Real Estate Sector Report - Jaypee Capital

Real Estate Sector 25 July 2011

Jaypee Research Desk

www.jaypeeindia.com www.jaypeeusa.com

Service offerings

Research and Advisory

Execution

Corporate Access & Events

Our Coverage Universe Puravankara – Buy CMP – `82; Target – `110 Sobha Developers– Buy CMP – `276; Target – `325 Prestige Estates – Buy CMP – `139; Target– `162 DLF Ltd – Neutral CMP – `241; Target – `254 Orbit Corp – Buy CMP – `43; Target –`65 Oberoi Realty– Buy CMP – `242; Target –`304 Anant Raj– Buy CMP – `86; Target – `106 Godrej Properties– Neutral CMP – `815; Target TP – `730 Hitendra Gupta [email protected]

Contact No: -91 22 4354 2023

Real Estate: It’s Time to Buy Again We believe this is the best time to invest in the real estate sector in view of the anticipated peak in inflation, monetary tightening, slowing economic growth and mounting global uncertainty. We initiate coverage on four real estate companies and have updated four already under our coverage. Our top picks among the initiating coverage are Prestige Estates, Sobha Developers and Puravankara; we are Neutral on DLF Ltd. And among the existing coverage we are positive on Oberoi Realty, Orbit Corporation and Anant Raj Industries, while we have a Neutral rating on Godrej Properties.

Our Recommendations: Among South-based developers, we prefer Prestige Estates and Sobha Developers. Prestige is the largest South India player and is synonymous with the Bengaluru real estate market. It has ~15msf of well-diversified projects in the pipeline to be launched in the next 15 months. We think Prestige is likely to benefit hugely from the commencement of more hotels and malls in FY12E/FY13E, which will increase its rental incomes. We like Sobha on account of its formidable presence in the Bengaluru market, its long-term relationship with the IT major, Infosys, for all its contractual work and its well-diversified real estate business. We believe the company’s decision to foray into new, high-growth markets like NCR and Pune will be value accretive and it also mitigates the risk of being present in a single location. We are positive on Puravankara on the back of its new launches in the affordable housing segment (Provident Housing) in Bengaluru and Chennai. Among the Mumbai-based developers we like Oberoi Realty for its huge cash balance, low-cost premium land-bank in Mumbai and growing annuity income. We are positive on Orbit Corp. for its commendable position in the South-Mumbai redevelopment space and the luxury products which it develops. We like Anant Raj for its steady lease rentals and premium luxury project in the heart of Delhi. We are Neutral on DLF and Godrej Properties as we believe current valuations price in most positives.

Performance Outlook and Valuations: We expect the commercial real estate segment to perform better than the residential real estate segment. Our view is based on the recovery in the IT/ITES sector, the hike in salaries across sectors (13%) and 15-18% hiring growth at the top-4 IT/ITES companies. The uptick in demand in the residential segment will be sluggish, as high inflation and high interest rates prevail. However, we are of the belief that the RBI is likely to hike policy rates by another 50-75 basis points, to reach their peak at 8% or 8.25%, and that they are unlikely to rise beyond that. Further, with the onset of the festive season we anticipate home buyers will initiate their long-pending buying decisions. We expect our coverage universe to post earnings growth of 14.4% CAGR over FY11-13E.

CMP NAV

Discount

to NAV Target Price

Upside/

Downside

EPS

CAGR

(`) (`/share) (%) (`) % FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E (%)

Puravankara Buy 82 158 30 110 35 11.7 8.4 1.0 0.9 0.6 0.7 8.8 11.1 33.2

Sobha Developers Buy 276 434 25 325 18 15.0 13.1 1.4 1.2 0.5 0.5 9.0 9.5 6.5

Prestige Estates Buy 139 215 25 162 16 20.5 15.7 2.0 1.8 0.5 0.5 9.8 11.6 32.1

DLF Neutral 241 318 20 254 6 24.8 20.7 1.4 1.3 0.7 0.6 5.7 6.5 9.7

Orbit Corp Buy 43 101 35 65 52 6.6 4.9 0.5 0.4 0.8 0.6 7.0 8.9 12.5

Oberoi Buy 242 380 20 304 26 13.6 9.9 2.1 1.7 0.0 0.0 15.3 17.5 24.8

Anant Raj Buy 86 132 20 106 22 19.2 14.9 0.7 0.7 0.0 0.0 3.6 4.5 0.9

Godrej Properties Neutral 815 812 10 730 -10 45.4 34.8 5.7 5.1 0.9 0.7 20.0 23.1 11.8

D/E (x) ROE (%)P/BV (x)P/E (x)

Company Rating

mailto:[email protected]




Service offerings


Execution


TABLE OF CONTENTS

Highlights…………………………………………………………………………………………….. 5 Industry……………………………………………………………………………………………….. 9 Policy Rate Hikes Peak 50-75bps Away…………………………….......... 11 Inflation to Ease to 7% by End of 2012…………………………………..... 12 Residential Demand – Huge Potential……………………………………………… 13 Residential Demand Prices Surge On Limited Supply in City……… 13 Outstanding Housing Loan up 17.4% YoY………………………………… 14 Residential Sector on New Heights………………………………………….. 15 Residential Sector Outlook……………………………………………………….. 19 Commercial Segment……………………………………………………………………… Recovery in IT/ITES Sector………………………………………………………… 20 Hiring to Step-up; 13% Salary Hikes Across Sectors…………………… 21 Commercial Absorption up by 16% in Q4FY11………………………….. 22 Commercial Sector Outlook……………………………………………………… 23 Key Financials of Coverage Universe ………………………………………………… 25 Company Section

1) Puravankara Projects Limited………………………………………… 29 2) Sobha Developers ………………………………………………………… 41 3) Prestige Estates Limited………………………………………………… 53 4) DLF Limited……………………………………………………………………. 67 5) Orbit Corporation Limited……………………………………………… 77 6) Oberoi Realty Limited……………………………………………………. 87 7) Anant Raj Industries Limited…………………………………………. 97 8) Godrej Properties Limited……………………………………………… 107




Service offerings


Execution


Key Highlights Puravankara Projects Ltd (Buy, TP `110, CMP `82)

The company caters to the premium housing segment under the brand, Purva, and has recently entered the affordable housing space under the brand, Provident.

It is all geared up to launch 14.5msf in FY12 in its primary market of Bengaluru and Chennai, boosting the revenues (29% CAGR) and net profits (33% CAGR) during FY11-13E.

The low cost, premium land bank is largely paid for, and so less time and risk is involved in executing the projects.

Follows a Joint Development business model, thereby ensuring less initial cash outflow for land acquisitions, thus leading to higher return ratios.

Better financial disclosures. Sobha Developers Ltd. (Buy, TP `325, CMP `276)

Best representative of the South India real estate market, with ~95% of its land-bank based in South India, primarily in Bengaluru.

~`6.1bn positive net operating cash-flow to be generated in the next two years.

Robust pipeline of ~11msf launches in FY12, likely to generate ~`67bn in the next five to six years.

Steady contractual business.

Low cost, IT-centric land bank. Strong presence in the Bengaluru market, which has been characterized by less volatility than other regions like Mumbai and NCR.

Prestige Estates Limited (Buy, TP `162 , CMP `139)

The company has a formidable presence in South India and is synonymous with the Bengaluru real estate market; this is manifested through a showcase of more than 150 projects aggregating to ~44msf.

It is expected to launch 15msf of well-diversified projects in the next 12-15 months and a total ~62msf is currently under development and planning.

Rental annuity to grow to ~`2.36bn per annum by FY13E at ~26% CAGR over FY11-13E.

Proven execution track record by delivering ~16msf in FY11.




Service offerings


Execution


DLF Ltd. (Neutral, TP `254, CMP `241)

DLF is the largest real estate player in the country and is a best play in the Indian real estate sector, as it has a pan-India presence, mainly concentrated in the NCR region.

Lease rentals are expected to grow by 25.5% during FY11-12E to `17.31bn, while leased assets should grow by 10.6% CAGR, during the same period.

DLF is expected to generate net positive operating cash flow of `102.67bn in the next two years through its quicker monetization strategy. It intends to launch 10msf of plotted developments in FY12E in Gurgaon, Indore, Chandigarh and Lucknow.

Divestment targets have been substantially increased from `45bn previously, to `100bn now, with a target of `60-70bn over the next two to three years.

Net positive cash flow from operations (`102.67bn over FY11-13E) is likely to bring down the company’s net debt-equity ratio from 0.86x in FY11 to 0.71x in FY12E and 0.57x in FY13E.

Orbit Corporation Limited (Buy, TP `65, CMP `43)

Orbit is a real estate construction and development company with primary focus on redevelopment of existing properties. It specialises in developing, designing and managing high-end residential and ‘build-to-suit’ commercial properties.

The company will benefit hugely from the increased FSI (from 1.7x to 3x) for redevelopments in South Mumbai.

Orbit has planned to launch three new projects in FY12E/13E, with a total saleable area of 0.2msf in the South-Mumbai market. Total income is estimated to grow 16% CAGR during FY11-13E, to `54.47bn.

Oberoi Realty Ltd (Buy, TP `304, CMP `242)

Oberoi is the best representative of Mumbai’s real estate market, as 93% of its land-bank is based in Mumbai.

Negative net gearing (-34%) for FY12E;

Steady lease rentals of `1.24bn/`1.42bn in FY12E/13E;

Superior margins (~40%) and ROE (15-17%) profile.




Service offerings


Execution


Anant Raj Industries Ltd. (Buy, TP `106, CMP `86)

A leading real estate company, which focuses on the Delhi-National Capital Region (NCR) area.

Huge potential for revenue growth from 0.5msf luxury residential projects at Huzh Khas and Bhagwandas Road.

High quality, inexpensive land banks in Delhi;

Lease rentals to cross ~`1bn in FY13E.

Comfortable net D/E levels, at 0.28x;

Revenue CAGR 21.5% and operating profit CAGR 14.9% over FY11-13E, mainly because of new launches planned for FY12E/FY13E and increased lease rentals.

Godrej Properties Ltd. (Neutral, TP `730, CMP `815)

A pan-India real estate player focused on the ’affordable housing’ segment, with 83.64msf of saleable area across 11 cities in India.

Successful pan-India expansion through its JDA and outsourcing business model.

Execution of ~88% of its saleable area is undertaken through its JDA model, ensuring low initial capital outflow, higher margins and higher ROE.

Access to an unqualified 685 acres of quality land bank through its parent, the Godrej Group.

MOU with the Godrej Group to develop 185 acres in the growing markets of Mohali, Bengaluru and Hyderabad.

Monetization of the 500 acres of land bank in Vikhroli




Service offerings


Execution


Key Comparables

Purav. Sobha Prestige DLF Orbit Oberoi Anant Raj God. Prop.

CMP (`) 82 276 139 241 43 242 86 815

M-Cap (` mn) 18,056 27,133 41,669 395,494 4,900 77,250 26,374 56,090

Target Price (`) 110 325 162 254 65 304 106 730

Revenues (` mn)

FY11 6,089 14,177 16,113 102,505 4,045 10,588 3,851 4,515

FY12E 7,692 15,028 17,289 103,655 4,748 13,509 4,814 6,242

FY13E 10,105 17,570 19,565 111,175 5,447 18,954 5,685 7,749

FY11-13E CAGR (%) 29 11 10 4 16 34 22 31

EBIDTA Margin (%)

FY11 23.8 21.0 24.2 39.3 54.1 54.5 60.0 23.3

FY12E 26.2 22.6 27.9 43.5 44.1 59.2 47.8 23.7

FY13E 27.1 21.4 29.9 45.0 46.4 59.9 52.7 24.9

Net Profit (` mn)

FY11 1,179 1,825 1,667 16,396 789 5,172 1,674 1,309

FY12E 1,497 1,800 2,224 16,437 748 5,867 1,418 1,253

FY13E 2,093 2,071 2,907 19,721 999 8,051 1,819 1,636

FY11-13E CAGR (%) 33 7 32 10 13 25 4 12

D/E (x)

FY11 0.7 0.7 0.5 0.9 1.1 0.0 0.3 1.0

FY12E 0.6 0.5 0.5 0.7 0.8 0.0 0.4 0.9

FY13E 0.7 0.5 0.5 0.6 0.6 0.0 0.3 0.7

P/BV (x)

FY11 1.1 1.5 2.2 1.6 0.5 2.4 0.7 6.2

FY12E 1.0 1.4 2.0 1.4 0.5 2.1 0.7 5.7

FY13E 0.9 1.2 1.8 1.3 0.4 1.7 0.7 5.1

ROE (%)

FY11 7.5 9.8 8.2 6.2 8.0 15.4 4.5 22.5

FY12E 8.8 9.0 9.8 5.7 7.0 15.3 3.6 20.0

FY13E 11.1 9.5 11.6 6.5 8.9 17.5 4.5 23.1




Service offerings


Execution


INDUSTRY




Service offerings


Execution


Policy Rate Hikes Peak, 50-75bps Away The government’s accommodative polices during the downturn, led to a sustained rise in commodity prices which, in turn, led to accelerated growth in the Wholesale Price Index (WPI), which grew from a mere 1.45% in May 2009 to 10.36% in March 2010. This called for a rapid tightening of policies by the RBI. Since then, to bring inflation within the comfort zone of 4.5-5%, RBI started increasing the policy rates. RBI has then aggressively hiked interest rates, increasing the repo rate from 4.75% in February 2010 to 7.5% currently. These rapid rate hikes were not too effective: we highlight the HSBC June PMI figures (55.3) which were at a 9-month low, and saw the weakest increase since November 2009.

The global scenario plays a critical role in influencing the RBI’s monetary policy and so do corporate earnings. If the corporate earnings for the June quarter continue to be robust, companies’ pricing power remains intact and inflation continues to rule, so one can expect more rate hikes in FY12. However, we believe, as things stand now, the policy rate may be hiked by another 50-75bps, reaching its peak at 8% or 8.25%, and is unlikely to rise beyond that.

Exhibit 1: RBI Repo Rate (%)

4.00

4.50

5.00

5.50

6.00

6.50

7.00

7.50

8.00

8.50

9.00

9.50

10.00

Feb-

07

Jun-

07

Oct

-07

Feb-

08

Jun-

08

Oct

-08

Feb-

09

Jun-

09

Oct

-09

Feb-

10

Jun-

10

Oct

-10

Feb-

11

Jun-

11

Source: RBI, Jaypee Research




Service offerings


Execution


Inflation to Ease to 7% by End of FY12 As pointed out above, the government’s accommodative policies to maintain the growth momentum during the downturn gave way to a high-inflation situation in India. Now, given that growth has been sustained quite well, inflation management remains the only concern to be addressed. Calibrated rate hikes of 25bps since March 2010 have failed to generate any measureable results in moderating inflation. WPI numbers stand at ~9.4%, compared to ~10.4% in March 2010. However, food inflation has seen some improvement as a result of the good monsoon last year and the opening up of imports for some commodities.

We anticipate inflation will ease to 7% by the end of FY12, with global commodity prices and an unfavourable monsoon being the key risks.

Exhibit 2: WPI Index % chg YoY

-2

0

2

4

6

8

10

12

Jan-

08

Apr

-08

Jul-0

8

Oct

-08

Jan-

09

Apr

-09

Jul-0

9

Oct

-09

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11


Exhibit 3: Primary Food Articles % chg YoY

0

5

10

15

20

25

Jan

-08

Mar

-08

May

-08

Jul-

08

Sep

-08

No

v-0

8

Jan

-09

Mar

-09

May

-09

Jul-

09

Sep

-09

No

v-0

9

Jan

-10

Mar

-10

May

-10

Jul-

10

Sep

-10

No

v-1

0

Jan

-11

Mar

-11

May

-11





Service offerings


Execution


Residential Demand – Huge Potential The real estate sector in India is a large, hugely diversified sector, with many verticals such as land, construction, development, etc. Real estate is a USD50 billion industry, growing at 30% p.a. Further, the housing sector contributes 5% to India’s GDP and its contribution is expected to increase to 6% in the next five years. The Ministry of Housing and Urban Poverty Alleviation estimated a housing shortage of 26.53mn dwelling units for the Eleventh Five-Year Plan (2007-2012).

With the improving economy and the growing middle-class population, affordable and premium affordable housing is in the greatest demand. As per the Mckinsey Global Institute estimates, the number of households demanded by mid-income group (MIG) segment is expected to grow by 12% annually, during 2005-2025. Even demand from the high income group (HIG) is estimated to grow by 11% CAGR during 2005-2025. All these put together emphasize the long-term growth for the real estate sector in India.

Cushman & Wakefield (C&W) estimates the pan-India residential demand to be 4.25mn units, the demand for office space to be 240mn sq. ft, and demand for retail space to be 55mn sq. ft for the period 2010-14. Out of the total residential demand, the affordable segment is expected to contribute 70%, according to the C&W reports.

Despite the global uncertainty, two economies, India and China, will continue to grow at an annual rate of 8-10%. In fact, by 2020, India is expected to become the third largest economy, after China and the US. It is anticipated that India will add another 215 million people to its cities by 2025. This implies huge potential for incremental demand for residential real estate in India.

NHB is owned by the Reserve Bank of India (RBI), and under the mechanism to track the movement

of prices in the residential housing segment, Residex Index was conceptualized.

Residential Prices Surge On Limited Supply in Cities Residential prices across India’s top seven cities have surpassed June-2008 levels. We attribute price increases mainly to the limited quality residential real-estate supply in the city. This can be further substantiated by the recently released National Housing Board’s (NHB) Residex Index data for the March 2011 quarter. The data show residential prices in the top-seven cities have increased anywhere between 2.5% and 37.5% in the last year, with Hyderabad having the lowest and Bengaluru, the highest.

Prices in other key locations, like Mumbai and Delhi (NCR), have increased 30.6% and 18.9%, respectively, in the last year. Prices in Chennai and Kolkata have also risen by 32.9% and 27.9%, in the same period. Chennai has seen this level of pent-up demand as it has the least supply of land available for property development, among the metros. Further, the Chennai micro market is now seeing a change in preference from a ground- or plot-oriented market previously, to multi-apartment models now. Hence, due to the limited supply of multi-apartments/integrated townships, the March 2011 prices have soared in Chennai by 32.9% YoY, and have almost doubled (109.6%) since June 2008. For similar reasons, prices in Kolkata and




Service offerings


Execution


Pune, too, have surged by 85.1% and 46.5% since June 2008. These price jumps explain why many large developers have been moving to these Tier-II and III markets.

Prices in Delhi (NCR) rose by 18.9% YoY, while they have grown marginally, by 1.6%, since June 2008. The region is characterized by a higher percentage of investors (than end users) and prices are driven by brokers.

The Mumbai market, over June 2008-March 2011, has risen by 56.3% as per the Residex Index. Prices in most of the market in Mumbai have surged in the last year: North-East (Kalyan) ~52%; South-Central Mumbai (Matunga, Mahim) ~51%, South Mumbai (Cuffe Parade, Malabar Hill) ~44%; New Mumbai (Vashi, Kharghar) ~36%; Mumbai Extended Suburbs (Borivali, Goregaon) ~16% and Mumbai Suburbs (Bandra, Andheri) ~17%.

Exhibit 4: National Housing Board – Residex Index Performance

Cities Q4FY11 Q4FY10 YoY (%) June'08 Change (%)

Hyderabad 83 81 2 96 -14

Chennai 218 164 33 104 110

Pune 148 124 19 101 47

Kolkata 211 165 28 114 85

Mumbai 175 134 31 112 56

Bengaluru 88 64 38 73 21

Delhi 126 106 19 124 2

83

218

148

211

81

164

124

165

0

50

100

150

200

250

Hyderabad Chennai Pune Kolkata

Source: NHB, Jaypee Research

Outstanding Housing Loans up by 17.4% YoY in May 2011 Retail housing loans have witnessed double-digit growth since July 2010. They further registered a three-year high by rising 17.4% in May 2011 to `3,584bn. This performance was by far the best, compared to the single-digit growth registered during November 2008 to June 2010. This growth has been witnessed amid the skepticism in the market that demand for real estate has slowed down. Based on this data we expect housing loans to be more robust, going forward.

Exhibit 5: Outstanding Housing Loan (` bn)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11





Service offerings


Execution


Residential Sector at New Heights In spite of the increasing belief that the steep appreciation in capital values witnessed from January to June 2010 is unsustainable, most developers have refrained from any correction, citing the increase in raw material cost and the high cost of funds. As a result, capital values across most micro markets have largely remained stable. Prices in almost all the regions have either increased or remain stable in the last six quarters. Also, prices in some of the prime locations (metros and Tier-I cities) have surpassed their previous highs.

Mumbai

A resurgence in demand and positive outlook for overall economic growth in H1FY10 led to significant appreciation in capital values in the Mumbai micro market. However, with the increase in the interest rates and rapid increase in capital values it was generally believed that prices across the Mumbai micro market are unsustainable and likely to correct by 20-25%. However, the ground reality has something else to say about the prices, as most developers refrained from any correction, citing the increase in raw material costs and the high cost of funds. Thus, holding on to prices led to stable prices across the Mumbai micro market. However, North Mumbai (mid-range segment) saw price appreciation of almost 15-20%, as there was limited supply of ready-to-move-in apartments, coupled with buoyant demand for sub-`5mn apartments.

As per Jones Lang LaSalle (JLL), the prices in the high-end segment of North Mumbai (including Bandra, Khar, Santacruz and Juhu) have increased the most, 6.7% in the last year, followed by South-Central Mumbai, where prices have increased by 6.1%. South-Central Mumbai includes Altamount Road, Carmichael, Malabar Hill, Nepeansea Road, Breach Candy and Peddar Road. Prices in this market increased from `66,000psf in Q4FY10 to `70,000psf in Q4FY11.

Exhibit 6: Mumbai High-End Residential Capital Value (` psf)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11South Mumbai South Central Central Mumbai

North Far North North East

Source: JLL, Jaypee Research

Exhibit 7: Mumbai Mid-Segment Residential Capital Value (` psf)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11

South Mumbai South Central Central Mumbai

North Far North North East





Service offerings


Execution


NCR (Delhi/Gurgaon) End-user activity was prominent in mid-range properties, leading to prices appreciation in residential real estate in Q4FY11. Prices in Gurgaon predominantly increased due to the robust demand from end users. We feel demand is likely to be steady for under construction and ready property in the medium term, resulting in an increase in capital values in the prime locations. However, prices at suburban locations are expected to be stable as there is a huge supply in the secondary market, coupled with supply coming in from the new launches.

As per JLL, the prices in Delhi have increased 30% on average, in the last year. Residential prices for high-end apartments in South-West Delhi (Shanti-Niketan, Westend, Anand-Niketan and Vasant Vihar) have increased by 28.6% YoY from Rs35,000psf to Rs45,000psf currently. However, prices in South-Central (Rs35,000psf vs Rs25,000psf) and Central Delhi (Rs60,000psf vs Rs45,000psf) have increased the most, by 37.3% and 33.3%, respectively.

In the mid-range segment, prices have surged the most in South-East Delhi 25.7% (Rs22,000psf vs Rs17,500psf) while prices in Gurgaon increased by 21.4% (Rs8,500psf vs Rs7,000psf) and Noida was flat over the period, at Rs5,600psf.

Exhibit 8: NCR High-End Residential Capital Value (` psf)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000


South West South East South Central Central Gurgaon Noida


Exhibit 9: NCR Mid-Segment Residential Capital Value (` psf)

0

5,000

10,000

15,000

20,000

25,000


South East South Central Gurgaon Noida





Service offerings


Execution


Bengaluru

The Bengaluru market is characterized by the end-user market and is also less volatile than the Delhi (NCR) and Mumbai real estate markets. The Bengaluru market is mostly linked to the prospects of the IT/ITES sector, as major IT/ITES companies have a huge set-up in Bengaluru. Consequently, we believe demand for residential houses is expected to be more robust, with the revival being witnessed in the IT/ITES sector. Increases in salaries coupled with the increased head-count targets of the large IT companies, are likely to bring back the home buyers in Bengaluru.

Capital values across both high and mid segments have appreciated in the range of 5-23%, on a YoY basis. This was primarily due to improved clarity on the job prospects of the IT/ITES employees, along with the availability of new apartments at relatively affordable price points. This renewed confidence about employees’ job prospects will lead to enhanced activity, as property buyers who have delayed their purchases are likely to revisit their buying plans. We also expect a good response to the new launches in the forthcoming festive season, as we believe confidence in job prospects will be coupled with the view that interest rates are peaking.

As per JLL, prices in the mid-end housing segment are likely to further strengthen in the medium term in the select micro markets of Sarjapur Road, ORR and HSR Layout, having already increased the most by 22.9% YoY (increasing from Rs3,500psf to Rs4,300psf). Central Bengaluru, constituting Lavelle Road, Palace Road and Cunningham Road, has witnessed the highest increase among the high-end projects: capital value rose by 17.3% YoY to Rs17,600psf.

Exhibit 10: Bengaluru High-End Segment Residential Capital Value (` psf)

3,000

5,000

7,000

9,000

11,000

13,000

15,000

17,000

19,000

Q3FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11

Cunningham Rd Koramangala, ORR Frazer/Benson/Richards

Whitefield Hebbal, Yelahanka


Exhibit 11: Bengaluru Mid-Segment Residential Capital Value (` psf)

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000


Cunningham Rd Marathalli, WF Sarjapur,ORR

Koramangala Hebbal/Yelahanka Jayanagar/JP Ngr





Service offerings


Execution


Chennai Home buyers in Chennai prefer property which is high quality and, more importantly, which is near completion, even if it means a marginal increase in prices. Chennai has witnessed higher price appreciation in the mid-segment residential apartments than in the high-end residential apartments. In the mid-segment, T. Nagar saw a price increase from Rs6,500psf in Q4FY10 to Rs10,500psf currently, an increase of 61.5%. Similarly, under the mid-segment category, prices on a YoY basis have increased by 27.8% and 7.1% in Nungambakkam and Anna Nagar, respectively.

Premium residential pockets, like Kilpauk, Boat Club and Poes Garden, have witnessed price appreciation of 22.2%, 9.5% and 5.3%, respectively, compared to Q4FY10. This was mainly because of persistent demand for premium residential space, limited availability of quality construction and high user and investor confidence.

Prices are likely to remain stable during the next few quarters across most (mid-segment) locations; however, prices in the premium locations are anticipated to appreciate in the medium term for the reasons mentioned above. With a slew of launches lined-up for the festive season, overall sales are expected to increase.

Exhibit 12: Chennai High-End segment Residential Capital Value (` psf)

0

5,000

10,000

15,000

20,000

25,000

Q3FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11Boat Club R.A Puram Adyar Poes Garden

Nungambakkam Anna Nagar Kilpauk


Exhibit 13: Chennai Mid-Segment Residential Capital Value (` psf)

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000


R.A. Puram Poes Garden T.Nagar

Nungambakkam Anna Nagar Kilpauk





Service offerings


Execution


Outlook for the Residential Segment We believe the demand for real estate is mostly dependent on the RBI’s stance on policy rates. Further increases in the repo/reverse repo rates may force banks to hike interest rates and would make access to finance expensive for both end-user and developers. With salaries expected to rise 13% across sectors (according to Mercer) and with the onset of the festive season, prices are likely to appreciate as end-users tend to expedite their buying decisions during this period. This is expected to lead to increased demand and higher conversion ratios. Thus, we expect demand to pick up in the next two quarters.




Service offerings


Execution


Recovery in IT/ITES Sector The Indian IT/ITES sector is on a growth trajectory and it ranks third in the Asia/Pacific region, according to Gatner’s recent report on India’s domestic IT service market. The consultant expects revenues from the Indian IT services market to increase by 18% to reach USD8.96bn in 2011, against USD7.6bn recorded in 2010. Further, it anticipates the domestic IT industry will grow to USD15bn by the end of 2014, a 16.4% CAGR over 2011-14.

Moreover, with the increase in economic activity, hiring has surged across sectors from the lows of FY09-10. In FY11, hiring at the top-four IT/ITES companies (TCS, Infosys, Wipro and HCL Tech) in India was robust: it rose steeply, by 53.7%. For FY12E/13E, we expect hiring at the top-four IT/ITES companies to be firm and estimate it will grow by 15-18% CAGR. Salaries for the top-4 IT companies, too, have risen sharply, by 22% in FY11 as against 7% witnessed in FY10. We believe such hiring and salary increases will create demand for residential and commercial real estate. The markets which will be the major beneficiaries of this IT/ITES sector recovery will be Bengaluru, Pune and Chennai.

Exhibit 14: Net Additions in Top-Four IT Companies (Infosys, TCS, Wipro and HCL Tech)

22.9% 22.6%

0.2% -1.4%

53.7%

-10%

0%

10%

20%

30%

40%

50%

60%

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

FY06 FY07 FY08 FY09 FY10 FY11 Source: Company, Jaypee Research

Exhibit 15: Employee Cost for Top-Four IT Companies (Infosys, TCS, Wipro and HCL Tech)

153

245

315

403 43

1

527

49%

60%

29% 28%

7%

22%

0%

10%

20%

30%

40%

50%

60%

70%

0

100

200

300

400

500

600

FY06 FY07 FY08 FY09 FY10 FY11

Source: Company, Jaypee Research




Service offerings


Execution


Hiring to Step Up; 13% Salary Hikes Across Sectors According to the Mercer India Monitor 2011 report, Indian companies are expected to hire aggressively and give salary hikes of 12.7% YoY.

The survey shows that HR managements are expecting improved business performance on growing domestic demand. Employees across sectors can expect an average 12.7% increase in wages in 2011, higher than the 11.8% hike in 2010. The study expects the highest salary increase in the automobile sector at 14%, followed by the consumer goods industry at 13.8%, and manufacturing at 13.4%. Employees in the IT and telecom sectors are expected to receive a relatively lower salary increase of 11.8%. Further, the survey states that the heads of organizations can expect an 11.8% increase in salary, functional and business heads can expect 12%, management 12.6%, professionals 12.5%, and other staff 13.2%.

Exhibit 16: Average Salary Hike Estimates For 2011

14.013.8

12.6

11.8

13.4

12.812.7

10.5

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

Automobiles FMCG BFSI IT/ITES Manfg. Pharma Overall

Source: Industry Data, Jaypee Research




Service offerings


Execution


Commercial Absorption Grew 16% in Q4FY11 Overall absorption of the commercial real estate segment in Q4FY11 grew by 15.8% YoY from 7.2msf to 8.4msf, while it dropped by 26.1% QoQ, in spite of the robust demand for commercial real estate in prominent IT hubs, i.e. Bengaluru, Hyderabad, Chennai and Pune. Controlled supply of the commercial real estate space will lead to a declining demand-supply gap and thus, rentals are anticipated to be steady in FY12.

Exhibit 17:India Commercial Real Estate

5.9 4.8 5.07.2 6.8 7.7

11.38.4

12.6 12.115.7

12.19.2

5.9 7.010.5

2527 28

25 25 2523 24

0

5

10

15

20

25

30

0.0

5.0

10.0

15.0

20.0

Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11

Absorption (msf) New Supply (msf) Vacancy Rate (%)

Source: DTZ, Jaypee Research

Office Market Vacancy Continues to Decline

According to DTZ research, the planned new supply as a proportion of stock is expected to decline gradually in India. The vacancy rate was alarmingly high during 2010, but it has now retreated below 20%. However, the change in vacancy rates varied across markets with a few cities seeing further decline in vacancies during the period, due to continuing supply rationalization.

Exhibit 18: Q2 to Q4 2011 Development Pipeline, % of Overall Stock and Q1 2011 Prime Vacancy Rate





Service offerings


Execution


Commercial Sector Outlook The pan-India demand for the commercial real estate sector is anticipated to be 196msf for 2009-13, as per the Cushman & Wakefield estimates. The overall demand for commercial sector space has increased by 49.5% to 34.2msf in FY11 from 22.9msf in FY10. Bengaluru, for its IT/ITES industry, is expected to see a huge demand of 34msf during 2009-13, accounting for 17.3% of the total demand for commercial real estate. This will be followed by Delhi/NCR (25msf; 12.8%) and Mumbai (24msf; 12.2%). Together, these three cities are anticipated to account for ~42% of the total demand.

Commercial real estate in India is rapidly growing on account of huge demand from the IT/ITES sector. IT sector has been the major driver of the country’s economic growth over the past few years. By 2020, the current size of the IT/ITES market in India will have grown from the existing USD67bn to USD225bn.

This trend will fuel the growth of the Indian commercial real estate market, which has already doubled from 22.8msf in 2005 to 40msf in 2011, and is expected to increase to 43.5msf by 2012.

Exhibit 19: Commercial Real Estate – New Completions (msf), Net Absorption (msf) and Vacancy Rates (%)

22

.8 28

.8 32

.9

42

.5

41

.6

58

.2

31

.3

43

.5

22

.3 28

.8 32

.0

33

.1

19

.6 22

.9

34

.2

42

.6

8.06.0

5.0

10.0

16.0

25.423.6 23.5

0

5

10

15

20

25

30

0

10

20

30

40

50

60

70

2005 2006 2007 2008 2009 2010 2011 2012F

New Completions Net Absorption Vacancy (%)

Source :Industry, Jaypee Research




Service offerings


Execution


Exhibit 20:Mumbai Commercial Real Estate

1.2 1.0 1.12.1 1.9 1.9 2.1

1.3

3.3 3.5 3.7 3.9 3.62.6

1.2

3.1

27 28 29

21 22 2220

22

0

5

10

15

20

25

30

35

0.0

1.0

2.0

3.0

4.0

5.0




Exhibit 21:Delhi Commercial Real Estate

1.5

0.5 0.71.0 1.0

1.41.9

1.21.7

2.7

1.8

0.2

1.8

0.7

2.82.1

3639 41

32 32 32 33 34

0

10

20

30

40

50

0.0

0.5

1.0

1.5

2.0

2.5

3.0




Exhibit 22: Bengaluru Commercial Real Estate

1.1 1.2 1.4 1.6 1.92.2 2.4

1.71.52.2

3.8

1.7 1.7

0.1 0.81.5

2225 26 26 26

2321 20

0

5

10

15

20

25

30

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0




Exhibit 23:Chennai Commercial Real Estate

1.1

0.5 0.7 0.4 0.40.8

2.2

1.31.40.8

2.3 2.2

1.0 1.0

0.0 0.5

36 3633

35 35 34

2926

0

5

10

15

20

25

30

35

40

0.0

0.5

1.0

1.5

2.0

2.5




Exhibit 24:Pune Commercial Real Estate

0.5 0.5 0.4 1.1 0.8 0.7 0.9 0.5

3.7

1.62.1

1.1 1.0 0.4 1.01.5

2729

35

2624 24 24

26

0

5

10

15

20

25

30

35

40

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0




Exhibit 25:Hyderabad Commercial Real Estate

0.30.9

0.51.0

0.7 0.6

1.8 1.9

0.80.5

2.01.5

0.20.9 0.7 0.0

17 1820

16 16 16

119

0

5

10

15

20

25

0.0

0.5

1.0

1.5

2.0

2.5







Service offerings


Execution


Balance Sheet To Strengthen For Our Coverage Universe The net debt-to-equity ratio has improved considerably in the last 15-18 months, after reaching its peak in 2008. We expect companies under our coverage to generate higher net positive operating cash, which is likely to improve the net D/E ratio in FY12E/13E. Average net D/E for our universe, is expected to drop from 0.64x in FY11 to 0.48x in FY13E.

Oberoi Realty still stands out with its enviable position of negative gearing for FY12E/FY13E. Oberoi and Anant Raj, along with the Bengaluru-based companies (Prestige and Sobha) are better placed than the largest real estate company, DLF.

Exhibit 26: Net Debt-to-Equity

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

FY10 FY11 FY12E FY13E

Oberoi Godrej Anant Raj Orbit


Exhibit 27: Net Debt-to-Equity

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00


Puravankara Prestige DLF Sobha


ROE Improving on the Back of Higher Profits We expect net profits for our coverage universe to grow at 14.4% CAGR over FY11-13E, and this improved profitability will lead to a rise in ROEs.

Exhibit 28: ROE (%)

0

5

10

15

20

25

30




Exhibit 29: ROE (%)

0

5

10

15

20

25







Service offerings


Execution


Inexpensive Valuation Almost all the companies under our coverage universe (except Godrej Properties, DLF and Puravankara) are trading at inexpensive valuations in terms of FY13E P/BV. The most inexpensive is Orbit Corp (0.44x) followed by Anant Raj (0.66x); Sobha (1.25x); Prestige (1.66x) and Oberoi (1.68x). Godrej Properties, because of its asset- light model, seems expensive at 23x FY13E P/BV.

Exhibit 30: P/BV (x)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0


Oberoi Anant Raj Orbit Godrej (RHS)


Exhibit 31: P/BV (x)

0.0

1.0

2.0

3.0

4.0

5.0

6.0




Margins to Improve for Our Universe Margins for our coverage universe are likely to increase from 41.3% in FY11 to 44.1% in FY13E. This, we believe, will happen because of the change in product mix, the higher proportion of plotted sales (DLF), the sales of premium luxury apartments (Prestige, Sobha and Orbit) and increases in rental income (DLF, Oberoi and Anant Raj).

Exhibit 32: Operating Margins (%)

58

28

78

32

54

23

60

54

59

24

4844

60

25

53

46

0

10

20

30

40

50

60

70

80

90




Exhibit 33: Operating Margins (%)

33

22

47

2124 24

39

21

2628

44

23

27

30

45

21

0

5

10

15

20

25

30

35

40

45

50







Service offerings


Execution


COMPANY SECTION

Puravankara Projects Limited 25 July 2011



Service offerings


Execution


As on July 22,2011 Market Cap (`mn) 17,516 52 Week High/Low (`) 145/81 Book Value (FY12E) 80 Face Value (`) 5

Codes

BSE Code 532891 NSE Code PURVA Bloomberg Code PVKP IN Reuters Code PPRO.BO

Shareholding Pattern (%) Jun’11 Mar’11 Dec’10 Promoters 89.9 89.9 89.9 FII 6.9 6.9 6.7 DII 1.7 1.7 1.8 Others 1.4 1.4 1.6

Share Price Performance

70

80

90

100

110

120

Jul-10 Oct-10 Jan-11 Apr-11 Jul-11

PVPK Sensex

Puravankara Projects Ltd (PVKP) has over three decades of experience in property development and has emerged as one of the leading players in the South India real estate market. The company caters to the premium housing segment under the brand, Purva, and has recently entered the affordable housing space under the brand “Provident”. We like the company based on the following parameters: a) a largely paid, low-cost land bank requiring less time and risk to execute the projects; b) a well-integrated and diversified real estate model, developing premium as well as low-cost, affordable houses; c) it also follows a joint development (JDA) business model, which ensures less initial cash outflow for land acquisitions, leading to higher return ratios; d) better financial disclosures; e) the company is all geared up to launch 14.5msf in FY12 in its primary market of Bengaluru and Chennai, which will boost revenues (29% CAGR) and net profits (33% CAGR) during FY11-13E. We initiate coverage on PVKP with a Buy recommendation and a target price of `110. At the current prices, the stock is trading at 11.7x and 8.4x its FY12E EPS of `7.0 and FY13E EPS of `9.8, respectively New Launches Set To Drive Sales Growth PVKP is all geared up to aggressively launch 14.5msf in FY12 in its primary market of Bengaluru and Chennai. It will be launching 8.5msf in its mid-to-premium residential space, while 6msf will be launched under its affordable housing brand, Provident. Based on these launches, we estimate revenues will grow by 28.8% annually, from `6.09bn in FY11 to `10.11bn in FY13E. Well Positioned to Benefit from the IT/ITES Recovery After a lull of two years, the IT/ITES sector in the current fiscal has announced robust hiring plans along with the increase in salaries for the existing employees. This is a good sign for PVKP as the majority of its land bank is located in the IT/ITES-centric cities. The company has vast land bank of 75msf (67% of total saleable area) in Bengaluru, a major hub for the IT/ITES sector, followed by Kochi (10%), Chennai (13%) and Hyderabad (4%). We expect the company’s sales volume to increase because of the recovery in the IT/ITES sector. Affordable Housing: The Key Value Driver PVKP has successfully forayed into the affordable housing segment and, to date, the company has announced a total development of ~12msf in this segment. Currently, it has two ongoing projects with a total developable area of 5.69msf. We estimate revenue from affordable housing will grow from `2.31bn to `3.36bn over FY11-13E, growing at 20.7% CAGR. While sales volume during the same period is expected to grow from 1.21msf to 1.65msf, an annual growth rate of 16.8% is anticipated.

Share Price Returns (%) 1M 6M 12M Absolute -5 -22 -29 Relative -11 -21 -33

Hitendra Gupta [email protected]

Contact No: -91 22 4354 2023

Finanical Summary (` Mn.)

Year Ended FY10 FY11 FY12E FY13ENet Sales 4,829 4,829 6,089 7,692EBITDA 1,639 1,639 1,524 2,099EBITDA Margin (%) 33.3 23.8 26.2 27.1Net Profit 1,453 1,453 1,179 1,497PAT Margin (%) 29.4 18.1 18.3 19.5EPS 3.4 5.5 7.0 9.8PER (x) 24.1 14.8 11.7 8.4PBV (x) 1.2 1.1 1.0 0.9ROE (%) 9.8 7.5 8.8 11.1

Initiating Coverage CMP: `82 TARGET: `110 BUY





Service offerings


Execution


Key Assumptions

Exhibit 96: Real Estate Business Assumptions

Y/E March FY10 FY11 FY12E FY13EResidentialArea Sold (msf) 0.85 1.89 1.51 2.01Sale Price (` psf) 3,133 3,248 3,481 3,230Const. Cost (` psf) 1,350 1,400 1,450 1,475

Provident Area Sold (msf) 1.63 1.21 1.63 1.65Sale Price (` psf) 2,033 2,016 2,300 2,415Const. Cost (` psf) 950 1,000 1,050 1,050

Source – Company, Jaypee Research

Exhibit 97: Calculation of WACC Calculation of WACCPre-Tax Cost of Debt (%) 14.5Tax Rate (%) 25.0Cost of Debt (%) 10.9Govt. Bond Yield (%) 8.0Beta (x) 150.0Market Risk Premium (%) 7.0Cost of Equity (%) 18.5Wt. Debt (%) 60.0Wt. Equity (%) 40.0WACC (%) 13.9


Exhibit 98: Sensitivity Analysis 1% Increase in the Avg. sale Price 1.2% Change in NAV 1% Increase in the Avg. Const. Cost -0.7% Change in NAV 1% Increase in Discount Rate -1.6% Change in NAV


Exhibit 99: NAV Break-Up

NAV Break-Up `/Share ` mn %Puravankara 50 10,772 25Provident 36 7,638 18Commercial 3 556 1Land Bank 114 24,349 56Gross NAV 203 43,315 100Less: Net Debt 45 9,687Net NAV 158 33,628Discount (%) 30Target Price 110 23,540CMP 82Upside/(Downside) (%) 35





Service offerings


Execution


Investment Rationale

14.5msf to be launched in Bengaluru and Chennai in FY12

New Launches Set To Drive Sales Momentum

PVKP is all geared up to aggressively launch 14.5msf in FY12 in its primary market of Bengaluru and Chennai. It will be launching 8.5msf in its mid-to-premium residential space, while 6msf will be launched under its affordable housing brand, Provident.

The company plans to launch one of its biggest projects, Windermere, at Medavakkam in Chennai. The residential project has a total developable area of 4.95msf, which will be developed in three phases and it is expected to be completed in the next five to six years. Further, the company is expected to launch two more projects totalling 1.7msf in its primary market (Bengaluru): Mid-Town (0.46msf) at KR Puram and Seasons (1.24msf) at CV Raman Nagar. Another project, Purva Bluemonte, (1.84msf), at Trichy Road in Coimbatore, is also expected to be launched in FY12E. Under Provident Housing, the company is all set to launch its Venkatpura Project (6msf) in Bengaluru. This project will be completed in two phases over 30-36 months. Based on these launches, we estimate revenues will grow by 28.8% annually, from `6.09bn in FY11 to `10.11bn in FY13E.

Exhibit 100: New Launches in the Pipeline

Expected Launches Location Dev. Area (msf) JD Share (%) Sale. Area (msf)KR Puram Bengaluru 0.5 73 0.4CV Raman Nagar Bengaluru 1.2 59 0.7Windermere Chennai 5.0 5.0Trichy Road Coimbatore 1.8 1.8Total 14.5 13.9


67% of the company’s land-bank is in Bengaluru, a major hub for IT/ITES sector

Well Positioned to Benefit from the IT/ITES Recovery After a lull of two years, the IT/ITES sector in the current fiscal has announced robust hiring plans along with the increase in salaries for the existing employees. This is a good sign for PVKP as the majority of its land bank is located in the IT/ITES-centric cities. The company has vast land bank of 75msf (67% of total saleable area) in Bengaluru, a major hub for the IT/ITES sector, followed by Kochi (10%), Chennai (13%) and Hyderabad (4%). We expect the company’s sales volume to increase because of the recovery in the IT/ITES sector.




Service offerings


Execution


~6msf affordable housing project ongoing in

Chennai and Bengaluru

Affordable Housing: The Key Value Driver The company has successfully forayed into the affordable housing segment through its wholly owned subsidiary, Provident Housing Ltd. (priced from `1.5mn-3.5mn). To date, the company has announced a total development of ~12msf in this segment. Currently, it has two ongoing projects with a total developable area of 5.69msf: Cosmo City, Chennai (2.23msf) and Wellworth City, Bengaluru (3.46msf). The company launched 3.09msf and was able to successfully sell over 84% (2.66msf) with only ~56% of the construction work completed. The liquidity of the sale units remains very high in this space and helps the company to have consistent operational cash flows and to meet its working capital needs.

According to Cushman & Wakefield, out of the total residential demand, the affordable segment is expected to contribute 70%. Hence, we believe the affordable housing segment will be a major value driver for the company. We estimate revenue from affordable housing will grow from `2.31bn to `3.36bn over FY11-13E, registering annual growth of 20.7%. While sales volume during the same period is expected to grow from 1.21msf to 1.65msf, the annual growth rate will be 16.8%.

Exhibit 101: Provident Housing

Provident Housing (100% Owned by PVPK)

Developable

Area (msf)

Area Launched

(msf) Rate (` psf)

Tot. Const.

Cost (` psf)

Sales Booked

as on Mar'11

(%)

Const.

Complted as on

Mar'11 (%)Under-ConstructionWellworth City (Doddaballapur Rd, Bangalore) 3.46 1.41 2,300 1,325 76 66Cosmos City (Pudupakkam, Chennai) 2.23 1.68 2,300 1,210 95 34Total 5.69 3.09

Forth-Coming ProjectsVenkatapura Bng 6.00 0.00

Source: Company, Jaypee Research Inexpensive, Fully-Paid, High Quality Land Bank

As on 31st March 2011, PVKP has a total land bank (saleable area) of 112msf. Though it started its real estate development business from Mumbai (in 1986) it has most of its operation in South India, predominantly in Bengaluru. Out of its total saleable area of 112msf, 75msf i.e. 67%, is in Bengaluru. The land bank is fully paid for with full ownership residing with the company. The land acquisition cost works out to be ~`235psf, which is quite inexpensive, compared to the average capital value of the Bengaluru market of `3500-`4500 psf.

The most important point regarding the higher quality of its land bank is that, all the land resides within the city limits of the respective cities. Its land bank in the city of Bengaluru is located primarily in IT-dominant areas (Hosur Road, Sarjapur Road), and on the way to the new airport (Devanahalli and Yelahanka). Even in other cities, PVKP has land bank in the prime locations for example, OMR in Chennai; Marine Drive in Kochi and Trichy Road in Coimbatore.




Service offerings


Execution


Exhibit 102: Land Bank Banglore msf Chennai msf Kochi msf Coimbatore msf Kolkata msf

Venkatpura 6.00 Medavakkam 4.13 Kakkanad 0.96 Trichy Rd 1.84 Rajharat 0.82

Doddaballapur 3.46 Pudupakkam, 2.23 Marine Drive 0.77

Mallasandra, 2.54 OMR 1.35 Airport rd 0.39

Yelahanka 2.09 Guindy 0.35

JP Ngr 1.25

Sarjapur 1.24

CV Raman 1.24

KR Puram 0.46

Sanjay ngr 0.38

Total 18.66 8.06 2.12 1.84 0.82

Banglore59%

Chennai25%

Kochi7%

Coimbatore6%

Kolkata3%


De-risking its business model by entering affordable segment and also by entering

different location

Diversification: For a Sustainable Business Model Puravankara has forayed into other cities in South India and has also expanded into commercial property development to de-risk its single-region and single-type (residential) business model. Moreover, it has also entered affordable housing (through its 100% subsidiary, Provident Housing and Infrastructure Ltd). With 70% demand for the affordable housing in India and the reduction in interest rates for housing loans in the sub-`2mn bracket, this strategy seems to be a winning formula for the company’s sustainable growth.

By launching residential projects in Kolkata, Chennai, Kochi and Mysore, PVKP has insulated itself against any sustained slowdown in the Bengaluru market. Furthermore, it has also expanded into overseas markets through the acquisition of ~1msf of land in Colombo, Sri-Lanka.

Exhibit 103: Land-bank break-up – 112msf

Bangalore67%

Kochi10%

Chennai14%

Hyderabad4%

Coimbatore2%

Mysore1%

Colombo1%

Kolkatta1%

Mangalore0%





Service offerings


Execution


Financial Disclosure: The confidence booster Puravankara follows an excellent system of financial disclosures and provides an audited balance sheet and cash flow statements on a quarterly basis. This kind of disclosure is not very common for the listed real-estate companies. The company’s transparent financial disclosures reflect its strong corporate governance and lend confidence to its stake-holders.

Margins to Stabilize at 27% Operating profit during FY11-13E is expected to grow to `2.85bn from `1.52bn, registering an annual growth of 36.8%. An increase in low-cost, high-margin Provident Housing projects helps the company to register a higher operating profit margin. The operating profit margin is expected to improve by 330bps to 27.1% in FY13E.

Exhibit 104: Operating Profit (` Mn); EBIDTA Margin (%)

2,2

19

1,3

69 1,6

39

1,5

24

2,0

99

2,8

50

36.9

29.8

33.3

23.826.2

27.1

0

5

10

15

20

25

30

35

40

0

500

1,000

1,500

2,000

2,500

3,000

FY08 FY09 FY10 FY11 FY12E FY13E Source: Company, Jaypee Research

Marginal Decline in Net D/E Levels PVKP has maintained a healthy balance sheet, with a net D/E of about 0.51x-0.58x throughout the slowdown of FY08-10. We expect the company to generate cumulative operating cash flows of `847mn during FY12-13E. This will help it to reduce its net D/E marginally, from 0.67x in FY11 to 0.61x in FY13E.

Exhibit 105: Net D/E Ratio (x)

0.51

0.580.54

0.67

0.570.61

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80





Service offerings


Execution


Concerns Over dependence on the Bengaluru Region

69% of PVKP’s ongoing and future saleable area is based in Bengaluru, also known as the IT hub of India. Any changes in the Bengaluru real estate, particularly any changes in IT off-shoring policies, or a reduction in demand, etc., could have a severe impact on the Bengaluru real estate market.

Change in the Global Capital Markets and the Economy in General The real estate market is significantly affected by changes in government policies, economic conditions, demographic trends, employment and income levels and interest rate changes. Economic developments outside India have adversely affected the property market in India in the past and may affect it similarly in the future, too. Hence, changes in the global capital markets and the economy in general, are a major concern for the company and the sector as a whole.

Increase in Interest Rate Changes in interest rates have had a significant impact on real estate financing and the demand for residential projects. Any rate hike will have an adverse impact on the company’s revenues and profitability.

Delay in Acquisition of Land PVKP’s inability to acquire or any delay in acquiring land for the projects for which it has already paid a substantial amount, would adversely affect its finances.




Service offerings


Execution


Recommendation The company caters to the premium housing segment under the brand, Purva, and

has recently entered the affordable housing space under the brand, Provident. We like the company based on the following parameters: a) a largely paid, low-cost land bank requiring less time and risk to execute the projects; b) a well-integrated and diversified real estate model, developing premium as well as low-cost, affordable houses; c) it also follows the JDA business model, which ensures less initial cash outflow for land acquisitions, leading to higher return ratios; d) better financial disclosures; e) the company is geared up to launch 14.5msf in FY12 in its primary market of Bengaluru and Chennai, which will boost revenues (29% CAGR) and net profits (33% CAGR) during FY11-13E. We initiate coverage on PVKP with a Buy recommendation and a target price of `110, based on 30% discount to its NAV of `158. We expect earnings and revenue CAGR of 33.3% and 28.8%, respectively, over FY11-13E and operating profit margin to be robust at 26-27%. At the current prices, the stock trades at 12.1x and 8.6x its FY12E EPS of `7.0 and FY13E EPS of `9.8, respectively.

Exhibit 106: NAV Break-up (` per share)

50

36

3114

-45

158

-48

110

-100

-50

0

50

100

150

200

Pura. Provi. Comm. Land Bk Net Debt NAV Disc. Tgt. Price


Exhibit 107: One-Year Forward P/BV Band

0

50

100

150

200

250

300

350

400

Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11

0.7x

1.4x

2.1x

2.8x

3.5x

4.5x


Exhibit 108: PEPL P/BV vs BSE Realty P/BV

-80%

-60%

-40%

-20%

0%

20%

40%

60%

0

5

10

15

20

25

30

35

May

-08

Au

g-0

8

No

v-0

8

Feb

-09

May

-09

Au

g-0

9

No

v-0

9

Feb

-10

May

-10

Au

g-1

0

No

v-1

0

Feb

-11

May

-11

PE P/E - Disc/ Prem





Service offerings


Execution


Financial Analysis Revenues to Grow 29% During FY11-13E, Crossing `10bn in FY13E

We expect revenues to grow by 28.8% over FY11-13E to `10.11bn, backed by 32.2% rise in the area for revenue recognition from 2.1msf in FY11 to 3.66msf in FY13E. Increased construction activity will drive the company’s revenue growth. We expect the following projects to be a major contributor to the revenues in next two years: a) Mid-Town, KR Puram; b) Oceana, Kochi; c) Windermere, Chennai and d) Purva Bulemonte, Coimbatore.

Exhibit 109: Revenue (` Mn)

5,7

91

4,4

94

4,8

29 6

,089

7,6

92

10,1

05

0

2,000

4,000

6,000

8,000

10,000

12,000


Net Profit to Grow by 33%

Profit after tax (PAT) is to rise by 33.2% during FY11-13E from `1.18bn to `2.09bn. Lower growth in net profit compared to operating profit (33.8%) can be attributed mainly to the increase in the effective tax rate (25% vs 19% earlier), the increase in the interest cost (58.8% CAGR FY11-13E) and in the depreciation cost (43.6% CAGR FY11-13E). However, net profit margin is expected to rise to 19.5% vs 18.1%, an increase of 146bps.

Exhibit 110: Net Profit (` Mn); PAT Margin (%)

2,40

1

1,44

4

1,45

3

1,17

9 1,49

7

2,09

3

40.1

31.429.4

18.118.3

19.5

0

5

10

15

20

25

30

35

40

45

0

500

1,000

1,500

2,000

2,500

3,000





Service offerings


Execution


Improvement in the Return Ratios A healthy operating profit and net profit margin is expected to lead to improvement in the company’s return ratios. Return on equity (ROE) and return on capital employed (ROCE) are expected to increase by 360bps and 370bps, respectively, during FY11-13E. We expect ROE to increase to 11.1% in FY13E compared to 7.5% in FY11, while ROCE during the same period is expected to increase to 9.4% from 5.7% in FY11.

Exhibit 111: ROCE (%)

12.1

6.57.0

5.7

8.1

9.4

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0


Exhibit 112: ROE (%)

19.8

10.69.8

7.58.8

11.1

0.0

5.0

10.0

15.0

20.0

25.0





Service offerings


Execution


Company Background With over three decades of experience in property development, Puravankara

Projects Ltd (PVKP) has emerged as one of the leading players in the South India real-estate market. While the group commenced its property development venture from the Mumbai micro market, it is now largely focused on Bengaluru. The company caters to the premium housing segment under the brand, Purva, and has recently entered the affordable housing space under the brand, Provident. PVKP’s operations run across major cities in South India, in Kolkata, Colombo (Sri Lanka) and the U.A.E. PVKP has a total saleable land bank of 112msf as of March 2011, with ~67% of it located in Bengaluru and ~87% of its ongoing projects are located in Bengaluru and Chennai.

About Provident Housing

PVKP has entered into a joint venture (JV) with Homex, Mexico to undertake projects in the low-cost housing segment. The JV has been named Provident Housing Ltd. and is a 100% subsidiary of PVKP. Provident has launched an affordable housing scheme in Bengaluru and Chennai which has had a strong customer response (selling ~2.7msf out of 3.09msf). The company plans to replicate a similar model and reach out to other Tier-II cities like Mysore, Kochi, and Coimbatore, where demand is quite robust for these kinds of projects. It aims to deliver over 60,000 homes in the affordable housing segment in the next six to seven years.

Joint Venture with Keppel Land PVKP is the first Indian real estate player to receive FDI (by the automatic route) through its 49% JV with Singapore-based Keppel Land Limited. Currently, this JV runs across a developable area of 7.85msf, building two large residential projects in Bengaluru and Kolkata. PVKP is to benefit from Keppel’s expertise in developing world class, integrated townships.




Service offerings


Execution


FINANICAL STAEMENT Income Statement (` Mn.) FY10 FY11 FY12E FY13E Basic Ratios (`) FY10 FY11 FY12E FY13ERevenues 4,829 6,089 7,692 10,105 EPS 3.4 5.5 7.0 9.8Cost of Const. 2,608 3,841 4,684 6,060 Growth (%) 0.6 62.3 26.9 39.8

Total Expenditure 3,190 4,565 5,594 7,255 Cash EPS 6.9 5.6 7.1 9.9EBDITA 1,639 1,524 2,099 2,850 Book Value 69.6 73.9 79.7 88.3Deprecation 12 12 22 26 DPS 1.0 1.0 1.0 1.0Interest 29 41 131 103 Payout (%) 14.7 18.1 20.0 20.0PBT 1,598 1,470 1,946 2,721 Tax 298 280 499 698 Valuation RatiosPAT 1,453 1,179 1,497 2,093 P/E 24.1 14.8 11.7 8.4

Cash P/E 11.9 14.7 11.5 8.3Balance Sheet P/ BV 1.2 1.1 1.0 0.9Liabilities EV/Sales 5.1 4.5 3.4 2.8

Share Capital 1,067 1,067 1,067 1,067 EV/EBDITA 14.9 17.7 12.4 9.7Networth 14,852 15,764 17,012 18,856 ROE (%) 9.8 7.5 8.8 11.1Secured Loans 8,726 11,209 10,206 12,110 RoCE (%) 7.0 5.7 8.1 9.4Unsecured Loans 85 379 370 370 Defrd. Tax Liability 9 3 3 3 Margin (%)Total Liabilities 23,671 27,354 27,591 31,338 EBDITA 33.3 23.8 26.2 27.1 Assets EBIT 33.1 23.6 25.9 26.9 Fixed Assets (Net) 362 427 512 584 PBT 35.7 22.7 24.8 26.5 Investments 1,191 1,189 1,239 1,309 PAT 29.4 18.1 18.3 19.5 Properties held for Dev. 13,528 11,605 9,986 8,567 Current Assets Turnover Ratios a) Inventories 227 284 306 596 b) Sundry Debtors 1,112 1,144 1,313 3,114 Asset T/o 13.2 13.0 13.9 16.1 c) Cash & Bank 782 999 889 1,027 Total Asset T/o 0.2 0.2 0.3 0.3 d) Properties under Dev. 6,802 11,623 14,070 14,561 Inventory T/o 14.1 16.1 18.3 12.2 e) Properties held for Sale 852 706 604 1,550 Debtors T/o 4.3 5.2 5.8 3.2 f) Loans & Advances 2,883 3,287 3,806 4,555 Current Liabilities 3,786 3,649 4,870 4,246 Leverage RatiosNet Current Assets 281 295 299 315 D/E % 59.3 73.5 62.2 66.2Total Assets 23,672 27,354 27,591 31,338 Int. Cov. Ratio (x) 56.9 36.9 15.8 27.4

Net D/E 54.1 67.2 56.9 60.7Cash Flow Growth Ratio (%)CF before WC Changes 3,453 2,912 5,435 7,276 Sales 8 25 26 31 Cash from operations 828 (2,152) 1,482 (635) Expenses 2 43 23 30 Net Cash from Oper. 555 (2,432) 983 (1,333) EBDITA 20 (7) 38 36 Cash from Invstment 503 1,708 1,748 1,394 Interest Cost 43 221 (21) (138) Cash from Financing (544) 694 (2,842) 77 PBT 21 (8) 32 40 Net Change 514 (30) (110) 138 Tax 1,048 (6) 78 40 Op. Cash 268 782 999 889 PAT 1 (19) 27 40 Cl. Cash 782 999 889 1,027 Cash EPS 1 (19) 27 40

Sobha Developers Limited 25 July 2011



Service offerings


Execution


As on July 22,2011 Market Cap (`mn) 27,050 52 Week High/Low (`) 404/185 Book Value (FY12E) (`) 204 Face Value (`) 10

Codes

BSE Code 532784 NSE Code SOBHA Bloomberg Code SOBHA IN Reuters Code SOBHA.BO



50

60

70

80

90

100

110

120

130

Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11

Sobha Sensex

Simply Sobha Sobha is one of the best representatives of the South India real estate market, with ~95% of its land bank based in South India, primarily in Bengaluru. We are positive on SDL on the following parameters: a) strong presence in the Bengaluru market, which has been characterized with less volatility than other regions like Mumbai and NCR; b) ~`6.1bn positive net operating cash flow to be generated in the next two years; c) a robust pipeline of ~11msf of launches in FY12, anticipated to generate ~`67bn in the next five to six years; d) a steady contractual business; and e) a low-cost IT-centric land bank. We believe its D/E is likely to come down to 0.42x in FY13E, because its land monetization and operating cash flows have increased. We initiate coverage on Sobha with a BUY and a 12-month target price of `325. At the current price, the stock trades at FY12E and FY13E P/E of 15x and 13.1x and P/BV of 1.4x and 1.2x, respectively. Net D/E to Decline to 0.42x in FY13E The company is estimated to generate ~`6bn in net operating cash flow during FY12E-13E. We believe net D/E is likely come down to 0.42x in FY13E from current 0.64x levels. Sobha has an inventory of `8.14bn (2.77msf unsold area) and `5.6bn unbilled revenues from its ongoing contractual projects. `66.6bn Revenues From New Launches in the Next Five to Six Years The company is all set to launch ~11msf in FY12E; 4.17msf at existing and 6.99msf at new locations (Gurgaon 5.84msf; Chennai 0.93msf and Mysore 0.22msf). These launches are likely to drive SDL’s sales momentum and we estimate `66.6bn revenues are to be made from these in the next five to six years. Sturdy Cash Flow from Contractual Business Sobha has unbilled revenue of `5.6bn from the 38 ongoing projects, with a total saleable area of 7.4msf, while `3.07bn is the estimated value for its forthcoming 19 projects, with a total saleable area of 4.05msf. Contractual business works on a cost-plus basis, and hence, the margins are capped. It also provides consistent cash flows for the company. Revenues to Grow by 11%; Operating Profit by 10% Over FY11-13E New launches are expected to lead the company’s revenue momentum. Revenues are estimated to be `15.03bn and`17.57bn in FY12E and FY13E, a CAGR of 11%. While operating profit is anticipated to grow by 10.3%, to `3.82bn, from `3.14bn, currently. Attractive Valuation Sobha trades at FY11E and FY12E P/E of 15x and 13.1x, and FY12E P/BV of 1.4x. Our target NAV estimate is `31.90bn or `325/share. Initiate with BUY.

Share Price Returns (%) 1M 6M 12M Absolute 15 0 -16 Relative 8 2 -20


Contact No: -91 22 4354 2023


Year Ended FY10 FY11 FY12E FY13E

Net Sales 10,887 14,177 15,028 17,570

EBITDA 2,425 3,143 3,466 3,824

EBITDA Margin (%) 21.3 21.0 22.6 21.4

Net Profit 1,367 1,825 1,800 2,071

PAT Margin (%) 11.8 12.0 11.5 11.3

EPS 13.9 18.6 18.4 21.1

PER (x) 19.8 14.8 15.0 13.1

PBV (x) 1.6 1.5 1.4 1.2

ROE (%) 8.0 9.8 9.0 9.5






Service offerings


Execution


Key Assumptions


Exisiting Location FY10 FY11 FY12E FY13EArea Sold (msf) 2.08 2.78 2.80 2.80Sale Price (` psf) 3,002 3,182 3,783 4,475Const. Cost (` psf) 1,600 1,800 2,000 2,100

New Location FY10 FY11 FY12E FY13EArea Sold (msf) 0.00 0.00 0.43 0.64Sale Price (` psf) 5,408 5,184Const. Cost (` psf) 2,000 2,100


Exhibit 128: Contractual Business Assumptions

Contractual Business Total FY12E FY13E FY14EOngoing Projects (Unbilled Value ` mn) 5,600 3,360 2,240Percentage Completion (%) 60 40Est. Value of Forthcoming Projects (` mn) 3,070 153.5 1,842.0 1,074.5Percentage Completion (%) 5 60 35Total Contractual Revenue (` mn) 8,670 3,514 4,082 1,075


Exhibit 129: Calculation of WACC

Calculation of WACCPre-Tax Cost of Debt (%) 13.5Tax Rate (%) 25.0Cost of Debt (%) 10.1Govt. Bond Yield (%) 8.0Beta (x) 1.3Market Risk Premium (%) 7.0Cost of Equity (%) 17.1Wt. Debt (%) 50.0Wt. Equity (%) 50.0WACC (%) 13.6


Exhibit 130: Sensitivity Analysis

1% Increase in the Avg. sale Price 33.6% Change in NAV 1% Increase in the Avg. Const. Cost -12.1% Change in NAV 1% Increase in Discount Rate -7.4% Change in NAV



NAV Break-Up `/Share ` mn %Resi 94 9,178 18Contractual 30 2,982 6Land Bank 402 39,454 76Gross NAV 526 51,614 100Less: Net Debt 93 9,078Net NAV 434 42,536Discount (%) 25Target Price 325 31901.9CMP 276Upside/(Downside) (%) 18





Service offerings


Execution


Investment Rationale ~`6bn net positive cash flow to be generated

in next couple of years… …leading to drop in the D/E ratio

Generating Positive Cash Flows Since FY09

The company has been generating net positive cash flows since FY09, this has helped it to reduce its net debt-to-equity ratio from 1.73x in FY09 to 0.64x in FY11. The company has `8.14bn outstanding from the 2.77msf unsold area out of the 5.98msf area launched up to FY11. Also, it has ~`5.6bn unbilled value on ongoing contractual projects. All together, we estimate the company will generate further net positive cash flows of ~`6.08bn in the next couple of years.

Exhibit 132: Net Operating Cash Flows (` Mn)

-10,565

1,963

3,2784,144

2,5171,595

-12,000

-10,000

-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

FY08 FY09 FY10 FY11 FY12E FY13E


New launches to drive sales …..

…. estimate it to generate revenues of `66.6bn in the next five to six years.

New Launches Expected to Generate `66.6bn Revenues in Next 5-6 Years The company is expected to launch 11.16msf in FY12E. Existing locations (4.17msf) comprise Bengaluru (3.22msf), Pune (0.35msf), Coimbatore (0.25msf) and Thrissur (0.25msf), while new locations (6.99msf) include Gurgaon (5.84msf), Chennai (0.93msf) and Mysore (0.22msf). We expect these new launches to drive SDL’s sales momentum and we estimate them to generate revenues of `66.6bn in the next five to six years.

Exhibit 133: FY12 Launches at Existing Location

Exisitng Location

SBA

(msf)

Avg. Realz.

(Rs/sft)

Rev.

(Rs mn)Bangalore 3.32 4,000 13,280Pune 0.35 3,500 1,225Coimbatore 0.25 3,000 750Thrissur 0.25 3,500 875Total 4.17 16,130


Exhibit 134: FY12 Launches at New Location

New Location

SBA

(msf)

Avg. Realz.

(Rs/sft)

Rev.

(Rs mn)Gurgaon 5.84 8,000 46,720Chennai 0.93 3,500 3,255Mysore 0.22 2,300 506

Total 6.99 50,481 Source – Company, Jaypee Research




Service offerings


Execution


Sobha won contractual orders valued at

~`1.32bn, other than Infosys, during H2FY11.

Contractual Business: A steady Cash-Flow Generator Sobha has emerged as one of the most reputed contractors for commercial and industrial structures, especially for the South India market. Infosys has been its key client and accounts for almost 88% of Sobha’s completed contractual revenues. However, of the ongoing projects, Infosys constitutes only 78% of the total, thereby reducing the company’s over-dependence on a single client.

Contractual business works on a cost-plus margin of about 15-16%. Although the margins are lower in contractual business than in real-estate business (where margins are in the range of 30-35%), the contractual segment serves as a steady source of cash flow for the company, which, in turn, helps to fund its construction costs and keep in check the company’s debt levels.

To date, the company has completed 191 projects aggregating to 24.27msf. Further, Sobha has unbilled revenue of `5.6bn from the 38 ongoing projects, with a total saleable area of 7.4msf, while `3.07bn is the estimated value for its forthcoming 19 projects with a total saleable area of 4.05msf.

Exhibit 135: Completed Contractual Projects


Exhibit 136: Ongoing Contractual Projects


Low Cost, IT-Centric Land Bank

SDL has a total 2,715 acres of land bank which is well spread across major IT/ITES centers across India. Out of the total saleable area of 228msf, ~79% (180msf) is located in IT/ITES-centric regions like Bengaluru, Pune, Mysore, Chennai and Kochi. Further, the acquisition cost of these land banks, including the FSI cost is quite inexpensive at `310psf, compared to the existing average capital value in these regions of `3,500-4,500psf. In our view, SDL is to set benefit from the increase in the salaries in the IT/ITES sector. We estimate a sales volume of 3.44msf in FY13E from 2.78msf in FY11, growing 23.9% annually.




Service offerings


Execution


Exhibit 137: Land Bank Details


Average delivery run-rate for last five years

~6msf

Unparalleled Execution Record SDL has an unparalleled execution record in real-estate business. It has delivered 13.94msf over a period of 11 years up to 2006, since its inception in 1995. However, in the next five years it completed and handed over 28.74msf, more than double the execution it had done in the first 11 years. In the last five years, the company has been able to maintain a 6msf annual run-rate in its real-estate business.

Even in its contractual business, the company has a very decent execution record, completing 191 projects aggregating to 24.27msf.

Of the ongoing projects, SDL is currently executing 23 real-estate projects of 6.99msf and 38 contractual projects of 7.42msf, totalling 62 projects and 14.41msf. We estimate revenues from the existing ongoing and new projects to be `14.12bn and `16.63bn, in FY12E and FY13E, respectively.

Exhibit 138: Completed Projects Till March-11

71

191

262

18.4 24.342.7

0

50

100

150

200

250

300

Real Estate Contractual Total

Nos msf


Exhibit 139: Ongoing Projects Till March-11

23

38

61

7.0 7.4

14.4

0

10

20

30

40

50

60

70

Real Estate Contractual Total

Nos msf





Service offerings


Execution


Moving Up the Value Chain With the experience gained from developing various kinds of real-estate projects, Sobha has successfully backward integrated its whole business. It has in-house facilities for building interiors, metal glazing and concrete products. These businesses not only increase Sobha margins, but also provide the company with better control over the quality.

Exhibit 140: SDL Subsidiaries Revenue Contributions (` Mn)

Revenues (Rs Mn) FY10 FY11

Interiors and Furnishing Div. 508 557

Glazing & Metal Div. 653 625

Concrete Product Div. 150 161 Source – Company, Jaypee Research

Improving Net D/E We expect the company to generate cumulative operating cash flow of `6.08bn in the next two years; this will help it to reduce its net D/E from 0.64x in FY11 to 0.42x by FY13E. Thus, we believe the company is in a better position to fund its future growth.


1.77 1.74

0.80

0.64

0.500.42

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

FY08 FY09 FY10 FY11 FY12E FY13E Source – Company, Jaypee Research




Service offerings


Execution


EBIDTA Margins Steady at 21% EBIDTA margins are expected to be steady at 21% levels during FY11-13E, as a) contractual business works on a cost-plus basis, earning 15% margins and b) property development business earns ~30-35% margins. Operating profit during FY11-13E is estimated to grow by 10.3% annually, from `3.14bn to `3.82bn.


3,6

56

2,8

68

2,4

25

3,1

43

3,4

66 3,8

24

25.2

27.7

21.3 21.022.6

21.4

0

5

10

15

20

25

30

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500


Concerns Over-Dependence on the Bengaluru Region

The Bengaluru real estate market is very much driven by IT/ITES sector growth. Sobha has ~40% of its land bank located in this region; hence, any slowdown in the IT/ITES sector would impact Sobha adversely.

Foraying into Other Micro Markets The company has moved out of its comfort zone of the South India real-estate market and has now entered other high-growth markets like Gurgaon, in NCR. It plans to launch ~5.8msf of integrated township. We believe NCR is a completely different market and works on a completely different model to Bengaluru. There are risk overhangs on Sobha in terms of execution as well as project sales.




Service offerings


Execution


Recommendation Sobha is one of the best representatives of the South India real estate market, with

~95% of its land bank based in South India, primarily in Bengaluru. We are positive on SDL on the following parameters: a) strong presence in the Bengaluru market, which has been characterized with less volatility than other regions like Mumbai and NCR; b) ~`6.1bn positive net operating cash flow to be generated in the next two years; c) a robust pipeline of ~11msf of launches in FY12, anticipated to generate ~`67bn in the next five to six years; d) a steady contractual business; and e) a low-cost IT-centric land bank. We believe its D/E is likely to come down to 0.42x in FY13E, because its land monetization and operating cash flows have increased. We initiate coverage on Sobha Developers Ltd with a Buy recommendation and a target price of `325, based on 25% discount to its NAV of `434. We expect revenue and earnings CAGR of 11.3% and 6.5% respectively, over FY11-13E, and the operating profit margin will remain robust at 21-22%. At the current price, the stock trades at FY12E and FY13E P/E of 15x and 13.1x and P/BV of 1.4x and 1.2x, respectively.

Exhibit 143: Segmental NAV Break-up

94

30

402

-93

434

-109

325

-150

-50

50

150

250

350

450

550

Resi Contracts Land Bank NetDebt

NAV Disc. Target


Exhibit 144: One-Year Forward P/BV Band

0

100

200

300

400

500

600

700


0.5x

1x

1.5x

2x

2.5x

3x


Exhibit 145: SDL P/BV vs BSE Realty P/BV

-100%

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

0

1

2

3

4

5

6

7

8

9

10

Jul-

07

Oct

-07

Jan

-08

Ap

r-0

8

Jul-

08

Oct

-08

Jan

-09

Ap

r-0

9

Jul-

09

Oct

-09

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11

P/BV P/BV - Disc/ Prem





Service offerings


Execution


Financial Analysis Revenues to Grow 11% During FY11-13E

We expect revenues to grow by 11.3% over FY11-13E to `17.57bn, backed by 9.9% growth in revenues from property development and 12.9% growth in the contractual revenues. We estimate revenues from the property development to increase from `10.39bn in FY11 to `12.55bn in FY13E and the area sold to be 3.23msf and 3.44msf in FY12E and FY13E, respectively. Contractual revenues are expected to grow from `3.20bn in FY11 to `4.08bn in FY13E.

Exhibit 146: Revenues (` Mn)

18,4

07

12,6

14

10,8

87

14,1

77

15,0

28 17,5

70

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000


Net Profit Growth to Decline

We expect the company to pay full taxes (33.7%) from FY12 onwards as the majority of Sobha’s projects which enjoy benefits under section 80IB of the Income Tax Act have ended. Hence, we estimate net profit to fall by 1.3% in FY12E to `1.80bn, before increasing to `2.07bn, a growth of 15% YoY in FY13E. Net profit margin is expected to decrease by 70bps from 12% in FY11 to 11.3% in FY13E. We expect this margin to be sustainable over the long term..

Exhibit 147: Net Profit (` Mn); PAT Margin (%)

2,2

83

1,0

97 1

,367

1,8

25

1,8

00 2

,071

15.6

9.5

11.8 12.0 11.5

11.3

0

2

4

6

8

10

12

14

16

18

0

500

1,000

1,500

2,000

2,500





Service offerings


Execution


Stabilizing Return Ratios ROE is expected to fall in FY12E to 9.0% against 9.8% in FY11E on account of the increase in effective tax rates, before stabilizing at 9.5% in FY13E. However, ROCE during the same period is estimated to rise continuously from 9.3% in FY11 to 10.4% in FY12E and 11% in FY13E, as it is not affected by the change in tax rates.


12.0

8.4

6.6

9.3

10.411.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0



23.1

10.1

8.0

9.89.0 9.5

0.0

5.0

10.0

15.0

20.0

25.0





Service offerings


Execution


Company Background Sobha Developers was incorporated in 1995, and is a `15bn company and one of

the leading real-estate development and construction companies in South India. It adds another feather to its cap by being the only player with a backward integrated real-estate business model. Sobha focuses on residential and contractual projects. To date, Sobha has made its mark in 20 cities and 12 states across India. It has a total saleable area of 228msf with a strong presence in Benagluru (38%), Kochi (21%), Chennai (17%), and Hosur (16%). So far, Sobha has completed 71 real-estate projects aggregating to 18.41msf. It has 23 ongoing real-estate projects aggregating to 6.99msf and 15 forthcoming projects with a total saleable area of 12msf.

Besides being a real-estate company, it is also in the contractual business executing civil contracts for various companies ranging from IT to finance. Infosys is one of Sobha’s key clients, contributing 88% of the total contractual revenues. However, recently, Sobha has added new marquee clients including Dell, HP, Timken, MICO, Bayer, HCL, ITC, Biocon, Bosch, GMT, and Hotel Leela Ventures. Sobha has completed 191 contractual projects covering about 42.68msf of area. It has 38 ongoing contractual projects aggregating to 7.42msf at various stages of construction.

Exhibit 150: SDL’s Presence Across India





Service offerings


Execution


FINANICAL STAEMENT

Income Statement (` Mn.) FY10 FY11 FY12E FY13E Basic Ratios (`) FY10 FY11 FY12E FY13E

Total Income 10,887 14,177 15,028 17,570 EPS 13.9 18.6 18.4 21.1

Cost of Const. 6,191 8,142 8,724 10,600 Growth (%) -7.4% 33.5% -1.3% 15.0%

Total Expenditure 8,462 11,034 11,562 13,746 Cash EPS 17.2 21.4 21.3 24.3

EBDITA 2,425 3,143 3,466 3,824 Book Value 174.2 189.3 204.2 221.8

Deprecation 323 278 292 310 DPS 2.5 3.0 3.0 3.0

Interest 499 429 460 392 Payout (%) 17.9 16.1 10.0 10.0

PBT 1,603 2,436 2,714 3,122

Tax 236 611 913 1,051 Valuation Ratios

PAT 1,367 1,825 1,800 2,071 P/E 19.8 14.8 15.0 13.1

Cash P/E 16.0 12.9 12.9 11.4

Balance Sheet FY10 FY11 FY12E FY13E P/ BV 1.6 1.5 1.4 1.2

Liabilities EV/Sales 1.9 1.2 1.1 0.9

Equity Capital 981 981 981 981 EV/EBDITA 8.4 5.4 4.6 4.1

Pref. Capital 0 0 0 0 ROE (%) 8.0 9.8 9.0 9.5

Networth 17,085 18,566 20,023 21,751 RoCE (%) 6.6 9.3 10.4 11.0

Loans 14,540 12,110 10,610 10,160

Total Liabilities 31,625 30,676 30,633 31,911 Margin (%)

Assets EBDITA 21.3 21.0 22.6 21.4

Fixed Assets (Net) 1,429 1,373 1,280 1,170 EBIT 18.4 19.1 20.6 19.6

Capital WIP 632 668 768 868 PBT 13.9 16.2 17.6 17.3

Investments 429 516 526 536 PAT 11.8 12.0 11.5 11.3

Current Assets

a) Inventories 10,174 9,726 9,661 11,298 Turnover Ratios

b) Sundry Debtors 4,166 3,914 4,011 4,310

c) Cash & Bank 800 275 572 1,082 Asset T/o 5.4 7.1 7.3 8.6

d) Other Current Assets 0 0 0 0 Inventory T/o 0.8 1.1 1.2 1.2

e) Loans & Advances 20,093 21,517 20,540 19,933 Debtors T/o 2.7 3.7 3.7 4.1

Current Liabilities 6,150 7,387 6,799 7,360 Creditors T/o 2.5 2.5 2.9 3.0

Net Current Assets 29,083 28,045 27,985 29,263

Total Assets 31,625 30,676 30,633 31,911 Leverage Ratios

D/E % 85.1 65.2 53.0 46.7

Cash Flow FY10 FY11 FY12E FY13E Net D/E % 80.4 63.7 50.1 41.7

CF before WC Changes 2,284 2,971 3,073 3,414 Int. Cov. Ratio (x) 4.2 6.7 6.9 9.0

Cash from operations 3,388 4,442 3,430 2,646 Growth Ratio (%)

Net Cash from Oper. 3,278 4,144 2,517 1,595 Sales -13.7 30.2 6.0 16.9

Cash from Invstment (124) (219) 82 100 Expenses -13.2 30.4 4.8 18.9

Cash from Financing (2,564) (4,450) (2,303) (1,185) EBDITA -15.5 29.6 10.3 10.3

Net Change 590 (525) 296 510 Interest Cost -52.6 -13.9 7.1 -14.7

Op. Cash 211 800 275 572 PBT 10.1 52.0 11.4 15.0

Cl. Cash 800 275 572 1,082 PAT 24.6 33.5 -1.3 15.0

Prestige Estates Projects Limited 25 July 2011



Service offerings


Execution



Codes

BSE Code 533274 NSE Code PRESTIGE Bloomberg Code PEPL IN Reuters Code PREG.BO

Shareholding Pattern (%) Mar’11 Dec’10 Sep’10 Promoters 80.1 80.1 80.1 FII 17.9 17.9 18.1 DII 1.1 1.1 1.4 Others 1.9 1.9 0.5


40

50

60

70

80

90

100

110

120

Oct-10 Dec-10 Feb-11 Apr-11 Jun-11

Prestige Sensex

SOUTH INDIA’S “PRESTIGE” Prestige Estates Projects Limited (Prestige) has a formidable presence in South India and is synonymous with the Bengaluru real estate market; this is manifested through a showcase of more than 150 projects aggregating to ~44msf. We are positive on Prestige broadly, on the following parameters: a) 15msf of well-diversified projects expected to launch in the next 12-15 months and a total of ~62msf currently under development and planning; b) an asset-light business model due to JDA model; c) rental annuity expected to grow to ~`2.36bn p.a. by FY13E, at ~26% CAGR over FY11-13E; d) a diversified project portfolio across various segments like residential, commercial, retail, hospitality, etc. e) a proven execution track record, delivering ~16msf in FY11; f) good brand recognition and goodwill because of high-quality constructions; g) superior margins of 28-30%, and trading at FY12E P/E and P/BV of 18.1 and 1.8X respectively. We Initiate coverage on Prestige with a Buy recommendation and price target of `162. At the current price, the stock trades at FY12E and FY13E P/E of 20.5x and 15.7x and P/BV of 2x and 1.8x, respectively. Burgeoning Rental Annuity The total lease assets are expected to grow at 23.1% CAGR during FY11-13E, from 2.85msf currently to 4.32msf in FY13E. The company’s current lease income of `1.5bn per annum is likely to grow to `2.36bn by FY13E. New Launches to Steer Bookings in FY12-13E Prestige has planned to launch 15msf across 11 projects in the next 12-15 months. Until last year, it had focused mainly on luxury (high-end) projects. However, it has now changed its focus and plans to diversify across the real-estate verticals, from high-end to mid-range residential projects. We expect revenues from White Meadows, Prestige Golfshire, Prestige Southridge, Prestige Neptune Court Yard, Prestige Palladium, etc. to start contributing revenues in FY12-13. A High Proportion of Joint Development in Total Land Bank At present, 65% of the land is acquired by Joint Development, and so the company executes more projects with less capital, reducing the use of funds and protecting its margins. Superior ROEs Prestige is likely to post superior ROEs in FY12E and FY13E at 9.8% and 11.6%, respectively. This is mainly because it has started some high-margin projects.

Share Price Returns (%) 1M 6M 9M Absolute 13 -3 -27 Relative 6 -1 -20


Contact No: -91 22 4354 2023



Net Sales 10,860 16,113 17,289 19,565

EBITDA 2,852 4,421 5,002 6,001

EBITDA Margin (%) 21.8 24.2 27.9 29.9

Net Profit 1,474 1,667 2,224 2,907

PAT Margin (%) 6.6 6.4 11.6 13.9

EPS 5.6 5.1 6.8 8.9

PER (x) 24.8 27.4 20.5 15.7

PBV (x) 4.8 2.2 2.0 1.8

ROE (%) 19.3 8.2 9.8 11.6






Service offerings


Execution


Key Assumptions


Real Estate Business FY11 FY12E FY13EArea Sold (msf) 1.86 3.55 3.20Sale Price (` psf) 6,300 6,615 6,946Const. Cost (` psf) 2,200 2,310 2,426


Exhibit 35: Rental Assets Assumptions

Rental Assets FY11 FY12E FY13ECommercial Lease AssetsArea (msf) 2.47 3.08 3.25Rentals (` psfpm) 36 35 40

Retail Lease AssetsArea (msf) 0.38 0.38 1.07Rentals (` psfpm) 87 91 61


Exhibit 36: Hospitality Business Assumptions

Hospitality FY11 FY12E FY13ETotal No of Rooms 257 257 631OR (%) 77 82 61ARR (`/night) 4,646 4,851 4,095


Exhibit 37: Calculation of WACC Calculation of WACCPre-Tax Cost of Debt (%) 13.8Tax Rate (%) 25.0Cost of Debt (%) 10.3Govt. Bond Yield (%) 8.0Beta (x) 1.2Market Risk Premium (%) 7.0Cost of Equity (%) 16.4Wt. Debt (%) 40.0Wt. Equity (%) 60.0WACC (%) 14.0



1% Increase in the Avg. sale Price 1% Change in NAV 1% Increase in the Avg. Const. Cost -0.5% Change in NAV 1% Increase in Discount Rate -3.5% Change in NAV



NAV Break-Up `/Share ` mn % NAV Break-Up `/ShareResidential 118 38,615 50 Less: Net Debt 20Rentals 34 11,160 14 Net NAV 215Land Bank 79 25,939 34 Discount (%) 25Hotels 3 973 1 Target Price 162Property Management 2 720 1 CMP 127Gross NAV 236 77,406 100 Upside/(Downside) (%) 16





Service offerings


Execution



15msf across 11 projects to be launched in next 12-15months

New Launches to Steer Bookings in FY12-13E

Prestige has planned to launch 15msf across 11 projects in the next 12-15 months. Until last year it had focused mainly on luxury (high-end) projects. However, it has now changed its focus and plans to launch projects across the real estate verticals, from high-end to mid-range residential projects. We expect revenues from White Meadows, Prestige Golfshire, Prestige Southridge, Prestige Neptune Court Yard, Prestige Palladium, etc. to start contributing revenues in FY12-13. Backed by these new launches, we estimate residential revenues at `14.05bn and`15.26bn in FY12E and 13E.

Exhibit 40: Planned Launches FY12/13

Project Name Location Model

Total

Area

(msf)

Prestige

(msf)

Rate

(` psf) Stake (%)

Launch

Date

Sunnyside Bangalore Resi 0.85 0.85 4,000 100 FY12

Bellavista Chennai Resi 5.04 3.02 4,200 60 FY12

Tranquility Bangalore Resi 4.78 4.78 3,500 100 FY12

Jacobs Land Bangalore Resi 1.10 0.81 6,500 74 FY12

Mayberry Bangalore Resi 0.48 0.28 4,500 45 FY12

Park View Bangalore Resi 0.80 0.52 4,500 65 FY12

Hilcrest Ooty Resi 0.08 0.04 7,000 50 FY12

Khoday Trade Tower Bangalore Comm 0.54 0.24 6,000 45 FY12

Forum Thomsun Bangalore Comm 0.20 0.05 12,000 25 FY12

Khoday Platinum Bangalore Comm 0.51 0.23 6,000 45 FY12


As of March 2011, the company had unbilled revenues of `22.3bn from its 12.55msf sales achieved and `49bn locked in the inventories. We expect the inventories to be fully realized in the next two years.

Exhibit 41: Residential Revenues (` mn)

8,06

2

13,8

49

14,0

47

15,2

59

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000






Service offerings


Execution


Rental annuity to grow by 26.5% CAGR during FY11-13E

Burgeoning Rental Annuity The company currently has a very strong rental asset portfolio with total area under lease of 5.68msf (Prestige’s share is 3.77msf). For the year ending March 2011, the company had a rental income of `1.5bn, primarily derived from three retail malls and office space in Cessna Business Park.

The company derives rental income from two major verticals: a) Commercial (office spaces) and b) Retail (malls). We expect its total lease asset portfolio to grow at 23.1% annually, to 4.32msf in FY13E, from 2.85msf currently. Further, we estimate annuity rentals will grow by 26.5% annually, from `1.48bn in FY11 to `2.36bn in FY13E.

Exhibit 42: Lease Revenues (` mn); Leased Assets (msf)

1,477

1,697

2,365

2.85

3.46

4.32

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0

500

1,000

1,500

2,000

2,500

FY11 FY12E FY13E Source – Company, Jaypee Research

Commercial leased asset to add 2.2msf by FY15

Commercial Rental Portfolio: 2.2msf to be added by FY15 The company had a 2.47msf rent-generating commercial rental portfolio, as of March 2011, contributing `1.08bn. Furthermore, Prestige is expected to add another 2.20msf by FY15 and is estimated to generate `1.06bn annually. During the next two years, we expect 0.78msf of commercial rental asset to be added, taking the total leased asset tally to 3.25msf. Rentals from the commercial assets are estimated to increase by 20.8% CAGR during FY11-13E to `1.58bn.

Exhibit 43: Existing Commercial Leased Assets

Existing Assets

Prestige Share

(msf)

Rent

(` psfpm)

Rental

(` mn p.a.)

Prestige Est. 1.60 38 720.0

West Palm 0.17 25 50.9

Prestige Valley View 0.00 126 6.4

ICBI India 0.04 42 20.1

Cessna Business Park 0.66 36 283.0

Total Existing 2.47 36 1,080.4 Source – Company, Jaypee Research




Service offerings


Execution


Exhibit 44: Existing Commercial Leased Assets

Upcoming

PEPL

Share

Rent

Rs/sf/m

Rental

(Rs.Mn)

p.a.

Rentals

Starting

from

Cessna Business Park (B5-B6) 0.39 40 187.2 Q3FY12

Exora Business Park - B1 0.22 40 105.6 Q3FY12

Forum Vijaya - Comm 0.17 60 122.4 Q2FY13

Cessna Business Park (B7-B11) 0.60 40 288.0 Q3FY14


Graphite Whitefield 0.33 32 126.7 Q4FY14


Total Upcoming 2.20 40 1,062.9 Source – Company, Jaypee Research

1.31msf of retail rental asset to be added during FY11-13E

Retail Lease Annuity to Grow the Most: 41% CAGR FY11-13E The company currently has three operational malls with a total area under lease (PRESTIGE share) of 0.38msf, generating an annual rental of `396.6mn. Moreover, Prestige is expected to add another 1.65msf by FY15, estimated to generate annual rentals to the tune of `1.17bn. We expect the company to add another 1.31msf of retail rental asset during FY11-13E, taking the total retail leased asset to 1.69msf. Retail annuity rentals are estimated to increase to `789.6mn in FY13E, a growth of 62.2% during FY11-13E.

Exhibit 45: Existing Retail Leased Assets

Existing Assets

Prestige Share

(msf)

Rent

(` psfpm)

Rental

(` mn p.a.)

Forum Mall, Koramangala 0.24 88 252.0

UB City 0.04 114 54.6

Forum Value Mall, Whitefield 0.10 75 90.0

Total Existing 0.38 87 396.6 Source – Company, Jaypee Research

Exhibit 46: Upcoming Retail Leased Assets

Upcoming

Prestige Share

(msf)

Rent

(` psfpm)

Rental

(` mn p.a.)

Rentals

Starting

Forum Vijaya Chennai 0.35 70 294.0 Q1FY13

Forum Sujana, Hyd 0.17 65 132.6 Q4FY13

Forum Mangalore 0.17 55 112.2 Q4FY13

Forum Shanthiniketan 0.24 55 158.4 FY14

Forum Thomsun Cochin 0.24 55 158.4 FY14

Graphite Whitefield 0.25 55 165.0 FY14

Mysore Mall 0.23 55 151.8 FY15

Total Upcoming 1.65 59 1,172.4 Source – Company, Jaypee Research




Service offerings


Execution


Hotel inventory to double to 631 by FY13

Hotel Room Inventory to Double by FY13 The company is currently building two hotels: a) FVM Serviced Apartments (168 rooms) and b) Hotel Aloft (206 Rooms), which is expected to commence commercial operations by the end of FY13. With these, the total room inventory is expected to double to 631 from the current inventory of 257 rooms.

The hospitality business is estimated to contribute revenues of `374.9mn and `381.2mn in FY12E and FY13E, respectively. However, it is anticipated to contribute `1.77bn to the revenues once all the upcoming hotel projects are completed.

Exhibit 47: Operational Hotels

Existing Assets

Prestige Share

(%)

Rooms

(nos)

ARR

(`/night)

Revenue

(` mn p.a.)

Angsana Resort 57.5 79 8,000 79.6

Oakwood Serviced Appts 57.5 178 9,000 235.4

Total 257 314.9


Exhibit 48: Upcoming Hotels

Upcoming Hotels

Prestige Share

(%)

Rooms

(nos)

ARR

(`/night)

Revenue

(` mn p.a.)

Starts

from

FVM Service Apts 35 168 6,000 63.1 Q1FY13

Aloft Hotel 60 206 6,500 182.1 Q3FY13

Hilton Hotel 100 320 12,000 734.0 Jan'15

Marriot Resort 100 307 7,000 386.3 Jul'15

Golfshire Club 100 25.0

Forum Thomsun -Hotel 25 67.1

Total Upcoming 1,001 1,457.6 Source – Company, Jaypee Research




Service offerings


Execution


Superior Double-Digit ROE The ROE, after declining in FY11 to 8.2% due to dilution (IPO), is expected to rise back to its pre-IPO double-digit levels. Improved profitability and a higher increase in net profits over FY11-13E, will therefore lead to higher ROE from 8.2% in FY11 to 10.2% in FY12E and 11.5% in FY13E.


7.6

8.8 9.0

12.513.5

14.5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0


Exhibit 50: ROE (%)

13.1 12.5

19.3

8.2

10.211.5

0.0

5.0

10.0

15.0

20.0

25.0


Positive Operating Cash Leading to Decline in D/E

The company’s net operating cash flow turned positive in FY11 (`2.15bn), and we expect Prestige to further generate operating cash of `7.84bn in the next two years, mainly because of higher lease rentals (`1.88bn in FY12E) and superior execution on ongoing projects. We expect the net D/E ratio to be steady at ~0.3x levels during FY12E-13E.


1.641.57

1.87

0.34 0.30 0.30

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00





Service offerings


Execution


Concerns Over-dependence on the Bengaluru Region

Of Prestige’s ~63msf saleable area, 75% is in Bengaluru, and demand in this market is driven by the IT/ITES sector. Hence, any slowdown in the IT/ITES sector would adversely impact our revenue estimates for Prestige.

Execution Risk

The company has planned to launch ~11msf in FY12, which is quite huge compared to the ~44msf completed by the company since its inception. This exposes PRESTIGE to execution risk.

Regulatory Changes for SEZs

SEZs in India were given tax benefits to encourage exports and employment. However, with the end of the 2008 recession, the government started increasing the MAT levels. This has led to deferment of many commercial real-estate (SEZ) projects. Commercial real estate contributes ~11% to Prestige’s NAV. Any changes in the taxes imposed by the government would have a negative impact on the company.




Service offerings


Execution


Recommendation Prestige Estates Projects Limited (Prestige) has a formidable presence in

South India and is synonymous with the Bengaluru real real-estate market. We are positive on PRESTIGE broadly, on the following parameters: a) 15msf of well-diversified projects expected to launch in the next 12-15 months and a total of ~62msf currently under development and planning; b) an asset-light business model due to JDA model; c) rental annuity expected to grow to ~`2.36bn p.a. by FY13E, at ~26% CAGR over FY11-13E; d) a diversified project portfolio across various segments like residential, commercial, retail, hospitality, etc. e) a proven execution track record, delivering ~16msf in FY11; f) good brand recognition and goodwill because of high-quality constructions.

We Initiate coverage on Prestige with a Buy recommendation and price target of `162, based on 25% discount to its NAV of `215. We expect earnings and revenue CAGR of 32.1% and 10.2%, respectively, over FY11-13E and the operating profit margin to be robust at 28-29%. At the current price, the stock trades at FY12E and FY13E P/E of 20.5x and 15.7x and P/BV of 2x and 1.8x, respectively.


118

34

579

-20

215

-54

162

-100

-50

0

50

100

150

200

250

300

Resi. Rentals Hotels + Others

Land Bank

Net Debt Gross NAV

Discount Target


Exhibit 53: One Year Forward P/BV Band

0

50

100

150

200

250

300

350

400

450

500

Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11

1.75x

2.75x

3.75x

4.75x

5.75x

6.75x


Exhibit 54: Prestige P/BV vs BSE Realty P/BV

-20%

-10%

0%

10%

20%

30%

40%

50%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Oct

-10

No

v-1

0

De

c-1

0

Jan

-11

Feb

-11

Mar

-11

Ap

r-1

1

May

-11

Jun

-11

Price to BV P/BV Disc/ Prem





Service offerings


Execution


Financial Analysis Revenues to Grow 10% During FY11-13E

We expect revenues to grow by 10.3% over FY11-13E to `19.57bn, backed by 25.6% growth in rental revenues (`2.37bn in FY13E vs `1.48bn in FY11) and 5% annual growth in residential and commercial property revenues. Revenues from the hospitality business are estimated at `389.2mn and`593mn in FY12E and FY13E, respectively.

Exhibit 55: Revenues (` mn)

9,8

93

8,5

10

10,8

60

16,1

13

17,4

64

19,6

08

0

5,000

10,000

15,000

20,000

25,000


Margins to Improve by 560bps

The company’s margins are likely to improve by 560bps over FY11-13E. This would mainly be because of a change in the product-mix, an increase in lease rentals and completion of the large, low-margin ‘Shantiniketan’ project. Operating profit is estimated to grow by 16.5% CAGR during FY11-13E, to `6bn in FY13E. Operating margins are expected to be 29.8% in FY13E from the current 24.2% levels.

Exhibit 56: Operating Profit (` mn); EBIDTA Margin (%)

1,5

14 2,1

18 2,8

52

4,4

21 5,1

26 5

,990

14.0

28.8

21.8

24.2

28.329.8

0

5

10

15

20

25

30

35

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000





Service offerings


Execution


Net Profit Margin to Go Up by 740bps Robust sales and the increases in rentals are expected to improve the company’s profitability. We estimate net profit will grow by 31.9% during FY11-13E, to `2.90bn from `1.67bn. Rentals as a percentage of total sales are expected to increase from 10% in FY11 to 14% in FY13E. Thus, net profit margin is expected to grow by 740bps, from 6.4% in FY11 to 13.8% in FY13E.

Exhibit 57: Net Profit (` mn); PAT Margin (%)

659

773

1,4

74

1,6

67

2,3

07

2,8

99

4.0

13.1

6.6 6.4

11.9

13.8

0

2

4

6

8

10

12

14

16

0

500

1,000

1,500

2,000

2,500

3,000

3,500





Service offerings


Execution


Company Background Prestige Estates Projects Ltd (Prestige) was set up in 1986 and grew swiftly to

become the leading property developer in Bengaluru. Since then, it has made a distinctive mark on Bengaluru’s skyline, and on its people as a leading real estate developer. In its quest to deliver projects with perfection and excellence, Prestige became a `10bn conglomerate.

Prestige has completed 157 real estate projects across asset classes in the Residential, Commercial, Retail and Hospitality categories. It has executed ~44msf across all segments. The company has pioneered one-of-a-kind developments such as Forum Mall, UB City and Shantiniketan, by transforming locations into landmarks. It has developed a number of landmark properties in Bengaluru, and has received a number of awards for quality products, including FIABCI awards.

Prestige has entered into a joint venture with CapitaLand (a Singapore-listed real-estate company) to develop and manage retail malls, and with Red Fort Capital (Real Estate Fund) to develop commercial complexes and townships.

Prestige has developed homes for the large populace residing in the South and its constructions are also host some of the biggest MNCs in the IT/ITES, banking and finance, retail and hospitality sectors. With 61.4msf of developments, Prestige is a real-estate powerhouse in the southern market.

Exhibit 58: Land Bank – Location Wise





Service offerings


Execution


FINANICAL STAEMENT


Total Income 10,860 16,113 17,289 19,565 EPS 5.6 5.1 6.8 8.9

Cost of Const. 7,033 10,479 11,010 12,239 Growth (%) -90.9% -9.5% 33.4% 30.7%



Deprecation 491 606 633 689 DPS 0.0 1.2 1.2 1.2

Interest 783 1,234 1,016 931 Payout (%) 0.0 23.6 17.7 13.5

PBT 1,577 2,581 3,352 4,382

Tax 283 914 1,128 1,475 Valuation Ratios

PAT 1,474 1,667 2,224 2,907 P/E 24.8 27.4 20.5 15.7

Cash P/E 18.6 20.1 16.0 12.7



Equity Capital 2,625 3,281 3,281 3,281 EV/EBDITA 15.0 8.5 7.3 6.1

Reserves & Surplus 5,013 17,156 19,326 21,772 ROE (%) 19.3 8.2 9.8 11.6

Networth 7,638 20,437 22,607 25,053 RoCE (%) 9.0 12.5 13.1 14.6

Loans 16,015 10,119 10,619 11,419


Assets EBDITA 21.8 24.2 27.9 29.9


Capital WIP 2,054 1,049 1,799 2,549 PBT 9.4 12.3 18.2 21.5

Investments 1,609 7,103 7,103 7,103 PAT 6.6 6.4 11.6 13.9

Current Assets


b) Sundry Debtors 3,628 10,113 10,967 10,599

c) Cash & Bank 1,729 3,112 3,917 3,840 Asset T/o 0.8 2.9 2.1 1.8

d) Loans & Advances 6,408 8,070 8,517 9,671 Inventory T/o 0.6 1.4 1.8 2.0

Current Liabilities 11,893 11,734 12,023 12,304 Debtors T/o 2.8 1.5 1.6 1.8



D/E (%) 209.7 49.5 47.0 45.6

Cash Flow FY10 FY11 FY12E FY13E Net D/E (%) 187.0 34.3 29.6 30.3

CF before WC Changes 2,523 9,924 4,760 5,246 Int. Cov. Ratio (x) 3.0 3.1 4.3 5.7

Cash from operations -3,070 2,150 5,660 4,783 Growth Ratio (%)

Net Cash from Oper. -3,209 2,150 4,532 3,309 Sales 27.6 48.4 7.3 13.2

Cash from Invstment -834 -1,054 -2,817 -2,861 Expenses 25.3 46.0 5.1 10.4

Cash from Financing 4,363 -1,096 -910 -525 EBDITA 34.7 55.0 13.1 20.0

Net Change 320 1,383 805 -78 Interest Cost 13.6 57.7 -17.7 -8.4

Op. Cash 1,410 1,729 3,112 3,917 PBT 53.2 63.4 29.9 30.7

Cl. Cash 1,729 3,112 3,917 3,840 PAT 83.0 28.7 33.4 30.7

DLF Limited 25 July 2011



Service offerings


Execution



Codes

BSE Code 532868 NSE Code DLF Bloomberg Code DLFU IN Reuters Code DLF.BO



50

60

70

80

90

100

110

120

130

Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11

DLF Sensex

DLF is the largest real estate player in the country and is synonymous with the Indian real estate sector. We like the following aspects of the company : a) a pan-India presence mostly concentrated in the NCR region; b) steady cash-flow from ~22.5msf of rent-yielding assets; c) its focus on quicker land bank monetization; d) increased net operating cash flow (`104.50bn) leading to a decline in net debt-equity to 0.57x in FY13E; e) an increase in its divestment target to `100bn from `45bn previously, with a target of `60-70bn in the next two to three years; f) a strategy to protect margins by incorporating a cost escalation clause in agreements; and g) higher margins, leading to stronger return ratios. Thus, we initiate coverage on DLF Ltd with a Neutral rating and a price target of `254. At the current price, the stock trades at 24.8x and 20.7x its FY12E EPS `9.7 and FY13E EPS of `11.6, respectively. On P/BV it trades at 1.4x/1.3x its FY12E and FY13E book value of `169.6 and`178.9, respectively. Focus on Quicker Monetization DLF has changed its focus from long-gestation real-estate development projects to short-duration and high-cash plot sales. It intends to launch 10msf of plotted development in FY12E in Indore, Gurgaon, Chandigarh and Lucknow. Thus, we estimate DLF will generate net positive operating cash flow of `102.67bn in the next two years, through its quicker monetization strategy. Leasing Income Set to Increase by ~26% During FY11-13E The current lease income of `11bn is likely to increase to `17.31bn by FY13E, a CAGR of 25.5%. Leased assets are likely to increase to ~27.5msf in FY13E from ~22.5msf currently. The company is aiming to become a debt-free company in the next two to three years and has a strategy to reduce its capital expenditure on new leased assets. Divestment of Non-Core Assets DLF sold non-core assets worth `12.7bn in FY11, aggregating to `30.7bn, up to March-2011. The company has announced a plan to dispose of its non-core assets. It has substantially increased its previous divestment target of `45bn to `100bn, with a target of `60-70bn over the next two to three years. Net Gearing to Improve We expect that the improving cash flow from operations (`102.67bn between FY11-13E) will reduce the company’s debt levels and bring down the company’s net debt-equity from 0.86x in FY11 to 0.71x in FY12E and 0.57x in FY13E.

Share Price Returns (%)

1M 6M 12M Absolute 14 -5 -24 Relative 8 -3 -28


Contact No: -91 22 4354 2023


Year Ended FY10 FY11 FY12E FY13ENet Sales 78,509 102,505 103,655 111,175EBITDA 39,254 44,426 48,405 53,490EBITDA Margin (%) 47.1 39.3 43.5 45.0Net Profit 17,198 16,396 16,437 19,721PAT Margin (%) 17.2 10.0 10.8 12.8EPS 10.1 9.7 9.7 11.6PER (x) 23.7 24.9 24.8 20.7PBV (x) 1.5 1.6 1.4 1.3ROE (%) 6.5 6.2 5.7 6.5

Initiating Coverage CMP: `240 TARGET: `254 NEUTRAL





Service offerings


Execution


Key Assumptions

Exhibit 151:Real Estate Business Assumptions

Y/E March FY10 FY11 FY12E FY13EReal EstateArea Sold (msf) 12.5 10.2 11.0 10.0Sale Price (` psf) 5,702 6,517 6,273 7,298


Exhibit 152: Rental Business Assumptions Y/E March FY10 FY11 FY12E FY13ELease AssetsCum. Lease Assets (msf) 19.41 22.48 24.98 27.48Incremental Lease Assets (msf) 1.98 4.00 2.50 2.50Avg. Rentals (` psfpm) 43 41 50 53


Exhibit 153:Calculation of WACC



Exhibit 154:Sensitivity Analysis



Exhibit 155:NAV Break-Up

NAV Break-Up `/Share ` mn %Resi. 135 228,526 31Land Bank Value 220 373,837 50Lease Assets 50 85,357 11Other Assets 33 55,442 7Gross NAV 438 743,162 100Less: Net Debt 120 203,640Net NAV 318 539,522Discount (%) 20Target Price 254CMP 241Upside/(Downside) (%) 6





Service offerings


Execution



10msf plotted development expected to be

launched in FY12

Focus on Quicker Monetization

The company has changed its focus from long-gestation real-estate development projects to short-duration and high-cash plot sales. It intends to launch 10msf of plotted development in FY12E in Indore, Gurgaon, Chandigarh and Lucknow. Consequently, the product mix is expected to be skewed towards plotted development in FY12-13. Plotted developments are expected to achieve better margins as the cost involved in providing the basic infrastructure (water, electricity, road, sewage, etc) is quite low, compared to the cost involved in constructing an apartment. Further, plotted developments can be monetized quicker as they require fewer approvals than those required for residential and commercial complexes.

Thus we estimate that DLF will generate net positive operating cash flow of `102.67bn in the next two years, through its quicker monetization strategy.

Exhibit 156:Net Operating Cash Flow (` mn)

-17,809

1,743

21,09026,030

46,395

58,110

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000



Divestment targets increased to `100bn,

with a target of `60-70bn over the next two to three years

Divestment of Non-Core Assets The company has announced a plan to dispose of all of its non-core assets. It has substantially increased its divestment target from `45bn previously to `100bn, with a target of `60-70bn over the next two to three years. DLF has been able to sell non-core assets worth `30.70bn up to March 2011 (`12.7bn in FY11). We have not factored in any cash coming from the sale of non-core assets in our projections, as the amount is very hard to predict. Thus, we have allowed for a potential upside if any of the non-core assets are divested.




Service offerings


Execution


Leasing income will post a CAGR of 25.5% between FY11 and FY13E

Leasing Income Set to Increase The company has very huge rent-yielding assets: as of March 2011, cumulative leased assets stood at 22.48msf, generating `11bn as rental income. Further, it expects to lease 2.5-3msf in FY12E. Going forward, we expect the company to lease ~5msf in the next two years, taking the total leased assets to 27.48msf by the end of FY13E.

We estimate DLF leasing income will post a CAGR of 25.5% between FY11 and FY13E to `14.98bn and `17.31bn in FY12E and FY13E, respectively.

Following its longer-term strategy to be debt free, the company, during next two years, intends to reduce its capital expenditure on new leased assets. At the same time, it is determined to increase the productivity of its existing leased assets. It is now focusing on reducing the vacancies as well as increasing the rentals at its existing properties.

Exhibit 157:Leasing Income (` mn); Leased Assets (msf)

9,9

10

11,0

00

14,9

88 17,3

12

19.4

22.5

25.0

27.5

0

5

10

15

20

25

30

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

FY10 FY11 FY12E FY13E Source – Company, Jaypee Research

Improvement in Net Gearing We expect the improving cash flow from operations (`102.67bn between FY11-13E) to reduce the company’s debt levels and bring down the company’s net debt-equity from 0.86x in FY11 to 0.71x in FY12E and 0.57x in FY13E.

Exhibit 158:Net D/E Ratio (x)

0.51

0.63

0.84 0.86

0.71

0.57

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00





Service offerings


Execution


Strategies to Protect Margins Over the last two years the economy has witnessed an unprecedented increase in commodity prices, leading to high inflation and high interest rates. In addition to these macro-economic issues, the real estate industry has also been impacted by the shortage of labor for construction activity. During FY11, DLF saw prices increase from 10-30% in cement, steel, labor costs, and so on, which led to a one-time reset of budgeted cost of `4.75bn. Consequently, its margin shrank. Thus, in order to protect its margin DLF has formed a policy to include escalation clauses in the customer agreements. This will help it to counter any cost over-runs resulting from inflationary pressure.

Furthermore, a higher proportion of high-margin plotted development sales is anticipated to expand the company’s OPM during the next two years. We estimate OPM will rise to 45% in FY13E, compared to 39.3% in FY11, an expansion of 575bps. Operating profit from FY11-13E is estimated to grow by 10.4% to `54.13bn.

Exhibit 159: Operating Profit (` mn); EBIDTA Margin (%)

99,5

28

59,9

32

39,2

54

44,4

26

48,4

05

53,4

90

67.2

55.7

47.1

39.343.5 45.0

0

10

20

30

40

50

60

70

80

0

20,000

40,000

60,000

80,000

100,000

120,000


Concerns Venturing into New Regions

The company has lined up launches in new geographies and any delay in execution would adversely affect the company’s revenues.

Demand Slowdown for Commercial Real Estate Commercial real estate contributes substantially to the company’s total revenues. Thus, any drop in commercial real estate absorption would affect DLF’s revenue and, therefore, its profitability.




Service offerings


Execution


Recommendation DLF is the largest real estate player in the country and is synonymous with

the Indian real estate sector. We like the following aspects of the company: a) a pan-India presence mostly concentrated in the NCR region; b) steady cash-flow from ~22.5msf of rent-yielding assets; c) its focus on quicker land bank monetization; d) increased net operating cash flow (`104.50bn), leading to a decline in net debt-equity to 0.57x in FY13E; e) an increase in its divestment target to `100bn from `45bn previously, with a target of `60-70bn in the next two to three years; f) its strategy to protect margins by incorporating a cost escalation clause in agreements; and g) higher margins, leading to stronger return ratios.

We initiate coverage on DLF Ltd with a Neutral rating and a price target of `254. At the current price, the stock trades at 24.8x and 20.7x it’s FY12 EPS `9.7 and FY13E EPS of `11.6, respectively. On P/BV it trades at 1.4x and 1.3x its FY12E and FY13E book value of `169.6 and `178.9, respectively.


135

220

50

33

-120

318

-64

254

-150

-50

50

150

250

350

450

Resi Land Bank

Rentals Other Assets

Net Debt

Net NAV Disc. Target



0

100

200

300

400

500

600

700

800

900

1,000


1x

2x

3x

4x

5x

6x


Exhibit 162: DLF P/BV vs BSE Realty P/BV

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

0

5

10

15

20

25

Jul-

07

Oc

t-0

7

Jan

-08

Ap

r-0

8

Jul-

08

Oc

t-0

8

Jan

-09

Ap

r-0

9

Jul-

09

Oc

t-0

9

Jan

-10

Ap

r-1

0

Jul-

10

Oc

t-1

0

Jan

-11

Ap

r-1

1

Jul-

11






Service offerings


Execution


Financial Analysis Total Income to Be Flat During FY11-13E

Residential revenues during FY11-13E are estimated to grow by 4.7% to `72.98bn, mainly because of increased low-value plotted development sales. However, during the same period, we anticipate rental income will grow 29.9% annually, to `18.57bn in FY13E, mainly because of the increase in the rent-yielding assets, which is estimated to be 29.48msf in FY13E, a 14.5% growth during FY11-13E. We expect total revenues to be `103.65bn and `111.18bn in FY12E and FY13E, respectively.

Exhibit 163: Total Revenues (` mn)

146,8

43

104,3

86

78,5

09 102,5

05

103,6

55

111,1

75

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000


PAT to Grow by 11% During FY11-13E to ~`20bn

We estimate PAT will grow by 11% during FY11-13E to `19.72bn, though it is still down by 74% from its peak of FY08. Further, net profit margin is expected to improve by 300bps because of changes in the product-mix, which is now more skewed towards high-margin plotted developments.

Exhibit 164: Net Profit (` mn); PAT Margin (%)

78

,12

0

44

,69

6

17

,19

8

16

,39

6

16

,43

7

19

,72

1

52.4

41.0

17.2

10.010.8 12.8

0

10

20

30

40

50

60

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000





Service offerings


Execution


Return Ratios to Surpass FY10 Levels With the improvement in profitability, DLF is expected to surpass its FY10 ROE and ROCE (return) ratios. We estimate ROCE will improve from 7.1% in FY10 to 9.4% in FY13E, while ROE is expected to rise from 6.2% to 6.5% during FY11 and FY13E, respectively.

Exhibit 165: ROCE (x)

7.17.5

8.3

9.4

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0


Exhibit 166: ROE (x)

6.5

6.2

5.7

6.5

5.2

5.4

5.6

5.8

6.0

6.2

6.4

6.6


Company Background DLF is a huge name in the Indian real estate space. The company was

established back in 1946 and is the largest real estate company in India in terms of market cap, revenues, earnings and developable area. The company’s primary business is in developing residential, commercial and retail properties. It has 399msf of planned projects with 56msf of projects under construction.

DLF follows a unique business model with earnings coming from development and rentals. Its exposure across businesses, segments and geographies, mitigates the cyclicality in the market. It has also forayed into infrastructure, SEZ and hotel businesses.

DLF has two types of business: the development business, which includes homes and residential complexes. This business, at present, has 302msf of development potential with 40msf of projects under construction. The other business is its annuity business, which consists of offices and retail. The company has land resource of 86msf for office and retail development, with 16msf of projects under construction.




Service offerings


Execution


FINANICAL STAEMENT Income Statement (` Mn.) FY10 FY11 FY12E FY13E Basic Ratios (`) FY10 FY11 FY12E FY13ETotal Income 78,509 102,505 103,655 111,175 EPS 10.1 9.7 9.7 11.6Cost of Const. 26,714 42,999 39,115 41,953 Growth (%) -61.5% -4.7% 0.3% 20.0%

Total Expenditure 39,255 58,079 55,250 57,685 Cash EPS 12.1 13.4 13.6 15.7EBDITA 39,254 44,426 48,405 53,490 Book Value 156.4 155.1 169.6 178.9Deprecation 3,262 6,307 6,671 7,005 DPS 2.1 2.0 2.0 2.0Interest 11,100 17,056 19,818 20,190 Payout (%) 21.2 20.6 20.7 17.2PBT 24,892 21,063 21,916 26,295Tax 7,810 4,594 5,479 6,574 Valuation RatiosPAT 17,198 16,396 16,437 19,721 P/E 23.7 24.9 24.8 20.7

Cash P/E 20.0 18.0 17.7 15.3Balance Sheet FY10 FY11 FY12E FY13E P/ BV 1.5 1.6 1.4 1.3Liabilities EV/Sales 6.9 5.4 5.1 4.5

Equity Capital 3,395 3,395 3,395 3,395 EV/EBDITA 13.8 12.4 11.0 9.3Reserves & Surplus 244,060 241,820 266,432 282,182 ROE (%) 6.5 6.2 5.7 6.5Networth 265,558 263,318 287,930 303,679 RoCE (%) 7.1 7.5 8.3 9.4Loans 236,110 239,900 214,903 188,903Total Liabilities 508,088 508,970 502,833 492,582 Margin (%)Assets EBDITA 47.1 39.3 43.5 45.0Fixed Assets (incld. CWIP) 263,460 281,841 288,341 293,841 EBIT 42.7 32.7 36.7 38.3Goodwill 13,730 13,840 13,840 13,840 PBT 27.8 14.8 16.4 19.1Investments 13,110 9,958 9,958 9,958 PAT 17.2 10.0 10.8 12.8Current Assets a) Inventories 147,850 150,388 149,857 150,140 Turnover Ratios b) Sundry Debtors 19,460 17,257 14,735 14,367 c) Cash & Bank 11,778 13,467 11,263 15,763 Asset T/o 0.3 0.3 0.3 0.4 d) Loans & Advances 77,000 72,712 70,407 75,515 Inventory T/o 0.3 0.4 0.4 0.4Current Liabilities 88,840 131,014 137,881 153,128 Debtors T/o 3.8 5.5 6.6 7.3Net Current Assets 216,968 201,710 176,832 165,587Total Assets 508,088 508,982 490,605 484,859 Leverage Ratios

D/E (%) 88.9 91.1 74.6 62.2Cash Flow FY10 FY11 FY12E FY13E Net D/E (%) 84.5 86.0 70.7 57.0CF before WC Changes 31,850 38,970 34,442 57,374 Int. Cov. Ratio (x) 3.2 2.2 2.1 2.3Cash from operations 26,600 34,210 51,873 64,684 Growth Ratio (%)Net Cash from Oper. 21,090 26,030 46,395 58,110 Sales -24.8 30.6 1.1 7.3Cash from Invstment 41,660 41,520 -633 793 Expenses -11.7 48.0 -4.9 4.4Cash from Financing -60,490 -63,460 -50,683 -52,483 EBDITA -34.5 13.2 9.0 10.5Net Change 2,260 4,090 -4,921 6,420 Interest Cost 100.1 53.7 16.2 1.9Op. Cash 10,962 13,222 17,312 12,390 PBT -52.1 -15.4 4.0 20.0Cl. Cash 11,778 13,467 11,263 15,763 PAT -62.2 -3.6 -0.2 20.0

Orbit Corporation Limited 25 July 2011



Service offerings


Execution



Codes

BSE Code 532837 NSE Code ORBITCORP Bloomberg Code ORB IN Reuters Code ORCP.BO


Share Price Performance [

20

40

60

80

100

120

140

Jul-10 Oct-10 Jan-11 Apr-11 Jul-11

OCL Sensex

CRÈME DE LA CRÈME Orbit Corporation (OCL) is a real-estate construction and development company with primary focus on redevelopment of existing properties. It specializes in developing, designing, and managing high-end residential and ‘build-to-suit’ commercial properties. We are upbeat about the company mainly on account of a) its strong presence in the South Mumbai redevelopment space; b) the huge benefits from the increased FSI (from 1.7x to 3x) for redevelopment in South Mumbai; c) the premium Orbit commands on its properties over its peers in the same location because of its quality construction; d) its strengthening portfolio in the Island City of Mumbai. We recommend Buy on Orbit with a 12-month target price of `65. At the current price, the stock trades at FY12E and FY13E P/E of 6.6x and 4.9x and P/BV of 0.5x and 0.4x, respectively. Strong Project Pipeline to Lift Revenues in FY12-13E The Company has very strong projects lined -up to be launched in the next 2-3two to three years in South Mumbai. It has planned to launch three new projects in FY12E/-13E, having with a total saleable area of 0.2msf in the South-Mumbai market. Total income is estimated to grow 16% CAGR during FY11-13E to `54.47bn. Strengthening its Portfolio in the Island City Company Orbit is currently negotiating for the acquisition of three more properties viz. : Kilachand House (50% acquired), Orbit Magnum and Orbit Mid-Town, with a total saleable area of 1.75msf. We estimate these three properties to will generate total revenue of `59-67bn in the next 4-5next four to five years for the company. South Mumbai Projects Accrue 72% of NAV The South South-Mumbai market is one of the key micro- markets for the company wherein, in which it has projects in Nepean Sea Road, Nana Chowk and Gamdevi, which together contributes ~72% (`13.63bn) to the GNAV. Redevelopment Possess Offers a Huge Opportunity MHADA has identified more than 19,642 dilapidated and cessed buildings in Mumbai, of which ~33% are in the South Mumbai, which is a strategic area for Orbit. Further, with the increased FSI from 1.7-2x to 3x for all the redevelopment projects thereby increasing increases the redevelopment potential by 33%.

Share Price Returns (%) 1M 6M 12M Absolute 13 -32 -70 Relative 6 -30 -73


Contact No: -91 22 4354 2023



Net Sales 4,936 4,045 4,748 5,447

EBITDA 1,613 2,214 2,121 2,558

EBITDA Margin (%) 31.8 54.1 44.1 46.4

Net Profit 960 789 748 999

PAT Margin (%) 18.4 18.4 14.9 17.5

EPS 8.4 6.9 6.6 8.8

PER (x) 5.1 6.2 6.6 4.9

PBV (x) 0.3 0.5 0.5 0.4

ROE (%) 11.3 8.0 7.0 8.9

Company Update CMP: `43 TARGET: `65 BUY





Service offerings


Execution


Key Assumptions


Y/E March FY11 FY12E FY13E

Residentail

Area Sold (msf) 0.29 0.16 0.29

Sale Price (` psf) 18,499 23,551 24,756

Const. Cost (` psf) 12,542 10,354 9,138 Source – Company, Jaypee Research


Calculation of WACC

Pre-Tax Cost of Debt (%) 15.0

Tax Rate (%) 25.0

Cost of Debt (%) 11.3

Govt. Bond Yield (%) 8.0

Beta (x) 1.5

Market Risk Premium (%) 7.0

Cost of Equity (%) 18.5

Wt. Debt (%) 50.0

Wt. Equity (%) 50.0

WACC (%) 14.9 Source – Company, Jaypee Research


1% Increase in the Avg. Sale Price 1.6% Change in NAV

1% Increase in the Avg. Const. Cost -0.3% Change in NAV

1% Increase in Discount Rate -4.1% Change in NAV Source – Company, Jaypee Research


NAV Break-Up `/Share ` mn %

Gross NAV 167 19,027 100

Less: Net Debt 66 7,548

Net NAV 101 11,479

Discount (%) 35

Target Price 65

CMP 43

Upside/(Downside) (%) 52





Service offerings


Execution



Revenue CAGR 16% during FY11-13E Strong Project Pipeline to Lift Revenues in FY12-13E

Orbit has very strong projects lined up to be launched in the next two to three years in South Mumbai. It has planned to launch three new projects in FY12E-13E, with a total saleable area of 0.2msf in the South-Mumbai market. We expect revenue recognition from these three new projects and from four existing projects to kick in during FY12E-13E. Total income is estimated to grow 16% CAGR during FY11-13E to `54.47bn.

Of the ongoing 1.28msf, the company, as on 31st March 2011, had achieved sales of `22.97bn and has total outstanding receivables of `10.78bn.

Exhibit 63: Ongoing Projects

Eternia (LP)

2%

WTC (BKC)25%

Arya (NS)

6%

Haven (NS)

5%

Residency 1 (AD)

22%

Terraces (LP)

22%

Grand (LP)6%

Ocean Parque (NS)

3%

Villa Orb -Annex (NS)

3%

Laburnum (GD)4%

Enclave (NC)

2%


Exhibit 64: OCL’s Revenues (` Mn)

4,2

22

2,8

67

4,9

36

4,0

45 4

,748 5

,447

0

1,000

2,000

3,000

4,000

5,000

6,000





Service offerings


Execution


19,642 dilapidated and cessed buildings in Mumbai… huge opportunity for

redevelopment

Redevelopment Offers a Huge Opportunity Maharashtra Housing & Area Development Authority (MHADA) has identified more than 19,642 dilapidated and cessed buildings in Mumbai. Of these, ~33% (6,386 buildings) are in the South-Mumbai region, which is a strategic area for Orbit. Further, the BMC has increased the FSI from 1.7-2x to 3x for all the redevelopment projects for dilapidated buildings in the South-Mumbai region. Hence, the potential market for redevelopment has increased by 33% to ~85msf (6,386 buildings x 13,300sq.ft), compared to the previous ~64msf (6,386 buildings x 10,000 sq. ft, which was the actual average saleable area during 2001-04). Orbit, being the focused player in this segment, is likely to benefit from this opportunity.

Exhibit 65: No of Old and Dilapidated Buildings

Category Year of Construction No of Buildings

A Before 1940 16,502

B Between 1940-1950 1,489

C Between 1951-1969 1,651

Total 19,642 Source: Company, Jaypee Research

Exhibit 66: Opportunities for Redevelopment in South Mumbai

Under Constr. NOC Recd.

A 936 9 5 8 914

D 2747 71 53 73 2550

F&G North 2056 212 93 75 1676

F&G South 1336 35 31 24 1246

Total 7075 327 182 180 6386

Under Process Dialipated

buildingsRedevloped

Scope for

RedevelopmentWard


South-Mumbai Projects Accrue 72% of NAV

Orbit is ubiquitously present in the South-Mumbai real-estate market. It accrues almost 72% of its total value from this micro market. Most of its projects are in the Nepean Sea Road area, where average realizations are in the range of `50,000-80,000psf. South Mumbai is one of the company’s key micro markets, in which it has projects in Nepean Sea Road, Nana Chowk and Gamdevi, which together contribute `13.63bn to the GNAV.

Exhibit 67: NAV Break-up by Area

Mandwah9%

S.Central9%

South72%

Suburb10%





Service offerings


Execution


More acquisition in the South Mumbai market..

Strengthening its Portfolio Along with its ongoing projects in the South Mumbai region, the company is acquiring more land in the city, and thereby strengthening its portfolio in the city. Orbit is currently negotiating the acquisition of three more properties: Kilachand House (50% acquired), Orbit Magnum and Orbit Mid-Town, with a total saleable area of 1.75msf. The company has forayed into a cluster development by taking up the Lalbaugh project, Orbit Mid-Town. The company has achieved a considerable acquisition in all these projects and we expect it to break ground within the next two to three years.

We estimate these three properties will generate total revenue of `59-67bn in the next four to five years for the company.

Exhibit 68: New Additions to Orbit’s Portfolio

Projects

Saleable

Area (msf) Location

Price Range

(Rs/sft)

Potential

Revenues

(Rs. Bn)

Kilachand House 0.55 Napeansea Rd 55-60K 30-33

Orbit Magnum 0.30 Napeansea Rd 54-60K 16-18

Orbit Midtowm 0.90 Lalbaugh 15-18K 13-16

Total 1.75 59-67 Source – Company, Jaypee Research

Gearing Ratio Set to Improve: `6bn Operating Cash-Flow in Next Two Years Orbit is estimated to generate net cash of ~`6bn in the next two years, because of higher revenue recognition from the ongoing projects (Orbit Haven, Orbit Terraces, Orbit Residency, Villa Orb Annex and Orbit Grand). We expect the company to reduce its debt and bring down its net D/E from ~1x in FY11 to 0.55x by FY13E.


71.375.8

67.2

99.4

70.9

54.9

0.0

20.0

40.0

60.0

80.0

100.0

120.0





Service offerings


Execution


EBIDTA Margin to Decline in FY12E and Improve in FY13E We expect Orbit’s EBIDTA margin to decline by 1000bps in FY12E to 44.1% because of a major change in its product-mix (low-margin projects are expected to start contributing revenues). In FY13E, the revenue contribution from high-margin South-Mumbai-based projects is expected to increase. Consequently, the margins are expected to improve by 230bps to 46.4%.


2,2

25

936

1,6

13

2,2

14

2,1

21

2,5

58

52.1

31.9 31.8

54.1

44.1

46.4

0

10

20

30

40

50

60

0

500

1,000

1,500

2,000

2,500

3,000


Net Profit Margin Expansion in FY13E Leading to Higher ROEs

Orbit’s net profit margin is estimated to improve by 260bps in FY13E to 17.5%. Consequently, the company’s ROE is estimated to improve from 7% in FY12E to 8.9% in FY13E. Net profits during FY11-13E are estimated to grow by 12.5% annually, to `999mn.

Exhibit 71: Revenues (` Mn); Net Profit Margin (%)

1,6

67

377

960

789

748

999

38.7

12.218.4

18.4

14.9

17.5

0

5

10

15

20

25

30

35

40

45

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800



Exhibit 72: ROE (%)

6.9

11.3

8.0

7.0

8.9

0.0

2.0

4.0

6.0

8.0

10.0

12.0

FY09 FY10 FY11 FY12E FY13E Source – Company, Jaypee Research




Service offerings


Execution


Concerns Over-Dependence on the Mumbai Metropolitan Region

Orbit is a Mumbai-focused real-estate player and has not diversified into other geographical regions in India. Hence, it is prone to any change in the Mumbai real- estate market. So any unfavorable change in the regulations of the municipal authority would impact the company drastically.

Delay in Acquisition of Land

Orbit’s inability to acquire or delay in acquiring land for the projects for which it has already paid a substantial amount would adversely affect the company’s finances

Limited Supply of Re-Development Projects A favorable redevelopment policy and increased demand in the residential and commercial spaces has attracted new players to the redevelopment arena. Any increase in the competition or a limited supply of redevelopment projects would have an adverse impact on the company.

Change in Applicable FSI

Any change in the applicable FSI for either dilapidated buildings or for car parking areas, would have adverse impact on our projections. This is because the majority of Orbit’s projects are located in the South-Mumbai region, where FSI norms for car-parking and dilapidated buildings have recently been amended. Any unfavorable change could make these projects unfeasible.




Service offerings


Execution


Recommendation Orbit Corporation (OCL) is a real-estate construction and development company

with primary focus on redevelopment of existing properties. It specializes in developing, designing, and managing high-end residential and ‘build-to-suit’ commercial properties. We are upbeat about the company mainly on account of a) its strong presence in the South Mumbai redevelopment space; b) the huge benefits from the increased FSI (from 1.7x to 3x) for redevelopment in South Mumbai; c) the premium Orbit commands on its properties over its peers in the same location because of its quality construction; d) its strengthening portfolio in the Island City of Mumbai.

At current prices the stock trades at 6.6x and 4.9x its FY12E EPS of `6.6 and FY13E EPS of `8.8, respectively. We recommend Buy on Orbit with a 12-month target price of `65.


167

-66

101

-35

65

-100

-50

0

50

100

150

200

GNAV NetDebt

Net NAV Disc. Target



0

50

100

150

200

250

300


0.25x

0.5x

0.75x

1x

1.25x

1.5x


Exhibit 75: OCL P/BV vs BSE Realty P/BV

-100%

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

0

2

4

6

8

10

12

14

16

Jul-07

Oct-

07

Jan-0

8

Ap

r-08

Jul-08

Oct-

08

Jan-0

9

Ap

r-09

Jul-09

Oct-

09

Jan-1

0

Ap

r-10

Jul-10

Oct-

10

Jan-1

1

Ap

r-11

Jul-11

Price to BV P/BV - Disc/ Prem





Service offerings


Execution


Company Background Orbit Corporation Ltd (Orbit) is in the business of constructing and developing real-

estate projects. It has created a niche for itself redeveloping old and dilapidated buildings in the Island City of Mumbai. In year 2000, the company actively entered the real-estate development business with exclusive focus on the Island City. Though the company’s main business is the redevelopment of existing properties, it has also constructed a few commercial properties. The group has delivered approximately 2mn sq. ft (msf). It had a total saleable area of 7.15msf as on 31st March 2011.

Currently, the company is developing residential projects in prime locations like Napean Sea Road, Lower Parel, Nana Chowk, Gamdevi and Lalbaugh. Other than these prime locations, Orbit is also present in suburban regions of the Mumbai Metropolitan Region, i.e. Andheri, Bandra-Kurla Complex, Santacruz and Mandwa.

Exhibit 76: Land Bank 7.15msf Completed

, 0.09

High

Maturity, 1.29

Launched in CY, 0.91

Pipeline < 1yr, 1.00

Pipeline < 1/2 yrs, 1.38

Theme Projects - Mandwa, 2.48





Service offerings


Execution


FINANICAL STATEMENT

Income Statement (` Mn.) FY10 FY11 FY12E FY13E Basic Ratios (`) FY10 FY11 FY12E FY13ETotal Income 4,936 4,045 4,748 5,447 EPS 8.4 6.9 6.6 8.8

Cost of Const. 1,324 3,580 4,083 4,652 Growth (%) 154.7 -17.8 -5.2 33.5

Inc./(Dec.) in Stock 811 -2,392 -2,536 -3,030 Cash EPS 18.2 7.4 6.8 9.0

Total Expenditure 3,323 1,831 2,627 2,889 Book Value 154.9 86.0 93.4 98.8

EBDITA 1,613 2,214 2,121 2,558 DPS 2.5 1.0 1.0 1.0

Deprecation 42 54 26 31 Payout (%) 14.1 14.4 15.2 11.4

Interest 539 1,020 1,026 1,100

PBT 1,032 1,140 1,069 1,427 Valuation Ratios

Tax 72 351 321 428 P/E 5.1 6.2 6.6 4.9

PAT 960 789 748 999 Cash P/E 2.4 5.8 6.3 4.8P/ BV 0.3 0.5 0.5 0.4

Balance Sheet FY10 FY11 FY12E FY13E EV/Sales 1.6 3.7 2.6 2.0

Liabilities EV/EBDITA 4.9 6.6 5.8 4.3

Share Capital* 550 1,140 1,140 1,140 ROE (%) 11.3 8.0 7.0 8.9

Warrants O/S 95 0 0 0 RoCE (%) 14.7 16.0 16.6 20.0

Networth 8,518 9,799 10,645 11,265

Secured Loans 5,990 10,363 8,259 7,010 Margin (%)

Unsecured Loans 107 0 0 0 EBDITA 31.8 54.1 44.1 46.4

Total Liabilities 14,615 20,162 18,904 18,274 EBIT 30.9 52.8 43.6 45.9

Assets PBT 19.9 27.2 21.7 25.5

Fixed Assets (Net) 206 340 414 483 PAT 18.4 18.4 14.9 17.5

Capital WIP 27 0 0 0

Investments 124 58 58 58 Turnover Ratios

Current Assets

a) Inventories 3,631 7,876 10,407 13,431 Asset T/o 20.9 11.7 11.4 11.2

b) Debtors 4,630 4,932 3,772 4,029 Total Asset T/o 0.3 0.2 0.2 0.3

c) Cash & Bank 374 627 712 825 Inventory T/o 0.9 0.2 0.3 0.2

d) Loans & Adv. 8,429 7,916 7,174 3,538 Debtors T/o 1.1 0.8 1.2 1.3

Curr.Liab. & Prov. 2,259 1,301 3,097 3,555

Net Current Assets 14,806 20,299 18,967 18,268 Leverage Ratios

Total Assets 14,615 20,162 18,904 18,274 D/E (x) 0.7 1.1 0.8 0.6

Net D/E (x) 0.7 1.0 0.7 0.5

Cash Flow FY10 FY11 FY12E FY13E Int. Cov. Ratio (x) 2.9 2.1 2.0 2.3

CF before WC Changes 1,601 3,553 2,555 2,262 Growth Ratio (%)

Cash from operations -2,863 -1,439 3,722 3,074 Sales 71.8 -18.1 17.8 14.7

Net Cash from Oper. -3,039 -504 3,402 2,646 Expenses 72.1 -44.9 43.5 10.0

Cash from Invstment -158 -61 -74 -69 EBDITA 72.4 37.2 -4.2 20.6

Cash from Financing 3,563 708 -3,244 -2,463 Interest Cost 89.1 0.6 7.2 -63.6

Net Change 367 143 84 114 PBT 82.8 10.4 -6.3 33.5

Op. Cash 7 485 628 712 PAT 154.7 -17.8 -5.2 33.5

Cl. Cash 374 628 712 825 Cash EPS 61.1 -18.8 -8.2 33.1

Oberoi Realty Limited 25 July 2011



Service offerings


Execution


As on July 22,2011 Market Cap (`mn) 79,530 52 Week High/Low (`) 306/210 Book Value (FY12E) 117 Face Value (`) 10

Codes

BSE Code 533273 NSE Code OBEROIRLTY Bloomberg Code OBER IN Reuters Code OEBO.BO

Shareholding Pattern (%) June’11 Mar’11 Dec’10 Promoters 78.5 78.5 78.5 FII 9.5 9.6 9.4 DII 1.0 1.0 1.0 Others 10.9 11.0 11.1


70

80

90

100

110

Oct-10 Dec-10 Mar-11 May-11 Jul-11

Oberoi Sensex

THE ENVIABLE Oberoi Realty Ltd (Oberoi) is the best representative of Mumbai’s real estate market, with 93% of its land-bank based in Mumbai. We liked the company based on the following parameters: a) negative net gearing (-34%) for FY12E; b) steady lease rentals `1.24bn and `1.42bn in FY12E and FY13E; c) inexpensive land bank in a prime suburban Mumbai market d) robust revenue and cashflow visibility; e) superior margins and ROE profile; f) clear land titles; and g) a huge brand equity in the Mumbai real estate market. We recommend investors Buy Oberoi with a one-year price target of `304, an upside potential of 26%. We have arrived at our target price based on a 20% discount to the NAV of `380/share. At current prices, the stock trades at 13.6x and 9.9x its FY12 EPS `17.9 and FY13E EPS of `24.5, respectively. We have not ascribed any value to the Juhu hotel project due to the pending litigation. Mumbai Focus on Inexpensive Land Bank Oberoi has a premium land bank in the lucrative Mumbai micro market with an average acquisition cost of `250 per sq. ft. Oberoi, during 1999-2005, acquired 127.2 acres (saleable 17.5msf) of land in Goregoan, Andheri and Mulund for a total of `4.34bn. The current average realizations in these micro markets are at `10,000, `12,000 and `8,000/sq. ft, respectively. The land cost accounts for less than 5% of the current selling prices. Negative Net Debt Company The company has an enviable balance sheet with zero debt and huge cash balances. It has a net D/E of -0.34x and -0.3x for FY12E and FY13E, respectively. This comfortable financial position gives Oberoi the opportunity to invest in lucrative projects. Assured Cash Flow From Leased Assets Oberoi leases its commercial and retail properties, assuring a steady and continuous cash flow. Current lease income of `1.13bn (from 0.78msf) is likely to increase to `1.42bn by FY13E. By assuring cash flows to the company, rentals therefore facilitate efficient management of its working capital. Inexpensive Valuation The stock is trading at 13.6x and 9.9x its FY12E and FY13E earnings and 2.1x and 1.7x P/BV. We believe valuation is quite inexpensive considering a) Oberoi’s enviable balance sheet, b) its low-cost premium land bank, c) its strong goodwill and d) its robust project pipeline.

Share Price Returns (%) 1M 6M 9M Absolute 6 -2 -14 Relative 0 0 -9


Contact No: -91 22 4354 2023



Net Sales 7,898 10,588 13,509 18,954

EBITDA 4,733 6,398 8,194 11,656

EBITDA Margin (%) 58.0 54.5 59.2 59.9

Net Profit 4,425 5,172 5,867 8,051

PAT Margin (%) 54.0 42.9 41.9 40.9

EPS 15.3 15.8 17.9 24.5

PER (x) 15.8 15.4 13.6 9.9

PBV (x) 3.8 2.4 2.1 1.7

ROE (%) 23.9 15.4 15.3 17.5






Service offerings


Execution


Key Assumptions


Residentail FY11 FY12E FY13EArea Sold (msf) 0.70 0.96 1.82Sale Price (` psf) 13,122 12,409 16,104


Exhibit 78: Rental Business Assumptions

Lease Assets FY11 FY12E FY13ELeased Asset (msf) 0.78 0.84 0.95Avg. Rentals (` psfpm) 120 123 124


Exhibit 79: Hospitality Business Assumptions

Hospitality FY11 FY12E FY13ETotal No of Rooms 269 269 269OR (%) 54 65 70ARR (`/night) 7,356 8,000 8,000






1% Increase in the Avg. Sale Price 0.9% Change in NAV 1% Increase in the Avg. Const. Cost -0.2% Change in NAV 1% Increase in Discount Rate -2.2% Change in NAV



NAV Break-Up `/Share ` mn % NAV Break-Up `/ShareResi 276 90,453 81 Less: Net Debt -40Lease 36 11,923 11 Net NAV 380Hotels 10 3,237 3 Discount (%) 20Social Infra 19 6,186 6 Target Price 304Gross NAV 341 111,799 100 CMP 242

Upside/(Downside) (%) 26





Service offerings


Execution



~6.7msf to be launched during next two

years…..

….leading to a growth of 43.7% CAGR of residential revenues

Large Projects Due for Launch in FY12-13E We expect Oberoi to launch four new projects, with a total saleable area of ~6.7msf during FY11-13E. FY12 will see launches of Oberoi Exquisite III, Goregaon (~2msf); Oasis Residential, Worli (1.5msf) and Oberoi Exotica Phase I (1.6msf). Oberoi Exotica Phase II (1.6msf) is expected to be launched in FY13. Driven by these launches, we expect new sales volumes to increase from 0.7msf in FY11 to 1.82msf in FY13E, a CAGR of 61.4%.

We expect residential revenues to grow by 43.7% CAGR over FY11-13E as new projects start contributing. Residential revenues are estimated to grow to `16.24bn in FY13E from `7.87bn in FY11.

Exhibit 83: Oberoi Residential Revenues (` Mn)

7,8

68

11

,14

8

16

,23

7

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

FY11 FY12E FY13E

Overall, with new projects starting to contribute in the next two years, we expect the company to grow its top line by a CAGR of 33.8% over FY11-13E from `10.59bn in FY11 to `18.95bn in FY13E.

Exhibit 84: Oberoi Total Revenues (` Mn)

5,5

86

4,5

50

7,8

98 1

0,5

88 1

3,5

09

18,9

54

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000






Service offerings


Execution


Lease rentals to grow from `1.12bn in FY11

to `1.42bn in FY13E, a CAGR of 12.5%.

Rental Income to Grow 12.5% Over FY11-13E Oberoi follows a lease model for part of its commercial and retail properties. As on 31st March 2011, the company had total lease yielding assets of 0.78msf, which we expect will grow to 0.95msf by FY13E and rental income during the period is estimated to grow from `1.12bn in FY11 to `1.42bn in FY13E, a CAGR of 12.5%.

Exhibit 85: Rental Income (` Mn); Leased Assets (msf)

1,1261,237

1,423

0.78

0.84

0.95

0.00

0.20

0.40

0.60

0.80

1.00

1.20

0

200

400

600

800

1000

1200

1400

1600

FY11 FY12E FY13E


Exhibit 86: Leased Asset Portfolio (msf) Completed Type Area msf LocationCommerz I Commercial 0.36 GoregoanOberoi Mall Retail 0.55 GoregoanTotal 0.91

Ongoing Type Area msf LocationCommerz II, Phase 1 Commercial 0.73 GoregoanCommerz II, Phase 2 Commercial 1.66 GoregoanTotal 2.39

Planned Type Area msf LocationOberoi Edu. Complex Social Infra 0.87 GoregoanOberoi Hospital Social Infra 0.38 GoregoanOberoi Splendor School Social Infra 0.43 AndheriTotal 1.67

Total Lease Assets 4.97 Source: Company, Jaypee Research




Service offerings


Execution


Oberoi to generate net positive operating cash flow of `2.05bn and`3.49bn in FY12E-

13E.

Net Positive Operating Cash Flow The company has zero debt and a huge amount of cash in its books. Further, we expect it to generate net positive operating cash flow of `2.05bn and`3.49bn in FY12E-13E. As on 31st March 2011, the company had a cash balance of ~`14bn. This allows Oberoi to invest in lucrative investment projects or even to fund its development projects. The cash balance also gives the company the leeway to procure additional land without stretching its balance sheet. A satisfactory cash balance also ensures timely completion of its project, which further adds to the company’s reputation for reliability.

The company’s net D/E continues to be negative, and has been since FY09. We estimate it will be -30.1% by FY13E.

Exhibit 87: Net D/E (x)

0.08

-0.11

-0.19

-0.42

-0.34-0.30

-0.50

-0.40

-0.30

-0.20

-0.10

0.00

0.10

0.20


Inexpensive Prime Land Bank in Mumbai Oberoi is a Mumbai-focused real-estate company; out of its 20msf land bank, 93% is in Mumbai and the balance in Pune. Oberoi, during 1999-2005, concluded three major land deals in the localities of Goregaon, Mulund and Andheri, which are a long distance away from Mumbai’s Business District, Nariman Point. The company spent a total of `4.33bn to acquire 127.2 acres for these three deals. It acquired this land through institutional players like Novartis, CIBA, and GlaxoSmithKline Pharmaceuticals, thus assuring clear and genuine titles for the land parcels.

Exhibit 88: Land Bank Break-Up (msf)

Micro Market Locations Total %age

Andheri Mumbai 3.12 15.5%

Goregoan Mumbai 9.09 45.1%

Juhu Mumbai 1.29 6.4%

Mulund Mumbai 3.20 15.9%

Worli Mumbai 2.12 10.5%

Pune Pune 1.33 6.6%

Total 20.15 100.0%


Mumbai18.8293%

Pune1.337%

Present in 2

cities




Service offerings


Execution


Margins to Expand by 540bps We expect the company’s margins to expand by 540bps over FY11-13E, to 59.9% from the current 54.5%. This will be primarily driven by the launch of new premium projects (in Goregaon, Mulund and Worli) and also by its historical land bank (acquired at a lower cost).


3,0

48

2,7

69

4,7

33 6

,398

8,1

94

11,6

56

46.1

54.458.0

54.5

59.2 59.9

0

10

20

30

40

50

60

70

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000


Net Profit CAGR 25% over FY11-13E

We expect our net profit to grow at CAGR of 24.8% over FY11-13E, to `8.05bn, from current levels of `5.17bn. However, the net profit margin is expected to decline to 40.9% in FY13E from current levels of 42.9%. This is mainly due to full tax payment being applicable from FY12E on all new projects launched by the company. The effective tax rate is likely to increase gradually from the current 16% levels, to 25% in FY12E and 28% in FY13E.

Exhibit 90: Revenues (` Mn); Net Profit Margin (%)

2,9

60

2,5

15

4,4

25 5,1

72 5,8

67

8,0

51

44.5

48.8

54.0

42.9 41.9

40.9

0

10

20

30

40

50

60

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000


Exhibit 91: ROE (%)

17.4

23.9

15.4 15.3

17.5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

FY09 FY10 FY11 FY12E FY13E Source – Company, Jaypee Research

ROE is FY12E is anticipated to be subdued at 15.3%, while it is expected to rise by 200bps in FY13E to 17.5%. This ill primarily be driven by the revenue contribution expected from the new prime location projects (Worli, Mulund and Goregaon).




Service offerings


Execution


Concerns Single Contractor Risk

Oberoi is dependent on a single-contractor, Larsen & Turbo Ltd, for its execution. Any adverse developments at L&T would disturb Oberoi’s timeline and affect its delivery.

Raw Materials Shortage Sand shortage because of restrictions on sand mining in the Mumbai Metropolitan Region could delay construction activities including, those of Oberoi.

Over Dependence on the Mumbai Region 93% of the company’s land-bank is based in Mumbai. So any political instability or natural disaster in the Mumbai region would have adverse repercussions on the company.

Difficulty In Acquiring New Land Bank Oberoi is expected to exhaust its 20msf land bank in the next five to six years and to fuel growth it would need to acquire additional land. Given that there is a restricted supply of land in Mumbai, Oberoi might find it difficult to acquire the vacant land parcels that it was able to in the past and those, too, at an attractive price. This might affect its future development activities.

Changes in the FSI and TDR Regulations Oberoi, like all real-estate firms, is subject to the municipal planning and land use regulations in effect in the cities, like Mumbai and Pune, in which it operates. Any regulations to reduce the applicable FSI or to disallow the use or acquisition of TDRs could affect the company’s operations.

Delay In Regulatory Approvals Any delay in regulatory approvals, especially for the Sangam City, Pune project would adversely impact our target price.




Service offerings


Execution


Recommendation Oberoi is the best representative of Mumbai’s real estate market, with 93% of its

land bank based in Mumbai. We like the company based on the following parameters: a) negative net gearing (-34%) for FY12E; b) steady lease rentals `1.24bn and`1.42bn in FY12E and FY13E; c) inexpensive land bank in a prime suburban Mumbai market; d) robust revenue and cash flow visibility; e) higher operating profit margins and ROE profile; f) clear land titles; and g) huge brand equity in the Mumbai real estate market.

We recommend investors Buy Oberoi Realty Ltd (Oberoi) with a one-year price target of `304, an upside potential of 26%. We have arrived at our target price based on a 20% discount to the NAV of `380/share. At current prices, stock trades at 13.6x and 9.9x its FY12 EPS `17.9 and FY13E EPS of `24.5, respectively. We have not ascribed any value to the Juhu hotel project due to the pending litigation.


276

55

10

-40

380

-76

304

-100

-50

0

50

100

150

200

250

300

350

400

Resi Lease Hotel NetDebt

NAV Disc. Target



100

200

300

400

500

600

700

800

900

1,000

Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11

4x

4.5x

5x

5.5x

6x

6.5x


Exhibit 94: ORL P/BV vs BSE Realty P/BV

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

0

1

2

3

4

5

6

Oct

-10

No

v-1

0

De

c-1

0

Jan

-11

Feb

-11

Mar

-11

Ap

r-1

1

May

-11

Jun

-11






Service offerings


Execution


Company Background With nearly three decades of experience in real estate development, Oberoi Realty

Ltd (Oberoi) has positioned itself as one of the leading Mumbai-based developers in the premium development space. The company has earned a reputation for delivering innovative projects with clear emphasis on contemporary architecture and quality construction. Oberoi has a very diverse portfolio mix, including residential, office space, retail, hospitality and social infrastructure properties. It has a total land bank of 19.9msf in two micro markets, i.e. Mumbai and Pune.

Exhibit 95: Corporate Chronicle

May'98•Incorporates as a private limited company with the name Kingston Properties Pvt Ltd.

Feb'02

•Acquires land parcels worth 83.8 acres @ `1,067.7mn in Goregaon from Multi-National Companies like Ciba, Novaritis etc. Total developable area ~11.2msf

Apr'03•Oberoi Mall Pvt Ltd becomes a wholly owned subsidiary of the company.

Feb'05•Acquires development rights worth 6.97 acres @ `317.2mn acres at Andheri (West). Total developable area 0.6msf

Mar'05•Enters into Master Asset Purchase Agreement for acquisition of Hotel Tulip Star at Juhu. Total plot area 6.1 acres.

Sep'05•Acquires land parcels worth 18.8acres @ `2,210mn in Mulund from GlaxoSmithKline Pharmaceuticals Ltd.

Oct'05

•Acquires land parcels worth 24.7acres @`1,060mn from Madhu Fantasy Land Private Limited and Avinash Bhosale at Andheri (East). Total developable area – 3.1msf.

Jan'07•SSIII, a Morgan Stanley subsidiary invests `6,750 million in the company.

Jan'08

•Enters into Hotel Operating Services Agreement with Starwood Asia Pacific Hotels for operating The Westin Mumbai -Garden City hotel at Goregaon (East), Mumbai.

Sep'09

•Enters into a joint venture agreement for the development of the free -sale component under slum rehabilitation scheme at Annie Besant Road, Worli, and Mumbai. Developable area – 2.1msf.

Oct'09•Company name changed from Kingston Properties Pvt Ltd to Oberoi Realty Pvt Ltd.

Oct'10•Comes up with an IPO raising `10.2bn. Oversubscribed 12x times.

Nov'10

•Mr Vikas Oberoi, the MD of ORL wins the True Entrepreneur of the year’ award at the Economic Times ACETECH Award 2010, the largest exhibition in Asia ever held on Architecture, Design, Construction and Allied Industries.





Service offerings


Execution


FINANICAL STATEMENT


Total Income 7,898 10,588 13,509 18,954 EPS 15.3 15.8 17.9 24.5

Cost of Const. 3,043 3,766 4,708 6,696 Growth (%) -98.4% 2.8% 13.4% 37.2%



Deprecation 91 237 371 473 DPS 0.2 1.0 1.0 1.0

Interest 0 2 0 0 Payout (%) 1.3 6.3 5.6 4.1

PBT 4,651 6,155 7,823 11,182

Tax 226 983 1,956 3,131 Valuation Ratios

PAT 4,425 5,172 5,867 8,051 P/E 15.8 15.4 13.6 9.9

Cash P/E 15.5 14.7 12.7 9.3



Equity Capital 2,887 3,282 3,282 3,282 EV/EBDITA 12.6 9.0 7.2 4.8

Pref. Capital 359 359 0 0 ROE (%) 23.9 15.4 15.3 17.5

Networth 18,481 33,476 38,442 46,110 RoCE (%) 25.1 18.4 20.3 24.3

Loans 0 0 0 0


Assets EBDITA 58.0 54.5 59.2 59.9


Capital WIP 5,103 5,103 5,103 5,103 PBT 56.9 52.2 56.4 57.4

Investments 790 650 650 650 PAT 54.0 42.9 41.9 40.9

Current Assets


b) Sundry Debtors 404 468 729 1,022

c) Cash & Bank 3,448 13,993 12,992 13,898 Asset T/o 0.9 1.0 0.9 1.1

d) Other Current Assets 52 173 270 188 Inventory T/o 0.5 0.5 0.6 0.6

e) Loans & Advances 6,259 7,163 6,740 9,413 Debtors T/o 19.2 21.3 18.3 18.3

Current Liabilities 6,842 6,412 6,921 8,027 Creditors T/o 0.6 1.0 0.8 1.0



D/E % 0.0 0.0 0.0 0.0

Cash Flow FY10 FY11 FY12E FY13E Net D/E % -18.7 -41.8 -33.8 -30.1

CF before WC Changes 4,591 5,927 4,787 11,300

Cash from operations 5,907 3,560 4,000 6,625 Growth Ratio (%)

Net Cash from Oper. 5,071 2,161 2,045 3,494 Sales 73.6 34.1 27.6 40.3

Cash from Invstment (2,848) (1,463) (2,358) (2,260) Expenses 77.6 32.4 26.8 37.3

Cash from Financing (443) 9,846 (687) (328) EBDITA 71.0 35.2 28.1 42.2

Net Change 1,781 10,543 (1,001) 906 Interest Cost -92.8 498.5 -100.0 0.0

Op. Cash 1,669 3,450 13,993 12,992 PBT 72.4 32.7 27.0 42.9

Cl. Cash 3,450 13,993 12,992 13,898 PAT 75.9 16.9 13.4 37.2

Anant Raj Industries Limited 25 July 2011



Service offerings


Execution



Codes

BSE Code 515055 NSE Code ANANT RAJ Bloomberg Code ARCP IN Reuters Code ANRA.BO



30

40

50

60

70

80

90

100

110

120

130


ARIL Sensex

Anant Raj Industries Ltd. (ARIL) is a leading real-estate company which focuses on the Delhi-National Capital Region (NCR) area. It builds and develops residential properties, commercial space, IT parks, SEZs and hotels. We are positive on ARIL on the following parameters: a) high-quality inexpensive land banks in Delhi; b) steady rentals: to cross ~`1bn in FY13E; c) comfortable net D/E levels, at 0.28x; d) lease rentals to fund the working capital requirements and e) huge potential for revenue growth from 0.5msf luxury residential projects at Hauz-Khas and Bhagwandas Road. We estimate the company will post a 21.5% revenue CAGR and 14.9% operating profit CAGR over FY11-13E, mainly because of new launches planned for FY12E and FY13E and increased lease rentals. We recommend Buy on ARIL with a 12-month target price of `106. At the current price, the stock trades at FY12E andFY13E P/E of 19.2x and 14.9x and P/BV of 0.70x and 0.67x, respectively. Lease rentals to cross `1bn mark in FY13E We expect revenues from Hotel Tri-Colour and lease rentals from Kirti Nagar Mall (0.6msf) to commence from Q2FY12E and Q4FY13E. This is expected to give a major boost to the lease rentals, which we estimate will grow at 24.3% CAGR to `1.17bn in FY13E from `760.5mn, currently. New Launches To Boost Revenues ARIL has planned three new launches in FY12E, i.e.: a) Rajasthan (1.8 msf); b) Haryana (1.0 msf) and c) Gurgaon (150 acres). We believe this will probably boost the company’s residential revenues in FY12E and FY13E. We estimate residential revenues will grow at 19.2% CAGR during FY11-13E to `4.45bn. Focus on Execution The company has now changed its focus from land acquisition to execution of projects for FY12-13. It plans to launch three new residential projects in FY12E. Total construction expenditure is estimated to be `4bn and`4.5bn in FY12E and FY13E. Attaining Sustainable Margins Due to Change in Product Mix Operating profit margins are expected to drop from 78% in FY10 to more sustainable levels of sub-50%. This is mainly because of the change in product mix, which is now skewed towards residential development, compared to plot sales in FY10. Inexpensive Valuation: ARIL trades at FY11E and FY12E P/E of 19.2x and 14.9x, respectively and FY12E and FY13E P/BV of 0.70x and 0.67x, respectively. Our target NAV estimate is `33.27bn or `106/share. We recommend a Buy on ARIL.

Share Price Returns (%)

1M 6M 12M Absolute 47 -11 -30 Relative 7 -10 -34


Contact No: -91 22 4354 2023


Year Ended FY10 FY11 FY12E FY13ENet Sales 2,867 3,851 4,814 5,685EBITDA 3,093 2,615 2,806 3,451

EBITDA Margin (%) 78.0 60.0 47.8 52.7Net Profit 2,390 1,674 1,418 1,819

PAT Margin (%) 57.0 35.8 14.5 21.5EPS 8.1 5.7 4.5 5.8PER (x) 10.6 16.2 19.2 14.9PBV (x) 0.7 0.7 0.7 0.7ROE (%) 6.6 4.5 3.6 4.5






Service offerings


Execution


Key Assumptions


Y/E March FY11 FY12E FY13EReal Estate BusinessArea Sold (msf) 1.48 1.49 2.04Sale Price (` psf) 3,760 3,000 3,198Const. Cost (` psf) 1,050 1,050 1,119


Exhibit 114:Leased Asset Assumptions

Leased Assets FY11 FY12E FY13ELeased Assets (msf) 0.9 1.1 1.5Avg. Rentals (` psfpm) 69 63 65Rental Income (` mn) 760.6 847.4 1,175.8


Exhibit 115:Calculation of WACC







NAV Break-Up `/Share ` mn %Residential 129 40,798 75Rentals 24 7,703 14Land Bank 19 6,124 11Gross NAV 173 54,625 100Less: Net Debt 41 13,035Net NAV 132 41,591Discount (%) 20Target Price 106 33,273CMP 86Upside/(Downside) (%) 22

Source – Company, Jaypee Research residential




Service offerings


Execution



residential segment is estimated to grow by

19.2% over FY11-13E to `4.45bn

New Launches to Boost Revenues by 22% During FY11-13E The company’s new launches are expected to boost revenues in FY12E and FY13E. Revenue from the residential segment is estimated to grow by 19.2% over FY11-13E to `4.45bn, because of new launches planned for FY12E: a) Rajasthan (1.8 msf); b) Haryana (1.0 msf) and c) Gurgaon (150 acres). We expect Kirti Nagar Mall (0.6msf) and Hotel Tri-Colour to commence lease income from Q4FY12E and Q2FY12E, respectively. Total lease income is estimated at `1.17bn in FY13E, growing faster than the residential segment, registering 24.3% growth during FY11-13E. Total income is estimated to grow annually by 21.5% from `3.85bn to `5.69bn during FY11-13E, while net profit during the same period is likely to grow by 4.3% to `1.82bn.

Exhibit 118:Total Income to grow by 22% during FY11-13E (` mn)

5,4

01

4,1

60

2,8

67

3,8

51

4,8

14

5,6

85

0

1,000

2,000

3,000

4,000

5,000

6,000



Construction expenditure estimated to be `4bn and`4.5bn in FY12E and FY13E,

respectively.

Focus on Execution The company spent `8.30bn in FY11 on acquiring land bank across the NCR region, and of this, `6bn alone was spent on acquiring 150 acres of land tract in Gurgaon (Extended Golf Course Road). ARIL has now changed its focus from land acquisition to execution of projects during FY12E-13E. It plans to launch three new residential projects in FY12E; total construction expenditure is estimated to be `4bn and`4.5bn in FY12E and FY13E, respectively.




Service offerings


Execution


Rental income to grow from `760.6mn to `1.18bn, at 24.3% CAGR

Steady Rental Income: to Cross `1bn in FY13E The company earned rentals of `760.6mn in FY11 from 0.9msf of retail and commercial space and four hotels. Kirti Nagar Mall (0.75msf) is expected to commence from Q4FY12 and Hotel Tri-Colour (rental of `9mn p.a.) from Q2FY12. During FY11-13E, total leased assets are expected to grow from ~0.9msf to ~1.5msf and rental income from `760.6mn to `1.18bn, at 24.3% CAGR. Rental business not only generates positive net operating cash flow for the company, but also helps to fund its construction. Furthermore, this business comes with an inherent trait of being downward sticky and with the assurance of cash year after year.

Exhibit 119: Lease Rentals to cross `1bn in FY13E. (` mn)

511

761 8

47

1,1

76

0

200

400

600

800

1,000

1,200

1,400



Quality Land Bank

ARIL has ~1,000 acres of prime land in the Delhi-NCR area, with a total developable area of 70msf. Out of the total land bank, 500 acres is in Delhi and the balance 90% is within 30km of New Delhi. Some of the residential projects are located in Kapashera, Hauz-Khas and Bhagwandas Road, Delhi’s luxurious abode. It has retail malls at the shopping hubs of Karol Bagh and Kirti Nagar, which are completely leased out. Four of its five operational hotel properties are located within 3km of the airport.

Exhibit 120: Land Bank Break-up -70msf

IT/SEZ/Logistic Park53%

Residential32%

Comm./Retail2%

Hotel/Entertainment13%





Service offerings


Execution


Change in product mix leading to improved

margins

Change in Product Mix Leading to Higher Operating Profits and Margins We estimate operating profits will grow by 14.9% during FY11-13E to `3.45bn, because of increased lease rentals and the high-value of residential projects. Operating profit margin (OPM) is expected to decline to 47.8% in FY12E, before it rises to 52.7% in FY13E, due to the change in product mix, which is now skewed towards residential development, rather than plot sales, as in FY10.

Exhibit 121: Operating Profit (` mn); OPM Margin (%)

5,4

83

4,4

68

3,0

93

2,6

15

2,8

06 3

,451

85.180.7

78.0

60.0

47.852.7

0

10

20

30

40

50

60

70

80

90

0

1,000

2,000

3,000

4,000

5,000

6,000


Stronger balance sheet Balance Sheet Continues to Be Strong ARIL is expected to increase its debt from `9.28bn to `14bn by FY12, to fund its expansion. We believe ARIL’s balance sheet will continue to be stronger than that of its peers in the NCR region. We estimate net D/E will increase from -9.8% in FY10 to 28.4% in FY13E.


-0.19-0.15

-0.10

0.22

0.35

0.28

-0.30

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40





Service offerings


Execution


Concerns

Focus on Single Location ARIL is present only in the Delhi-NCR region. Thus, any significant changes in government regulations and real estate prices in the region are likely to impact the company’s execution.

Delay in Projects Any legal disputes regarding land titles will cause delays in launching new projects.

Slowdown in the Commercial and Retail Business

Lease rentals contribute almost 20% to ARIL’s total revenues. Hence, any slowdown in the commercial or retail business would have an adverse impact on the company’s total income.

Terror Attacks Would Impact the Hospitality Business

Any terror attacks in India would lead to a decline in tourist arrivals, thereby impacting the hospitality business. ARIL has all its hotels in NCR, and hence, any attack in the NCR region would be a major risk to our hospitality business assumptions.




Service offerings


Execution


Recommendation Anant Raj Industries Ltd. (ARIL) is a leading real-estate company which focuses on

the Delhi-National Capital Region (NCR) area. It builds and develops residential properties, commercial space, IT parks, SEZs and hotels. We are positive on ARIL broadly, on the following parameters: a) high-quality, inexpensive land banks in Delhi; b) steady rentals: to cross ~`1bn in FY13E; c) comfortable net D/E levels, at 0.28x; d) lease rentals to fund the working capital requirements and e) huge potential for revenue growth from 0.5msf of luxury residential projects at Hauz-Khas and Bhagwandas Road. We estimate the company will post a 21.5% revenue CAGR and 14.9% operating profit CAGR over FY11-13E, mainly because of new launches planned for FY12E and FY13E and increased lease rentals.

At CMP of `86, the stock is trading at 19.2x and 14.9x FY12E and FY13E earnings, while on a P/BV basis the stock is available at 0.70x and 0.67x its FY12E and FY13E book value, respectively. We recommend Buy on ARIL with a target price of `106.


129

24

19

-41

132

-26

106

-100

-50

0

50

100

150

200

Resi. Rentals Land Bank

NetDebt

NAV Disc. Target



0

50

100

150

200

250

300

350

400


0.5x

1x

1.5x

2x

2.5x

3x


Exhibit 125: ARIL P/BV vs BSE Realty P/BV

-120%

-100%

-80%

-60%

-40%

-20%

0%

0

1

1

2

2

3

3

4

4

5

5

Jul-

07

Oct

-07

Jan

-08

Ap

r-0

8

Jul-

08

Oct

-08

Jan

-09

Ap

r-0

9

Jul-

09

Oct

-09

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11






Service offerings


Execution


Company Background Anant Raj Industries Ltd. (ARIL) is a leading real-estate company which focuses on

the Delhi-National Capital Region (NCR) area. It used to mainly manufacture ceramic wall and floor tiles. In 2005, the company entered real estate development and now its complete focus is on the real-estate business. In the last five years the company has built and developed residential properties, commercial space, IT parks, SEZs and hotels.

ARIL is one of the key players in the Delhi-NCR region, with one of the largest land banks in the region. As on 31st March 2011, the company had 1,000 acres of prime land in the Delhi-NCR area and total developable land of 70msf. Out of the total land bank, 500 acres is in Delhi and the balance 90% is within 30km of New Delhi.

It leases all its commercial properties and follows a sale model for the residential projects. This unique business strategy of Anant Raj has not only kept the company afloat during the downturn period, but has also led to a strong balance sheet, with `1.48bn cash in its books, as on 31st March 2011.

Exhibit 126: ARIL Land Bank





Service offerings


Execution


Financial Statements Income Statement (` Mn.) FY10 FY11 FY12E FY13E Basic Ratios (`) FY10 FY11 FY12E FY13E

Revenues 2,867 3,851 4,814 5,685 EPS 8.1 5.7 4.5 5.8Other Income 481 283 630 489 Growth (%) -34.7 -29.9 -20.7 28.3Total Income 3,349 4,134 5,443 6,175 Cash EPS 8.5 6.1 5.2 6.5

Cost of Sales 89 1,313 2,359 2,412 Book Value 121.8 118.2 123.6 128.7Employee Cost 77 80 111 111 DPS 0.6 0.6 0.6 0.6Sales & Admin. Exps. 89 126 167 200 Payout (%) 0.1 0.1 0.1 0.1

Total Expenditure 255 1,519 2,637 2,723EBDITA 3,093 2,615 2,806 3,451 Valuation Ratios FY10 FY11 FY12E FY13E

Deprecation 106 125 213 222 P/E 10.6 16.2 19.2 14.9Interest 48 210 702 803 Cash P/E 10.2 15.1 16.6 13.3PBT 2,939 2,280 1,891 2,426 P/ BV 0.7 0.7 0.7 0.7Tax 549 606 473 606 EV/Sales 4.2 5.7 4.6 3.7PAT 2,390 1,674 1,418 1,819 EV/EBDITA 4.5 9.0 9.0 6.6

ROE (%) 6.6 4.5 3.6 4.5Balance Sheet FY10 FY11 FY12E FY13E RoCE (%) 7.8 5.2 4.9 6.0

LiabilitiesShare Capital 590 590 630 630 Margin (%) FY10 FY11 FY12E FY13E

Networth 35,951 37,242 38,943 40,542 EBDITA 78.0 60.0 47.8 52.7Secured Loans 998 9,280 14,000 12,500 EBIT 74.8 56.7 36.1 44.4Unsecured Loans 376 376 376 376 PBT 73.4 51.3 23.2 31.4Total Liabilities 38,181 47,694 53,320 53,418 PAT 57.0 35.8 14.5 21.5

AssetsFixed Assets (Net) 26,970 29,076 27,863 27,391 Turnover Ratios FY10 FY11 FY12E FY13E

Investments 2,949 2,579 2,579 2,579Dfrd. Tax Asset (Net) -9 -12 -9 -9 Asset T/o 0.1 0.1 0.2 0.2Current Assets 10,130 17,608 24,459 25,072 Inventory T/o 2.2 0.2 0.3 0.3 a) Inventories 118 7,117 9,533 8,395 Debtors T/o 1.2 1.6 1.2 1.2

b) Sundry Debtors 2,399 2,412 3,741 4,622 c) Cash & Bank 4,891 1,482 588 1,358 Debtors (Days) 305 226 300 300 d) Loans & Advances 2,721 6,597 10,597 10,697 Inventory (Days) 169 1,754 1,200 1,100Current Liabilities 1,885 1,576 1,591 1,635 Creditors (Days) 444 183 113 106Net Current Assets 8,245 16,031 22,867 23,437Total Assets 38,181 47,694 53,320 53,418 Leverage Ratios FY10 FY11 FY12E FY13E

D/E (x) 0.0 0.3 0.4 0.3Cash Flow FY10 FY11 FY12E FY13E Int. Cov. Ratio (x) 61.8 11.9 3.7 4.0

CF before WC Changes 2,666 9,765 1,882 2,962 Net D/E (x) -0.1 0.2 0.4 0.3Cash from operations 4,675 -1,431 -5,848 3,162 Growth Ratio (%) FY10 FY11 FY12E FY13E

Net Cash from Oper. 4,073 -2,258 -6,542 2,335 Sales -29.9 23.4 31.7 13.4Cash from Invstment -5,082 -10,528 1,630 739 Expenses -17.0 494.6 73.6 3.3Cash from Financing 550 9,377 4,018 -2,303 EBDITA -30.8 -15.5 7.3 23.0Net Change -1,366 -3,409 -894 771 Interest Cost 960.4 334.0 234.6 14.4Op. Cash 6,257 4,891 1,482 588 PAT -34.7 -29.9 -15.3 28.3Cl. Cash 4,891 1,482 588 1,358 Cash EPS -33.3 -27.9 -15.1 25.1

Godrej Properties Limited 25 July 2011



Service offerings


Execution



Codes

BSE Code 533150 NSE Code GODREJ PROP Bloomberg Code GPL IN Reuters Code GODR.BO



80

90

100

110

120

130


GPL Sensex

Godrej Properties Ltd (GPL) is a pan-India real estate player focused on the affordable housing segment with 83.64msf saleable area, across 11 cities in India. We are positive on the company’s future outlook broadly on the following parameters: a) a successful pan-India expansion through its JDA and outsourcing business model; b) execution of ~88% of its saleable area is undertaken through JDA model, ensuring low initial capital outflow, higher margins and higher ROE; c) access to unqualified 685 acres of quality land banks through its parent, Godrej Group; d) an MOU with the Godrej Group to develop 185 acres in the growing markets of Mohali, Bengaluru and Hyderabad; e) monetization of the Vikhroli 500-acre land bank; f) leveraging brand ‘Godrej’ helps to attract customers and land-owners alike. Based on these attributes, we believe GPL should trade at a premium to its peers. We have Neutral rating on GPL with a price target of `730. At the current price, the stock trades at FY12E and FY13E P/E of 45.4x & 34.8x and P/BV of 5.7x & 5.1x respectively.

High-Value Mumbai-NCR Projects to Drive Revenues GPL has a huge pipeline of projects to be launched in the next two years and is likely to sell 3.51msf in FY13E from the current level of 3.20msf. Overall, we anticipate GPL’s net income to grow by 31% CAGR over FY11-13E, to `7.75bn in FY13E from the current `4.52bn. This growth is primarily due to new launches in the high-value market of Mumbai and Gurgaon and also due to increased execution at the existing projects. Access To Quality Land-Bank Through Godrej Group GPL has unqualified access to strategic land holdings across India through its parent, the Godrej Group (GG). The Godrej Group has entered into an MOU with GPL to develop 185 acres across Chandigarh, Bengaluru and Hyderabad. We believe access to such quality land bank renders a high value to the company and we have estimate a value for the MOU. Based on 60% probability, we have arrived at a value of `167/share. Monetization of Vikhroli Land Parcel GPL will be developing 500 acres of land at Vikhroli, Mumbai over next 7-10 years. We have assigned a value to this land bank, and at 50% execution probability and 13% discount we arrive at a value of `500/share. However, for our target price we have considered only the 35 acres of land which the company is currently developing.

Share Price Returns (%) 1M 6M 12M Absolute 21 38 26 Relative 14 40 22


Contact No: -91 22 4354 2023


Year Ended FY10 FY11 FY12E FY13ENet Sales 3,134 4,515 6,242 7,749EBITDA 2,008 3,240 4,528 5,584EBITDA Margin (%) 28.3 23.3 23.7 24.9Net Profit 26 40 47 53PAT Margin (%) 39.6 31.6 22.4 23.3EPS 17.6 18.7 17.9 23.4PER (x) 46.3 43.5 45.4 34.8PBV (x) 7.0 6.2 5.7 5.1ROE (%) 19.9 22.5 20.0 23.1

Company Update CMP: `814 TARGET: `730 NEUTRAL





Service offerings


Execution


Key Assumptions


Real Estate Business FY10 FY11 FY12E FY13EArea Sold (msf) 1.38 3.20 3.09 3.51Sale Price (` psf) 3,080 3,350 3,404 4,034






1% Increase in the Avg. sale Price 1.3% Change in NAV 1.31% Increase in the Avg. Const. Cost -0.8% Change in NAV -0.81% Increase in Discount Rate -5.2% Change in NAV -5.20



NAV Break-Up `/Share ` mn %Resi 394 27,534 43Comm-Sale 119 8337 13Comm-Lease 16 1,125 2Value of Land Bank 218 15,240 24Option Value of MOU 167 11,665 18Gross NAV 915 63900 100Less: Net Debt 103 7,181Net NAV 812 56,719Discount (%) 10Target Price 730CMP 815Upside/(Downside) (%) -10





Service offerings


Execution



New launches in the Mumbai and Gurgaon regions, to drive 31% revenue CAGR over

FY11-13E

High-Value Mumbai-NCR Projects to Drive Revenues GPL has a huge pipeline of projects to be launched in next two years. We estimate the area sold will increase to 3.51msf in FY13E from the current level of 3.20msf, a 4.8% CAGR while average realization is expected to increase by 9.7% annually, from `3,350 per sq. ft to `4,034 per sq. ft. Overall, we anticipate GPL’s net income to grow by 31% CAGR over FY11-13E to `7.75bn in FY13E from the current `4.52bn. This growth is primarily due to increased execution at the company’s existing projects and new launches in the Mumbai and Gurgaon regions, high value markets.

Exhibit 171: Revenues (` Mn)

2,5

06

2,5

55

3,1

34

4,5

15

6,2

42

7,7

49

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000



185 acres MOU with Godrej & Boyce valued at `167/share

Access To Quality Land Bank Through Godrej Group GPL has unqualified access to strategic land holdings across India through its parent, the Godrej Group (GG). In order to monetize these land parcels, GG has entered into an MOU with GPL to develop 185 acres across Chandigarh, Bengaluru and Hyderabad. GG will transfer land through a SPV, for GPL to exploit. GPL will hold 59%, 75% and 59% stake, respectively, in these projects. We believe access to such quality land bank renders a high value to the company. We have tried to put a value on this MOU. Based on 60% probability, we have arrived at a value of `167/share.




Service offerings


Execution


Vikhroli land parcel a valued at `500/share

Monetization of Vikhroli Land Parcel Godrej Group has 3,200 acres of land in Vikhroli, Mumbai, of which it can only develop 500 acres, as the balance land (2,700 acres) comes under a mangrove area and hence, cannot be exploited commercially. Currently, these 500 acres house various plants, residential colonies and corporate offices. To commercially develop this land tract the group has decided to relocate most of the operations to other low-cost areas in the next 7-10 years.

GPL has started the monetization process at Vikhroli. In its first phase, the company has undertaken the development of 36.5 acres translating into a saleable area of ~2.8msf. The Company is constructing its first commercial building of 0.75msf, which commenced in January 2011. The corporate office, there, will be leased out after its completion in January 2013. Management has indicated construction of the residential complex will commence only after the successful completion of the existing commercial project (i.e. post-Jan’13). As per the Joint Development Agreement (JDA), GPL is entitled to 60% of the profit from the development and the balance 40% will accrue to Godrej Group (GG). We expect GPL to sign more MOUs with GG in the next 12-15 months, for the 500 acres at Vikhroli. Any announcement to monetize this land will have positive impact on the stock price.

Sensing the current market scenario for the real estate sector, we have not factored in any value for these yet-to-be-signed MOUs. We estimated a value for this land bank, at 50% execution probability and 13% discount and we arrive at a value of `500/share.

Exhibit 172: Sensitivity Analysis on WACC and Execution Probability (`/ Share)

9.9% 10.9% 11.9% 12.9% 13.9% 14.9% 15.9%

20% 262 239 218 200 183 168 154

30% 392 359 328 300 275 252 231

40% 523 478 437 400 366 335 308

50% 654 598 546 500 458 419 384

60% 785 717 655 600 549 503 461

70% 916 837 765 700 641 587 538

80% 1047 956 874 800 732 671 615

WACC (%)

Execution

Probablity

(%)





Service offerings


Execution


GPL’s 88% of land-bank comprises of JDA projects

Capital Efficient: Joint Development Projects The company has a distinct business model, as almost 88% of its land bank (83.64msf) comprises joint-development (JDA) projects. Unlike the traditional land bank acquisition concept, GPL partners with the land-owners, who agree to provide land for development in lieu of a specific revenue share or profit share. The Godrej brand gives some headway to the company to successfully link up with the land-owners and thereby creates ready access to quality land banks.

The company has a successful track record of joint development projects. The JDA model is very capital efficient primarily on account of: a) low initial cash outflow (in contrast to the traditional land acquisition concept with high capital outflows) and b) reduces the balance sheet burden by avoiding land bank acquisitions normally associated with high carrying cost. Thus, the JDA model ensures safe margins, limits the downside risk, and helps scalability of the business along with higher profitability and higher return on investments.

Exhibit 173: Joint Development Projects - 73.6msf

Projects under JDA ;

88%

Own Develop

ment;

12%


Net D/E Declining Over FY11-13E GPL has adopted a distinguished business model of developing projects by partnering with local developers or land owners. This strategy gives the company an edge over its peers as it churns its investment efficiently, thus giving handsome returns to the investors. We anticipate the company will generate net cash from operations of `2.09bn over FY11-13E. Thus, the net D/E ratio is estimated to decline from current 0.87x levels to 0.56x by FY13E.

Exhibit 174: Net D/E (x)

1.0

2.1

0.8 0.

9

0.7

0.6

0.00

0.50

1.00

1.50

2.00

2.50


`





Service offerings


Execution


Margins to be Stabilized We expect operating margins for Godrej to be stabilized at 24-25% levels. OPM is anticipated to increase to 24.9% in FY13E from current levels of 23.3%. Operating profit, though, is estimated to grow by a mere 12.5%, compared to 31% growth in the top line. This subdued growth is mainly due to the increase in construction cost, as the number of ongoing projects increases.


1,4

32

1,6

28

2,3

12

2,1

25

2,0

93

2,6

90

57.1

47.2

28.3

23.3 23.7

24.9

0

10

20

30

40

50

60

0

500

1,000

1,500

2,000

2,500

3,000



Net Profit to Grow by 12% Over FY11-13E

We anticipate GPL’s profit will grow by 11.8% CAGR during FY11-13E, to `1.64bn in FY13E, from the current level of `1.31bn. This profit level has been largely due to the increase in interest cost (29.2% CAGR) and in deprecation cost (15.1% CAGR). This would also lead to a decrease in net profit margin by 830bps over FY11-13E to 23.3% in FY13E.

Exhibit 176: Net Profit (` Mn); Net Profit Margin (%)

624 7

47

1,2

28

1,3

09

1,2

53

1,6

36

30.3 30.0

39.6

31.6

22.4 23.3

0

5

10

15

20

25

30

35

40

45

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800



19.9

22.5

20.0

23.1

18.0

19.0

20.0

21.0

22.0

23.0

24.0





Service offerings


Execution


Concerns Over Dependence on the Ahmadabad Region

48% of GPL’s ongoing and future saleable area is based in Ahmadabad. Any changes in Ahmadabad real estate, particularly any changes in government policies, or any political instability, reduction in demand or any natural disaster in the Ahmadabad region, would have adverse repercussions for the company.

Dependent on Single Contractor

The company has hired L&T to construct all its existing and future projects. This opens GPL up to single-contractor risk. Any changes in the company (L&T) management or working practices, or any other major changes will dismantle GPL’s business model, impacting our valuations adversely.

Difficulty In Concluding New JDAs The company has been banking heavily on JDAs for its existing projects. Any conflict with a JD partner would impact the smooth execution of the project. Therefore, any difficulty in executing the existing JDAs would lead to delays in completing the projects, thereby adversely impacting our target price. Further, if the company is ever unable to conclude new JDAs with land-owners or local partners, this might affect its future development activities.




Service offerings


Execution


Recommendation Godrej Properties Ltd (GPL) is a pan-India real estate player focused on the

affordable housing segment with 83.64msf saleable area, across 11 cities in India. We are positive on the company’s future outlook, based on the following parameters: a) a successful pan-India expansion through its JDA and outsourcing business model; b) execution of ~88% of its saleable area is undertaken through JDA model, ensuring low initial capital outflow, higher margins and higher ROE; c) access to an unqualified 685 acres of quality land bank through its parent, the Godrej Group; d) an MOU with the Godrej Group to develop 185 acres in the growing markets of Mohali, Bengaluru and Hyderabad; e) monetization of the Vikhroli 500-acre land bank; and f) leveraging brand ‘Godrej’ helps to attract customers and land-owners alike. Based on these attributes, we believe GPL should trade at a premium to its peers.

Over the last two weeks, the stock has gained almost 20%, based on the news of developing Jet Airways’ BKC project. We have a Neutral rating on the stock with a price target of `730.

Exhibit 178: NAV Break-up (`per share)

394

119

16

385

-103

812730

-160

-80

0

80

160

240

320

400

480

560

640

720

800

Resi Com Sale Lease Land Bank

NetDebt

NAV Disc. Target



100

200

300

400

500

600

700

800

900

1,000

Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11

4x

4.5x5x

5.5x

6x

6.5x


Exhibit 180: GPL P/BV vs BSE Realty P/BV

0%

50%

100%

150%

200%

250%

300%

350%

0

1

2

3

4

5

6

7

8

Jan

-10

Feb

-10

Mar

-10

Ap

r-1

0

May

-10

Jun

-10

Jul-

10

Au

g-1

0

Sep

-10

Oct

-10

No

v-1

0

De

c-1

0

Jan

-11

Feb

-11

Mar

-11

Ap

r-1

1

May

-11

Jun

-11

Jul-

11






Service offerings


Execution


Company Background Godrej Properties Ltd (GPL) is an integrated real-estate development company

involved in all the activities (except construction) associated with the development of commercial and residential real estate. It is one of the progeny of India’s mammoth conglomerate, the Godrej Group. Today, Godrej Industries Ltd (GIL), the listed flagship company of the Godrej Group, holds 80.26% in GPL.

In 1991, at the start of economic liberalization, GPL entered the real-estate business with a clear focus on the affordable housing segment. Initially, its operations were concentrated only in the Mumbai Metropolitan Region (MMR). Then it expanded to various other locations across India. Today it is present in almost 11 cities including Pune, Bengaluru, Gurgaon, Kolkata, Hyderabad, Ahmedabad, Mangalore, Chandigarh, Chennai and Kochi.

Currently, GPL has a total developable area of 83.64msf, which is highly skewed towards the single micro market of Ahmedabad: 40msf of developable area. Other high-weight areas include Pune (12.3msf); Hyderabad (9.6msf) and Kolkatta (6.83msf). GPL has distinguished itself by following a joint development (JD) model which has lower initial cash-outflows. It has released the management bandwidth by outsourcing the execution (construction activity) to L&T for all its projects across India.

Exhibit 181: GPL’s Pan-India Presence





Service offerings


Execution


FINANICAL STAEMENT Income Statement (` Mn.) FY10 FY11A FY12E FY13E Basic Ratios (`) FY10 FY11A FY12E FY13ERevenues 3,134 4,515 6,242 7,749 EPS 17.6 18.7 17.9 23.4Other Income 1,426 1,074 612 760 Growth (%) 42.3 6.5 -4.2 30.5

Total Income 4,561 5,589 6,854 8,509 Cash EPS 18.0 19.3 18.6 24.2Const. Cost 2,008 3,240 4,528 5,584 Book Value 117.0 130.5 142.6 160.1Employee Cost 107 73 80 84 DPS 4.0 4.5 5.0 5.0Selling & Admin. Exps. 134 151 153 152 Payout (%) 40.0 45.0 50.0 50.0Total Expenditure 2,249 3,464 4,761 5,820EBDITA 2,312 2,125 2,093 2,690 Valuation RatiosDeprecation 26 40 47 53 P/E (x) 46.3 43.5 45.4 34.8Interest 662 34 52 57 P/CEPS (x) 45.4 42.2 43.8 33.7PBT 1,624 2,051 1,993 2,580 P/ BV (x) 7.0 6.2 5.7 5.1Tax 382 622 598 774 EV/Sales (x) 17.9 12.8 9.1 7.3

PAT 1,228 1,309 1,253 1,636 EV/EBDITA (x) 24.2 27.2 27.3 20.9ROE (%) 19.9 22.5 20.0 23.1

Balance Sheet RoCE (%) 14.9 11.1 10.9 13.6LiabilitiesShare Capital 699 699 699 699 Margin (%)Networth 8,173 9,116 9,958 11,186 EBDITA 28.3 23.3 23.7 24.9Secured Loans 3,831 5,478 4,978 4,478 EBIT 27.4 22.4 23.0 24.2Unsecured Loans 3,264 3,971 3,771 3,571 PBT 51.8 45.4 31.9 33.3Total Liabilities 15,298 18,715 18,849 19,404 PAT 39.6 31.6 22.4 23.3AssetsFixed Assets (Net) 276 475 627 775 Turnover RatiosCapital WIP 2 2 2 2Investments 2,078 141 141 141 Asset T/o 0.2 0.2 0.3 0.4Def. Tax Assets (Net) 3 8 8 8 Inventory T/o 0.3 0.3 0.4 0.5Current Assets Debtors T/o 1.2 1.5 2.0 2.0 a) Inventories 7,251 10,154 11,157 11,632 b) Sundry Debtors 1,798 2,900 3,018 3,747 Debtors (Days) 310 240 180 180 c) Cash & Bank 955 1,490 1,568 1,736 Inventory (Days) 1,177 1,070 855 730 d) Loans & Advances 4,924 6,964 6,854 6,807 Creditors (Days) 84 80 73 59Current Liabilities 1,989 3,420 4,526 5,444Net Current Assets 12,939 18,088 18,070 18,478 Leverage RatiosTotal Assets 15,298 18,715 18,849 19,404 D/E (%) 86.8 103.6 87.9 72.0

Int. Cov. Ratio (x) 3.5 61.3 39.1 46.5Cash Flow Net D/E (%) 75.1 87.3 72.1 56.4CF before WC Changes 182 5,603 1,468 2,143 Growth Ratio (%)Cash from operations -3,058 859 1,581 1,885 Sales 22.7 44.0 38.2 24.2Net Cash from Oper. -3,424 236 984 1,110 Expenses 66.8 54.1 37.4 22.2Cash from Invstment 129 -1,694 214 223 EBDITA 42.0 -8.1 -1.5 28.5Cash from Financing 3,981 1,993 -1,120 -1,165 Interest Cost 25.7 -94.9 53.8 8.5Net Change 686 535 77 168 PBT 49.1 26.3 -2.8 29.5Op. Cash 269 955 1,490 1,568 PAT 64.5 6.5 -4.2 30.5Cl. Cash 955 1,490 1,568 1,736 Cash EPS 43.1 7.5 -3.5 29.8




Service Offerings:

Research & Advisory

Execution


From Jaypee Institutional Equities Desk

Equity Research Products

1. Initiating Coverage In depth analysis coupled with detailed explanation of investment rationale

2. IPO Note In depth analysis of an IPO with a recommendation for the same

3. Result Preview Prediction of results to be announced with a view on margins for the stock

4. Result Review Analysis of the results and view on the stock after the results

5. Event Update Analysis of stock/sector specific event which has occurred and its impact

6. Economic Update Analysis of IIP, GDP, Inflation and six core industries

7. Commodity Outlook Future outlook on bullion, base metals and energy products

Derivatives Research Products

1. Pair Trades Identification of stock pairs based on co integration and correlation

2. NIFTY Strategies Strategies based on market view e.g., straddle, skew, condor etc

3. Arbitrage Trades Cash Future and Special Situation Arbitrage

4. Numero-Mania Monthly repository of trading strategies from the Derivatives Desk

Daily Reports

1. Morning Glance Daily update of global news before the Indian markets open

2. Post Market Update Daily market action and key statistics in a nutshell

3. Currency Update Analysis of the domestic currency market with an outlook for the day

4. Commodity Update Snapshot of the commodity market with an outlook for the day

5. Derivatives Daily Daily update of the activities in the Derivatives segment

6. Derivatives Weekly Weekly update of the activities in the Derivatives segment

7. Rollover Analysis Daily analysis of the rolls during the expiry week every month




Service Offerings:

Research & Advisory

Execution


Jaypee’s Institutional Equities Desk

RESEARCH

Head of Equity Research Cement Capital Goods, Power & Shipping

Abbas Merchant +91 22 4354 2010 Jinal Joshi +91 22 4354 2012 Jyotsna Sawdekar +91 22 4354 2017

Ruchika Dalmia +91 22 4354 2017

Banking Oil & Gas

Vinay Chhoda +91 22 4354 2014 Chirag Dhaifule +91 22 4354 2015 Real Estate

Mithilesh Shetty +91 22 4354 2014 Kavita Jaiswal +91 22 4354 2001 Hitendra Gupta +91 22 4354 2023

Information Technology Metals & Mining Pharmaceuticals

Vijay Gautam +91 22 4354 2019 Sumit Poddar +91 22 4354 2016 Divya Agarwal +91 22 4354 2011

Krupa Shah +91 22 4354 2019

Telecom & Media Quantitative

FMCG Archit Singhal +91 22 4354 2009 Vinit Jain +91 22 4062 1016

Pulkeshin Shah +91 22 4354 2013

SALES

Sales (Asia) Sales Trading (Derivatives) Sales Trading (Equity)

Vishad Turakhia +91 22 4062 1012 Dhruval Gala +91 22 4062 1032 Jaiprakash Kataria +91 22 4062 1003

Hitash Dang +91 22 4354 1017 Deep Shroff +91 22 4062 1008 Gaurav Shah +91 22 4062 1007

Rajat Vohra +91 22 4062 1011 Jakil Dedhia +91 22 4062 1052 Mahesh Bohra +91 22 4062 1005

Krishnakant Purohit +91 22 4062 1018 Deepak Purohit +91 22 4062 1099 Yogesh Dhumal +91 22 4062 1002

Nupur Barve +91 22 4062 1052 Vishal Vadel +91 22 4062 1099 Jitendra Tolani +91 22 4062 1001

Kaustubh Chheda +91 22 4062 1052

Sales (United States)

Amit Bansal +1 405 269 1322




Service Offerings:

Research & Advisory

Execution


Disclaimer:

This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an

official confirmation of any transaction. This document is subject to changes without prior notice and is intended only for

the person or entity to which it is addressed and may contain confidential and/or privileged material and is not for any

type of circulation. Any review, retransmission, or any other use is prohibited.

The information contained herein is from publicly available data or other sources believed to be reliable. While we would

endeavor to update the information herein on reasonable basis, Jaypee Capital Services Limited, its subsidiaries and

associated companies, their directors and employees are under no obligation to update or keep the information current.

Also, there may be regulatory, compliance, or other reasons that may prevent Jaypee Capital Services Limited and

affiliates from doing so. We do not represent that information contained herein is accurate or complete and it should not

be relied upon as such. This document is prepared for assistance only and is not intended to be and must not alone be

taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each

recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation

of an investment in the securities of companies referred to in this document (including the merits and risks involved).

The investment discussed or views expressed may not be suitable for all investors. It does not have regard to the specific

investment objectives, financial situation and the particular needs of any specific Person/ Institutions etc. who may

receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or

investment strategies discussed or recommended in this report and should understand that statements regarding future

prospects may not be realized and there is substantial risk of loss. Jaypee Capital Services Limited does not take

responsibility thereof. This is further clarified that no kind of negligence, misconduct or default whatsoever on the part of

Jaypee Capital Services Limited can be attributed by any person on the basis of this research publication or any part

thereof.

Reports based on technical analysis centers on studying charts of a stock's price movement and trading volume, as

opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals. Affiliates of Jaypee Capital Services Limited may have issued other reports that are inconsistent with and

reach different conclusions from, the information presented in this report.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or

located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would

be contrary to law, regulation or which would subject Jaypee Capital Services Limited and affiliates to any registration or

licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all




Service Offerings:

Research & Advisory

Execution


jurisdictions or to a certain category of investors. Persons in whose possession this document may come are required to

inform themselves of, and to observe, such applicable restrictions. Though disseminated to all the customers

simultaneously, not all customers may receive this report at the same time. Jaypee Capital Services Limited will not treat

recipients as customers by virtue of their receiving this report.

We and our affiliates, officers, directors, and employees will from time to time have long or short positions in, act as

principal in, and buy or sell, the securities or derivatives, if any, referred to in this research.

Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies

to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this

research. Our asset management area, our proprietary trading desks and investing businesses may make investment

decisions that are inconsistent with the recommendations or views expressed in this research.

Our research personnel may participate in company events such as site visits and are generally prohibited from accepting

payment by the company of associated expenses unless pre-approved by authorized members of Research Management.

Trading in securities, futures, options or other financial instruments entails significant risk and is not appropriate for all

investors. Electronic trading also entails significant risk. Losses may exceed the principal invested, and the past

performance of a security, industry, sector, market, or financial product does not guarantee future results or returns.

“Jaypee” refers to all of Jaypee’s worldwide branches and subsidiaries. Jaypee International Inc. is a member of BATS,

CBOT, CME, COMEX, ECX, EUREX, ICE, LME, NASDAQ, NYSE LIFFE, SGX, TOCOM. Jaypee International Inc. is also a

member of FINRA, NFA and SIPC and is regulated by SEC and CFTC in USA. Jaypee Capital Services Limited is a member of

USE, NSE and BSE and is regulated by SEBI in India. Indian services are offered through Jaypee Capital Services Limited.

Not all services are available from all Jaypee organizations or personnel. Kindly consult your local office for details.

Recommendation Structure:

A Buy recommendation implies an upside of 10% or more from the current levels.

A Sell recommendation implies a downside of 10% or more from the current levels.

A Neutral recommendation implies an upside/downside of less than 10% from the current levels.




Service Offerings:

Research & Advisory

Execution


Jaypee Offices Worldwide:

New York

150 Broadway

Suite 2200

New York, NY 10038

+1 212 537 6271

[email protected]

Chicago

30 South Wacker Drive

Suite 1700

Chicago, IL 60606

+1 312 254 5044

[email protected]

New Delhi

1114, Naurang House

21, K.G. Marg

New Delhi - 110 001, India

+91 11 6630 3030

[email protected]

Mumbai

505, Arcadia

195, Nariman Point,

Mumbai - 400 021, India

+91 22 4062 1020

[email protected]

Singapore

2 Shenton Way

#10-02 SGX Centre 1

Singapore 068804

+65 6438 0095

[email protected]

Real Estate Sector Report - Jaypee Capital

Documents

Transcript of Real Estate Sector Report - Jaypee Capital