Realestate Sector Update 261213

Your success is our success
Concerns > Opportunities, Remain Underweight

n
December 26, 2013
Growth opportunities for the sector are missing as over-supply in commercial space and peak supply/inventory in housing space dilute the segmental and location diversification Low affordability and bleak sentiment impact housing demand across cities. A high NRI share makes the demand trajectory less sustainable and more vulnerable Supply > Demand is causing fragmentation of housing markets across cities. Cities with high construction-cost-to-sales-value ratio (except Mumbai) would be affected due to the same We remain Underweight on the sector with preference for Oberoi Realty & Prestige Estates as they have growth avenues with lower pressure on cash flows and balance sheet
Growth avenues missing; segmental and locational diversification options

Growth avenues for the real estate sector in the short-to-medium tern are missing. As commercial vacancy levels are currently at the peak in most cities, the segment may continue to remain under pressure, compelling developers to focus more on the housing segment. Moreover, most cities are currently witnessing peak demand or supply and/or are at the peak of realizations in the housing space, which dilute growth avenues. Real estate developers seem to be missing the option for segmental and location diversification growth. Arguably, even if options are found, they would entail a higher risk-to-reward ratio.
Housing demand continues to remain low and vulnerable across cities

Demand for housing is mainly driven by strong need, high affordability and positive sentiment. While the need would be perennial in India, it is affordability that mainly drives the major share of the countrys housing demand. At current prices, affordability is at the nadir in India, which is compounded by the appalling sentiment due to the discouraging macroeconomic situation, high inflation and low growth perception. For instance, demand for housing in Gurgaon, which had mainly been driven by investors, has dried up, leading to a fall in prices by 20-25%. Similarly, housing demand in Mumbai, as well as housing markets in Bangalore and Pune, which had been most elastic to price movements until recently, are also witnessing a demand slowdown, with a 20-25% rise in prices yoy, which has adversely affected affordability. Although the share of NRIs is at high levels currently due to INR depreciation, the demand trajectory is presumably more vulnerable because of its low sustainability.
Supply-side fragmentation of housing add to the woes

Over the last 4 quarters, supply growth across the cities in India has evidently been much higher than the average absorption rate. This has led to a higher inventory and fragmentation of the markets. Over-supply or fragmentation leads to slower cash-flow break-even for projects. Arguably, the cities that enjoy high ease in terms of real estate development business, high construction-cost-to-sales-value ratio, lower product differentiation and lesser pricing power would be affected the most. Since Bangalore City comes under these four parameters, it would the riskiest location for developers. In H1FY14, the city has seen supply of around 1.5x of its annual demand run-rate, leading to a steep rise in inventory levels.
Remain Underweight on the sector; Prefer Oberoi Realty & Prestige Estates
We remain Underweight on the sector, as the concerns outnumber the opportunities. The sector may see some upswing post-general elections as witnessed in the mid-2009. But, we believe, the same would be short-lived, as this time the factors affecting the sector are much more structural, rather than sentimental. At this juncture, we would prefer companies that provide avenues for growth, with lower pressure on cash-flows and balance-sheets. Our preferred picks, among the companies under coverage, are Oberoi Realty and Prestige Estates.
Emkay Global Financial Services Ltd.
Sector Update
Emkay
Real Estate
Real Estate
Sector Update
Indias housing market is heterogeneous

Indias real estate growth is driven mainly by three key cities: Gurgaon, Greater Mumbai and Bangalore. Evidently, these locations are the key markets for listed real estate companies, and more so for the companies under our coverage. The real estate sector in the three cities operates in a distinct way, thanks to factors such as demographics, local industry performance, legacy and ease of doing business, among others. Pune and Chennai, the other key cities, have a high resemblance to Bangalore in terms of demand (which is driven mainly by the IT sector) and a high similarity with Mumbai with regard to supply (lower ease of doing business).
Exhibit 1: City housing relative index Bangalore Q2FY14 Inventory in Quarters Viable Land Availability Ease of Approvals Product Differentiation Fragmentation Risks Hence, Supply Vulnerability End-user Affordability Quotient Local Industry Performance Replacement Demand Investor-driven Demand Hence, Demand Vulnerability Price Change in Last 5 Years Construction Cost-to-Value Active Parallel Economy Hence, Pricing Vulnerability
Source: Emkay Research
Gurgaon 9.6 Medium Medium Medium Medium Medium Medium Medium Low High High Medium High High High
Greater Mumbai 16.4 Low Low High Low Low Low Bad High Medium Medium High Low High Medium
16.9 High High Low High High Medium Good Medium Low Low Low High Low Low
Housing space demand factors

Demand for the housing space is largely influenced by need, affordability and sentiment. A combination of any of these two factors with lower importance for the third factor would lead to demand categorization. For instance, if there are factors like need and affordability, then sentiment wont play a demand factor, we would categorize the same as Ownership st for 1 house. Similarly, when affordability is high and sentiment is positive, demand from investors would be high, as the need for them would not be an important factor. The third category, replacement demand, is an important hidden category, wherein demand is driven by both need and sentiment. There is a need to upgrade the current living environment, which is driven by a positive sentiment, but since it is replacement, the cost is marginal and hence affordability is not an issue.
Exhibit 2: Housing space demand drivers
NEED
1st House Demand (Ownership)
Replacement Demand (Upgradation)
DEMAND
AFFORDABILITY
Investor Demand (Capitalization)
SENTIMENT
Emkay Research
Error! Reference source not found.
Real Estate
Sector Update
As of now, Bangalore comes under the first category, where most demand is for the first house ownership from the migrant population in the IT sector. Gurgaon is in the second category, as the demand here is highly driven by investors, be it flippers who speculate in real estate or owners who want to have a second home in NCR as a status symbol. Although Greater Mumbai has a mixture of all, it is currently driven by high replacement demand, as many sell their currently owned small houses and opt for the purchase bigger houses. Hence, the inventory for the ready-to-move-in houses is far less despite a high overall inventory. Of the three categories, the demand from investors is most vulnerable, while the replacement demand is most resilient. Hence, we would remain relatively positive about the Mumbai housing market. Numerous developers across the cities are betting on an improvement in sentiment and demand for a revival with general elections around the corner. We believe the demand revival, if any, would be short-lived because of low affordability, which may take longer to show improvement.
Housing space supply factors

The housing space supply is also driven by three factors - demand, price and ease of business. High demand and high ease of business in terms of land availability and approvals would mean new entrants flocking to the market, which, in turn, would lead to higher supply and vice versa. Price is not a determinant in this category of supply Bangalore is a classic example of the same, wherein high demand and high ease of business is leading to supply from many grade A developers Moreover, whenever there is an expectation of low demand and a low price, the major part of the supply is driven by investors, as the investment cycle reverses. Currently, Gurgaon is facing low expectations on demand and price, which have led to huge supply from investorowned assets. The third category for housing space supply is where the price is high, while the ease of business is low. This would lead to low launches and hence supply. Currently, Mumbai is under this environment wherein supply is only driven by launches with investors holding on to their inventory and low ease of business is restricting new entrants.
Exhibit 3: Housing space supply factors
DEMAND
Investors Supply
New Entrants
SUPPLY
PRICE
Launches
EASE OF BUSINESS
Again, of all the three categories we would prefer companies who have strong presence in Mumbai housing market as relatively it restricts competition from the new launches and new entrants.
Emkay Research
December 26, 2013
Real Estate
Sector Update
Concerns getting Prominent

Apart from the demand-supply-price uncertainties, there are other concerns over the real estate sector, which would stall the sectors performance in the medium term
Growth avenues missing

Growth avenues for real estate developers are missing in the short to medium term. Apart from the segmental diversification, even the location diversification is becoming saturated. Most developers have diversified or are in the process of diversifying either into different segments of the real estate or into newer geographies. As the development of commercial space remains in a huge over-supply zone across the cities, many developers have shifted their project plans to housing. As a result, the crowded housing space has created an over-supply scenario across the cities. The commercial space over-supply continues to remain high and hence has closed the avenue for growth for most developers. The next possible avenue for growth for the sector was to diversify into more locations. As this strategy was implemented, the cities that enjoyed high ease of doing business were inundated with Grade-A developers, leading to high fragmentation of the market. We perceive that most large cities in India are facing huge fragmentation risks, which could become elevated by the demeaning demand, thereby closing this avenue for growth as well.
Execution risk is at its peak

At present, Indias real estate market has the highest number of housing projects, with large swathes of land under development. Going forward, we believe, with the quest for growth, there would be new project launches that would further increase the execution risk over the next 2-3 years. Considering the execution data of the top-4 companies, we believe, over the next 4 years, all of them would have to deliver at least twice of what they have already delivered in the past 4 years. With higher commitments, the risk to execute and deliver increases, leading to a higher risk on cash-flows.
Exhibit 4: Execution commitments msf Delivered since inception Delivered FY10-13 (4 years) To be delivered in next 4 years Ratio (times)
Source: Company, Emkay Research
DLF 41 22 49 2.2
OBRE 4.5 1.6 4.8 3.0
PEPL 40 16 54 3.4
SDL 22 12 28 2.3
NRI demand adds to vulnerability

Depreciation of the rupee has fuelled real estate demand in many parts of India, since properties have become cheaper by at least 25% in USD terms. Sobha Developers, the only company that reports sales numbers of NRIs, has stated in its Q2FY14 presentation that NRIs have a 28% share in its overall sales booking in H1FY14. As per medial reports, Lodha Developers saw a strong traction in their NRIs sales, which formed around 25% of the companys total sales in the recently launched luxury project, The Park, in Mumbai. Although the demand from NRIs has remained strong in the near past, the sustainability of the same is a concern.
Investment partners exit overhang

Private Equity (PE) investments in the real estate sector in India had seen a huge stride in the past on the back of high investment opportunities available on back of growth. A large number of PE funds, which have invested in the sector over the last 5-7 years, are seeking to exit as the closure timeline of the funds nears. This would put pressure on the capital availability towards development side of the business. As per Grant Thrornton & JLL-REIS, 2007 & 2008 saw maximum investment in the India real estate space. We believe these investments in 2007 2008 period, amounting to USD 10bn, would come up for exit considering 4-6 years being the average period of these investments. In recent past we have seen such exits in projects of Sobha Developers, Emkay Research December 26, 2013 4
Real Estate
Sector Update
Prestige Estates & Projects, Phoenix Mills, etc. We believe the same would continue over next 12-18 months, putting pressure on the capital availability in the sector. Recently, although the PE investments in real estate space has increased by 47% yoy to $1.4bn during January-July 2013 (As per the VC Circle, India's leading online financial media and information services group), a large part of this money is coming into the rental yield asset segment and not really into the development side.
Exhibit 5: PE investments in RE India (in USD bn.)
8 6 4 2 0 2006 2007 2008 2009 2010 2011
Source: Grant Thornton, JLL, Emkay Research
Bank funding to developers remains high, but may accelerate the fall if the tide turns
Banks credit towards commercial real estate continues to rise despite concerns about the slowdown in the space. We understand the same is due to low demand of credit from other core sectors of the economy and high collateral provided by real estate companies. Both factors provide avenues for higher credit growth for banks at a lower foreseeable risk. During April-October FY14, bank lending to the commercial real estate sector grew 12.8% vis--vis a growth of a mere 3.9% in the same period last year. The October month recorded the steepest pick-up, with a 21.1% growth in lending to commercial real estate, which touched Rs1437bn as against a mere 9% growth in lending to the segment in the same period.
Exhibit 6: Bank credit to commercial real estate (Rs bn)
1500 1200 900 600 300 0 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Apr-13 Aug-13 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
Source: Company
Emkay Research
December 26, 2013
Real Estate
Sector Update
Gurgaon / Delhi: Low demand, High supply - Prices fall

Exhibit 7: Housing capital value index
Prices have corrected by 20-25% for under-construction and newly launched projects in Gurgaon and Delhi. Completed or ready-tomove-in projects have seen a price correction of 8-10%. A case in point is the resale at DLFs Park Place project, which has seen a correction of 10% from peak. Investors have vanished and a huge resale market has opened up, wherein they prefer to cash out of the market much below the builders rack rate. NRI demand has also slowed down because of huge volatility in the rupee and uncertainty in the trend; lost value in dollar terms and made losses in existing investments. Brokers are not ready to under-write projects considering their expectation of more price correction, which is again dampening prices by developers. As per media reports, there are no buyers for bungalows in Delhis most posh locality, Lutyens, which was not seen even during the 2008-09 slump. Outcome of general elections is the only catalyst brokers are betting on to bring back buyer/investor interest.
Exhibit 8: Housing area absorption trend
225 200
197
12 9
175 150 125
189 6 3 4.1 1.9
100 75 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Dec-09 Dec-10 Dec-11 Dec-12 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 0 Mar-09 Mar-10 Mar-11 Mar-12 Sep-09 Sep-10 Sep-11 Sep-12 Mar-13 Mar-13 Sep-13 16.9 Sep-13 Dec-09 Dec-10 Dec-11 Dec-12 Dec-12 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 13.2 Jun-13
Source: Liases For as, Emkay Research
Source: Liases Foras, Emkay Research
Exhibit 9: Housing launch trend (msf)
Exhibit 10: Housing space inventory trend (quarters)
20 15 10
25 20 15 10
5 0 Mar-10 Mar-11 Mar-12 Sep-10 Sep-11 Sep-12 Mar-13
2.6
5 0 Mar-10 Mar-11 Sep-09 Sep-10 Sep-11 Mar-12 Sep-13 Sep-12 Dec-09 Dec-10 Dec-11 Jun-10 Jun-11 Jun-12
Dec-09
Dec-10
Dec-11
Dec-12
Jun-10
Jun-11
Jun-12
Jun-13
Emkay Research
December 26, 2013
Real Estate
Sector Update
Demand in Gurgaon remains vulnerable; Capital appreciation promises to investors is waning

Gurgaon is Indias newest city in terms of habitation and development. The city grew as a satellite city to New Delhi, with employment driven by new economy sectors such as ITES, telecom and insurance. Demand for housing in the city is largely driven by end-users as well as by long-term and short-tem investors. While long-term investors are residents of North India who aspire to own a home in NCR as a status symbol, short-term investors are flippers who intend to make a quick buck from speculations. Gurgaon real estate has a high degree of both types of investors unlike Mumbai or Bangalore. This makes demand in Gurgaon highly unsustainable and supply through second-sales highly available.
Exhibit 11: Real estate speculation spiral is reversing in Gurgaon
Higher Prices
Speculation
Higher Demand
DLF remains the most marketable brand for brokers, though price would be the key factor for future launches
Gurgaon and New Delhi are highly broker- and investor-driven markets. Our interactions with two reputed brokers in the region, who are engaged in large project underwriting, stated that after the Unitech telecom fiasco, DLF is the only marketable brand in Gurgaon. Incidentally, investments made by many investors have appreciated through DLF projects, which have created new destinations such as Golf Course Road and New Gurgaon, among others. Despite of DLF being most preferred brand by channel partners and investors, we believe the slowdown risk in Gurgaon housing market would affect DLF as well in terms of absorption rate and more so pricing
Emkay Research
December 26, 2013
Real Estate
Sector Update
Greater Mumbai: Low demand, Low supply - Prices correct

200
Housing demand remains weak in Mumbai, due to the low affordability quotient, with the highest price rise among metros in the last 4 years. Demand for ready-to-move-in units remain high in Mumbai, as buyers across income groups look for upgrade in lifestyle through replacement, where affordability is not a factor Price remains stagnant despite low demand for the following three reasons: a) high replacement demand, b) supply curb due to the overhaul of approval, and c) low construction-cost-to-value ratio gives high holding power. Inventory (in quarters) at 16.7 is the highest among the key large metros in India, driven more by a lower absorption rate than higher supply. Redevelopment has gained a strong traction channel-checks suggest more than 7msf of launch expected in the Western suburbs in the near future. In the premium housing category, only three projects have one-year completion visibility Oberoi Exquisite (Goregaon), Kalpataru Sparkle (Bandra) & Indiabulls Skyz (Lower Parel). Absolute price correction is some time away, as supply has not hit the market and developers have no cashflow. pressure due to high holding power.
Exhibit 13: Housing area absorption trend (msf)
8
174 174
175 150 125 100 Mar-09 Mar-10 Mar-11 Mar-12 Sep-09 Sep-10 Sep-11 Sep-12 Mar-13
6 4 2 0 Mar-09 Mar-10 Mar-11 Mar-12 Sep-09 Sep-10 Sep-11 Sep-12 Mar-13 Mar-13 3.4 3.4
Sep-13
Dec-09
Dec-10
Dec-11
Dec-12
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Exhibit 14: Housing launch trend (msf)
15 12 9 6 3 0 Mar-10 Mar-11 Mar-12 Sep-10 Sep-11 Sep-12 Mar-13 Sep-13 Dec-09 Dec-10 Dec-11 Dec-12 Jun-10 Jun-11 Jun-12 Jun-13 5.0
25 20 15 10 5 0 Mar-10 Mar-11 Sep-09 Sep-10 Sep-11 Mar-12 Sep-12 Sep-13 Dec-09 Dec-10 Dec-11 Dec-12 Jun-10 Jun-11 Jun-12 Jun-13 16.7 16.7
Emkay Research
December 26, 2013
Sep-13
Dec-09
Dec-10
Dec-11
Dec-12
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Real Estate
Sector Update
Why are Mumbai housing prices resilient?

Despite low absorption and high inventory, real estate prices in Greater Mumbai are quite resilient. We cite the following three major reasons for the same:
Supply constraints The ease-to-do-business factor in Mumbais real estate market is among the lowest in India. First, there is huge constraint for availability of clean title land in Greater Mumbai. Second, the approval cycle is lengthiest and tedious. While the first reason keeps away new entrants, the second would lower the capital churn, leading to the capital blockage. A large number of big real estate developers such as DLF have been unsuccessful in setting up shop in Mumbai for the above reasons. Besides, many Mumbai-based developers have faced huge approval hurdles (for example, Oberoi Realty).
High replacement demand Mumbai is the only metro in India where the mid-income group dwells in smaller-sized units either in 1-BHK or 2-BHK homes, with a smaller usable area. With growing aspirations and need for a better lifestyle, demand for ready-to-move-in larger-sized housing units is high, which mainly stems from replacement demand. The family would either want to increase its size of the unit or have better surroundings or have higher amenities or mixture of these requirements. Hence, the upgradation aspiration is high in their living environment, which leads to demand for newer projects. The cost of this better lifestyle is not substantial, as the owner would have to incur a marginal cost of the difference between the value of owned old unit and the acquired new unit. High differentiation and inequality in lifestyle, as well as high differential in housing products are the main reasons for this change.
High holding power for developers Real estate developers in Mumbai have high holding power and are not under high pressure for cash-flows. The following two reasons may be cited for the same: 1) the low construction-cost-to-asset-value ratio and 2) high replacement demand provides them assurance of high demand for ready-to-move-in asset. The developer has to sell a maximum 25% of its saleable inventory to finance the cost of construction unlike in Bangalore and Gurgaon, where it is in upwards of 50%. Also, once the developer monetizes 25%, he knows that the construction cost would be financed through receivables, and hence he waits for higher realizations for the balance inventory. The developer is not under much pressure because of constant high replacement demand for ready-to-move-in asset
Hence, would prices in Mumbai continue to define demand-supply economics? We do not think so.
Greater Mumbais real estate prices continue to remain high despite inventory levels being more than 16x of the average quarterly absorption of the last 4 quarters. But the inventory of ready-to-move-in housing space is not so high, and hence developers continue to hold prices. We expect housing prices to decline in Mumbai once the city sees a high inventory of ready-to-move-in space, which we understand would be 12-18 months from now.
Emkay Research
December 26, 2013
Real Estate
Sector Update
Bangalore housing: Demand Vulnerable, Over-supply
Absorption over the last 4 quarters has tapered off, with the H1FY14 absorption falling by 26% yoy. Over the same period, prices in Bangalore have increased in the range of 20-26% yoy, affecting the demand. Demand over the next 2 quarters may taper off further due to the lower affordability quotient. Over the last 2 quarters, Bangalore has seen supply of 72msf, which is almost 50% of what was witnessed during FY09-13, contributing to market fragmentation. The launch pipeline of only the listed players for the Bangalore market is at 22msf in H2FY14, which is 1x of the citys half-yearly sales run-rate, which will keep the inventory at high levels assuming launches by non-listed players Inventory levels inched up steeply to 111msf, which is 9.6 quarters of the average absorption of the last 4 quarters. Many Grade-A developers have flocked to Bangalore, due to high demand for the housing space and higher ease-to-do real estate development business, fragmenting the markets. We are cautious about Bangalores housing market because of high fragmentation, which may lengthen the timeline of project-level cash-flow breakeven.
160 140 120 100 80 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Sep-09 Sep-10 Sep-11 Sep-12
145
20 15 10 5 0 Mar-09 Mar-10 Mar-11 Mar-12
16 13 11
Sep-13
Sep-09
Sep-10
Sep-11
Sep-12
Mar-13 Jun-13
Exhibit 18: Housing area launch trend (msf)
50 40 30 20 10 0 Mar-10 Mar-11 Mar-12 Mar-13 Sep-10 Sep-11 Sep-12 Sep-13 Dec-09 Dec-10 Dec-11 Dec-12 Jun-10 Jun-11 Jun-12 Jun-13 39 31 33
15 12 9 6 3 0 Mar-10 Mar-11 Mar-12 Sep-09 Sep-10 Sep-11 Sep-12 Mar-13 Sep-13 Dec-09 Dec-10 Dec-11 Dec-12 Jun-10 Jun-11 Jun-12 10.3 7.0 9.6
Emkay Research
December 26, 2013
Sep-13
Dec-09
Dec-10
Dec-11
Dec-12
Dec-09
Dec-10
Dec-11
Dec-12
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
10
Real Estate
Sector Update
Affordability quotient at its lowest in the last 6 years

Bangalores housing space is absolutely and relatively the most affordable market among the metros except for FY13-14. Increase in capital values of the housing space over the last 4 quarters has been at a much higher rate than the increase in salaries in the IT sector, which is the biggest driver of end-users. An Illustration: A 2-BHK house was costing Rs5.0mn in FY08, which increased to Rs5.5mn in FY12 as per Liases Foras Bangalore housing space capital value index. Over the same period, the average salary rose from Rs0.5mn to Rs0.6mn, thereby keeping the affordability quotient in check at 9.3x (Rs5.5/Rs 0.6). Since H2FY13 to date, capital values have appreciated by 24%, with continued single-digit appreciation in the IT sector salaries, affecting the affordability quotient steeply to 11.1x. Demand over the same period has faltered by 26% yoy.
Exhibit 20: Affordability quotient in Bangalore housing market is at its worst Offshore Infosys TCS Wipro Cognizant* HCL Avg. Salary Index Avg Sal. Index - CPI Adj. Avg. Price Index - RE Avg. Salary Avg. 2 BHK Rate Affordability Quotient CPI - IW - Bangalore
Source: Industry, Emkay Research
FY08
FY09 11-13% 10% 8-9% 12-13%
FY10 8% 0% 8-9% 0-10% 117% 104% 98% 521647 4900000 9.4 171
FY11 14% 10% 8-10% 7-10% 14% 130% 111% 104% 554560 5200000 9.4 185
FY12 10-12% 12-14% 12-15% 14% 12-14% 146% 120% 111% 599772 5550000 9.3 199
FY13 6% 6-8% 8% 8% 8% 157% 127% 140% 632740 7000000 11.1 205
FY14 8% 5-10% 6-8% 8% 8% 169% 136% 151% 680828 7550000 11.1 205
100% 100% 100% 500000 5000000 10.0 138
110% 104% 89% 521146 4450000 8.5 154
Over-supply scenario; Huge fragmentation of the market

Bangalores housing market has seen a huge number of project launches over the last 2 quarters. During FY13 sales booking of 46msf, the city saw launches of 107msf in H1FY14, leading to an increase in absolute inventory to 111msf or 9.6 quarters of the average last 4 quarters sales. The following two reasons may be cited for the over-supply scenario (also see exhibit 17): a) the land availability is easy considering that the city is expanding across all directions b) the ease of business in terms of approvals is relatively higher in Bangalore. Stable demand and rising prices encouraged many developers to flock to Bangalore. Looking at the launch pipeline of some of the players, Bangalore is expected to witness a huge over-supply scenario over the next 6-12 months. Bleak demand as a result of the diminishing affordability quotient (stated above) would aggravate the over-supply scenario.
Emkay Research
December 26, 2013
11
Real Estate
Sector Update
Pune Housing
Pune housing absorption has declined yoy for the last 4 quarters, due to the steep increase in pricing. For the last 4 quarters, prices in Pune have risen yoy in the range of 15-20%. Despite the decline in launches, the inventory in msf, as well as the number of quarters, is the highest over the last 4 years, though relatively better compared to its peer cities. Our channel-checks suggest that Kolte Patil remains the top housing brand in the city, thanks to its strong legacy of timely and quality delivery. Although Pune is similar to Bangalore in terms of pricing, demand-drivers and demographics, the ease-of-business factor is lower, which has led to lower fragmentation. Punes housing affordability quotient for an IT employee would be much lower considering that the capital value increase in the city is at a much higher rate than that of Bangalore.
200 175 150 169 170
15 12 9 6 7.2 5.5
125 100 Mar-09 Mar-10 Mar-11 Mar-12 Sep-09 Sep-10 Sep-11 Sep-12 Mar-13 Sep-13 Dec-09 Dec-10 Dec-11 Dec-12 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13
3 0 Mar-09 Mar-10 Mar-11 Mar-12 Sep-09 Sep-10 Sep-11 Sep-12 Mar-13 7.4 Mar-13 Sep-13 8.8 9 6.0 6 3 0 Mar-10 Mar-11 Mar-12 Mar-13 Mar-10 Mar-11 Sep-10 Sep-11 Sep-12 Sep-13 Dec-09 Dec-10 Dec-11 Dec-12 Sep-09 Sep-10 Sep-11 Mar-12 Sep-12 Sep-13 Dec-09 Dec-10 Dec-11 Dec-12 Jun-10 Jun-11 Jun-12 Jun-13 Jun-10 Jun-11 Jun-12 Jun-13 Dec-09 Dec-10 Dec-11 Dec-12 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13
Exhibit 23: Housing area launch trend (msf)
20 15 10 5 0 13.5
15 12
Emkay Research
December 26, 2013
12
Real Estate
Sector Update
Lower ease-to-do-business has kept away Bangalore-based developers

Pune draws huge similarities with the Bangalore market, as products across both markets are in the similar range, besides demand in both markets is driven by the IT sector. Also, both cities have similar demographics because of the migrant population and the educated class. The only factor that differentiates these two cities is the ease of doing real estate development business. It is relatively easy to do business in Bangalore than in Pune, which has dissuaded many large well-known Bangalore developers, who have been looking for growth outside the Garden City, from making inroads into Pune. Sobha Developers, for instance, tried to do business in Pune, but after a couple of projects the city does not figure in its planned growth list unlike Chennai and other southern cities. This augurs well for the companies such as Kolte Patil, the frontrunner in the Pune housing space, as the company would not face stiff competitors unlike in Bangalore.
Pune housing space affordability quotient is much lower for IT sector employees
Based on the calculations given in Exhibit 19, the rise in Bangalore real estate price by 45% over the last 4 years has affected demand for housing in the city. Prices in Pune have increased by 70% over the past 4 years and more so in the last 6 months, leading to the decline in demand yoy in the last 4 quarters. The affordability quotient for Pune IT employee on similar estimations of Exhibit 17 would be 13.2x as against 9.2x in FY09.
Emkay Research
December 26, 2013
13
Real Estate
Sector Update
Regulatory
Real Estate Regulatory Bill, 2013
The Real Estate (Regulation and Development) Bill, 2013, approved by the Union Cabinet in June 2013, was introduced in the monsoon session of the Rajya Sabha. Soon after its introduction, the Bill was referred to the Parliamentary Standing Committee on Urban Development for review and making suggestions. The Bills main intention is consumer protection in the real estate space, wherein project delay is a major area of concern. The Bill addresses this concern by two proposed clauses: 1) the developer cannot launch a project before all approvals are in place and 2) 70% and lower customer advances, as stipulated by the state regulator, would be utilised only for development of the project that is monetized. The second point here has been diluted from 70% to 70% & lower and also has given power to decide the share in the hands of state regulator. This amendment has diluted the effect of the point, which would lead to higher red-tapism in the sector. We do not see much impact of this Bill on real estate companies under coverage. Lower churn of capital and escalation in approval costs are the key negatives for developers. The current form of the Bill is diluted from the draft published in 2012. No pre-launches officially and registration of real estate agent would curb investor money in the sector when combined with 1% TDS clause introduced in the Union Budget. But there are means to these issues, which may lower the impact of the intent of the Bill. Hence, there would be some impact on the churn of capital, as usage of customer advances would be restricted. Also, some cost for the company would increase in securing stipulated approvals from the state regulatory. DLF, Prestige Estates, and Sunteck Realty would be affected the most in our coverage universe, since these companies do pre-launch of projects.
Real Estate Investment Trusts (REITs) Regulations, 2013

In October 2013, SEBI issued a draft Real Estate Investment Trusts (REITs) Regulations, 2013, which permits real estate funds that will invest in completed and revenue-generating real estate. The key highlights of the draft are as follows:
At least 90% of the value of REIT assets shall be in completed revenue-generating properties. In order to provide flexibility, it has been allowed to invest the remaining 10% in other assets. The size of assets under REIT shall not be less than Rs10bn. A minimum initial offersize of Rs2.5bn and a minimum public float of 25% are specified to ensure adequate public participation and float the units
Some of the key issues in the draft REITs are as follows: Double taxation is the biggest issue surrounding the REIT issue, as rental income generation will be taxed at the REIT and holders levels. SEBI has proposed four key changes in taxation norms for REITs: capital gains tax, tax on income from rent and appreciation in asset prices, dividend distribution tax (DDT), and securities transaction tax (STT) if REIT units are to be listed on exchanges. Phoenix Mills, DLF, and Prestige Estates would be the biggest beneficiaries of REITs in India, given their large portfolio of rent-generating assets. In our view, REIT implementation is some time away, and more so for these companies considering their ownership and capital structure.
Emkay Research
December 26, 2013
14
Real Estate
Sector Update
Prefer Companies with Lower Risks & Higher Growth Avenues

Real Estate is being the most appreciated asset class in India over last 5 years, although real estate stocks are the least. With prices sky rocketing across the major cities, the inevitable question lies in the going forward trajectory of the same. Although, the probability of the price correction has increased over last 12 months, we would still refrain from predicting the same considering the unavailability of any data of previous cycles as well as a lot of unforeseeable & hidden factors affecting it. We would rather base our analysis on if the prices correct, how would the companies under our coverage fare. To mitigate the growing risk of the price correction, business slowdown & lower growth; We would prefer companies which have;
Presence in city which have low construction-to-sales ratio and hence construction cost cashflows break-even is least. Mumbai Presence in city which has high degree of product differentiation Low ratio of fixed cash outflows-to-committed cash inflows Low requirement of capital to grow Strong brand equity and execution legacy Well-located land bank Less contribution of land bank to the NAV estimation
Placing real estate companies under coverage in these stated criteria; Oberoi Realty comes out to be most preferred followed by Prestige Estates while DLF on the least preferred followed by Sobha Developers.
Exhibit 25: Oberoi Realty is least risky bet among real estate companies under coverage DLF Geography Risks Demand Risk Supply Risk Pricing Risk Business Risks Brand Equity Execution Risk Financial Risks Fixed Cost-to-Rental Income (Fixed Costs + Interest Cost)-to-Rental Income Other Fixed Cost Commitment Risks Valuations Risks Land Bank Value-to-NAV Total
Source: Emkay Research; Most Risky - 5
OBRE 4 3 4 2 3 0 0 2 2 20
PML 2 4 3 2 2 3 4 4 2 26
PEPL 2 5 3 2 2 2 3 2 3 24
SDL 2 5 3 1 2 4 4 4 4 29
SRL 4 3 4 4 4 0 2 4 3 28
5 3 5 1 2 3 5 3 4 31
DLF may have missed the debt reduction chance

DLF has survived a huge cash flows issue over last 4 years by monetizing the non-core asset, coming to fund gap in its cash generation from core business and interest cost outflow.. The company focused on delivering the on-going products with high cost escalations with a plan to launch and sell projects post the delivery. As the time arrived to launch & sell projects in Gurgaon, the city has starting seeing steep fallout on the demand. We understand DLF huge dependence on Gurgaon for its core business revival would derail & defer its debt reduction plan going forward. The fallout may eat into cash balance of Rs 35bn and cash generation from Aman Resorts sale, keeping the debt unchanged in the medium term. We downgrade the rating to Reduce and lower TP to Rs 150. Emkay Research December 26, 2013 15
Real Estate
Sector Update
Oberoi Realty is best placed in Cashflows

Oberoi Realty (OBRE) is our preferred pick in real estate space. We believe the company is best placed in the sector with desired blend of rent yielding assets, low fixed cost, zero debt, nearing completion project, fully-paid well-located land bank in resilient housing market. Our estimates show that OBRE has least pressure on its cashflows and balance sheet amongst companies under our coverage. Companys committed cash inflows from rental income & collections from sold area of on-going projects is more than 80% of the committed cash outflows towards fixed costs, taxes and construction cost outflows to completed the on-going projects. Company has to sell mere 6% of its unsold inventory value over next 3.5 years to meet the 20% gap in the cashflows. We maintain our positive stance on the company with Buy rating and TP of Rs 270, as we ignore near term concerns for medium term value unlocking.
Phoenix Mills lacks re-rating catalysts

Phoenix Mills Ltd. (PML) has developed and delivered all its rent generating assets, triggering PE investors exit considering the investments were over long term and hence they are nearing closure. The company has bought out these stakes across SPVs which has led to increase in debt from Rs 2.8bn to Rs 5.1bn. Going forward, with another outstanding payable of Rs 1.4bn and probable exits worth Rs 3.6bn, the capital requirement of PML would remain high and balance sheet under pressure. We believe PML is low risk-low return investments and it lacks foreseeable re-rating catalyst in the medium term. We maintain Accumulate rating but lower our TP to Rs 250.
Prestige Estates in Growth Zone

Prestige Estates & Projects Ltd. (PEPL) is our 2 preferred investment idea in real estate space. Company is investing ~Rs 10bn towards building rent generating assets of which it has spent Rs 3bn and the balance Rs 7bn is to be spent by FY16E. Leasing these developments (4.6msf overall), which we believe would be challenging, will lead to PEPL achieve target of Rs 5bn of annual rent On housing side, company has strong launch pipeline for FY15E but would have to continuously investment in land leading to low cash generation. We expect PEPLs gross debt o increase to ~Rs 30bn by FY15 from current ~Rs 24bn. We maintain Accumulate rating with TP of Rs 180.
nd
Sobha Developers is Vulnerable

We believe SDL is the most vulnerable company to the downturn amongst the companies under coverage. The reasons for the same are 1) Oversupply scenario in Bangalore housing space dilutes SDLs brand loyalty and product proposition 2) large portion of SDLs sales booking come from tier-3 cities like Thrissur & Coimbatore and that too from NRIs, making it less sustainable and more vulnerable 3) SDL is entering commercial development space, with a very high cash outflow commitment, at a time when Bangalore may witness oversupply scenario. Companys continued investment in the land bank has diluted our expectation of significant debt reduction coming from huge land bank. We understand, SDL will have to continue to invest in land bank in medium term. We downgrade the stock to Hold with reduced TP of Rs 360.
Sunteck Realty is Slow Moving

Sunteck Realty is a well positioned player among real estate space when it comes to balance sheet and land bank. But, the company continues to disappoint us with slow traction towards execution, sales booking and collections leading to lower cash flows and growth. We downgrade the company to Accumulate with reduced TP of Rs 400. Sales booking traction post the completion of Signature Island would be the key re-rating catalyst.
Emkay Research
December 26, 2013
16
Concerns Escalates
n
December 26, 2013
Rating Reduce CMP Rs171
Previous Reco Hold Target Price Rs150

NA/36 -25 6,279 21,075 n 3M 26 18 6M 12M 1 -11 -24 -31 n n
Gurgaon housing market slowdown may derail DLFs debt reduction plan. It would be challenging to sell Rs60bn worth annually, which is the least needed to stay afloat in business We expect net debt to be Rs19bn by end-FY15E, as the cashflows deficit would eat into cash balance and cash generation from Aman Resorts * other divestments DLFs intention to build a cash war chest of Rs50bn signals underlying cashflows concerns. No launch in Q3FY14 will reverse the debt reduction seen in Q2FY14 We downgrade the target price to Rs150 and the rating to Reduce. Structural concerns outweigh near-term positive catalysts of Aman Resorts & other divestments
EPS Chg FY14E/FY15E (%) Target Price change (%) Nifty Sensex
Price Performance
(%) Absolute Rel. to Nifty
Source: Bloomberg
1M 14 12
Revival in core business may be deferred due to slowdown in Gurgaon housing market
Currently, the Gurgaon housing market is facing a huge slowdown, with sales booking coming off by 54% qoq and 48% yoy in Q2FY14 and H1FY14, respectively, as per Liases Foras data. DLFs dependence on the Gurgaon market for the revival of its core business by launching of high-value products could be detrimental. The company has launched two high-ticket projects in Phase-V, Gurgaon, which received a positive response considering that the launch was nearly after 5 years after its last launch. But to have repeated sales from the next phase of the project could be challenging in the current environment.
Relative price chart

300 Rs % 30 260 14
220
-2
180
-18
140
-34
100 Dec-12
Feb-13
Apr-13 DLF (LHS)
Jun-13
Aug-13
Oct-13
-50 Dec-13
Rel to Nifty (RHS)
Source: Bloomberg
Debt reduction plan, which is highly dependent on core business revival, would be derailed
A delay in the business revival would derail DLFs debt reduction plan. The revival in the core business was expected to fill-in current cashflows gap between operating cash inflows and interest cost outflows, which in the past was filled in by non-core assets divestment. DLF will have to sell at least Rs60bn worth annually for a minimum period of 3 years, which would generate enough net cashflows to meet interest cost outflows, and the cash from divestment would be utilised for debt reduction. Considering the slowdown in the core business, the divestment cash would be utilized for filling the gap. Hence, we do not see any meaningful reduction in the companys debt till FY16E
Stock Details
Sector
Bloomberg Equity Capital (Rs mn) Face Value(Rs) No of shares o/s (mn) 52 Week H/L Market Cap (Rs bn/USD mn) Daily Avg Volume (No of sh) Daily Avg Turnover (US$mn)
Real Estate DLFU IB 3,562 2 1,781 289/ 120 304/ 4,901 9,399,811 22.8
DLF has taken small steps to manage cashflows, but stunted growth in business could negate them
DLF has taken many steps to manage its cashflows. The company has deferred its tax outflows by changing the accounting policy. It is lowering the interest cost by issuing commercial mortgage-backed securities (CMBS) and having upfront collections from new sales through a subvention scheme. While the first two steps are on course for implementation, the subvention scheme towards upfront collections from the buyers bank loan is stalled by the RBI. These steps would have a minimal positive impact against the negative impact from the dent in the sales booking run-rate. Financial Snapshot (Consolidated)
YEMar FY12A FY13A FY14E FY15E Net Sales 97,630 79,034 90,090 86,867 EBITDA (Core) 40,379 27,567 36,833 37,411 (%) APAT EPS EPS RoE (%) 4.9 3.0 1.9 2.2 P/E 23.6 38.0 60.4 50.8 EV/ EBITDA 13.2 19.4 13.9 13.4 P/BV 1.1 1.1 1.1 1.1
Shareholding Pattern (%)

Sep'13 Mar'13 Dec'12 Promoters FII/NRI Institutions Private Corp Public
Source: Bloomberg
75.0 19.6 0.3 0.9 4.2
78.6 16.6 0.3 0.9 3.6
78.6 14.9 1.0 1.6 4.0
(Rsmn)
(Rs) % chg 7.2 4.5 2.8 3.4 -19.9 -37.8 -37.1 18.7
41.4 12,258 34.9 40.9 43.1 7,625 5,024 5,966
17
Company Update
Emkay
DLF
DLF
Company Update
DLFs cashflows break-even target may happen in FY15E, but not the debt reduction target
Cash inflows from the divestment and equity issuance have helped DLF to control its debt over the last 10 quarters, as the core business has dampened. Going forward, with an estimated sales booking of Rs60bn, the core business could revive and lower the cashflows deficit in FY14E, and in the best case break-even in FY15E. With no divestment assumptions for FY15E, the companys debt would inch up year on year considering the dividend outflows at flat levels (yoy). After the Aman Resorts divestment, which is expected in FY14E, there would be no visibility of any meaningful divestments in FY15E, which could lead to debt reduction.
Exhibit 26: DLFs cashflows estimation Rs mn Sales Booking OCF Land / Capex Net Interest Cost Outflow FCFE Dividend Paid Cash Flows Surplus / (Deficit) Divestments Inflow Equity Issuance Gross Debt Net Debt Gross Debt Reduction Net Debt Reduction
FY10 71500 86040 144010 21510 (79480) 3850 (83330) 18000 0 203240 148210
FY11 66580 27570 11013 23257 (6699) 9125 (15824) 12700 0 241920 208720 38680 60510
FY12 52780 25200 2117 27166 (4083) 5952 (10035) 17740 0 242380 214330 460 5610
FY13 38150 20060 11500 30010 (21450) 5830 (27280) 31600 0 238060 217310 -4320 2980
FY14E 60000 30000 10250 28350 (8600) 6044 (14644) 27000 18600 238060 186354 570 (30956)
FY15E 60000 39000 10000 27377 1623 6044 (4421) 0 0 238060 190774 3440 4421
Emkay Research
December 26, 2013
18
DLF
Company Update
Key Financials (Consolidated) Income Statement

Y/E Mar (Rsmn) Net Sales Growth (%) Expenditure Employee Cost Other Exp SG&A EBITDA Growth (%) EBITDA margin (%) Depreciation EBIT EBIT margin (%) Other Income Interest expenses PBT Tax Effective tax rate (%) Adjusted PAT Growth (%) Net Margin (%) (Profit)/loss from JVs/Ass/MI Adj. PAT After JVs/Ass/MI E/O items Reported PAT PAT after MI Growth (%) FY12A 96,290 0.7 57,251 5,862 0 0 40,379 2.3 41.4 6,888 33,491 34.3 4,605 22,465 15,631 3,694 23.6 11,938 -22.0 12.2 320 12,258 -90 12,168 12,258 -19.9 FY13A 77,728 -19.3 51,467 5,958 0 0 27,567 -31.7 34.9 7,960 19,607 24.8 11,923 23,140 8,390 1,251 14.9 7,139 -40.2 9.0 486 7,625 -175 7,451 7,625 -37.8 FY14E 90,090 15.9 53,257 6,077 0 0 36,833 33.6 40.9 8,579 28,253 31.4 3,150 24,978 6,425 1,401 21.8 5,024 -29.6 5.6 0 5,024 0 5,024 5,024 -34.1 FY15E 86,867 -3.6 49,455 6,199 0 0 37,411 1.6 43.1 8,700 28,711 33.1 3,150 23,705 8,157 2,191 26.9 5,966 18.7 6.9 0 5,966 0 5,966 5,966 18.7
Balance Sheet
Y/E Mar (Rsmn) Equity share capital Reserves & surplus Net worth Minority Interest Secured Loans Unsecured Loans Loan Funds Net deferred tax liability Total Liabilities Gross Block Less: Depreciation Net block Capital work in progress Investment Current Assets Inventories Sundry debtors Cash & bank balance Loans & advances Other current assets Current lia & Prov Current liabilities Provisions Net current assets Misc. exp Total Assets FY12A 3,395 FY13A 3,395 FY14E 3,557 FY15E 3,557
250,970 253,890 270,487 270,413 254,365 257,285 274,044 273,970 4,207 29,006 -3,349 4,020 92,599 -6,560 4,020 23,751 -5,102 4,020 23,751 -3,623 239,646 173,414 226,578 217,765 268,652 266,013 250,329 241,515 523,875 520,758 523,292 515,883 231,025 222,498 237,698 239,698 26,444 88,736 11,776 34,404 88,736 13,340 42,984 81,536 5,110 51,684 81,536 5,110 204,580 188,094 194,715 188,015
325,453 349,549 389,853 390,685 161,756 176,460 185,701 193,712 18,313 15,062 51,741 78,581 16,530 18,440 53,300 84,819 22,901 43,132 53,300 84,819 16,659 42,194 53,300 84,819
106,671 118,961 147,922 149,463 98,639 111,631 140,981 142,555 8,032 0 7,330 0 6,941 0 6,908 0 218,783 230,588 241,931 241,222 523,875 520,758 523,292 515,883
Cash Flow
Y/E Mar (Rsmn) PBT (Ex-Other income) Depreciation Interest Provided Other Non-Cash items Chg in working cap Tax paid Operating Cashflow Capital expenditure Free Cash Flow Other income Investments Investing Cashflow Equity Capital Raised Loans Taken / (Repaid) Interest Paid Dividend paid (incl tax) Income from investments Others Financing Cashflow Net chg in cash Opening cash position Closing cash position FY12A 9,596 6,888 22,465 0 -17,194 -3,694 18,062 -4,523 13,539 5,945 -1,818 -396 2,831 10,646 -22,465 -5,851 0 -1,225 -16,065 1,601 13,461 15,062 FY13A -5,014 7,960 23,140 0 -11,639 -1,251 13,197 8,526 21,723 13,229 -1,565 20,191 1,302 -2,639 -23,140 -5,833 0 300 -30,010 3,377 15,062 18,440 FY14E 3,275 8,579 24,978 0 14,808 -1,401 50,239 -8,000 42,239 3,150 8,230 3,380 17,775 -15,684 -24,978 -6,040 0 0 -28,927 24,692 18,440 43,132 FY15E 5,007 8,700 23,705 0 1,250 -2,191 36,471 -2,000 34,471 3,150 0 1,150 0 -8,814 -23,705 -6,040 0 0 -38,558 -937 43,132 42,194
Key Ratios
Y/E Mar Profitability (%) EBITDA Margin Net Margin ROCE ROE RoIC Per Share Data (Rs) EPS CEPS BVPS DPS Valuations (x) PER P/CEPS P/BV EV / Sales EV / EBITDA Dividend Yield (%) Gearing Ratio (x) Net Debt/ Equity Net Debt/EBIDTA 1.0 6.0 1.0 8.9 0.8 5.6 0.7 5.3 23.6 15.1 1.1 5.5 13.2 1.7 38.0 18.6 1.1 6.9 19.4 1.7 60.4 22.3 1.1 5.7 13.9 1.7 50.8 20.7 1.1 5.8 13.4 1.7 7.2 11.3 149.7 2.9 4.5 9.2 151.5 2.9 2.8 7.6 154.0 2.9 3.4 8.2 153.9 2.9 41.4 12.2 7.4 4.9 8.5 34.9 9.0 6.0 3.0 4.9 40.9 5.6 6.0 1.9 7.1 43.1 6.9 6.1 2.2 7.4 FY12A FY13A FY14E FY15E
Emkay Research
December 26, 2013
19
Top Pick in Real Estate Space

n
December 26, 2013
Rating Buy CMP Rs230
Previous Reco Buy Target Price Rs270

-28/-21 NA 6,279 21,075 n 3M 32 25 6M 12M 20 6 -20 -27 n n
OBRE has desired blend in current RE market - rent-yielding assets, low fixed cost, zero debt, nearing completion project, fully-paid well-located land bank in resilient housing market Exquisite completion and Mulund launch are the key sales booking drivers in FY15E. Oasis, approaching completion, to drive FY16E sales bookings Government approvals and slow sales booking run-rate, both concerns are in the price. There is room for both to surprise positively in the medium term Maintain Buy with a target price of Rs270. We continue to have positive stance despite disappointments, as we ignore near-term concerns for medium-term value unlocking
Price Performance
Source: Bloomberg
1M 21 18
Desired blend makes it best bet in Indian real estate space

In the uncertain real estate market, Oberoi Realty has the right blend of factors, which would make it remain afloat if the market falters and reap benefits if it revives. The favourable factors such as rental income more than fixed costs, a cash-rich balance sheet, a presence in a market with high product differentiation, along with well-located fully-paid land bank, a legacy of high-quality delivery and developing projects with a low construction cost-to-value ratio make the company the best bet in Indias current real estate space.

325 Rs % 10 290 -2
255
-14
220
-26
Committed cash inflows = 80%+ of committed cash outflows

Oberoi Realty is the only real estate company under our coverage whose committed cash outflows towards fixed costs, construction cost and taxes are merely 20% more than the committed cash inflows from rental income and collections from the sold area. For most real estate companies this ratio would be lower than 50%. The ratio for Oberoi Realty is calculated after taking construction costs of Oasis into consideration. This clearly shows that the companys cashflows are not under pressure, as it has to monetize only 5% of its unsold inventory over the next 3 years to fill this gap.
185
-38
150 Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
-50 Dec-13
Oberoi Realty (LHS)
Rel to Nifty (RHS)
Source: Bloomberg
Stock Details
Sector
Real Estate OBER IB 3,282 10 328 328/ 153 75/ 1,218 218,768 0.7
High replacement market in Mumbai should revive Oberois sales booking

Oberoi Realtys sales booking run-rate has depleted by nearly 50% on a like-to-like basis. Lower affordability and dovish sentiment have lowered the absorption rate for the companys products. The completion of Exquisite in mid-2014, with the stock value of around Rs10bn, would revive the run-rate coming from high replacement demand in the Mumbai housing market. Launches in JVLR and Mulund area would add to this trajectory and generate a higher cashflow to fill in the gap.
Valuations are compelling; Estimates at 10-20% below the market rate Shareholding Pattern (%)
Source: Bloomberg
75.0 12.4 0.8 1.5 10.3
78.5 10.3 0.8 0.4 10.0
78.5 10.1 0.8 0.5 10.1
Value unlocking is just a matter of time, since we do not foresee much business risks. We have valued the company on a conservative basis, assuming average realizations 10-20% lower than current realizations. The value of Cash, Commerz-1, Westin and Commerz-2 is equal to 45% of the current m-cap and 38% of our estimated NAV. Fall in Mumbai housing prices by more than 25% would add to the downside risk to our target price. Any slowdown in the Mumbai housing space would exemplify the Oberoi brand and the balance sheet strength in the minds of consumers. Financial Snapshot (Consolidated)
YEMar FY12A FY13A FY14E FY15E Net Sales 8,247 10,476 8,157 14,626 EBITDA (Core) 4,835 6,121 5,345 8,836 (%) 58.6 58.4 65.5 60.4 APAT 4,630 5,048 4,044 6,204 EPS EPS RoE (%) 13.1 12.8 9.3 13.0 P/E 16.3 15.0 18.7 12.2 EV/ EBITDA 12.9 10.6 13.1 7.5 P/BV 2.0 1.8 1.7 1.5
(Rsmn)
(Rs) % chg 14.1 15.4 12.3 18.9 -15.5 9.0 -19.9 53.4
20
Company Update
Emkay
Oberoi Realty
Oberoi Realty
Company Update
Cashflows visibility gives us a lot of comfort

Oberoi Realty provides strong comfort on visibility of cashflows. Plotting the committed cash inflows from rentals and collections from the sold area of ongoing projects over the next 3.5 years of completion, we get a total inflow of Rs17.1bn. The committed cash outflows over the next 3.5 years towards fixed costs, construction costs for completion of ongoing projects and tax outflow towards profitability of rentals and sold area come to Rs21.2bn. The committed inflows are roughly 81% of the committed outflows, leading to a gap of 19%, which is Rs4.1bn. On the unsold inventory value of at least Rs100bn, we believe the company has to sell only 5% (net of tax) of the inventory in the next 3.5 years to fill this cash gap. The net rental income from Commerz-2, as well as the net cash generation from launches would be over and above the same.
Exhibit 27: Cash deficit of Rs4.1bn is merely 5% of Unsold Inventory of ongoing projects Rs mn Net Rental Income Oberoi Mall Commerz-1 Westin Hotel Collections from Sold Area Exquisite Esquire Oasis Total Committed Cash Inflows Fixed Costs Construction Cost to Completion Exquisite Esquire Oasis Taxes for Committed Cash Inflows Rental Income Exquisite Esquire Oasis Total Committed Cash Outflows Net Committed Cash Inflows
H1FY14E 432 238 151 470 0 241 1531 300 731 0 1200 181 132 0 67 2610 (1079)
FY15E 864 476 302 313 2439 722 5116 600 313 1631 2000 361 88 683 202 5878 (762)
FY16E 864 476 302 0 2846 722 5210 660 0 1903 2400 361 0 797 202 6323 (1113)
FY17E 864 476 302 0 2846 722 5210 726 0 1903 2400 361 0 797 202 6389 (1179)
Total 3023 1666 1057 783 8131 2408 17067 2286 1044 5436 8000 1264 219 2277 674 21201 (4133)
Exhibit 28: Unsold Inventory Value Projects Rs mn Exquisite Esquire Oasis Total Exotica Prisma Grand Total
@Average Realisation 7054 7068 46244 60365 0 0 60365
@ Current Rate 10505 8071 83459 102035 26400 4625 133060
@ 20% Lower 8404 6457 66767 81628 18400 3125 103153
Emkay Research
December 26, 2013
21
Oberoi Realty
Company Update
Compelling valuations
Along with the high cashflows visibility, the assets and locations of land bank make us see the positive in the stock.
Value of cash + lease assets + Hotel = 31% of NAV Value of cash + lease assets + Hotel + Completed lease-able assets = 38% of NAV Value of cash + lease assets + Hotel + Completed lease-able assets + Ongoing saleable asset = 68% of NAV
The average realisations we have assumed for the unsold area of the ongoing and planned assets is 10-20% lower than the current market rate of the completed comparable assets.
Exhibit 29: NAV Break-up (Rs mn) Projects / Assets Leased Assets Hotel Ongoing Sale-able Projects Ongoing Lease-able Assets Planned Sale-able Projects Planned Lease-able Assets Social Infra Project / Others GAV Add: (Net Debt) / Cash / Receivables NAV NAV / Share
Source: Emkay Research Social Infra / Others includes value of operational school, planned area for educational complex and hospital at Goregaon (E), planned area for school at JVLR, land at Sangamwadi, Pune and invested value for TulipStar hotel, Juhu, Mumbai.
NAV 13318 3351 25547 6396 17809 7462 3500 77384 11331 88715 270
% Share of NAV 15% 4% 29% 7% 20% 8% 4% 13%
% Share of CMP 21% 5% 41% 10% 28% 12% 6% 18%
Near-term catalysts
MoEF approval for the Mulund project. Commencement certificate above the plinth level for Esquire, Goregaon.
Medium-term catalysts
Revival in sales booking run-rate post-completion of Exquisite. Leasing of Commerz-2
Long-term catalysts
Value unlocking from sales of Oasis
Emkay Research
December 26, 2013
22
Oberoi Realty
Company Update

Y/E Mar (Rsmn) Net Sales Growth (%) Expenditure Employee Cost Other Exp SG&A EBITDA Growth (%) EBITDA margin (%) Depreciation EBIT EBIT margin (%) Other Income Interest expenses PBT Tax Effective tax rate (%) Adjusted PAT Growth (%) Net Margin (%) (Profit)/loss from JVs/Ass/MI Adj. PAT After JVs/Ass/MI E/O items Reported PAT PAT after MI Growth (%) FY12A 8,247 -16.2 3,412 329 124 0 4,835 -14.5 58.6 269 4,566 55.4 1,498 3 6,060 1,430 23.6 4,630 -15.5 56.1 0 4,630 -5 4,625 4,630 -15.5 FY13A 10,476 27.0 4,355 383 257 0 6,121 26.6 58.4 285 5,836 55.7 999 4 6,831 1,783 26.1 5,048 9.0 48.2 0 5,048 0 5,048 5,048 9.0 FY14E 8,157 -22.1 2,812 441 184 0 5,345 -12.7 65.5 320 5,025 61.6 648 0 5,673 1,628 28.7 4,044 -19.9 49.6 0 4,044 0 4,044 4,044 -19.9 FY15E 14,626 79.3 5,789 507 219 0 8,836 65.3 60.4 411 8,426 57.6 509 0 8,935 2,730 30.6 6,204 53.4 42.4 0 6,204 0 6,204 6,204 53.4
Balance Sheet
Y/E Mar (Rsmn) Equity share capital Reserves & surplus Net worth Minority Interest Secured Loans Unsecured Loans Loan Funds Net deferred tax liability Total Liabilities Gross Block Less: Depreciation Net block Capital work in progress Investment Current Assets Inventories Sundry debtors Cash & bank balance Loans & advances Other current assets Current lia & Prov Current liabilities Provisions Net current assets Misc. exp Total Assets FY12A 3,282 34,059 37,342 0 0 0 0 78 37,420 10,341 678 9,663 2,841 0 35,341 10,196 679 12,934 11,347 185 10,426 9,642 783 24,916 0 37,420 FY13A 3,282 38,339 41,621 0 0 0 0 147 41,768 10,450 929 9,520 3,848 0 39,522 12,448 522 10,725 15,695 132 11,122 10,331 790 28,400 0 41,769 FY14E 3,282 41,615 44,898 0 0 0 0 202 45,099 13,700 1,250 12,450 698 0 42,188 18,339 447 5,470 17,782 150 10,236 9,448 788 31,951 0 45,099 FY15E 3,282 47,052 50,334 0 0 0 0 272 50,605 13,800 1,660 12,139 698 0 51,280 23,469 801 9,078 17,782 150 13,512 12,724 788 37,768 0 50,605
Cash Flow
Y/E Mar (Rsmn) PBT (Ex-Other income) Depreciation Interest Provided Other Non-Cash items Chg in working cap Tax paid Operating Cashflow Capital expenditure Free Cash Flow Other income Investments Investing Cashflow Equity Capital Raised Loans Taken / (Repaid) Interest Paid Dividend paid (incl tax) Income from investments Others Financing Cashflow Net chg in cash Opening cash position Closing cash position FY12A 4,557 269 3 0 -2,377 -1,430 1,023 -3,464 -2,441 1,498 650 -1,316 368 -359 -3 -768 0 0 -762 -1,056 13,990 12,934 FY13A 5,832 285 4 0 -5,625 -1,783 -1,287 -1,149 -2,436 999 0 -150 0 0 -4 -768 0 0 -772 -2,209 12,934 10,725 FY14E 5,025 320 0 0 -8,751 -1,628 -5,034 -100 -5,134 648 0 548 0 0 0 -768 0 0 -768 -5,255 10,725 5,470 FY15E 8,426 411 0 0 -2,138 -2,730 3,967 -100 3,867 509 0 409 0 0 0 -768 0 0 -768 3,608 5,470 9,078
Key Ratios
Y/E Mar Profitability (%) EBITDA Margin Net Margin ROCE ROE RoIC Per Share Data (Rs) EPS CEPS BVPS DPS Valuations (x) PER P/CEPS P/BV EV / Sales EV / EBITDA Dividend Yield (%) Gearing Ratio (x) Net Debt/ Equity Net Debt/EBIDTA -0.3 -2.7 -0.3 -1.8 -0.1 -1.0 -0.2 -1.0 16.3 15.4 2.0 7.6 12.9 0.4 15.0 14.2 1.8 6.2 10.6 0.9 18.7 17.3 1.7 8.6 13.1 0.9 12.2 11.4 1.5 4.5 7.5 0.9 14.1 14.9 113.8 1.0 15.4 16.2 126.8 2.0 12.3 13.3 136.8 2.0 18.9 20.2 153.3 2.0 58.6 56.1 17.1 13.1 23.6 58.4 48.2 17.3 12.8 23.9 65.5 49.6 13.1 9.3 15.2 60.4 42.4 18.7 13.0 21.1 FY12A FY13A FY14E FY15E
Emkay Research
December 26, 2013
23
PE Exits Overhang
n
December 26, 2013
Rating Accumulate CMP Rs218
Previous Reco Accumulate Target Price Rs250

NA -9 6,279 21,075 n 3M -4 -9 6M 12M -14 -24 -10 -18 n n
Over the last 3 years, PML gave PE exits of Rs4.7bn, which doubled its debt to Rs5.2bn. Another Rs5bn of PE stake in its MC project SPVs raises red flags on balance sheet HSP renewals are the strong positive catalysts. The average rent/sf/month would increase from Rs216 in Q214 to Rs245 by FY16E, increasing the rental income by Rs 242mn (13%) Housing projects monetisation would add to overall cash balance, but hotel would drain away the same. PMLs capital requirement would remain high in the medium term Maintain an Accumulate rating with downgrade TP of Rs250. We believe PML to be low risk-low return investment with positive re-rating catalysts missing in the medium term
Price Performance
Source: Bloomberg
1M -2 -5
PMLs capital requirement may increase further

PML has been buying partners stake in the MC Projects SPVs, besides infusing capital in some SPVs, which have led to an increase in its debt to Rs5.1bn from nil over the last 2 years. On an average, there is another 34% of PE stake in these SPVs, amounting to Rs5bn based on last valuations PML paid for them. The company would continue to require more capital, as its cash generation from the standalone business is lower than the value of PE stakes, which could be up for exit over the next 2 years (Exhibit 2). The company could either raise capital through an equity issuance or REIT listing.

300 Rs % 20 270 10
240
210
-10
180
-20
150 Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
-30 Dec-13
PMLs SA OCF would increase from Rs1.6bn to Rs2.1bn in next 2 years

High Street Phoenix (HSP) has 0.72msf of area on lease, of which around 1.4msf (20%) is coming up for renewal over the next 18 months. As on today, the 0.72msf of area has an average rental (exclusive revenue sharing) of Rs216/sf/month. We understand that the average rentals would increase from Rs216 to Rs245/sf/mth, leading to a rise in standalone operating cash flows from Rs1.6bn in FY13 to Rs2.1 in FY16E.
Phoenix Mills (LHS)
Rel to Nifty (RHS)
Source: Bloomberg
Stock Details
Sector
Real Estate PHNX IB 290 2 145 293/ 183 32/ 510 88,634 0.3
MC SPVs DSCR in the range of 1.0-2.5x at 90% OCR

PMLs Market City projects SPVs have a debt-to-equity ratio of 2.1-4.1x, with the debt cost of 13%. Considering the occupancy rate of 90%, which most MCs are not at, and the EBITDA margin at 90%, the debt-servicing coverage ratio would be 0.9-1.4x. Mumbai MC will be at the lower end of the range, and Chennai MC SPV at the higher side. The ratio and surplus cash generation would only improve once Phase-2 of each of the SPVs, comprising office and housing space, is developed and monetized.
Maintain an Accumulate rating with a target price of Rs250

PML lacks positive re-rating catalysts in the medium term, as PE exists may continue to pressurize the balance sheet, while growth from SPVs would be subdued. We believe the stock is in a low risk-low return zone and would provide a nominal return in the medium term. We maintain an Accumulate rating with a target price of Rs250. Any increase in the FSI availability on its vacant plot of land at HSP project over 0.5msf would have an upside risk to our target price. Financial Snapshot (Consolidated)
YEMar FY12A FY13A FY14E FY15E Net Sales 3,693 4,699 11,229 15,154 EBITDA (Core) 2,141 2,632 5,202 7,541 (%) 58.0 56.0 46.3 49.8 APAT 1,056 848 2,309 3,842 EPS EPS RoE (%) 6.3 4.9 12.2 17.7 P/E 29.9 37.2 13.7 8.2 EV/ EBITDA 20.6 18.8 11.2 7.0 P/BV 1.9 1.8 1.6 1.3

Source: Bloomberg
65.9 22.2 5.5 2.0 4.4
65.9 21.5 6.4 1.6 4.6
65.9 21.2 6.4 1.6 4.8
(Rsmn)
(Rs) % chg 7.3 5.9 15.9 26.5 25.4 -19.7 172.2 66.4
24
Company Update
Emkay
Phoenix Mills
Phoenix Mills
Company Update
Capital Requirement to Buy out SPVs

Over the last 3 years, PML has done nine deals to increase its stake in SPVs, with transaction value of Rs4.7bn, of which Rs1.4bn is payable as on Q2FY14. All these deals gave exit to the PE partners who had invested in the SPVs during 2006-08. As most of these investors have fund closure, as well as assets of these SPVs are operational, they are seeking to exit from these investments. Although there is no legal commitment on PML to provide them exit or a return on their investment, the company is buying out their stake at valuations, which we find reasonable.
Exhibit 30: SPV Stake Purchase Transaction Data Market City Bangalore Pune Bangalore Bangalore Chennai Bangalore Pune Pune Bangalore Mumbai Stake PreAcquisition 28.1% 50.6% 34.0% 36.1% 31.0% 42.1% 58.6% 82.6% 68.1% 23.9% Stake Acquired 5.9% 8.0% 2.2% 10.3% 19.0% 26.0% 24.0% 4.0% 7.0% 29.3% Stake PostAcquisition 34.0% 58.6% 36.1% 46.5% 50.0% 68.1% 82.6% 86.6% 75.1% 53.2% 564 680 716 690 1570 4665 2966 2615 2983 NA 5360 260 Stake Value Rs mn 185 SPV Valued At Rs mn 1700 0 2080 Balance to be Paid Rs mn Fully Paid Fully Paid Fully Paid Fully Paid Fully Paid Fully Paid 716 690 Fully Paid 1406
Date
SPVs
Q2 FY11 Island Star Mall Developers Q3 FY11 Vamona Developers Q3 FY11 Island Star Mall Developers Q1 FY12 Island Star Mall Developers Q4 FY12 Classic Mall Q3 FY13 Island Star Mall Developers* Q4 FY13 Vamona Developers Q4 FY13 Vamona Developers Island Star Mall Developers
Q2 FY14 Offbeat Developers Total

There is another Rs5bn worth of balance PE stake in the MC Projects SPVs to which PML may buy out. With outstanding payments of Rs1.4bn towards the same and rising interest costs denting the standalone cash generation, we understand that PML would require capital to finance any more buy-outs. PML has taken enabling resolution to raise capital up to Rs10bn through the issuance of equity capital. The company could issue REITs considering that most of its assets are generating rentals and are completed.
Exhibit 31: Another Rs5bn of PE Stake in MC SPVs Market City Chennai Bangalore Mumbai Pune PEs Stake % 50.0% 24.9% 46.8% 13.4% SPV Value Rs mn 2966 2615 5360 2983 PEs Stake Value Rs mn 1483 651 2507 400 5040 Exhibit 32: PMLs standalone gross debt trend (Rs mn)
6000 4500 3000 1500 0 FY10 FY11 FY12 FY13 Q2FY14 FY14E
SPVs Classic Mall Island Star Mall Offbeat Dev. Vamona Dev. Total
Emkay Research
December 26, 2013
25
Phoenix Mills
Company Update
HSP to generate more rental income

HSP, PMLs oldest retail space asset, has been operational for long, with many tenants still occupying the space on old agreements. As the 9-year agreements with these tenants come up for renewals, there would be a significant increase in the rental income considering the steep change in Indian consumption pattern over this period. While PMLs average rental per square feet per month (psm) is at Rs216 as on Q2FY14, renewals are taking place at Rs350-400, while top-10 stores have paid rentals in range of Rs 6001400psm in January 2013 when HSP clogged the highest monthly consumption. Around 0.14msf of the total 0.72msf of PMLs leased area would be up for renewals over the next 24 months. We understand that most of this space is currently paying in the range of Rs180-200psm, and hence their renewals to current rates would add to rental income.
Exhibit 33: Average Rent / sf / month trend for HSP
250 245 225 216 200 175 150 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 FY16E
MC SPV DSCR and cashflows table

All the MC projects SPVs of PML have debt-to-equity in the range of 1.9-4.1x, with a major share of the net rental income at 90% occupancy level going towards interest cost servicing. All MC projects have leased more than 90% of the area, with OCR in the range of 72-86%. The company would reduce the debt in these SPVs through developing and monetising of SPVs non-retail assets. We believe the cash generation from monetisation would reduce the debt post-FY16.
Exhibit 34: MC SPVs Details SPVs Classic Mall Dev. Island Star Mall Dev. Offbeat Dev. Vamona Dev Market City Chennai Bangalore Mumbai Pune Capital Employed Rs mn 4820 5687 10331 8053 Total Debt Rs mn 3322 3737 7240 6485 D/E 2.2 1.9 2.3 4.1 Rental @ 90% OCR Rs mn 1058 773 1034 915 Interest Cost Rs mn 432 486 985 961 ISCR 2.5 1.6 1.0 1.0
Source: Company, Emkay Research, OCR: Occupancy Rate, ISCR: Interest Service Coverage Ratio, CF: Cashflows
Emkay Research
December 26, 2013
26
Phoenix Mills
Company Update

Y/E Mar (Rsmn) Net Sales Growth (%) Expenditure Employee Cost Other Exp SG&A EBITDA Growth (%) EBITDA margin (%) Depreciation EBIT EBIT margin (%) Other Income Interest expenses PBT Tax Effective tax rate (%) Adjusted PAT Growth (%) Net Margin (%) (Profit)/loss from JVs/Ass/MI Adj. PAT After JVs/Ass/MI E/O items Reported PAT PAT after MI Growth (%) FY12A 3,666 74.4 1,552 206 0 750 2,141 42.2 58.0 563 1,578 42.7 419 944 1,053 189 18.0 864 4.1 23.4 192 1,056 0 1,056 1,056 25.4 FY13A 4,699 28.2 2,067 384 0 1,722 2,632 22.9 56.0 474 2,157 45.9 521 1,430 1,248 428 34.3 820 -5.1 17.5 28 848 0 848 848 -19.7 FY14E 11,229 139.0 6,026 441 0 1,628 5,202 97.7 46.3 950 4,253 37.9 364 1,880 2,737 684 25.0 2,053 150.3 18.3 257 2,309 0 2,309 2,309 172.2 FY15E 15,154 35.0 7,613 507 0 2,197 7,541 45.0 49.8 950 6,591 43.5 364 1,888 5,068 1,176 23.2 3,892 89.6 25.7 -50 3,842 0 3,842 3,842 66.4
Balance Sheet
Y/E Mar (Rsmn) Equity share capital Reserves & surplus Net worth Minority Interest Secured Loans Unsecured Loans Loan Funds Net deferred tax liability Total Liabilities Gross Block Less: Depreciation Net block Capital work in progress Investment Current Assets Inventories Sundry debtors Cash & bank balance Loans & advances Other current assets Current lia & Prov Current liabilities Provisions Net current assets Misc. exp Total Assets FY12A 290 16,816 17,105 3,566 14,963 0 14,963 -247 35,388 13,383 1,503 11,881 13,591 4,869 10,542 2,516 618 1,207 6,045 157 5,495 5,082 413 5,047 0 35,388 FY13A 290 17,770 18,059 4,252 16,741 5,215 21,957 -477 43,791 29,814 1,977 27,837 1,670 5,554 14,570 7,770 846 683 5,061 210 5,839 5,556 283 8,731 0 43,791 FY14E 290 19,774 20,063 3,996 26,982 5,000 31,982 -572 55,470 40,981 2,927 38,054 0 5,554 18,032 7,556 1,892 1,651 6,485 449 6,170 5,818 352 11,862 0 55,470 FY15E 290 23,310 23,600 4,046 23,326 5,000 28,326 -361 55,611 40,981 3,876 37,104 0 6,954 18,887 7,158 2,553 2,086 6,485 606 7,334 6,982 352 11,553 0 55,611
Cash Flow
Y/E Mar (Rsmn) PBT (Ex-Other income) Depreciation Interest Provided Other Non-Cash items Chg in working cap Tax paid Operating Cashflow Capital expenditure Free Cash Flow Other income Investments Investing Cashflow Equity Capital Raised Loans Taken / (Repaid) Interest Paid Dividend paid (incl tax) Income from investments Others Financing Cashflow Net chg in cash Opening cash position Closing cash position FY12A 607 563 944 0 -595 -189 1,330 -7,105 -5,776 446 -83 -6,742 -555 5,399 -944 -96 0 1,793 5,598 185 1,021 1,207 FY13A 727 474 1,430 0 -4,437 -428 -2,233 -4,510 -6,743 521 -684 -4,673 202 6,993 -1,430 -96 0 714 6,383 -523 1,207 684 FY14E 2,373 950 1,880 0 -2,259 -684 2,259 -9,497 -7,238 364 0 -9,132 -209 10,026 -1,880 -96 0 0 7,841 968 683 1,651 FY15E 4,703 950 1,888 0 955 -1,176 7,320 0 7,320 364 -1,400 -1,036 -186 -3,656 -1,888 -119 0 0 -5,849 435 1,651 2,086
Key Ratios
Emkay Research
December 26, 2013
27
Promising Growth
n
December 26, 2013

NA NA 6,279 21,075 n 3M 34 26 6M 12M 12 -1 -7 -15 n n
PEPLs business momentum looks promising, with strong sales booking, rising collections and potential increase in rental income. Launch pipeline for FY15E is intact Annual rental income target of Rs5bn would need additional leasing of 4.6msf by FY16E, which would be a challenge. The yield on the incremental investment in capex is at 17% Gross debt is expected to increase to Rs30bn by FY15E, despite higher surplus cash generation, due to cash outflows towards commercial assets development & land acquisition Maintain an Accumulate rating with a target price of Rs180. Execution is big challenge for PEPL considering it has to deliver 3.4x in next 4 years of what it delivered in last 4.
Price Performance
Source: Bloomberg
1M 15 12
Leasing 4.6msf would be challenging

Prestige Estates and Projects Ltd. (PEPL) has to lease the whole project (including partners share) to fully realize its share of the potential rental income. The ongoing commercial project for leasing has 4.1msf of the to-be-leased area, and another 0.5msf to-be-leased from completed projects, aggregating a total leaseable area of 4.6msf. Leasing the same would lead to PEPLs target of annual rental income of Rs5bn. Although the additional leasing of space would give a healthy 17% yield on investments, we believe it would a challenge to lease the same in the current slow macro and competitive environment. Over next 3.5 years, PEPL would need to lease the area, which is 0.6 times of its current portfolio, which it has leased since inception.

200 Rs % 10 180 0
160
-10
140
-20
120
-30
100 Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
-40 Dec-13
Prestige Estate (LHS)
Rel to Nifty (RHS)
Source: Bloomberg
Operating cashflows to rise, so will debt by FY15E

Real Estate PEPL IB 3,500 10 350 195/ 105 58/ 933 286,138 0.7
Stock Details
Sector
PEPLs operating cashflows to rise in FY15E, as collections increase substantially with a higher sales run-rate and projects launched cross the construction milestone. Increase in rental income from new leases and project completions would add to the same. The cash generation from operations would be mainly utilised towards interest cost outflows and land acquisitions. PEPL has to invest around Rs7bn towards completion of ongoing commercial projects over a period of 36 months. With most of the cash generation from operations would be utilised towards interest cost servicing and land acquisition, the companys gross debt is expected to rise to Rs30bn by FY15E from Rs 24bn in FY13.
Execution risk is high for PEPL

PEPL has 54msf of projects under execution and to be delivered over next 4 years. The company over last 25 years of its existence has delivered 40msf of area of which 16msf was delivered over last 4 years. Considering in next four years the company has to deliver 3.4x of what it delivered in last four, the execution risk is very high. Any slowdown in execution would affect the cashflows as it would lower the rate of collections from sale-able projects as well as defer the rental income from lease-able projects. Financial Snapshot (Consolidated)
YEMar FY12A FY13A FY14E FY15E Net Sales 10,523 19,476 23,542 34,042 EBITDA (Core) 3,049 5,791 6,921 9,877 (%) 29.0 29.7 29.4 29.0 APAT 909 2,860 3,325 5,121 EPS EPS RoE (%) 4.3 11.7 11.5 15.7 P/E 59.6 20.2 17.4 11.3 EV/ EBITDA 23.0 13.4 11.5 8.3 P/BV 2.5 2.1 1.9 1.7

Source: Bloomberg
75.0 17.4 6.3 0.8 0.6
75.0 15.5 7.5 1.4 0.5
80.0 11.0 6.7 1.6 0.7
(Rsmn)
(Rs) % chg 2.8 8.2 9.5 14.6 -46.8 195.0 16.3 54.0
28
Company Update
Emkay
Prestige Estates
Prestige Estates
Company Update
PEPLs ongoing commercial space development plan

PEPL has 6.50msf of leaseable area (LBA) under development, of which its economic interest is 2.74msf. Of the total 6.50msf of LBA, 2.37msf is leased, wherein PEPLs share is at 1.11msf. The total development cost for 6.47msf is Rs16.8bn, of which PEPLs share is Rs10.1bn. The company has already incurred Rs2.9bn of its share and has to incur the balance Rs7.2bn till FY16E.
Exhibit 35: PEPLs On-going Commercial Space Development Plan
TOTAL LBA
PEPLs LBA Share
PEPLs Share Leased
Office , 3.07
1.42
0.64
Re tail, 3.40
1.30
0.46
Source: Company, Emkay Research A = Total Leaseable Area, B = PEPLs Share in Leseable Area, C = PEPLs Pre-Leased Area
The company has to lease the balance 1.63msf of the area. between 0.84msf of retail space and 0.79msf of office space.
Exhibit 36: Completion timeline for 1.63msf of LBA to-be-leased Msf Total Office Retail
The 1.62msf is divided
Total 1.63 0.79 0.84
FY14E 0.33 0.04 0.29
FY15E 0.66 0.29 0.37
FY16E 0.65 0.46 0.18
The 1.1msf of PEPLs leased area will generate rental income of Rs0.6bn, and the balance 1.67msf of the to-be-leased area can has the potential to generate Rs1.1bn of rental income, taking the total rental income to Rs1.7bn. On the current rental income of Rs2.9bn, PEPLs potential rental income would increase to Rs4.6bn by FY16E once all the ongoing projects are completed and all the area is leased. The company would generate the additional Rs1.7bn of rental income on the total investment of Rs10.1bn, generating a yield of 17%. There is another potential rental income of Rs0.29bn from the to-be-leased area of 0.45msf of the completed commercial projects, totaling to the rental income potential of Rs4.9bn. PEPL would be able to generate this rental income only once it leases all the projects fully, i.e., the balance area of 4.1msf (6.5-2.4). We believe this is a challenge considering the current macro-environment and the potential over-supply scenario in office space and retail space in India.
Emkay Research
December 26, 2013
29
Prestige Estates
Company Update

Y/E Mar (Rsmn) Net Sales Growth (%) Expenditure Employee Cost Other Exp SG&A EBITDA Growth (%) EBITDA margin (%) Depreciation EBIT EBIT margin (%) Other Income Interest expenses PBT Tax Effective tax rate (%) Adjusted PAT Growth (%) Net Margin (%) (Profit)/loss from JVs/Ass/MI Adj. PAT After JVs/Ass/MI E/O items Reported PAT PAT after MI Growth (%) FY12A 10,269 -33.5 7,473 844 0 697 3,049 -18.6 29.0 605 2,444 23.2 342 1,193 1,593 626 39.3 967 -42.0 9.2 -58 909 0 909 909 -46.8 FY13A 19,305 88.0 13,685 1,444 0 723 5,791 89.9 29.7 682 5,109 26.2 636 1,489 4,256 1,314 30.9 2,941 204.2 15.1 -82 2,860 0 2,860 2,860 214.7 FY14E 23,392 21.2 16,621 1,660 0 728 6,921 19.5 29.4 682 6,239 26.5 350 1,834 4,756 1,430 30.1 3,325 13.1 14.1 0 3,325 0 3,325 3,325 16.3 FY15E 33,892 44.9 24,165 1,910 0 1,087 9,877 42.7 29.0 903 8,974 26.4 350 1,987 7,338 2,216 30.2 5,121 54.0 15.0 0 5,121 0 5,121 5,121 54.0
Balance Sheet
Y/E Mar (Rsmn) Equity share capital Reserves & surplus Net worth Minority Interest Secured Loans Unsecured Loans Loan Funds Net deferred tax liability Total Liabilities Gross Block Less: Depreciation Net block Capital work in progress Investment Current Assets Inventories Sundry debtors Cash & bank balance Loans & advances Other current assets Current lia & Prov Current liabilities Provisions Net current assets Misc. exp Total Assets FY12A 3,281 18,229 21,510 2,668 18,487 285 18,772 119 43,069 19,026 3,565 15,462 5,216 1,740 36,965 15,662 8,473 2,013 10,270 547 16,314 13,983 2,330 20,651 0 43,069 FY13A 3,500 23,923 27,423 2,620 24,966 431 25,397 110 55,549 24,547 4,251 20,297 9,123 1,750 46,426 17,408 8,010 4,880 15,488 639 22,045 20,502 1,544 24,380 0 55,549 FY14E 3,500 26,757 30,257 2,620 26,507 483 26,990 246 60,113 29,875 4,932 24,943 6,234 1,092 51,932 20,612 8,331 5,000 17,488 500 24,087 22,124 1,963 27,845 0 60,113 FY15E 3,500 31,386 34,886 2,620 29,284 483 29,767 427 67,700 39,295 5,835 33,460 7,282 1,092 55,839 21,708 11,143 5,000 17,488 500 29,973 27,750 2,223 25,866 0 67,700
Cash Flow
Y/E Mar (Rsmn) PBT (Ex-Other income) Depreciation Interest Provided Other Non-Cash items Chg in working cap Tax paid Operating Cashflow Capital expenditure Free Cash Flow Other income Investments Investing Cashflow Equity Capital Raised Loans Taken / (Repaid) Interest Paid Dividend paid (incl tax) Income from investments Others Financing Cashflow Net chg in cash Opening cash position Closing cash position FY12A 997 605 1,193 0 -1,564 -626 605 -6,039 -5,434 596 938 -4,504 -83 3,597 -1,193 -458 0 370 2,233 -1,666 3,679 2,013 FY13A 3,449 682 1,489 0 -871 -1,314 3,435 -9,423 -5,988 806 -9 -8,626 3,545 6,625 -1,489 -491 0 -130 8,059 2,867 2,013 4,880 FY14E 4,256 682 1,834 0 -3,208 -1,430 2,132 -2,439 -306 500 658 -1,281 0 1,593 -1,834 -491 0 0 -732 120 4,880 5,000 FY15E 6,838 903 1,987 0 2,159 -2,216 9,670 -10,468 -799 500 0 -9,968 0 2,777 -1,987 -491 0 0 299 0 5,000 5,000
Key Ratios
Emkay Research
December 26, 2013
30
Positive Catalysts Missing

n
December 26, 2013

NA -10 6,279 21,075 n 3M 11 4 6M 12M -12 -22 -17 -24 n n
Over-supply in Bangalore housing, dependence on NCR and tier-2 cities, inventory in high ticket-size brackets and higher NRI share make SDLs sales booking trajectory vulnerable Launch pipeline over the next 24 months looks weak, with the company is needed to continually invest in land bank for launches, as the requirement is more than the availability SDL is entering the commercial space segment at a point when Bangalore will see huge supply. Strong brand, location and/or partial monetisation may mitigate this concern We are more cautious on the stock, and downgrade the rating to Hold and TP to Rs360. In our view, divestment of stake in APMC project and monetisation of land are risks
Price Performance
Source: Bloomberg
1M -7 -9
SDLs sales booking trajectory is vulnerable

Sobha Developer Ltd.s (SDL) sales booking trajectory is highly vulnerable for the following four reasons: 1) over-supply of housing space in Bangalore dilutes SDLs superiority, as a better priced product could be available at a better location, 2) around 40% of the companys sales booking value over the last 4 quarters is from NCR and tier-2 cities, where sustainability is quite doubtful, 3) a good share of sales booking (28% in H1FY14) comes from NRIs, which again makes it less sustainable, 4) more than 60% of SDLs unsold inventory is above the ticket-size of Rs 10mn, where a major slowdown is seen in absorption in Bangalore.

475 Rs % 20 420 8
365
-4
310
-16
255
-28
200 Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
-40 Dec-13
SDLs entering commercial space segment adds to business risks

SDLs plan to enter commercial space development for lease is highly unwarranted. The company is committing Rs9bn of capital for developing and leasing 2msf of space in north Bangalore. In the next 2 years, the city would see ready supply of 36msf of office space as against the annual absorption run-rate of 10-12msf. This supply will exert huge pressure on the commercial asset pricing as well as monetisation timeline. We remain highly cautious considering the supply expectation & investments involved (40% of SDLs net worth). Monetisation of the project to a strategic investor would mitigate the risk.
Sobha Developers (LHS)
Rel to Nifty (RHS)
Source: Bloomberg
Stock Details
Sector
Real Estate SOBHA IB 981 10 98 498/ 213 31/ 495 177,568 0.9
Cashflows would be stable, but avenues for growth missing

SDLs operating cashflows generation over the next 3 years would be stable, but the business growth potential is missing in the medium term. The cashflows would have more downside risks than upside potential, as the company would have to continually make investments towards capex and land acquisition. We would be wrong if the company generates cashflows either by a divestment of its stake in the APMC commercial project or by monetising its land bank.

Source: Bloomberg
Lowering the TP by 10% to Rs360, downgrading from Accumulate to Hold

We lower our target price on the back of higher business risks and missing positive catalysts in the near-to-medium term. At 1-year target price of Rs360, the stock would trade at P/BV of 1.4x on FY15 estimates, and the implied P/BV for land bank comes to 1.9x. We have a built-in sales booking assumption of Rs25bn and Rs27bn for FY14E and FY15E, respectively. Financial Snapshot (Consolidated)
YEMar FY12A FY13A FY14E FY15E Net Sales 14,079 18,645 21,024 26,230 EBITDA (Core) 4,665 5,483 6,107 7,773 (%) 33.1 29.4 29.1 29.6 APAT 2,059 2,172 2,460 3,430 EPS EPS RoE (%) 10.7 10.5 11.1 14.1 P/E 16.5 15.6 13.8 9.9
60.6 33.2 2.6 1.1 2.6
60.6 33.2 3.1 0.8 2.3
60.6 31.8 4.3 0.9 2.5
(Rs mn)
EV/ EBITDA 9.8 8.5 7.6 6.1 P/BV 1.7 1.6 1.5 1.3 (Rs) % chg 21.0 22.1 25.1 35.0 13.6 5.5 13.3 39.4
31
Company Update
Emkay
Sobha Developers
Sobha Developers
Company Update
SDLs unsold inventory in Bangalore is in high-ticket bracket, demand for which has dried up
As on Q2FY14, SDL has an unsold inventory of 7.7msf from its ongoing projects, of which 2.5msf is not offered for sales, leading to a net inventory of 5.1msf. Bangalore has a share of 3.1msf of the 5.1msf. OF the 7.7msf of ongoing projects, ~52% of the area is in luxury segment and another 37% is in premium segment. Even after considering that substantial portion (24%) of the inventory would be in NCR region, the major portion of Bangalore would be still in luxury and premium segments. Our channel checks suggest that Bangalore is witnessing s steep slowdown in absorption of > Rs 12mn ticket size segment, where SDL has huge presence. We believe SDL to report lower than expected sales booking in Q3FY14E and may miss its FY14E sales booking target of Rs 26bn if this situation persists.
Exhibit 37: Unsold Inventory from On-going Projects msf Bangalore Gurgaon Chennai Pune Coimbatore Thrissur Kozikhode Mysore Total
Exhibit 38: Ticket size of SLDs Unsold Inventory Offered for Sale 3.14 0.46 0.32 0.24 0.07 0.32 0.52 0.06 5.13 Ticket Size < Rs 5mn Rs 5m - Rs 10mn Rs 10mn - Rs 20mn Rs 20mn < Total
Total 4.22 1.88 0.32 0.24 0.12 0.32 0.52 0.06 7.68
msf 0.06 0.79 2.83 4.00 7.68
Share 1% 10% 37% 52% 100%
Tier-2 cities and NRI sales add to SDLs sales booking trajectory, but also makes it vulnerable
Tier-2 and tier-3 cities, on an average, contribute more than a 10% share in SDLs sales booking trajectory. The companys strong brand in Bangalore is leveraged in these unorganised housing markets, helping to have a high volume of sales. But volatility of the sales run-rate in these cities does not infuse confidence on sustainability. For instance, in Q4FY12, sales booking from these cities dropped by 44% qoq, which was fortunately covered up by the company entering the Chennai market. NRIs 25% share in SDLs overall sales booking adds more to this uncertainty, as we believe the sustainability of the same is uncertain.
Exhibit 39: City-wise sales break-up with NRIs share Cities Bangalore Chennai Pune Tier-1 Total Coimbatore Mysore Kozhikode Thrissur Tier-2 & 3 Total Gurgaon NRIs Share Jun-10 72% 0% 9% 81% 4% 0% 0% 14% 19% 0% NA Sep-10 70% 0% 2% 72% 5% 0% 0% 22% 28% 0% NA Dec-10 80% 0% 8% 88% 4% 0% 0% 8% 12% 0% NA Mar-11 83% 0% 2% 85% 6% 0% 0% 9% 15% 0% NA Jun-11 72% 0% 4% 76% 7% 9% 0% 9% 24% 0% NA Sep-11 69% 0% 5% 74% 2% 2% 0% 11% 15% 11% NA Dec-11 69% 0% 3% 72% 3% 2% 0% 10% 15% 13% NA Mar-12 66% 10% 4% 79% 1% 0% 0% 7% 8% 13% NA Jun-12 62% 9% 4% 75% 3% 1% 0% 5% 9% 16% 21% Sep-12 62% 4% 4% 71% 1% 1% 0% 13% 14% 15% 30% Dec-12 65% 7% 3% 76% 2% 1% 0% 10% 13% 11% 24% Mar-13 64% 10% 4% 78% 1% 0% 0% 9% 10% 12% 24% Jun-13 66% 11% 2% 79% 0% 1% 0% 16% 17% 4% 25% Sep-13 67% 9% 1% 77% 2% 2% 6% 10% 20% 3% 28%
Emkay Research
December 26, 2013
32
Sobha Developers
Company Update
SDLs venturing into commercial space development may not be rightly timed
SDL has committed cash outflows of Rs9.0bn for the next 4 years towards development of commercial space, which will have a total lease area of 2.0msf. Considering the location, the expected rental income from the project is 0.9bn, giving a yield of 10% against the opportunity cost of at least 12.5% on capital investment. Also, as per DTZ, Bangalore has total vacancy of 14msf at end of Sep13 and is expected to see supply of over 36msf by CY15. Against the annual absorption run-rate of 10-12msf., Bangalore may see vacancy levels increasing from current 14msf to 23-25msf by CY15. The over-supply in the commercial space and the high opportunity cost would lengthen the return on investment for SDL.
Emkay Research
December 26, 2013
33
Sobha Developers
Company Update

Y/E Mar (Rsmn) Net Sales Growth (%) Expenditure Employee Cost Other Exp SG&A EBITDA Growth (%) EBITDA margin (%) Depreciation EBIT EBIT margin (%) Other Income Interest expenses PBT Tax Effective tax rate (%) Adjusted PAT Growth (%) Net Margin (%) (Profit)/loss from JVs/Ass/MI Adj. PAT After JVs/Ass/MI E/O items Reported PAT PAT after MI Growth (%) FY12A 14,079 1.0 9,414 1,268 0 1,694 4,665 29.6 33.1 388 4,278 30.4 65 1,165 3,177 1,077 33.9 2,100 13.8 14.9 -41 2,059 0 2,059 2,059 13.6 FY13A 18,645 32.4 13,162 1,635 0 1,944 5,483 17.5 29.4 594 4,889 26.2 56 1,705 3,240 1,068 33.0 2,172 3.4 11.6 0 2,172 0 2,172 2,172 5.5 FY14E 21,024 12.8 14,916 1,778 0 2,575 6,107 11.4 29.1 673 5,435 25.8 0 1,499 3,936 1,426 36.2 2,510 15.6 11.9 -50 2,460 0 2,460 2,460 13.3 FY15E 26,230 24.8 18,457 1,955 0 3,213 7,773 27.3 29.6 728 7,045 26.9 0 1,641 5,403 1,923 35.6 3,480 38.6 13.3 -50 3,430 0 3,430 3,430 39.4
Balance Sheet
Y/E Mar (Rsmn) Equity share capital Reserves & surplus Net worth Minority Interest Secured Loans Unsecured Loans Loan Funds Net deferred tax liability Total Liabilities Gross Block Less: Depreciation Net block Capital work in progress Investment Current Assets Inventories Sundry debtors Cash & bank balance Loans & advances Other current assets Current lia & Prov Current liabilities Provisions Net current assets Misc. exp Total Assets FY12A 981 19,017 19,998 355 12,338 70 12,408 330 33,091 4,998 2,158 2,840 13 0 39,520 16,759 3,803 689 18,268 0 9,282 7,895 1,386 30,238 0 33,091 FY13A 981 20,386 21,366 102 12,924 100 13,024 638 35,130 6,053 2,752 3,301 0 2 45,294 19,018 1,661 670 18,671 5,274 13,467 12,030 1,437 31,827 0 35,130 FY14E 981 22,043 23,023 152 13,002 100 13,102 595 36,873 6,526 3,425 3,101 550 2 46,450 20,244 1,661 600 18,671 5,274 13,230 11,639 1,591 33,219 0 36,873 FY15E 981 24,670 25,650 202 13,815 100 13,915 769 40,537 7,054 4,153 2,901 1,930 2 51,596 25,390 1,661 600 18,671 5,274 15,893 14,053 1,840 35,703 0 40,537
Cash Flow
Y/E Mar (Rsmn) PBT (Ex-Other income) Depreciation Interest Provided Other Non-Cash items Chg in working cap Tax paid Operating Cashflow Capital expenditure Free Cash Flow Other income Investments Investing Cashflow Equity Capital Raised Loans Taken / (Repaid) Interest Paid Dividend paid (incl tax) Income from investments Others Financing Cashflow Net chg in cash Opening cash position Closing cash position FY12A 3,112 388 1,165 0 -316 -1,077 3,273 -1,221 2,052 65 37 -1,119 4 -8 -1,165 -574 0 -10 -1,753 401 288 689 FY13A 3,184 594 1,705 0 -1,300 -1,068 3,115 -1,043 2,072 56 -2 -989 0 616 -1,705 -803 0 -253 -2,145 -19 690 670 FY14E 3,936 673 1,499 0 -1,505 -1,426 3,177 -1,023 2,154 0 0 -1,023 0 78 -1,499 -803 0 0 -2,224 -70 670 600 FY15E 5,403 728 1,641 0 -2,310 -1,923 3,539 -1,908 1,631 0 0 -1,908 0 813 -1,641 -803 0 0 -1,631 0 600 600
Key Ratios
Emkay Research
December 26, 2013
34
Slow Moving
n
December 26, 2013
Previous Reco Buy Target Price Rs400

NA -20 6,279 21,075 n 3M 5 -1 6M 12M -21 -30 -31 -37 n n
SRLs execution, sales booking and collections have been slow moving than our expectations, lengthening the cash generation and growth trajectory assumptions High cash outflow commitments till FY17E would require SRL to sell at least Rs8bn over nest 3 years worth to avoid cashflows mismanagement SRLs sales booking trajectory post-completion of Signature Island and execution of on-going projects will be the key factor to watch for any meaningful re-rating Downgrade rating to Accumulate and TP to Rs400.
Price Performance
Source: Bloomberg
1M -10 -12
Execution is the key factor for SRLs growth

Project execution has been an area of concern for SRL. The company since its inception has delayed its project delivery, which has affected its sales booking and collections trajectory. It has taken corrective steps by building its execution team stronger and appointing L&T as its project contractor for new launches. Timely execution and quality delivery will play key factors in building customer confidence for SRL, which we believe is missing now. The completion of Signature Island in mid-2014 would address the quality perception of SRL.

525 Rs % 10 470 0
415
-10
360
-20
SRL requires to sell Rs 8bn worth for cashflows management till FY16E
Over the next 30 months, SRL has cash outflow commitments of Rs19.2bn towards fixed costs, construction costs, FSI payments, capital repayments and taxes (sold area). Against the same, the company has cash inflow commitments of Rs12.4bn from rental income and collections from sold area, leading to a cash flows deficit of Rs6.8bn. On the unsold inventory of Rs43bn, it would have to monetize 19% of the same to meet its cash deficit. The annual sales booking run-rate would have to be 1x of the past 3-year average.
305
-30
250 Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
-40 Dec-13
Sunteck Realty (LHS)
Rel to Nifty (RHS)
Source: Bloomberg
Stock Details
Sector
Real Estate SRIN IB 126 2 63 564/ 260 20/ 315 22,050 0.1
Signature Islands sales run-rate post-completion is the key test

SRLs valuations remain attractive on the back of huge value of unsold inventory from the ongoing projects. The companys key project, Signature Island, is expected completion in Q4FY14, which has an unsold inventory of at least Rs15bn (59% of SBA). The sales run-rate of Signature Island is expected to pick up post-completion considering it being the only super-luxury ready-to-move-in product in Mumbai. As on Q2FY14, the outstanding collections from the sold area of ongoing projects are equal to outstanding payments to be incurred to complete the projects.

Source: Bloomberg
Lower target by 20% to factor in slower sales run-rate

73.4 5.7 N/A 10.7 10.2
73.5 5.8 0.0 10.8 10.0
73.4 5.7 0.2 11.3 9.3
On the whole, SRL has deep value considering its quality land bank and value of potential cash generation from its ongoing inventory. But, owning to slower run-rate, the return on investment would be lower and cashflows would lengthen, affecting the valuations.
Financial Snapshot (Consolidated)

YEMar FY12A FY13A FY14E FY15E Net Sales 205 302 9,769 11,522 EBITDA (Core) 90 54 6,862 7,379 (%) 43.9 17.9 70.2 64.0 APAT 44 63 3,127 4,130 EPS (Rs) 0.7 1.0 65.6 EPS % chg -20.4 41.9 32.1 RoE (%) P/E EV/ EBITDA 281.2 473.9 4.1 3.0
(Rsmn)
P/BV 3.0 4.3 2.6 1.8
0.6 477.6 1.1 336.7 48.5 41.7 6.7 5.1
49.6 4,903.6
35
Company Update
Emkay
Sunteck Realty
Sunteck Realty
Company Update

Y/E Mar (Rsmn) Net Sales Growth (%) Expenditure Employee Cost Other Exp SG&A EBITDA Growth (%) EBITDA margin (%) Depreciation EBIT EBIT margin (%) Other Income Interest expenses PBT Tax Effective tax rate (%) Adjusted PAT Growth (%) Net Margin (%) (Profit)/loss from JVs/Ass/MI Adj. PAT After JVs/Ass/MI E/O items Reported PAT PAT after MI Growth (%) FY12A 170 -15.8 115 23 92 0 90 45.6 43.9 15 75 36.7 99 51 123 65 52.6 58 -5.5 28.5 -14 44 0 44 44 -20.4 FY13A 302 77.7 248 45 105 0 54 17.9 14 40 13.3 200 110 130 62 47.8 68 16.0 22.4 -5 63 0 63 63 41.9 FY14E 9,769 3,133.6 2,906 52 120 0 6,862 70.2 16 6,847 70.1 50 158 6,738 2,420 35.9 4,319 6,279.0 44.2 -1,191 3,127 0 3,127 3,127 4,903.6 FY15E 11,522 17.9 4,143 60 138 0 7,379 7.5 64.0 16 7,364 63.9 50 154 7,259 2,606 35.9 4,654 7.8 40.4 -523 4,130 0 4,130 4,130 32.1
Balance Sheet
Y/E Mar (Rsmn) Equity share capital Reserves & surplus Net worth Minority Interest Secured Loans Unsecured Loans Loan Funds Net deferred tax liability Total Liabilities Gross Block Less: Depreciation Net block Capital work in progress Investment Current Assets Inventories Sundry debtors Cash & bank balance Loans & advances Other current assets Current lia & Prov Current liabilities Provisions Net current assets Misc. exp Total Assets FY12A 3,091 3,900 6,991 40 2,635 2,247 4,882 7 11,920 936 103 834 0 670 23,783 19,036 369 274 4,096 9 13,367 13,354 12 10,417 0 11,920 FY13A 1,015 3,884 4,898 4 2,452 2,630 5,082 7 9,992 861 117 744 0 365 26,028 20,763 576 413 4,207 70 17,145 17,127 19 8,883 0 9,992 FY14E 1,015 6,970 7,985 4 4,665 2,920 7,585 12 15,586 861 133 728 0 365 29,670 25,134 576 413 3,507 40 15,177 15,152 24 14,493 0 15,586 FY15E 773 11,054 11,827 4 2,586 2,179 4,765 18 16,613 861 148 713 0 365 32,464 25,448 576 3,893 2,507 40 16,928 16,904 24 15,536 0 16,613
-39.7 12,561.3
Cash Flow
Y/E Mar (Rsmn) PBT (Ex-Other income) Depreciation Interest Provided Other Non-Cash items Chg in working cap Tax paid Operating Cashflow Capital expenditure Free Cash Flow Other income Investments Investing Cashflow Equity Capital Raised Loans Taken / (Repaid) Interest Paid Dividend paid (incl tax) Income from investments Others Financing Cashflow Net chg in cash Opening cash position Closing cash position FY12A -11 15 51 0 -939 -60 -945 -7 -951 134 -64 63 99 859 -51 -21 0 0 886 4 274 278 FY13A -70 14 110 0 1,673 -62 1,665 75 1,740 200 305 580 -2,134 200 -110 -21 0 -41 -2,106 139 274 413 FY14E 6,688 16 158 0 -5,605 -2,420 -1,162 0 -1,162 50 0 50 -20 2,503 -158 -21 0 -1,191 1,112 0 413 413 FY15E 7,209 16 154 0 2,442 -2,606 7,216 0 7,216 50 0 50 -267 -2,820 -154 -21 0 -523 -3,786 3,480 413 3,893
Key Ratios
Emkay Research
December 26, 2013
36
Sunteck Realty
Company Update
Emkay Global Financial Services Ltd. 7th Floor, The Ruby, Senapati Bapat Marg, Dadar - West, Mumbai - 400028. India Tel: +91 22 66121212 Fax: +91 22 66121299 Web: www.emkayglobal.com DISCLAIMER: Emkay Global Financial Services Limited and its affiliates are a full-service, brokerage, investment banking, investment management, and financing group. We along with our affiliates
are participants in virtually all securities trading markets in India. Our research professionals provide important input into our investment banking and other business selection processes. Investors may assume that Emkay Global Financial Services Limited and/or its affiliates may seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein. This report is not directed to, 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 or regulation or which would subject Emkay Global Financial Limited or its group companies to any registration or licensing requirement within such jurisdiction. Specifically, this document does not constitute an offer to or solicitation to any U.S. person for the purchase or sale of any financial instrument or as an official confirmation of any transaction to any U.S. person unless otherwise stated, this message should not be construed as official confirmation of any transaction. No part of this document may be distributed in Canada or used by private customers in United Kingdom. All material presented in this report, unless specifically indicated otherwise, is under copyright to Emkay. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of Emkay. All trademarks, service marks and logos used in this report are trademarks or registered trademarks of Emkay or its Group Companies. The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized reading, dissemination, distribution or copying of this communication is prohibited unless otherwise expressly authorized. Please ensure that you have read Risk Disclosure Document for Capital Market and Derivatives Segments as prescribed by Securities and Exchange Board of India before investing in Indian Securities Market. In so far as this report includes current or historic information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed.
Emkay Research
December 26, 2013
37 www.emkayglobal.com

Realestate Sector Update 261213

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Realestate Sector Update 261213

Încărcat de

Drepturi de autor:

Formate disponibile

Your success is our success

Concerns > Opportunities, Remain Underweight

December 26, 2013

Growth avenues missing; segmental and locational diversification options

Housing demand continues to remain low and vulnerable across cities

Supply-side fragmentation of housing add to the woes

Emkay Global Financial Services Ltd.

Indias housing market is heterogeneous

Housing space demand factors

1st House Demand (Ownership)

Replacement Demand (Upgradation)

Investor Demand (Capitalization)

Source: Emkay Research

Error! Reference source not found.

Housing space supply factors

December 26, 2013

Concerns getting Prominent

Growth avenues missing

Execution risk is at its peak

OBRE 4.5 1.6 4.8 3.0

NRI demand adds to vulnerability

Investment partners exit overhang

Source: Grant Thornton, JLL, Emkay Research

December 26, 2013

Gurgaon / Delhi: Low demand, High supply - Prices fall

175 150 125

189 6 3 4.1 1.9

Source: Liases For as, Emkay Research

Source: Liases Foras, Emkay Research

Exhibit 9: Housing launch trend (msf)

Exhibit 10: Housing space inventory trend (quarters)

5 0 Mar-10 Mar-11 Mar-12 Sep-10 Sep-11 Sep-12 Mar-13

Source: Liases Foras, Emkay Research

Source: Liases Foras, Emkay Research

December 26, 2013

Demand in Gurgaon remains vulnerable; Capital appreciation promises to investors is waning

Source: Emkay Research

December 26, 2013

Greater Mumbai: Low demand, Low supply - Prices correct

Source: Liases For as, Emkay Research

Source: Liases Foras, Emkay Research

Exhibit 14: Housing launch trend (msf)

Exhibit 15: Housing space inventory trend (quarters)

Source: Liases Foras, Emkay Research

Source: Liases Foras, Emkay Research

December 26, 2013

Why are Mumbai housing prices resilient?

December 26, 2013

Bangalore housing: Demand Vulnerable, Over-supply

Exhibit 16: Housing capital value index

20 15 10 5 0 Mar-09 Mar-10 Mar-11 Mar-12

Source: Liases For as, Emkay Research

Source: Liases Foras, Emkay Research

Exhibit 18: Housing area launch trend (msf)

Exhibit 19: Housing space inventory trend (quarters)

Source: Liases Foras, Emkay Research

Source: Liases Foras, Emkay Research

December 26, 2013

Affordability quotient at its lowest in the last 6 years

FY09 11-13% 10% 8-9% 12-13%

FY13 6% 6-8% 8% 8% 8% 157% 127% 140% 632740 7000000 11.1 205

100% 100% 100% 500000 5000000 10.0 138

110% 104% 89% 521146 4450000 8.5 154

Over-supply scenario; Huge fragmentation of the market