COMPANY UPDATE 17 JUL 2014

Kolte-Patil Developers
BUY







Sanjivani receives key approval
Kolte-Patil Developers (KPDL) has received the
Location Clearance (LC) from the Maharashtra State
Urban Development Department (UDD) for Phase I of
its Sanjivani integrated township project located at
Urse, Pune on the Mumbai-Pune Expressway. Phase I
of the project is spread across 242 acres with a
saleable area of ~6msf. We have assumed a FY16E
launch with selling price of Rs 4,000/psf. The entire
Sanjivani township has a gross saleable area of
~15msf with KPDL having 51% stake. We value
KPDLs Sanjivani stake at Rs 3.0bn (Rs 40/share).
After achieving its sales booking target of 7.6msf
worth Rs 35bn over FY12-14, KPDL is well poised for
the next leg of growth and is looking to achieve
12msf of sales worth Rs 72bn over FY15-17E. We
believe that this is achievable given the strong
launch pipeline (~19msf of approvals received in
CY14) and exposure to a stable Pune market. We
model for 11.8msf of sales worth Rs 66.6bn over
FY15-17E and expect KPDL to generate post interest
cash surplus of Rs 1.7bn driven by ramp up in
collections. We currently have a BUY rating on KPDL
based on FY16E NAV of Rs 241/sh. The stock trades
at 34% discount to NAV. Key upside risks are addition
of more redevelopment projects in Mumbai,
development manager fees from other projects and
increase in township FSI from 0.5x to 1.0x in Pune.
Robust launch pipeline
At the end of FY14, KPDL has completed over 7msf of
projects and has ~16.6msf of ongoing projects, 12.8msf
of forthcoming launches in FY15E and another ~24msf
of future land bank. With KPDL recently receiving the
location clearance (LC) for Life Republic Phase II of
6.9msf and another 5.9msf of SEAC approvals in CY14,
KPDL is well positioned to grow its sales bookings
over FY15-17E.
Key Risks
Key downside risks are lower than expected volumes in
Pune projects, delay in regulatory clearances especially
for Sanjivani Township and any sharp rise in input costs
for materials.



FINANCIAL SUMMARY (CONSOLIDATED)
(Rs mn) FY13 FY14 FY15E FY16E FY17E
Net Sales 7,275 7,642 7,778 12,738 19,706
EBIDTA 1,921 2,208 2,400 3,971 5,915
APAT 1,074 920 1,006 1,778 2,762
EPS (Rs.) 14.2 12.1 13.3 23.5 36.5
P/E (x) 11.3 13.2 12.1 6.8 4.4
EV/EBITDA 6.6 6.6 6.4 3.9 2.6
RoE (%) 14.9 12.3 12.2 18.7 23.9
Source : Company, HDFC sec Inst Research

INDUSTRY REAL ESTATE
CMP (as on 16 Jul 2014) Rs 160
Target Price Rs 241
Nifty 7,624
Sensex 25,550
KEY STOCK DATA
Bloomberg/Reuters KPDL IN/KOLT.BO
No. of Shares (mn) 76
MCap (Rs bn) / ($ mn) 12/202
6m avg traded value (Rs mn) 50
STOCK PERFORMANCE (%)
52 Week high / low Rs 169/48
3M 6M 12M
Absolute (%) 60.7 91.2 105.7
Relative (%) 46.0 71.0 76.9
SHAREHOLDING PATTERN (%)
Promoters 74.54
FIs & Local MFs 0.61
FIIs 4.68
Public & Others 20.17
Source : BSE



Adhidev Chattopadhyay
adhidev.chattopadhyay@hdfcsec.com
+91-22-6171-7317


HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

KOLTE-PATIL DEVELOPERS : COMPANY UPDATE



We build-in sales bookings of Rs 66.6bn over FY15-17E
We believe that KPDLs guidance for ~12msf of sales
over FY15-17E is achievable given strong project
pipeline. Hence, we model for ~11.7msf of sales worth
Rs 66.6bn over the next three years. Of this, we
estimate KPDL share at 7.47msf worth Rs 44.3bn or
~64% of gross sales volumes mainly on account of 45%
stake in the Life Republic township project.
Our average selling price assumption of Rs 5,673/psf is
~5% lower than KPDLs own estimate of Rs 6,000/psf
and factors in a possible lower rate of growth in
property prices across markets.
Life Republic and Corolla projects are expected to be
the key volume contributors over FY15-17E along with
the recently launched Wakad and Kondhwa projects.

KEY ASSUMPTIONS AND SALES BOOKINGS DETAILS
(Rs mn) FY15E FY16E FY17E FY15-17E
Development Properties:




Gross Area sold (msf) 3.0 4.1 4.7 11.8
Average rate (Rs/psf) 5,309 5,693 5,888 5,673
Gross Sales Value (Rs mn) 15,888 23,168 27,575 66,631
YoY Price escalation (%) 5.0 5.0 5.0 5.0
YoY Cost escalation (%) 5.0 5.0 5.0 5.0




Gross Area Sold Breakup (msf):




Pune Ongoing 1.82 1.82 1.81 5.45
Pune Forthcoming 0.98 1.84 2.44 5.25
Bengaluru 0.18 0.33 0.36 0.87
Mumbai 0.02 0.08 0.08 0.18
Total Area Sold (msf) 2.99 4.07 4.68 11.75




KPDL Share of Area Sold (msf):




Pune Ongoing 1.28 1.28 1.27 3.82
Pune Forthcoming 0.46 0.93 1.21 2.60
Bengaluru 0.18 0.33 0.36 0.87
Mumbai 0.02 0.08 0.08 0.18
Total KPDL Share of Area Sold (msf) 1.94 2.61 2.91 7.47
Total KPDL share in transaction value (Rs mn) 10,713 15,630 17,990 44,333
Source: HDFC sec Inst Research

We model 11.71 msf of pre-
sales worth Rs 66.6bn over
FY15-17E with annual price
escalation of 5%

Of this, KPDL share is
estimated at 7.5msf worth Rs
44.3bn
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KOLTE-PATIL DEVELOPERS : COMPANY UPDATE


KPDL to generate free cash flows of Rs 1.7bn over FY15-17E
We expect KPDL to generate net cash surplus of Rs
1.7bn over FY15-17E on the back of strong customer
collections of Rs 36.2bn led by launches and strong
execution across projects. KPDL also has pending
collections of ~Rs 9bn from its sold portfolio across its
ongoing projects.
At the same time, we expect a scale up in construction
outflows and corporate overheads as KPDL looks to
ramp up its execution with deliveries of ~4msf in FY15E
and annual deliveries of 4-5msf in FY16-17E.


KPDL PROFORMA CASH FLOW MODEL FY15-17E
(Rs mn) FY15E FY16E FY17E FY15-17E
Inflows :




Devco sales 7,175 11,644 16,846 35,665
Rental Income - - - -
Other income 167 183 202 552
Deposits/Land sales - - - -
Equity raised - - - -
Total cash inflows..(i) 7,342 11,827 17,048 36,217




Outflows :




Devco 4,689 8,140 13,320 26,149
Rentco - - - -
Land capex/JDA deposits (net) - - - -
Capex 50 50 50 150
Stake buyouts - - - -
Salaries and other expenses 925 1,033 1,136 3,094
Interest payments 476 525 525 1,527
Taxes 661 1,168 1,814 3,643
Total cash outflow..(ii) 6,800 10,916 16,846 34,562




Net Inflows..(i)-(ii) 542 911 202 1,655
Source: HDFC sec Inst Research




We model for Rs 36.2bn of
collections and other income
over FY15-17E

Against this, we expect
outflow of Rs 34.6bn prior to
dividend payments
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KOLTE-PATIL DEVELOPERS : COMPANY UPDATE


Valuations & views
We like KPDL given (1) strong brand recall and being
the market leader in Pune residential, (2) aversion to
leverage, (3) strong pipeline of projects and (4) stated
dividend policy of distributing 15-25% of profits to
shareholders.
We have valued KPDL on SOTP basis with a
combination of DCF based NAV on FY16E basis
(including Life Republic and Sanjivani townships) and
1x book value of investment for balance land parcels.
We have assumed a WACC of 15.8% and annual price
and cost escalation of 5%.
We value KPDL on FY16E NAV with a TP of Rs 241/sh
(CMP Rs 160/sh).
Key downside risks are lower than expected volumes in
Pune projects, delay in regulatory clearances especially
for Sanjivani Township and any sharp rise in input costs
for materials.
Key upside risks are addition of more redevelopment
projects in Mumbai, development manager fees from
other developers projects and increase in township
from 0.5x to 1.0x are potential upsides to our target
price.

SOTP VALUATION
Project Valuation Methodology FY16 GAV (Rs mn) Value (Rs/share) % of GAV
Devco:
Pune Ongoing DCF 8,912 118 41.2
Pune Forthcoming DCF 9,288 123 42.9
Bengaluru DCF 1,459 19 6.7
Mumbai DCF 1,688 22 7.8
Land Bank 1x P/B of investment 288 4 1.3
Total GAV 21,635 286 100.0
Less: FY16 Net Debt 3,361 44
Unpaid land cost - -
FY16 NAV 18,177 241
Source: HDFC sec Inst Research







We value KPDLs FY16E
NAV at Rs 241/sh with
ongoing projects
contributing 41% to our
GAV

Further addition of
redevelopment projects in
Mumbai, development
manager fees from other
developers projects and
increase in township from
0.5x to 1.0x are potential
upsides to our NAV

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KOLTE-PATIL DEVELOPERS : COMPANY UPDATE


INCOME STATEMENT (CONSOLIDATED)
(Rs mn) FY13 FY14 FY15E FY16E FY17E
Net Sales 7,275 7,642 7,778 12,738 19,706
Growth (%) 191.9 5.0 1.8 63.8 54.7
Material Expenses 4,600 4,617 4,454 7,733 12,654
Employee Expenses 279 292 321 370 407
Other Operating Expenses 475 524 603 663 730
EBIDTA 1,921 2,208 2,400 3,971 5,915
EBIDTA (%) 26.4 28.9 30.8 31.2 30.0
EBIDTA Growth (%) 183.6 15.0 8.7 65.5 49.0
Other Income 365 152 167 183 202
Depreciation 59 71 88 91 95
EBIT 2,227 2,289 2,479 4,064 6,023
Interest 363 457 476 525 525
PBT 1,864 1,832 2,002 3,538 5,497
Tax 625 663 661 1,168 1,814
PAT 1,239 1,169 1,342 2,371 3,683
Minority Interest (165) (249) (335) (593) (921)
EO items (net of tax) - - - - -
APAT 1,074 920 1,006 1,778 2,762
APAT Growth (%) 215.2 (14.3) 9.3 76.7 55.4
EPS 14.2 12.1 13.3 23.5 36.5
EPS Growth (%) 215.2 (14.3) 9.3 76.7 55.4
Source: Company, HDFC sec Inst Research

BALANCE SHEET (CONSOLIDATED)
(Rs mn) FY13 FY14E FY15E FY16E FY17E
Share Capital 758 758 758 758 758
Reserves 6,415 7,069 7,933 9,535 12,031
Total Shareholders Funds 7,172 7,827 8,691 10,293 12,789
Minority Interest 1,491 1,740 2,075 2,668 3,589
Long Term Debt 1,040 2,652 3,652 4,152 3,652
Short Term Debt 705 705 705 705 705
Total Debt 1,745 3,357 4,357 4,857 4,357
Deferred Taxes (28) (28) (28) (28) (28)
Long Term Provisions & Others - - - - -
TOTAL SOURCES OF FUNDS 10,381 12,896 15,096 17,790 20,706
APPLICATION OF FUNDS



Net Block 796 1,026 988 947 902
CWIP 55 55 55 55 55
Goodwill - - -8 - -
Investments, LT Loans & Advs 394 344 354 374 394
Inventories 9,826 12,690 13,852 14,832 16,197
Debtors 762 815 746 1,221 1,890
Cash & Equivalents 1,122 808 1,123 1,496 1,298
ST Loans & Advances, Others 2,928 3,210 3,079 4,797 7,204
Total Current Assets 14,637 17,523 18,799 22,347 26,588
Creditors 913 958 1,006 1,057 1,109
Other Current Liabilities & Provns 4,589 5,093 4,094 4,876 6,123
Total Current Liabilities 5,502 6,052 5,100 5,933 7,232
Net Current Assets 9,136 11,471 13,699 16,414 19,355
Misc Expenses & Others - - - - -
TOTAL APPLICATION OF FUNDS 10,381 12,896 15,096 17,790 20,706
Source: Company, HDFC sec Inst Research
`





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KOLTE-PATIL DEVELOPERS : COMPANY UPDATE



CASH FLOW : (CONSOLIDATED)
(Rs mn) FY13 FY14E FY15E FY16E FY17E
Reported PAT 1,074 920 1,006 1,778 2,762
Non-operating & EO items 165 249 335 593 921
PAT from Operations 1,239 1,169 1,342 2,371 3,683
Interest expenses 363 457 476 525 525
Depreciation 59 71 88 91 95
Working Capital Change 260 (2,649) (1,913) (2,342) (3,140)
OPERATING CASH FLOW ( a ) 1,922 (952) (7) 645 1,164
Capex (346) (300) (50) (50) (50)
Free cash flow (FCF) 1,576 (1,252) (57) 595 1,114
Investments & Others (229) 50 (10) (20) (20)
INVESTING CASH FLOW ( b ) (575) (250) (60) (70) (70)
Share capital Issuance 0 0 0 0 0
Debt Issuance (350) 1,612 1,000 500 (500)
Interest expenses (363) (457) (476) (525) (525)
Dividend (253) (266) (142) (177) (267)
FINANCING CASH FLOW ( c ) (967) 889 382 (202) (1,292)
NET CASH FLOW (a+b+c) 380 (313) 315 374 (198)
Non-operating and EO items 277 - - - -
Closing Cash 1,122 808 1,123 1,496 1,298
Source: Company, HDFC sec Inst Research

KEY RATIOS : (CONSOLIDATED)
FY13 FY14E FY15E FY16E FY17E
PROFITABILITY (%)

GPM 36.8 39.6 42.7 39.3 35.8
EBITDA Margin 26.4 28.9 30.8 31.2 30.0
EBIT Margin 30.6 30.0 31.9 31.9 30.6
APAT Margin 14.8 12.0 12.9 14.0 14.0
RoE 14.9 12.3 12.2 18.7 23.9
RoIC 20.5 19.4 19.2 24.2 29.7
RoCE 22.1 20.3 18.2 25.3 31.9
EFFICIENCY

Tax Rate (%) 33.5 36.2 33.0 33.0 33.0
Asset Turnover (x) 0.7 0.6 0.5 0.7 1.0
Inventory (days) 495 538 623 411 287
Debtors (days) 30 38 37 28 29
Payables (days) 37 45 46 30 20
Cash Conversion Cycle (days) 488 531 613 410 296
Debt/EBITDA (x) 0.9 1.5 1.8 1.2 0.7
Net D/E 0.1 0.3 0.4 0.3 0.2
Interest Coverage 6.1 5.0 5.2 7.7 11.5
PER SHARE DATA

EPS (Rs/sh) 14.2 12.1 13.3 23.5 36.5
CEPS (Rs/sh) 15.0 13.1 14.4 24.7 37.7
DPS (Rs/sh) 3.5 3.1 2.0 3.5 5.5
BV (Rs/sh) 94.7 103.3 114.7 135.8 168.8
VALUATION

P/E 11.3 13.2 12.1 6.8 4.4
P/BV 1.7 1.5 1.4 1.2 0.9
EV/EBITDA 6.6 6.6 6.4 3.9 2.6
OCF/EV (%) 15.1 (6.5) (0.0) 4.2 0.1
FCF/EV (%) 12.4 (8.5) (0.4) 3.8 7.3
FCFE/Mkt Cap (%) 10.1 3.0 7.8 9.0 5.1
Dividend Yield (%) 2.2 1.9 1.2 2.2 3.4
Source: Company, HDFC sec Inst Research

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KOLTE-PATIL DEVELOPERS : COMPANY UPDATE



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HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,Senapati Bapat Marg, Lower Parel,
Mumbai - 400 013
Board : +91-22-6171 7330
www.hdfcsec.com
Rating Definitions
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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Kolte-Patil TP
Date CMP Reco Target
18-Jun-14 156 BUY 241
17-Jul-14 160 BUY 241

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