Overview of Real Estate Industry

India is one of the fastest growing economies in the world and one of the major contributors to this rapid economic growth has been the real estate sector. This sector is at the core of the Indian growth story, in view of the significant upswing in demand across various spheres.

The industry has grown with a CAGR of 26% over the past 5 years to $ 50 bn today and is expected to triple in next 10 years. Its contribution to the GDP has grown from 2-3% in 2000 to about 6% of GDP today which is considerably small compared to 14% in developed markets. The combined market capitalization of real estate companies has grown 3000 times from year 2000 levels which is indicative of the tremendous confidence the investors have in the industry and more and more companies are getting publicly listed. Historically, the real estate sector in India was unorganized and characterized by various factors that impeded organized dealing, such as the absence of a centralized title registry providing title guarantee, lack of uniformity in local laws and their application, non-availability of bank financing, high interest rates and transfer taxes and the lack of transparency in transaction values. In recent years however, the real estate sector in India has exhibited a trend towards greater organization and transparency by various regulatory reforms. Further, the fast pace of the economic growth and the liberalized FDI regime have given a boost to the development of the sector. The Government of India in March 2005 amended existing norms to allow 100 per cent FDI in the construction business. Also, a regulatory authority on the lines of SEBI & IRDA is envisioned to ensure greater transparency and accountability in this cyclical industry which is exposed to the vagaries of market driven forces. The Indian real estate is experiencing an unparalleled demand which is a composite phenomenon of several macro and micro level forces. At one end, factors such as sustained high GDP growth, upsurge in industrial activity, consumerism, favorable demographics, and urbanization are creating a big demand pull in the industry. At the other end factors such as favorable policies, regulatory changes, positive investment climate and unlocking of land parcels are stimulating a major supply push.

However, the supply is lagging behind the demand due to certain intrinsic factors. Some of the barriers inhibiting the seamless scaling up are: 1. Government regulation a. Tightly regulated Floor Space Index(FSI) b. Urban land ceiling regulation act (ULCRA) c. High stamp duty and registration fees 2. Shortage of developable land 3. Inadequate infrastructure such as water, roads, and electricity 4. Unequal distribution of population 5. Inconsistent supply & inconsistent prices of raw materials 6. Shortage of labor and skilled manpower in the real estate industry Asset Classes

The industry is broadly composed of four main asset classes – residential, commercial, retail and hospitality. More than 80% of real estate in the country is residential in nature. According to a study conducted by realty services firm Cushman & Wakefield, India will need about 240

ft of commercial property and about 4.ft. will see an influx of both business and leisure travelers in the coming years. However. Due to the highly efficient capital utilization the residential sector is the preferred sector of the developers as they can work on negative working capital. however. Moreover the relaxation of FDI norms for retailing will open up additional avenues for foreign chains. There is a demand for new hotels in all segments. REMFs and REITs will bring in further institutionalization to the sector.25 million units of residential real estate to meet the demand in four years between 2010 and 2014. The demand for retail space is estimated to be about 55 million sq. from the budget segment to upper scale and luxury segments. signifying their continued pre-dominance. are. The hospitality sector is thus expected to see demand of about 78 million room nights during the period of 2010-14.million sq. Tier-II cities. as the second most populous country in the world and with rapid economic growth. About 46% of the pan-India office space demand estimated over the next five years is likely to be from Bangalore. Around 60% of the total estimated pan-India residential demand by 2014 is expected to be from India’s top-seven cities. . the supply largely remains constrained due to the slow pace of construction activity during 2009–10. The housing sector has seen a rise in demand over the last two to three quarters. with the current oversupply situation likely to be stabilized only by 2013. such as Kolkata and Chennai. NCR and Mumbai. About 70% of the total estimated demand for residential units during this period is expected from the mid-range and affordable segments. likely to generate demand at a faster pace. India. Retail property refers to space used for the sale of goods. Going forward the real estate sector will continue to have long-term prospects due to its strong fundamentals.

design. construction. construction & property management to specialized firms. Out of these activities a real estate developer may choose to focus on some activities like land procurement & marketing and outsource the other activities like design. marketing & property management. Contractors then undertake the project on a turn-key basis & hand over the property to the real estate developer for sales. A real estate development can be a joint development or an outright purchase of land. . In outright Purchase the developer buys the land at the market price and develops the project. Property management firms may then operate & maintain the property. Construction may be outsourced to contractors like L&T. In Joint development the developer forms a joint venture with the land owner and shares the gains from the property.Real Estate Value Chain A typical real estate project involves land procurement. Gammon India and other local contractors who are provided with the design made by the architecture firms.

Timelines may overlap *Construction is mostly outsourced either to local contractors or large players like L&T .

commercial and township projects. GPL has inherited the Godrej Group vision of ethical and professional business practices and has the advantage of immense customer trust that the Godrej brand name inspires. real estate. The residential portfolio covers a wide range. Chandigarh. Godrej Properties’ portfolio is diversified. Currently the portfolio comprises 60% residential developments while the others are either commercial or mixed types. consumer products. Hyderabad. the Godrej group is today one of the most accomplished and diversified business houses in India. Bengaluru. Ahmedabad. Kolkata. GPL started its first project in 1991. The Group is a leading manufacturer of goods and services in a multitude of categories: home appliances. It is one of India’s most trusted brands and enjoys the patronage and trust of over 470 million Indians every single day. spanning numerous cities across India and containing residential. The total area under development currently is nearly 82 million square feet.Godrej group Established in 1897. Its turnover crosses US $ 2. right from affordable housing to premium developments. The company initially concentrated its operations in the Mumbai Metropolitan region and later expanded to include other cities such as Pune. industrial products and agri products to name a few. Godrej Properties Limited Company Overview Godrej Properties Ltd (GPL) is one of the leading real estate development companies in India and is based in Mumbai.8 billion and more than 25% of its revenue comes from outside India. The commercial portfolio mainly comprises office space catering to blue-chip Indian and international companies. . The township portfolio includes integrated townships consisting of residential and commercial developments. Chennai. Gurgaon and Kochi. Mangalore. IT parks catering to the requirements of IT/ITES companies and retail space.

One key factor that allows GPL to be successful in adding joint venture developments is the ‘Godrej’ brand. More than 470 million customers across India use one or another Godrej product every day. construction and marketing of the project are taken by GPL. This model ensures effective management of capital and insulates GPL against the cyclical nature of the industry.Business Model GPL’s joint venture business model whereby it partners with landowners to develop their land rather than purchasing the land on an outright basis has been a key differentiator that has led to its superior growth while mitigating capital requirements and risk. This business model thus mitigates the various risks the industry faces and protects the company against the cyclical nature of the industry. This allows GPL to scale up or down relatively easily without the burden of idle resources. under either a profit-sharing. Having been in business since 1897. GPL follows a no-inventory. all the design and construction work is outsourced and is supervised by lean in-house teams. The CII Godrej green business centre has been a pioneer in supporting green business in India and the building the centre is housed in was the single highest LEED (Leadership in Energy & Environmental Design) Platinum rated building in the world when it was completed in 2004. Under this model. the JV partner (JVP) brings the land as his contribution to the JV. In the commercial space it capitalizes the lease so that the payback is decreased. A no-inventory model makes the company asset light and easily scalable without locking in the capital. The Godrej Group has a proud history of supporting sustainable development. . no-leasing policy. Moreover. This ensures seamless execution of outsourced activities while adhering to best practices and ensuring quality and economies of scale. All decisions regarding design. The trust in the brand allows landowners to confidently partner with Godrej Properties for the development of their most valuable asset. revenue-sharing or area-sharing arrangement or any combination of these. The ratio of sharing varies from project to project and is largely dependent on the value of the land. while GPL manages the entire development. GPL has strategic tie-ups in place with L&T for construction and PG Patki & associates for architecture and design. the Godrej Group is well known for its emphasis on corporate governance and professional and ethical business practices.

9 million in FY 2009. Even the operating profit grew by 42% in FY 2010 to Rs 2. GPL was a founding member of the Indian Green Building council (IGBC).8 million in FY 2009 to Rs 1228.750 equity shares of Rs 10/.627.312.each through 100% book building process and was listed on the Bombay Stock Exchange Limited and National Stock Exchange of India Limited on January 5. The stock has been performing exceedingly well since listing and has been constantly trading over the float price. Profit after Tax grew from Rs 746.Godrej Properties Ltd has brought the group’s commitment to sustainable development to the real estate industry and ensures all its buildings are planned to the highest standards of green development. The Customer Centricity Cell at GPL helps in fostering a customer-oriented mindset in the organization to ensure high level of customer satisfaction.9 mn sq ft area during FY 10 which resulted in an increase in total income of 53.2% on y-o-y basis. Godrej Garden City is one of the only two projects in India and sixteen worldwide to be chosen by the Clinton Foundation to partner them in the goal of achieving a climate positive development. showing a growth of 64%. (See annexure) .1 million in FY 2010.1 million as compared to Rs 1. Financial Performance GPL delivered a healthy performance in FY 2010 on the back of increased sales and competition. 2010. It delivered 3.429. (See annexure) Inital Public Offer During the year 2009-2010 GPL has entered the capital market with the Initial Public Offer (IPO) of 9. quality of product and superior customer service. A key differentiator for GPL is its customer centric approach which helps in creating sustained value for its customers through extraordinary focus on deep customer insight.

Risk Management viii. Asset Classes and Income generating & Development assets) vi. 1. from its current 360 Cr turnover to a 2000 Cr company in the next 5 years. You are required to make a presentation to the Board of Directors outlining overall business strategy for the way forward. 6 times. Maintain high ROE iv. Is the current business model sustainable and adequate to achieve the above targets? What changes do you suggest. Not consider forward or backward integration vi. Focus on real estate sector only ii. Focus on Indian market only 3. Your recommendations should include but not be limited to: i. Marketing Strategy iii. Customer service strategy The recommendations should be made bearing in the mind the following constraints. Exploring new markets vii. if any? 2. Operational/Execution strategy iv. Also comment on the strategy of GPL to go Green keeping in view the profitability tradeoff.Questions for discussion GPL aims to grow approx. Portfolio strategy (including Geographical spread. Financial Strategy ii. In the next five years GPL intends to: i. HR strategy v. . Remain as close as possible to its current JV model iii. Maintain consistently high profitability v.

38 0.| Godrej Gold County Pune Township Kalyan Township NCR Kolkata Hyderabad Chandigarh Ahmedabad Mangalore Chennai Kochi Pune Kolkata Kolkata Bengaluru Bengaluru Bengaluru Kalyan Mumbai Bengaluru Pune Mumbai Gurgaon Apartment Complex IT Park Commercial & Retail Township Mixed Use Residential Residential Commercial Commercial Commercial Residential Residential Residential Residential Mixed use Residential Township Residential Residential .Annexure A.16 27.61 1.40 0.18 0.60 0.85 0.10 1. Key Projects Name Location Project Type Est.67 0.28 1. Saleable Area (mn sq ft) 2.04 Godrej Prakriti Godrej Genesis Godrej Eternia Godrej Garden City Godrej Avalon Godrej Palm Grove Kochi Project Godrej Genesis Godrej Genesis Godrej Waterside Tumkur Road.06 0.15 1.72 9.47 0.67 0.15 0.76 0.15 1.|| Woodsman Estate || Woodsman Estate Annexe Godrej Riverside Vikhroli Project .

com) C. Organizational Structure .moneycontrol.B. Stock Performance Year 2010 (source: www.

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