Strategic Advisory Study, Bopal, Ahmedabad

Presented to:

Inductotherm (India) Pvt. Ltd.

September 2013

Contents

Introduction

Regional Overview

Real Estate Analysis

Site Analysis

Valuation and Tax Implications

Decision Analysis

Conclusion
Jampel-yang (contracted
toJamyang)
2

Introduction

introduction
Objective of the Study
Inductotherm the Client owns and operates an
industry on a land parcel measuring about 17.79
acres, located in Bopal, Ahmedabad, Gujarat.

Key questions to be addressed in the

study

The client wants to ascertain the value of the asset

What is the as-is where-is value of the land?

and arrive at a suitable strategy to unlock the value

of the asset, in the backdrop of the organizational
needs and constraints.

What are the factors which influence the

Scope of Work

Understand the growth and economic profile of the

region
Assess the regulatory and legal aspects with
regards to land and real estate development
Conduct a study on existing demand supply
scenario of real estate asset classes suitable to the
subject location
Determine the ideal development mix at the site
and thus estimate the highest and best use
property value
Evaluate suitable strategic options for unlocking the
4
value of the asset

value of this land?

What is the future outlook on land values in

the area?

What are the available options for unlocking

the value?

Should Inductotherm hold, sell or develop

the asset?

If hold, then for how long?

If sell, then who are the potential buyers for

the property?

Is it a right time to approach these buyers?

What is the least tax liability transaction

Regional
Overview

Gujarat Overview
Fact Sheet
Area (sq.km.)

181,338

Population

60,383,60
0

Urban Population

< INR 75,000

5,411,700

Per Capita Urban

Income

` 95,100

45%

11%

SEC A
SEC B
SEC C
SEC D & E

9%

25,675,70
0

Total Urban
Households

19%

INR 75,001 - INR

150,000

23%

INR 150,001 - INR

300,000

13%
12%

27%

INR 300,001 - INR

500,000

20%

INR 500,001 - INR

1,000,000

22%

> INR 1,000,000

Annual Population 2%
Growth
Rate
Socio
Economic
Classification Urban Households
100%
88%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Urban

Income Profile Urban Households

Socio Economic Classification Urban Households

Population Growth and Projection

80,000

79%

70,000
60,000

73%

50,000
Population 000

50,671

55,808

60,384

63,532

66,774

69,812

73,231

40,000
30,000
20,000
10,000

Rural

Total

2001

2007

2012

2017

2022

2027

2032

Indias economic growth story over the last 20 to 30 years has been pre-dominantly driven by the services sector,
especially the IT / ITeS sector.

The next leg of the India growth story is poised to be driven primarily by the manufacturing sector.

Infrastructure
Passengers handled by Gujarat
Airports

Airports

Roads

Railways

2010
Ahmedab
837,000
ad
Vadodara
451,200
Surat
32,100
Bhavnaga
66,400
r
Jamnagar
65,600
Rajkot
195,200
Porbandar
19,500
Bhuj
Ports 88,900
1,755,900
Total

2015
1,018,400
603,800
44,200
73,300
73,800
273,800
22,200
101,100
2,210,600

Industrial Scenario
Industrial Performance
Industrial
Promotion
Bodies

Output Specialization

Growth Forecasts

Gujarat has seen a strong industrial growth in the past in the Petroleum and Chemical sectors, with these sectors
constituting over 45% in the states economic output.
The state has witnessed a number of emerging sectors like Metal & Metal Fabrication, Food Processing and
8

Engineering, which are forecasted to grow at CAGRs of 25%, 18% and 16% respectively.

Ahmedabad as a Center of Gravity

Ahmedabad is at the center of gravity for significant industrial developments taking place across various clusters
and along the Dedicated Freight Corridor (DFC) alignment in Gujarat
Significant upcoming industrial growth with Ahmedabad at its center of gravity shall result in a multiplier effect of
9

capital deployed being fed in Ahmedabad city, particularly, on the Ahmedabad real estate prices.

Ahmedabad Overview
Fact Sheet
Area (sq. km.)
Total Population Census
Population Density (persons per sq.
km.)
Population 0 to 6 years (%)

646
5,570,585
8623
10.57

Sex Ratio (females per 1,000 males)

897

Child Sex Ratio 0 to 6 years

853

Literacy Rate - 7 years and above (%)

89.62

5th largest city of the country and 7th largest urban agglomeration
One of the fastest growing urban agglomeration with a decadal growth rate in population of 23%
Its a mono-centric city with proportionate growth in all the directions
Western part of the city has seen more organized developments
One third of the households have annual income levels greater than ` 500,000 per annum
The city is witnessing one of the fastest growths in income profile
City administration has responded favourably to the increasing urbanization pressures and is developing public
10

transport in the form of BRTS and also high density corridors along it

Real Estate
Analysis

11

Residential market overview

Units Under Development
Zone Wise Distribution

North
Zone 3

13%

13%
7%

West
Zone 2

East
Zone 1

21%

Zone 1
Zone 2
Zone 3
Zone 4
Zone 5

Ticket Size Wise Distribution

0-25

3% 1%

25 50

10%
51%
35%

46%

50 100
100 - 200
200 and
Above

Unsold Units
Central
Zone 5

Zone Wise Distribution

16%

South
Zone 4

13%
8%
19%

43%

12

Zone 1
Zone 2
Zone 3
Zone 4
Zone 5

Ticket Size Wise Distribution

0-25

3% 1%

25 50

10%
49%
37%

50 100
100 - 200
200 and
Above

Supply Analysis
Ticket
Size (`
lakh)
Zone 1
Zone 2
Zone 3

0-25

Units Under Development

200
25
50
100 and
Total
%
50
100
200
Above
5,791 2,633
584
551
1,3811 13%
1,998 2,513
1,058
371
7,767 7%
14,799 1,622
316
74
22,696 21%

4,252
1,827
5,885
42,89
Zone 4
5,839 1,114
9
Zone 5 1,055 9,387 3,121
55,91
Total
37,814 11,003
8
%
51%
35%
10%
Unsold
Locatio
0-25
ns

25
50

Zone 1 1,449 2,814

Zone 2 1,183 1,049
Zone 3 3,159 4,900
16,29
Zone 4
2,594
6
Zone 5 489 5,467
22,57
Total
6
16,824
%
49% 37%

Market Size

Ahmedabad

market has

this about 8000 units are concentrated in

Western Ahmedabad

48

50,406 46%

Premium Projects

594

205

3,058

1,249

3%
Units

1%

14,362 13%
109,04
2
100%

100 200

1,135
963
608

227
343
182

200
and
Above
285
212
23

687

256

1,105

233

99

4,498
10%

1,241
3%

627
1%

109,000

units in various stages of development. Of

506

50
100

over

Western

Ahmedabad

has

the

highest

market share in premium units priced

greater than ` 10 million, which is ~ 33%
of the total premium apartments market

Total

5,910
3,750
8,872

13%
8%
19%

19,841
7,393

43%
16%

45,766
100%
13

Absorption
Out

of

the

total

109,000

units

in

Ahmedabad that are under development,

over 45,000 units off these are unsold
Zone 4 has the maximum quantum of
unsold inventory

market Analysis
Ahmedabad Market

Developer /Zone/Bopal

10.00
Grade A Developers

8.00
6.00

Bopal Market

4.00
2.00
-

Zone 2
Zone 1

Zone 2

Zone 3

Zone 4

Zone 5

QTS - QTC

4.00

6.00

8.00

10.00

12.00

QTS - QTC

Residential Price Index Trend

600
500
North
South
West
Central

400
Price Index

2.00

300
200
100

Zone

12 Qtrs

20 Qtrs

28 Qtrs

North

16.28%

20.93%

29.01%

South

14.94%

14.57%

21.53%

West

20.94%

16.25%

26.88%

Central

12.27%

17.45%

33.06%

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Overall there is a slow down in Ahmedabad market and developers are struggling to clear the inventory.
Developers are facing a cash crunch situation and therefore investment into land is not an attractive option for
them.

14

Central zone has shown highest appreciation followed by the western zone. However, over the past 3 years period,

Bopal Market
Increment
Market
Total
al
Year Appreciati
Appreciati
Appreciati
on
on
on

Residential Price Index

Western Zone
12.00
10.00
8.00
Bopal; 26%

6.00

2016

15.76%

57.15%

72.92%

2018

27.63%

79.17%

106.80%

2021

47.75%

111.34%

159.08%

4.00
Total; 74%

2.00
0.00

Actuals

Projected from Model

Price Comparison: Similar Markets

8000
7000
6000
5000
4000
3000
2000
1000
0

Bopal - Ahmedabad

Noida Expressway

Gurgaon NPR

Pune Peripheral

Bopal has almost 26% share of the Western Ahmedabad market

Over the past 10 years, the market has seen a significant development

Bopal market has seen a 5.5 fold increase in prices over the last 10 years

15

Panvel Mumbai

Nagpur

Growth of Bopal

16

Site Analysis

17

Location

Railway
Route

Sardar
Patel Ring
Road

Sarkhej
Gandhinagar
Highway
Ambli
Road
Railway
Station
Ambli
Bopal Road

Subject
Property

Sabarmat
i River

Ahmedaba
d Railway
Station

Nearest Highway
(S. P. Ring Road)

1 km

Nearest Railway
Station
(Ambli Road)

5 km

Nearest Airport
(Ahmedabad
Airport)

23 km

Nearest Bus Depot

(AMTS Depot)

10 km

Nearest Port
(Khambhat)
The
subject

100
site km
is

an

industrial land parcel bearing

plot nos. 58, 59 and 60/A,
measuring
Subject
Propert
y

Bopal
Road

17.79 acres

The site is located at Bopal,

one

of

the

prime
South
Bopal
Road

approximately

upcoming

locations

and
of

Ahmedabad

18

The

site

connectivity

enjoys

excellent

Regulatory Aspects
Real estate development at the subject location is governed by the General Development Regulations (GDR)
of the Ahmedabad Urban Development Authority (AUDA)
Following are some key regulations that are applicable to the subject property:
The subject site falls under two zones:
The base zone applicable is Residential Zone II (R-II)
There is also an overlap of the Residential Affordable Housing Zone (R-AHZ)
Major difference in the applicable norms under these two zones is in the
permissible FSI

Zoning

FSI (Floor Space Index)

Bas
e
FSI

R-II Zone

R-Affordable
Housing Zone

1.2

1.2

Chargea
ble FSI *
0.6

1.5

Permissible Development

Total FSI

1.8

2.7

* Additional
chargeable
FSI shall be
permitted on
payment of
charges
equal to 10%
to 40% of the
Government
(Jantri) Rates.

19

Residential 1 & 2; Educational 1 & 2;

Institutional; Assembly 1, 2 & 3; Mercantile 1
& 2; Business; Religious; Sports & Leisure;
Hospitality; Parks; Public Utility

Residential units with built-up area

upto 50 sq.mt.
more than 50 and upto 66 sq.mt.
more than 66 and upto 80 sq.mt.

Valuation and Tax

Implications

20

Valuation
Comparable Instances
Sr.
No.
1
2
3

Location
Opposite
Applewoods
Township
Sahara City
Township Road
(left side)
Sahara City
Township Road
Comparabl
(right
e 3 side)

Property

Area
Type
(acres)

Rate (`
per
sq.yd.)

Survey
Number: 501, ~ 20 Quote 30,000
502
Survey
Number
~ 20 Quote 25,000
485....
Survey
Number
~ 30 Quote 25,000
645....
Subject
Property

Value Conclusion Comparison Method

Average Land Rate: ` 20,453 per sq.yd.
Land Area: 86,106 sq.yd.
Market Value: ` 1,761 million
Discounted Cash Flow Method:
Project Financials
Total Land Area
Final Plot

59,339 sq.mt.
Residential ~ 2.54

Total Saleable Area

million
Essential Retail ~ 0.12
million

Comparabl
e1

Comparabl
e2

21

Capital Value

` 3,200 per sq.ft.

Total Revenue

` 12,857 mn

Total Cost

` 6,316 mn

Absolute Profit

` 6,541 mn

Net Present Value

` 2,183 mn

Effective Land Rate

` 30,761 per sq.yd.

Tax implications
o The provisions of Income Tax Act, 1961, as amended by Finance Act 2013, with reference to the following need to
be given special consideration
Capital Gains Tax: LTCG 20%

Dividend Distribution Tax (DDT): 15%, with limitations on repatriation

Special Provisions

Section 54G : Exemption of capital gains on transfer of asset in case of shifting of industrial
undertaking from the urban area

Where the capital gain arises from transfer of capital asset situated in an urban area, in consequence of shifting of
such industrial undertaking to any area other than urban area, and the assessee has within a period of one year before
and three years after the date on which the transfer took place:

purchased a new machinery or plant

Acquired building or land or constructed building for the purpose of his business in the new area

Shifted the original asset and transferred the establishment of such undertaking to such area

Section 112 : Tax on long term capital gains,

Where the total income of the assessee includes any income arising from the transfer of long term capital asset, which
is chargeable under the head capital gains the tax payable by the assesse on the total income shall be the aggregate
of .

Sub section (c ) in case of a foreign company

The amount of income tax payable on the total income as reduced by the amount of such long term capital
gains, had the total income as so reduced been its total income; and

22

(w.e.f. 1-4-2013) the amount of income tax on long term capital gains arising from the transfer of a capital

Tax implications Possible Structures

Option A

Option B

To create a new company either by demerger (more

To sell the land from the existing company.

preferable but will take 3-4 months) or by way of Slump Sale

Since the transaction shall be that of land, there shall be no

(Sec 50B of Income Tax Act) of all assets and liabilities except

land in Bopal.

savings in stamp duty for the buyer.

In case of demerger there will may not be any income tax

of acquisition, indexed cost of improvement).

implications.

Avail benefits of section 54G.

In case of Slump Sale the company may be transferred

MAT may still be applicable depending upon the tax structure

without land at a nominal profit of 10%.

of the parent company.

Investments for the purchase of assets by new company from

Capital gains arising due to the sale of property shall be

old company can be done by creating a new Indian entity.

subject to a 20% of income tax, however, the benefit of

Investment may be made by parent company as 100% FDI in

indexation and set off of new land and building (if one year

manufacturing sector is allowed.

prior or three years later) shall be available.

After the new company takes over, the old company shall be
left with only land in its book.

Avail the benefits of section 48 (expenditures, indexed cost

Dividend distribution tax shall be applicable, and there shall

be restrictions on repatriation.

Instead of selling the land, the entire company may be sold.

This would lead to savings in stamp duty for the buyer.

Also the Capital gains arising due to the sale of company and
thereby transfer of land, shall ,as per Sec 112, be subject to a
10% of income tax, however, the benefit of indexation will
not be available in this case.

23

Note: The above structuring needs to be confirmed by a Tax

Consultant.

Decision Analysis

24

Decision Tree

25

Option Evaluation

Financial
Assessment
Risk
Assessment

Taxation
Aspects

Other
Aspects

Option

Sell Now and

Lease Back
for 3 Years

Sell After 3
Years

Self
Development

Management
/ Marketing
Contract

Joint
Developmen
t

Absolute Profit (` mn)

1,120

3,755

9,438

9,136

8,471

Net Present Value (`

mn)

1,013

2,344

1,652

1,537

1,852

Regulatory Risk

Nil

Nil

Medium

Medium

Medium

Market Risk

Nil

Low

High

Medium

High

Downside Risk / Upside

Potential

Nil

Limited
downside; high
upside

High

High

High

Capital Gains Tax

54G: Set-off
available;
Demerger:
Reduced rate

Reduced rate

Applicable: 20%

Applicable:
20%

Applicable:
20%

Dividend Distribution
Tax

54G:
Applicable;
Demerger: Nil

Nil

Applicable

Applicable

Applicable

Stamp Duty

54G:
Applicable;
Demerger: Nil

Nil

Not Applicable

Not Applicable

Not Applicable

Transfer Pricing

Not Applicable

Not Applicable

Not Applicable

Not Applicable

Not Applicable

Liquidity

High; upfront
cash
generation

Low

Low; longer
gestation period

Low; longer
gestation
period

Low; longer
gestation
period

Capability Requirement

Nil

Nil

High

Medium

Low

High;
continuation of
existing

High;
continuation of
existing

High;
continuation
of existing

Operational Flexibility

High;
High;
26
continuation of continuation of
existing
existing

Summary
Option Evaluation Net Present Value

NPV: ` 2,344
mn
NPV: ` 1,852
mn
NPV: ` 1,652
mn

NPV: ` 1,013
mn

NPV: ` 1,537
mn

Recommend
ed Option

27

Conclusion

28

conclusion

What is the as-is where-is value of the land?

o As-is where-is market value using Sales Comparison and DCF varies from ` 1,760 to 2,180 million.

What are the factors which influence the value of this land?
o Gujarat is fast transforming into one of the most industrialized states of the country.
o The state economy is recording growth rates far in excess of the country average.
o Ahmedabad, on account of its location and proximity to state capital, is at the center of gravity of these
developments.
o The city is fast transforming into a metropolitan.
o The boundaries of the cities are witnessing rapid expansion.
o The income profile of the residents is also witnessing rapid increase.
o The multiplier effect of significant development is being felt on Real estate market, resulting in a number of
localities getting revalued

What is the future outlook on land values in the area?

o Price appreciations expected over the next 3 years: 57 to 73 %; 6 years: 79 to 107%; and 9 years: 111 to 159%

What are the available options for unlocking the value?

o
o
o
o

Hold for extended periods

Sell now whole, strata sale
Sell after in a window of 3 years whole, strata sale
Self develop, Joint development, development with a management / marketing contract
29

conclusion

Should Inductotherm hold, sell or develop the asset?

o Growth Perspective
o Bopal is fast transforming into an upper middle class locality.
o Residential property prices in Bopal are expected to increase rapidly over the next 3-5 years.
o Market Perspective
o Ahmedabad real estate market today is dominated by local developers.
o Currently the market is witnessing significant oversupply.
o The developers are in consolidation mode and are only looking at stressed acquisitions at a discount.
o Pan India / Corporate / Cash Rich developers are likely to invest in Ahmedabad over the next few years.
o Operations Perspective
o The new facility at Sanand is being developed and is expected to be commissioned over the next 2-3
years time frame.
Considering the above points, we recommend Inductotherm to Hold the asset, and look at sell as an option
only in a window of next 2-3 years.

If sell, then who are the potential buyers for the property?
o Todays Ahmedabad real estate market is dominated by local players.
o National level players who had entered the market have either seen mediocre performance, or have not
initiated their developments.
30
o Thus, the potential buyers for the asset are predominantly Ahmedabad based developers.

conclusion

Is it a right time to approach these buyers?

o No
o Today, the Ahmedabad market is in an over supply situation.
o The developers are in a consolidation mode and are having limited focus on large project developments,
and are themselves on the verge of selling their assets and land banks.
o The developers with liquidity are looking at stressed asset transactions at a significant discount.

What is a tax efficient transaction structure?

o Sale of the asset is liable to attract capital gains tax, dividend distribution tax and stamp duty
o Inductotherm being a foreign company, other aspects like transfer pricing, DTAA (Double Taxation Avoidance
Agreement), forex changes are also to be considered.
o There are some provisions under sections 50 B and 54 G of The Income Tax Act through which a tax efficient
transaction structure can be worked out.

What should be Inductotherms strategy?

o Hold the asset for a period of two to three years.
o Develop a shifting plan and initiate the process of conversion of land from industrial NA to residential or
mixed-use NA.
o Keep a close eye on changes in the development control regulations and application of the high density zone
to the property and its resultant impact on the valuation.
o Create an awareness of the asset in the market, without actually marketing it.
31 i.e. with in the window of next three years.
o Approach the market participants at the right time,

Disclaimer
The statements, information and opinions expressed or provided in this publication are intended only as a
guide to some of the important considerations that relate to property investment. Although we believe they are
correct and not misleading, with every effort having been made to ensure that they are free from error, they
should not be taken to represent, nor are they intended to represent, investment advice or specific proposals,
which must always be reviewed in isolation due to the degree of uniqueness that will attach thereto.

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32

Thank You
33