravankara has a better-quality balance sheet.

Valuation triggers

1. Improvement in the IT/ITES sector: a faster-than-expected recovery in theIT/ITES sector, implying an increase in hiring and better salaries would lead toan improvement in demand for housing, thereby improving the valuations.

Risks to the valuation

1. Decline in property prices: a slowdown in the IT/ITES sector due to unfolding

macro-economic conditions would lower demand, driving down propertyprices. We estimate that a 1% change in property prices leads to a 4% changein our NAV estimate for the stock.




Key assumptions

Sales volume

We expect a gradual improvement in sales in the residential sector in FY11, assales volume is dependent on the recovery of the IT/ITES sector. While residentialsales in most cities have started picking up, sales are still about 50-80% below the

peak sales volume (depending on the city and location). We expect sales in thecommercial sector to pick up from 4Q FY11. While commercial-sales enquiriesappear to have increased in the past six months, it takes about a year for thelease/sale to materialise.

Puravankara: sales and lease schedule (m sq ft)2011E 2012E 2013E

Residential 2.05 3.01 4.19

Commercial sales 0.03 0.07 0.15

Commercial leases 0 0 0.16

Retail leases 0 0 0

Total 2.08 3.08 4.49 Source: Company, Daiwa forecasts

Our assumptions for the sale of the entire landbank is given below. About 19 m sqft of the landbank is under construction

Puravankara: Daiwa landbank sales forecasts

0

5

10

15

20

25

2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

(m sq ft)



The assumptions given below are some of our key pricing assumptions based onthe current property prices prevalent in the market. We expect residential prices toremain stable over the next year due to the expected strong pipeline of projects.Most of the developers are focusing on launching residential projects, as a result of weak demand from the commercial and retail segments.




Puravankara: Daiwa sales-price assumptions – residentialSaleable area Base revenue

(m sq ft) (Rs/sq ft)

Bangalore 61 2,210

Mysore 1 1,870

Colombo 1 2,550

Chennai 11 2,040

Kochi 9 2,125Hyderabad 4 2,380

Kolkata 1 2,550

Coimbatore 4 1,955


Discount rate

Our key assumptions for the discount rate are shown below. We assume a WACCof 14%.

Puravankara: Daiwa calculation of WACCCost of debt


Tax rate 24%

Cost of debt 11%

Cost of equity

Risk free rate 7%

Beta 1.45

Market premium 7%

Cost of equity 17%

WACC 14%

Debt 60%

Equity 40%

Source: Daiwa estimates, Bloomberg

Other assumptions

Puravankara: Daiwa assumptions for NAVDiscount rate 14%

Rate of inflation - sales 5%

Rate of inflation - costs 5%


Tax rate (%) 33%





Our base-case valuation is based on our end-FY12 NAV forecast. The following

table shows the effect on the NAV of a 1% change in our key assumptions.

Puravankara: sensitivity of NAV to changes in assumptions1% change in the average sale price 4% change in NAV

1% change in sale inflation 11% change in NAV


1% change in sale and cost inflation 1.6% change in NAV

1% change in discount rate 5% change in NAV

1% change in cap rate 10% change in NAV


Landbank details

The following tables show the geographical spread of Puravankara’s landbank interms of volumes and NAV. The tables show that the company is focused on




southern India, particularly Bangalore, Chennai and Kochi. About 66% of itslandbank is located in Bangalore and it derives 65% of NAV from the region.

Puravankara: spread of landbank by location Puravankara: spread of landbank by NAVCity (m sq ft) (%)

Bangalore 76 66

Mysore 1 1

Pune 1 1Chennai 14 12

Kochi 11 10

Kolkata 1 1

Coimbatore 4 3

Hyderabad 6 5

Total 115 100


Bangalore 27,519 66

Pune 679 2

Kochi 3,844 9Mysore 219 1

Coimbatore 932 2

Chennai 5,540 13

Hyderabad 2,699 6

Kolkata 200 0

Total 41,633 100 Source: Puravankara Source: Company, Daiwa estimates


We forecast an earnings CAGR of 22% for FY10-13, driven by a sales CAGR of 33%. We expect earnings growth to be back-ended, with a marginal decline in the

net profit for FY11, due to a reduction in the average sales price as the impact of affordable housing sales kicks in from FY11.

Puravankara is focused primarily on the IT/ITES townships of Bangalore, Chennai,Hyderabad and Kochi. With improved hiring for the IT/ITES segment andanecdotal evidence of salary increases, we expect sentiment toward the propertysector to become more favourable, leading to the company recording sales growthmainly from FY12. The average sales price in Puravankara’s affordable-housingcategory is less than Rs2,000/sq ft compared with an average selling price of Rs2,500-Rs3,000/sq ft for its other projects. Over the past two years, the companyhas launched 3.46m sq ft of residential sales in the affordable category inBangalore and 2.23m sq ft in Chennai.

Puravankara: revenue forecasts Puravankara: EBITDA margin

0

2,000

4,000

6,000

8,000

10,000

12,000

FY05 FY06 FY07 FY08 FY09 FY10 FY11EFY12EFY13E

(Rs m)

0%

5%

10%

15%

20%

25%

30%

35%

40%



We forecast the impact of the increase in affordable-housing sales to lead to areduction in the EBITDA margin from 35% in FY10 to 32% in FY11. We expectthe margin to increase gradually after FY11 as demand for mid- to high-endhousing increases.

We expect a marginal decline in the net profit for FY11 due to a reduction in theoperating margin, but expect net profit to increase from FY12 onwards.




Puravankara: net-profit forecasts

0

500

1,000

1,500

2,000

2,500

3,000


(Rs m)


Balance-sheet analysisWe expect the net-debt-to-equity ratio to decline over the next few years assumingno purchase of land by Puravankara. In FY07, its net-debt-to-equity ratio increasedsharply due to aggressive expansion as the company was buying land. The ratiodropped to about 0.5x in FY08 after it raised funds from the capital markets. Theratio has remained at the same level since FY08, but we expect it to decline fromFY12 as the IT/ITES sector recovers and demand for housing increases.

Puravankara: net-debt-to-equity ratio (x)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5



Credit ratio has started improving

The company’s credit ratio has shown a steady improvement over the past fewquarters, signalling to us the company’s improving balance sheet. The annualisedROCE collapsed to 1% in 2Q FY10 but improved to 6% in 4Q FY10. The interest-coverage ratio has also shown signs of improvement, recovering from a low of 0.2xfor 2Q FY10 to 1x for 4Q FY10.




Puravankara: ROCE (annualised) Puravankara: interest coverage (x)

0%

5%

10%

15%

20%

25%

30%

35%

1 Q F Y 0 7

2 Q F Y 0 7

3 Q F Y 0 7

4 Q F Y 0 7

1 Q F Y 0 8

2 Q F Y 0 8

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0 A

3 Q F Y 1 0

4 Q F Y 1 0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1 Q F Y 0 8

2 Q F Y 0 8

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0 A

3 Q F Y 1 0

4 Q F Y 1 0


Debtor days have been on a declining trend since 3Q FY10. The sharp increase in2Q FY10 was due to the sale of land in September 2009 and the payment beingmade in October 2009. Stripping out the receivables on the sale of land (Rs1,450m),debtor days for 2Q FY10 were relatively lower than in 1Q FY10. The netdebt/EBITDA increased sharply for 2Q FY10 due to a marked decline in EBITDAwith a spike in selling and marketing expenses, but fell sharply in 3Q FY10 anddeclined further in 4Q FY10.

Puravankara: debtor days (annualised) Puravankara: net debt/EBITDA

0

50

100

150

200

250

300

350

400

1 Q F Y 0 7

2 Q F Y 0 7

3 Q F Y 0 7

4 Q F Y 0 7

1 Q F Y 0 8

2 Q F Y 0 8

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0

3 Q F Y 1 0

4 Q F Y 1 0

(5)

0

5

10

15

20

2530

35

40

1 Q F Y 0 8

2 Q F Y 0 8

3 Q F Y 0 8

4 Q F Y 0 8

1 Q F Y 0 9

2 Q F Y 0 9

3 Q F Y 0 9

4 Q F Y 0 9

1 Q F Y 1 0

2 Q F Y 1 0 A

3 Q F Y 1 0

4 Q F Y 1 0

(x)


Cash-flow analysis

We project strong operating free-cash flow from FY12 based on our sales forecasts.With the likely pick-up in demand from the recovery in the IT/ITES sector andincreases in salaries, we expect customer advances to increase markedly from thesale of residential units. However, if the demand improvement is affected by aslowdown in the IT/ITES sector as a result of emerging macroeconomic factors,and/or the company enters an expansionary phase by purchasing land, theimprovement in cash flow we expect could be delayed.




Puravankara: operating free-cash flow (Rs m)

(2,000)

(1,000)

0

1,000

2,000

3,000

4,000

5,000

6,000

2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E


Shareholding patternThe shareholding pattern below indicates clearly that FIIs comprise the majority of investors of the free float. The FII shareholding contracted during 2Q-3Q FY10 buthas increased since. The free float in the stock is only 10.04%.

Puravankara: shareholding pattern of FIIs and DIIs

0

1

2

3

4

5

6

7

8

9

2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10

FII DII

(% holding)





Unitech(UT IN) Construction & real estate: India



Amit Agarwal(91) 22 6622 1063

[email protected]

Initiation of coverage: we expect slow revival


Unitech is focused on affordable housing. It had an aggressive

launch schedule in FY10 and further launches planned for FY11.

In our view, the timely execution of projects will be key to the

company maintaining buyer loyalty. We initiate coverage with a3 ( Hold ) rating as the stock looks fully valued on our six-month

target price of Rs77, based on 1x our end-FY12 NAV forecast.

In FY10, Unitech launched 26.6m sq ft in sales and sold 16.2m

sq ft. Most of its launches were affordable housing.

The company has about 32m sq ft under construction currently.

The timely execution of these projects will be the key to ongoing

sales, in our view.

We see earnings growth driven by a revival in sales

We forecast earnings and sales CAGRs of 28% and 30%,

respectively, for FY11-13. However, we expect the EBITDA

margin to decline over the same period due to lower margins

from affordable-housing sales.

Unitech’s balance-sheet health has been improving, with the net-

debt-to-equity ratio falling from 2x for FY08 to 0.5x for FY10,

on our estimates.

Share-price catalysts. 1) A rise in residential-property prices.

Risks. 1) execution skill, 2) the global macro economy, 3) a

slowdown in the IT/ITES sector, and 4) political risk.

Reuters code UNTE.NS

Market dataSENSEX Index 16,657.89Market cap (US$bn) 3.58EV (US$bn; 10E) 4.723-mth avg daily T/O (US$m) 55.47Shares outstanding (m) 2,439Free float (%) 0.6Major shareholder Promoter family (45.0%)Exchange rate Rs/US$ 47.025








0.0150.0300.0450.0600.0

07/6 07/12 08/6 08/12 09/6 09/12 10/6

(Rs)

050100150200

Rel to SENSEX Index




2008 41,400 25.9 22,286 11.3 16,683 27.8 10.277 (36.1) (6.533) 0.292 2009 28,574 (31.0) 15,565 (30.2) 11,955 (28.3) 7.364 (28.3) 0.838 0.210 2010E 29,313 2.6 10,712 (31.2) 7,084 (40.7) 2.905 (60.6) (4.919) 0.211 2011E 31,806 8.5 10,909 1.8 8,025 13.3 3.067 5.6 1.796 0.227 2012E 46,908 47.5 14,535 33.2 10,355 29.0 3.958 29.0 5.793 0.293 Source: Company, Daiwa forecasts




Company background

Unitech is engaged primarily in development and sale of residential, commercial and retail properties and the lease of retail and

commercial properties in India.

Unitech – financial summary


Real Estate revenues 35,971 23,795 24,299 27,434 42,429

Other Revenues 5,430 4,779 5,014 4,373 4,479


Total reven ue 41,400 28,574 29,313 31,806 46,908


COGS (16,870) (10,508) (15,637) (17,599) (27,007)

SG&A (2,244) (2,501) (2,965) (3,298) (5,366)


Net-interest inc./(exp.) (2,048) (1,753) (1,925) (556) (109)Assoc/forex/extraord./others 641 789 765 803 843

Pre-tax pro fit 20,674 14,392 9,210 10,738 14,849

Tax (3,986) (2,424) (2,264) (2,713) (4,494)

Min. int./pref. div./others (5) (13) 138 0 0Net prof it (reported) 16,683 11,955 7,084 8,025 10,355

Net pro fi t (adj.) 16,683 11,955 7,084 8,025 10,355

EPS (reported ) (Rs) 10.277 7.364 2.905 3.067 3.958

EPS (adj.) (Rs) 10.277 7.364 2.905 3.067 3.958

DPS (Rs) 0.292 0.210 0.211 0.227 0.293

EBIT (adj.) 22,081 15,356 10,370 10,491 14,115

EBITDA (adj.) 22,286 15,565 10,712 10,909 14,535

As at 31 Mar 2008 2009 2010E 2011E 2012E


Inventory 422 368 585 585 585



Fixed assets 31,442 33,257 35,203 36,725 38,291

Goodwill & intangibles 1,126 11,672 11,672 11,672 11,672


Short-term debt 0 0 0 0 0Accounts payable 8,497 22,549 13,660 5,792 8,893


Long-term debt 85,524 90,558 60,680 63,680 63,680

Other non-current liabilities 19,196 17,936 17,924 17,924 17,924


Share capital 8,334 10,481 57,572 66,131 66,131


Shareh old ers' equi ty 36,005 51,695 102,054 118,044 127,633

Minority interests 1,159 615 615 615 615Total equity & liabil ities 224,976 262,927 282,972 310,469 353,168

Net debt /(cash) 71,441 84,110 52,810 42,641 30,346




Tax paid (3,986) (2,424) (2,264) (2,713) (4,494)

Change in working capital (29,547) (12,549) (21,209) (4,299) 4,272

Other operational CF items 2,048 1,733 1,925 556 109

Cash flow from operatio ns (10,606) 1,361 (11,997) 4,699 15,156

Capex (23,499) (2,025) (2,287) (1,940) (1,985)

Net (acquisitions)/disposal (9,617) (12,190) 4,107 0 0

Other investing CF items 4,297 132 (3,175) 0 0Cash flow from invest ing (28,819) (14,083) (1,354) (1,940) (1,985)

Change in debt 45,718 5,035 (29,879) 3,000 0

Net share issues/(repurchases) 84 2,147 47,091 8,559 0

Dividends paid (475) (341) (514) (594) (766)Other financing CF items (2,048) (1,753) (1,925) (556) (109)

Cash flow from financ ing 43,280 5,088 14,773 10,410 (875)


Chang e in cash 3,855 (7,634) 1,422 13,169 12,295


Sales – YoY % 25.9 (31.0) 2.6 8.5 47.5

EBITDA (adj.) – YoY % 11.3 (30.2) (31.2) 1.8 33.2

Net profit (adj.) – YoY % 27.8 (28.3) (40.7) 13.3 29.0

EPS (adj.) – YoY % (36.1) (28.3) (60.6) 5.6 29.0


EBIT margin % (adj.) 53.3 53.7 35.4 33.0 30.1


ROAE (%) 59.6 27.3 9.2 7.3 8.4

ROAA (%) 9.4 4.9 2.6 2.7 3.1

ROCE (%) 24.2 11.6 6.8 6.1 7.5

ROIC (%) 22.5 10.4 5.4 4.9 6.2



Payables (days) 69.7 198.3 225.4 111.6 57.1



Key assumptionsYear to 31 Mar 2011E 2012E

Avg price - Residential Gurgaon(Rs/sq ft)

3,045 3,197

Avg price - ResidentialNoida/Greater Noida (Rs/sq ft)

2,800 2,940

Sale residential (mn sq ft) 5.8 9.6

PER bands

48.4x36.3x24.2x12.1x0.0x0

1,000

2,000

3,000

Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 May-10

(Rs)






Unitech was established in 1972 and is involved in the development and sale/leaseof residential, commercial/IT parks, retail, hotel, amusement parks, and SEZs. Thecompany and Norway-based Telenor Group recently established UNINOR (Notlisted) – a telecommunications services company that provides GSM services in 22

circles across India.

Valuation

We value Unitech at Rs77/share based on 1x our end-FY12 NAV forecast. Thecalculation of the NAV was as follows.

• We divided Unitech’s entire landbank into projects, based on the informationgiven by the company.

• We arrived at the sale price/sq ft and the anticipated sales volume for eachproject based on our assessment of the market.

• We assumed an annual inflation rate on the sale and cost price of 5%.

• From the sale price, we deducted the cost of construction. We arrived at our costestimates following discussions with industry experts.

• We further deducted marketing and other costs that we assumed to be 5% of sales revenue.


• The resultant cash flow was discounted based on a WACC of 13%. We addedthe resultant project level NAV for all the projects to arrive at the NAV of thecompany.

• From the NAV we deducted our forecast of the net debt as at the end of FY12and the unpaid landbank to arrive at the final valuation of the company.

NAV calculation

Unitech has a total of 420m sq ft of saleable land. Based on our valuationmethodology, we arrived at a NAV of Rs201,069m using a discount rate of 13%.We added Unitech’s shares in Unitech Corporate Park (Not rated) and its share of the telecoms investment’s net debt as at the end of March 2012 to arrive at ourNAV/share estimate of Rs77.

Unitech: Daiwa calculation of NAV(Rs m) (Rs/share)

Residential 92,356 35

Commercial 57,487 22

Retail 51,226 20

Gross NAV 201,069 77

Less net debt 30,346 12

Unitech shares in UCP 945 0

Telecoms investments 29,877 11

NAV 201,545 77

Shares outstanding (m) * 2,616

NAV/(Rs/share) 77

Source: Company, Daiwa forecasts, * on a fully-diluted basis

In our view, the stock should trade at 1x our end-FY12 NAV forecast. We have notapplied any discount to the NAV due to the underlying expansion of the economy

and sector that we expect over the next few years, which we believe will limit thedownside for the NAV. However, we expect the slow revenue growth in thecommercial segment and a potential oversupply to limit the increase in propertyprices, hence limiting the upside for our NAV estimate.




Unitech: Daiwa sales forecasts for the landbank

0

5

10

15

20

25

30

35

40

45

2 0 1 1 E

2 0 1 2 E

2 0 1 3 E

2 0 1 4 E

2 0 1 5 E

2 0 1 6 E

2 0 1 7 E

2 0 1 8 E

2 0 1 9 E

2 0 2 0 E

2 0 2 1 E

2 0 2 2 E

2 0 2 3 E

2 0 2 4 E

2 0 2 5 E

2 0 2 6 E

2 0 2 7 E

2 0 2 8 E

2 0 2 9 E

2 0 3 0 E

(m sq ft)


Sales-price assumptionsThe following table shows some of our key pricing assumptions based on thecurrent prices prevalent in the market. We expect residential prices to remain stablefor the next year due to the strong pipeline of projects. Most of the developers arefocusing on launching residential projects due to weak demand from thecommercial and retail segments.

Unitech: sale-price assumptionsLocation Saleable area Base revenue

Residential (m sq ft) (Rs/sq ft)

Gurgaon 67.0 2,900

Noida 22.9 2,500

Greater Noida 13.3 3,000

Kolkata 22.7 2,300

Chennai 63.1 2,500

Kochi 4.1 2,300

Bangalore 2.9 2,300

Hyderabad 38.1 2,200

Siliguri 5.9 1,600

Mohali 17.4 2,200

Agra 12.7 1,800

Varanasi 13.9 1,800

Vizag 97.1 1,800


Discount rate


Unitech: Daiwa calculation of WACCCost of debt


Tax rate 24%

Cost of debt 11%

Cost of equity

Risk-free rate 7%

Beta 1.5

Market premium 6%

Cost of equity 16%

WACC (rounded up) 13%

Debt 50%

Equity 50%

Source: Daiwa estimates, Bloomberg




Other assumptions

Unitech: Daiwa assumptions for NAVDiscount rate 13%




Tax rate (%) 33%





Our base-case valuation is based on the NAV. The following table shows theeffect on the NAV of a 1% change in our key assumptions.

Sensitivity of NAV to change in assumptions1% change in the average selling price 2% change in NAV







Landbank details

The following tables show the geographical spread of the company’s landbank interms of volumes and NAV. They show that about 32% of Unitech’s NAV isderived from the NCR, which includes Gurgaon, Noida and Greater Noida, butonly 24% of its landbank is located in the NCR. Some 26% of Unitech’s landbank is located in southern India, which contributes 28% to the NAV. Also, 29% of its

landbank is in tier-2 cities such as Vizag, Agra and Varanasi, which contribute only17% to the NAV.

Spread of landbank by volume Spread of landbank by NAVCity (m sq ft) (%)

Gurgaon 67 16

Delhi 0 0

Noida 23 5

Greater Noida 13 3

Kolkata 23 5

Chennai 63 15

Kochi 4 1

Bangalore 3 1

Hyderabad 38 9Chandigarh 4 1

Siliguri 6 1

Mohali 17 4

Agra 13 3

Varanasi 14 3

Vizag 97 23

Maharashtra 15 4

Others 20 5

Total 420 100


Gurgaon 42,961 21

Delhi 1,453 1

Noida 14,312 7

Greater Noida 6,233 3

Kolkata 7,245 4

Chennai 31,874 16

Kochi 3,260 2

Bangalore 1,530 1

Hyderabad 18,591 9Chandigarh 1,474 1

Siliguri 2,535 1

Mohali 10,404 5

Agra 4,298 2

Varanasi 4,610 2

Vizag 25,434 13

Maharashtra 17,633 9

Others 7,221 4

Total 201,069 100 Source: Company, Daiwa forecasts Source: Company, Daiwa forecasts

Execution should remain the key

Unitech has about 32m sq ft under construction currently. The timely execution of the projects will be the key to ongoing sales, in our view. Any delay in completiondates could imply cancellations, as buyers could shift to projects with committedcompletion dates.





We forecast an earnings CAGR of 28% for FY10-13, driven by a sales CAGR of 30%. Earnings declined by 41% YoY for FY10, despite a 3% YoY rise in revenuedue to a decline in the EBITDA margin from 55% for FY09 to 37%. The decline inthe margin was caused by the company’s increasing focus on affordable housingcompared with its focus on premium properties historically. The shift in focus has

been driven by increased demand for affordable housing. We forecast the EBITDAmargin to stabilise in the range of 30-35% from FY11.

Unitech has landbank spread across the country. However, the NCR, Bangalore,Chennai, Hyderabad and Kochi constitute 50% of the landbank, and these locationsare focused primarily on the IT/ITES industry. With our expectation of animprovement in the hiring in the IT/ITES segment and anecdotal evidence of salaryincreases, we expect an improvement in sentiment that should lead to sales growthprimarily from FY12. The average sales price currently is Rs2,500-Rs3,000/sq ft.Unitech sold about 16m sq ft of residential property in the NCR, Chennai, Kolkataand Mumbai in FY10.

Unitech: revenue forecasts Unitech: EBITDA margin

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

FY05 FY06 FY07 FY08 FY09 FY10 FY11EFY12EFY13E

(Rs m)

0%

10%

20%

30%

40%

50%

60%

70%



Unitech: net-profit forecasts

0

2,000

4,000

6,000

8,000

10,00012,000

14,000

16,000

18,000


(Rs m)


Balance-sheet analysisWe expect the debt-to-equity ratio to decline over the next few years as hiring andsalaries in the IT/ITES sector improve, leading to a rise in demand, and assumingno purchase of land. For FY06-08, the company’s net-debt-to-equity ratio was




above 1.5x due to aggressive expansion as it was buying land. We forecast the net-debt-to-equity ratio dropped to 0.5x in FY10 as the company raised funds from thecapital markets.

Unitech: net-debt-to-equity ratio

0.0

0.5

1.0

1.5

2.0

2.5

3.0


(x)


Credit ratio has started to improve

The company’s credit ratio has started to stabilise after declining sharply over thepast two years. We expect the credit ratio to see a steady improvement over thenext few years due to an increase in sales and better balance-sheet management.Unitech was successful in reducing its net-debt-to-equity ratio from 2x in FY08 to0.5x in FY10, on our estimates.

Interest coverage has been trending down steadily over the past three years due to

declining EBIT, as sales fell and interest costs rose due to the increase in debt.However, we expect this trend to reverse, as sales have started increasing and thenet debt has fallen significantly over the past two years.

For the purpose of calculating the interest-coverage ratio, we have assumed asteady interest rate of 13%. We have not taken the interest expense as shown in theP&L account, as most of the interest incurred is capitalised and therefore is notincluded in the P&L.

Unitech: ROCE Unitech: interest coverage

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5


(x)





Debtor days have increased consistently from FY08 until FY10. However, with thegradual improvement in sentiment due to apparent rise in confidence amongbuyers, we expect debtor days to show a declining trend from FY11. Historically,in the recessionary environment, buyers have held back purchases and stoppedpaying the committed instalments for house purchases due to job insecurity orproperty prices declining to below their purchase prices. With the improvement inthe economy since FY10, we expect the negative sentiment to reverse, leading to adecline in debtor days from FY11.

The net-debt-to-EBITDA increased sharply in FY09 due to a sharp decline inEBITDA, with the sharp fall in sales and an increase in debt to meet the company’scash-flow commitments. We expect this trend to reverse, with an improvement inconfidence leading to a decline in the net-debt-to-EBITDA ratio from FY11.

Unitech: debtor days Unitech: net-debt-to-EBITDA

0

20

40

60

80

100

120

140

160

180


0

1

2

3

4

5

6


(x)


Cash-flow analysis

We project a marginal improvement in cash flow for FY11, which we expect to behelped by a reduction in debtor days and an increase in advances from customers.Unitech is primarily developing residential units where the payments are based onpre-sales, as this improves cash flow for the company. With our expectation of apick-up in demand due to an improvement in the IT/ITES sector and anticipatedincreases in salaries, we believe customer advances will increase sharply from thesale of residential units. However, if the demand improvement is affected by aslowdown in the IT/ITES sector due to emerging macroeconomic factors, and/orthe company enters an expansion spree by purchasing land, the anticipatedimprovement in cash flow could be delayed, in our view.




Unitech: operating free cash flow

(40,000)

(30,000)

(20,000)

(10,000)

0

10,000

20,000

30,000

40,000


(Rs m)


Shareholding patternThe following table shows clearly that FIIs comprise the majority of investors of the free float. The FII shareholding increased during 2Q FY10 due to thecompany’s capital-raising initiatives during the period. DIIs hold only 3.5% of thetotal shares outstanding compared with 32% held by FIIs. The free float in thestock is 55%.

Unitech: shareholding pattern of FII and DII

0

5

10

15

20

25

30

35

40

4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10

FII DII

(%)

Source: BSE




DAIWA’S ASIA PACIFIC RESEARCH DIRECTORY

Hong KongRegional Research Head, Pan Asia Research Nagahisa MIYABE (852) 2848 4971 [email protected] Research Co-head Craig IRVINE (852) 2848 4485 [email protected] Economy (Hong Kong, China) Kevin LAI (852) 2848 4926 [email protected] (Regional) Mun Hon THAM (852) 2848 4426 [email protected] Industries (China), Pan Asia Research Hongxia ZHU (852) 2848 4460 [email protected] (China) Ricon XIA (852) 2848 4923 [email protected]

Capital Goods – Electrical Equipment and Machinery(China)

Ole HUI (852) 2848 4468 [email protected]

Consumer/Retail (Hong Kong, China) Peter CHU (852) 2848 4430 [email protected]/Retail (China) Nicolas WANG (852) 2848 4963 [email protected]/Electronics – Semiconductor and Solar (Regional,Taiwan, Singapore, Hong Kong and China)

Pranab Kumar SARMAH(Regional Head of IT/Electronics)

(852) 2848 4441 [email protected]

IT/Electronics – Tech IT Services (Hong Kong, China) Joseph HO (852) 2848 4443 [email protected]/Energy (Regional) Alexander LATZER (Regional Head of Materials) (852) 2848 4463 [email protected] & Gas (China, Korea) Andrew CHAN (852) 2848 4964 [email protected] Developers (Hong Kong) Jonas KAN (Head of Hong Kong Research) (852) 2848 4439 [email protected] Developers (China), Small/Medium Caps(Hong Kong, China)

Kevin LEUNG (852) 2848 4489 [email protected]

Telecommunications (Regional, Greater China andSingapore)

Marvin LO(Regional Head of Telecommunications)


Transportation – Marine, Capital Goods –Infrastructure Construction (Hong Kong, China)

Geoffrey CHENG(Regional Head of Transportation and Infrastructure)


Transportation – Aviation and Expressway(Hong Kong, China, Singapore) Kelvin LAU (852) 2848 4467 [email protected]

Transportation (HK, China) Edwin LEE (852) 2532 4349 [email protected] Dave DAI (852) 2848 4068 [email protected]

South KoreaBanking/Finance Chang H LEE (Head of Research) (82) 2 787 9177 [email protected], Shipbuilding, Steel Sung Yop CHUNG (82) 2 787 9157 [email protected] Goods (Construction and Machinery) Mike OH (82) 2 787 9179 [email protected]/Retail Sang Hee PARK (82) 2 787 9165 [email protected], Pan Asia Research Naoki IEIRI (82) 2 787 9184 [email protected]/Electronics (Tech Hardware and Memory) Jae H LEE (82) 2 787 9173 [email protected]/Electronics Steve OH (82) 2 787 9195 [email protected]/Electronics, Software (Internet/On-line Game),Telecommunications

Thomas Y KWON (82) 2 787 9181 [email protected]

Materials (Chemicals) Daniel LEE (82) 2 787 9121 [email protected]

TaiwanHead of Research, Pan Asia Research Hirokazu MITSUDA (886) 2 2758 8754 [email protected] of Research, Strategy Alex YANG (886) 2 2345 3660 [email protected]/Retail Yoshihiko KAWASHIMA (886) 2 8780 5987 [email protected]/Technology Hardware (PC) Calvin HUANG (886) 2 2758 8805 [email protected]/Technology Hardware (Handsets and Components) Andrew CHANG (886) 2 8789 5341 [email protected]/Technology Hardware (Panels) Chris LIN (886) 2 8788 1614 [email protected]/Technology (Small/Medium Caps) Jamie YEH (886) 2 8788 1696 [email protected]/Technology Hardware, Pan Asia Research Mitsuharu WATANABE (886) 2 2758 9437 [email protected], Small/Medium Caps Albert HSU (886) 2 8786 2212 [email protected]

IndiaStrategy/Capital Goods/Industrials/Utilities Jaideep GOSWAMI (Head of Research) (91) 22 6622 1010 [email protected] Hitesh GOEL (91) 22 6622 1060 [email protected]/Finance Punit SRIVASTAVA (91) 22 6622 1013 [email protected] Vishal CHANDAK (91) 22 6622 1006 [email protected] & Gas, Construction, Small/Medium Caps Atul RASTOGI (91) 22 6622 1020 [email protected]

Pharmaceuticals and Healthcare, Consumer Kartik A. MEHTA (91) 22 6622 1012 [email protected] Estate Amit AGARWAL (91) 22 6622 1063 [email protected] (Tech IT Services), Telecommunications R. RAVI (91) 22 6622 1014 [email protected]

SingaporeHead of Research, Pan Asia Research Tatsuya TORIKOSHI (65) 6321 3050 [email protected] Research Deep KAPUR

(Global Director of Quantitative Research)(65) 6321 3079 [email protected]

Macro Economy (Regional) Prasenjit K BASU(Chief Economist, Asia Ex-Japan)


Banking, Property and REITs (Singapore) David LUM(Regional Head of Banking/Finance)


Conglomerates, Soft Commodities, Energy andSmall/Medium Caps (Singapore)

Chris SANDA (65) 6321 3085 [email protected]

AustraliaBanking/Insurance Johan VANDERLUGT (61) 3 9916 1335 [email protected]

Resources/Mining/Petroleum David BRENNAN (61) 3 9916 1323 [email protected] (Regional), Pan Asia Research Taiki KAJI (81) 3 5555 7174 [email protected] (Regional), Pan Asia Research Daijiro HATA (81) 3 5555 7178 [email protected]




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The following explains the rating system in the report as compared to relevant local indices, based on the beliefs of the author of the report."1": the security could outperform the local index by more than 15% over the next six months."2": the security is expected to outperform the local index by 5-15% over the next six months."3": the security is expected to perform within 5% of the local index (better or worse) over the next six months."4": the security is expected to underperform the local index by 5-15% over the next six months."5": the security could underperform the local index by more than 15% over the next six months.

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If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you topay close attention to the following items.

In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Sincecommissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for eachtransaction.

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There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest

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