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Table of Contents

Investment Summary 1
Macroeconomic Scenario 4
Overview of Real Estate Sector 9
Residential Segment 16
Commercial Segment 21
Retail Segment 23
Hospitality Segment 26
Special Economic Zones 28
Role of Capital Market 30
Recent Developments 33
Regulatory Issues 35
Challenges Facing Indian Real Estate Sector 39
Outlook 41
Listed Companies 42
Valuation of Recommendation 44
Players Prole 46
Parsvnath Developers Ltd 47
Ansal Housing & Construction Ltd. 56
Ansal Properties & Infrastructure Ltd. 65
Unitech Ltd. 74
DLF Ltd. 83
Sobha Developers Ltd. 93
Omaxe Ltd. 102
Global Research - India Global Investment House
1 India Real Estate Sector Report January 2008
Investment Summary
The Indian economy has become the focus of attention of the world since the past few
years. A number of experts from across the world have projected strong growth for India.
According to some experts, the share of India in the world GDP is expected to rise from
the current 6% to 11% in 2025, and hence India will emerge as the third pole in the global
economy after the US and China. By 2025 the Indian economy is projected to be about
60% the size of the US economy.
The contribution of the construction sector to the total GDP of the country has been
rising rapidly since the past few years. The sector formed around 5.8% (Rs.1,083.6bn)
of GDP in 2000-01 while its contribution increased to 6.9% or Rs.1,965.6bn in 2006-07.
With the rapid rise in demand from various segments of the economy we believe that the
contribution of the construction sector to the GDP of India is expected to rise at a steady
rate going forward.
Activities in the real estate sector may broadly be classied into residential, commercial
and the retail segment and hotels. The size in terms of total economic value of real estate
development activity of the Indian real estate market is currently US$40-45bn (5-6% of
GDP) of which residential forms the major chunk with 90-95% of the market, commercial
segment is distant second with 4-5% of the market and organised retail with 1% of the
market. Over next ve years, Indian real estate market is expected to grow at a CAGR of
20%, driven by 18-19% growth in residential real estate, 55-60% in retail real estate, and
20-22% in commercial real estate.
In 2003-04, India received total FDI inow of US$2.7bn of which only 4.5% was
committed to the real estate sector. In 2004-05 this increased to US$3.75bn of which the
share of real estate was 10.6%. However, in 2005-06, total FDI in India was estimated at
US$5.46bn with real estate share of around 16%. The projected total FDI in 2006-07 is
expected to touch about US$8bn in which the real estate share is estimated to be 26.5%.
The last few years were spectacular for the real estate companies in India. Marked by
the listing of several large real estate companies in both domestic as well as international
stock exchanges, the IPO market witnessed the shifting focus towards the realty sector. In
recent times the real estate companies ocked to the capital market to raise funds.
In the last year, around 18 real estate and construction companies went public. These
companies raised around US$4.35bn from the public for various projects. Another
interesting trend that was witnessed during the last year was the listing of several Indian
real estate companies on the offshore exchanges like AIM, Singapore listed REIT,
Singapore Stock Exchange and Dubai International Financial Exchange. AIM London
was the most preferred exchange for listing for the Indian real estate companies. Some of
the real estate companies have raised more than US$4bn at AIM London during the past
one year. With rising property prices, real estate and infrastructure has become attractive
investment destination for private equity funds.
Companies under coverage
We have covered seven companies in this report namely Parsvnath Developers Limited
(PDL), Ansal Housing and Construction Limited (AHCL), Ansal Properties and
Infrastructure Limited (APIL), Unitech Limited (Unitech), DLF limited (DLF), Sobha
Developers Limited (Sobha) and Omaxe Limited (Omaxe).
Global Research - India Global Investment House
2 India Real Estate Sector Report January 2008
PDL has land bank of approximately 3,100 acres spanning 17 states and covering 48
cities, which it plans to develop over the next 6-7 years. PDL currently has 191.08 mn sq
ft of developable area. Income from operations grew at a CAGR of 137.9% during the
period 2004-07 and stood at Rs.15.1bn at the end of Mar 31, 2007. PBT and PAT growing
at a CAGR of 172.6% and 151.3% to Rs.4.08bn and Rs.2.9bn respectively during the
same period. PDL recorded consolidated revenue of Rs.8.04bn for the half year ended
September 30, 2007. Operating margins stood at 38.4% for the rst half of 2008 and was
higher compared to 28.78% recorded by PDL for FY2007. We initiate our coverage of
PDL with a Hold rating and value the PDLs share at an intrinsic value of Rs.466.2 based
on the NAV method. The intrinsic value is higher than the current market price by 3.6%.
AHCL has well spread land bank of 2,582 acres across 22 cities primarily in the northern
and central parts of India. AHCL also has some land pieces in cities like Mumbai and
Bangalore. The company plans to develop entire land bank over the next 6-7 years. Most
of the development of the land is being carried out with some collaboration. Hospitality
division is currently very small compared to real estate segment. Hospitality has
contributed around 1.5% to the consolidated revenues in FY07. AHCL has a 40:60 JV
(Joint Venture) with Itochu Corporation of Japan called Capital Cars Private Limited.
Income from operations grew at a CAGR of 36.3% during the period 2004-07 and stood
at Rs.3.6bn at the end of Mar 31, 2007. PBT and PAT growing at a CAGR of 162.7% to
Rs.649.1mn and 169.7% to Rs.463.3mn respectively during the period 2004-07. AHCL
recorded standalone revenue of Rs.1,148.6mn for the half year ended September 30, 2007
as compared to Rs.890.4mn in corresponding period last year representing a increase of
29%. Operating margins stood at 36.7% for the rst half of 2008 (operating margins for
real estate segment only) and was higher compared to 21.41% recorded by AHCL for
FY2007(operating margins for consolidated real estate activities, restaurants and car sales
and service). We initiate our coverage of AHCL with a Hold rating and value the AHCLs
share at an intrinsic value of Rs.389.8 based on the Sum of Parts method. The intrinsic
value is higher than the current market price by 8.3%.
APIL has a land bank of around 7,270 acres (including land for Hi-tech city in National
Capital Region, Delhi) spread across 25 cities and 5 states in the country. APIL currently
has 266.91 mn sq ft of developable area for plotted development, residential, commercial,
retail, IT Parks and SEZs. Income from operations grew at a CAGR of 70.8% during
the period 2004-07 and stood at Rs.8.4bn at the end of Mar 31, 2007. PBT and PAT
growing at a CAGR of 216.5% to Rs.2.09bn and 179% to Rs.1.3bn respectively during
the same period. APIL recorded consolidated revenue of Rs.4.7bn for the half year ended
September 30, 2007. Operating margins stood at 30.7% for the rst half of 2008 and was
higher compared to 26.49% recorded by APIL for FY2007. We initiate our coverage of
APIL with a Hold rating and value APILs share at an intrinsic value of Rs.446.7 based
on NAV method. The intrinsic value is higher than the current market price by 4.9%.
Unitech has geographically diversied land reserve of over 16,388 acres and economic
share of over 12,450 acres with a development pipeline of approximately 646.13 mn
sq ft over the next 10 years. During FY2007, Unitech has come up with an innovative
way to raise capital and unlock value. Unitech sponsored an investment vehicle called
Unitech Corporate Park Plc (UCP), listed in Alternate Investment Market (AIM) of
the London Stock Exchange. Unitech has reported above industry protability over the
past few years. Income from operations grew at a CAGR of 87.1% during the period
2004-07 and stood at Rs.32.9bn at the end of Mar 31, 2007. PBT and PAT growing at a
CAGR of 262.7% and 290.5% to Rs.17.9bn and Rs.13.06bn respectively during the same
period. Unitech recorded revenue of Rs.18.8bn for the half year ended September 30,
2007, recording an increase of 156.5% from Rs.7.3bn in the corresponding period of last
year. Operating margins stood at 55.6% for the rst half of 2008 and was lower compared
to 62.03% recorded by Unitech for FY2007. We initiate our coverage of Unitech with a
Global Research - India Global Investment House
3 India Real Estate Sector Report January 2008
Hold rating and value the Unitechs share at an intrinsic value of Rs.497.5 based on the
NAV method. The intrinsic value is higher than the current market price by 1.7%.
DLF is the undisputed leader in the Indian real estate industry in terms of total developable
area. The quality of land bank is good compared to many of its peers in the sector. DLF
has quality land bank of 13,055 acres (as on June 2007). Total developable area is 738
mn sq ft at the end of September 2007. Total income of the company grew at a CAGR
of 97.4% during the period 2004-07 and stood at Rs.40.53bn at the end of Mar 31, 2007.
PBT and PAT growing at a CAGR of 216.4% and 230% to Rs.25.4bn and Rs.19.3bn
respectively during the same period. DLF recorded revenue of Rs.63.2bn for the half year
ended September 30, 2007 on consolidated basis. EBITDA was at Rs.46.1bn while net
prot stood at Rs.35.4bn. On standalone basis, DLF recorded revenue of Rs.22.4bn and
net prot of Rs.13.4bn. We initiate our coverage of DLF with a Hold rating and value
DLFs share at an intrinsic value of Rs.1,046 based on NAV method. The intrinsic value
is lower than the current market price by 2.6%.
Sobha has a land bank of 4,012.4 acres with total developable area under development
of 11.97 mn sq ft and 15.79 mn sq ft of forthcoming projects. Sobha has majority of
its projects as residential development, constituting 85% of the projects. Contractual
construction represented 62%, 32% and 34% of its revenues in FY05, FY06 and FY07
respectively. Income from operations grew at a CAGR of 77.7% during the period 2004-
07 and stood at Rs.11,864.7mn at the end of Mar 31, 2007. PBT and PAT growing at a
CAGR of 107.1% and 132% to Rs.1,865.8mn and Rs.1,615.12mn respectively during
the same period. Sobha recorded revenue of Rs.5.9bn for the half year ended September
30, 2007, an increase of 11.6% from Rs.5.3bn in the corresponding period of last year.
Operating margins stood at 26.3% for the rst half of 2008 and was higher compared to
20.06% recorded by Sobha for FY2007. We initiate our coverage of Sobha with a BUY
rating and value the Sobhas share at an intrinsic value of Rs.1,187.4 based on the Sum of
Parts method (Real estate vertical and Contractual projects vertical). The intrinsic value
is higher than the current market price by 30.3%.
Omaxe has land bank of approximately 3,255 acres spanning 9 states and covering 30
locations, which it plans to develop over the next 4-5 years. Currently, Omaxe is having
planned development of 149.82 mn sq ft involving 52 projects. Income from operations
grew at a CAGR of 71.6% during the period 2004-07 and stood at Rs.14.3bn at the end
of Mar 31, 2007. During the same period, operating cost grew at a CAGR of 58.1% to
Rs.10.1bn in FY07. This resulted in PBT and PAT growing at a CAGR of 165.6% and
208% to Rs.3.2bn and Rs.2.4bn respectively during the same period. Omaxe recorded
consolidated revenue of Rs.7.1bn for the quarter ended Sept 30, 2007 while on standalone
basis revenue was Rs.4.5bn. Net prot stood at Rs.1.6bn on consolidated basis while
on standalone basis, it was Rs.1.2bn. We initiate our coverage of Omaxe with a Hold
rating and value the companys share at an intrinsic value of Rs.518.5 based on the NAV
method. The intrinsic value is lower than the current market price by 9.5%.
Global Valuation Matrix
In Rs. Price Target Recc. Change % BVPS EPS P/BVx P/Ex
PDL 450.0 466.2 HOLD 3.6 80.77 15.82 3.21 16.37
AHCL 360.1 389.8 HOLD 8.3 87.59 28.07 3.08 9.61
APIL 425.9 446.7 HOLD 4.9 165.78 23.28 1.59 11.33
Unitech 489.3 497.5 HOLD 1.7 24.59 16.09 15.76 24.08
DLF 1,073.9 1,046.0 HOLD -2.6 23.24 12.64 40.61 74.66
Sobha 911.2 1,187.4 BUY 30.3 111.87 22.16 7.16 36.14
Omaxe 572.7 518.5 HOLD -9.5 30.24 15.74 10.08 19.37
Source: Global Research, Based on FY2007 actual nancials
Global Research - India Global Investment House
4 India Real Estate Sector Report January 2008
Macro Economic Scenario
India economic overview
The Indian economy has become the focus of attention of the world since the past few years.
A number of experts from across the world have projected strong growth for India. According
to some experts, the share of India in the world GDP is expected to rise from the current 6%
to 11% in 2025, and hence India will emerge as the third pole in the global economy after the
US and China. By 2025 the Indian economy is projected to be about 60% the size of the US
economy and by 2035 the Indian economy is likely to be a little smaller than the US economy
but larger than that of Western Europe. By 2035, India is likely to be a larger growth driver
than the six largest countries in the EU, though its impact will be a little over half that of the
US.
Robust GDP growth rate
The ongoing reform process, investment cycle upturn, urban consumption and outsourcing
boom have driven Indias economic growth in recent years. These are also the primary
reasons why India recorded one of the highest GDP growth rate among the major economies
of the world.
Chart 1: GDP Growth Rate
Source: RBI, Global Research
Real GDP growth rate for the last ten years from 1995-96 to 2005-06 averaged 6.5%.
India continued its growth momentum in FY2007 as well with real GDP increasing by an
astonishing 9.4% while for Q1FY08 it was 9.3%. Despite the relatively higher oil prices and
infrastructure constraints India recorded stellar performance. There are three main reasons
for Indias sustained acceleration.
i. The economic liberalisation in early 1990s has integrated the country into world trade.
This has beneted the services sector tremendously, with many companies fromthe United
States and Europe discovering the subcontinent as an attractive offshore destination.
ii. India posses a vast pool of highly skilled engineers, technicians and other professionals.
iii. Public spending on road and transportation infrastructure has sharply increased and is
By 2025 the Indian
economy is projected to be
about 60% the size of the
US economy.
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Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 5
expected to climb rigorously in the next few years. This is key to the governments long-
term growth strategy and will serve as the positive stimulus to the construction industry.
Third largest economy in terms of PPP
India is the worlds third largest economy in terms of Purchasing Power Parity (PPP). It
follows in the queue after the US and China. Growing at the rate of 8% in the last four years,
its development measures are supported by a boom in services sector, with a strong revival
of industries and ever increasing demand for properties.
Chart 2: GDP Based on PPP
Source: World Bank, Global Research
Rising Per Capita Income
One of the immediate outcomes of the strong economic growth of the Indian economy is a
rise in per capita income. The per capita income rose from Rs.19,125 in 2004-05 to Rs22,450
in 2006-07. Going forward, per capita income is expected to rise at a robust rate with the rise
in salaries and abundant employment opportunities even in smaller towns.
Chart 3: Rising Per Capita Income
Source: RBI, Global Research
Powerful demographic impetus
India is the second highest populated country in the world after China. Indias estimated
population as of March 2007 is 1.12bn, while the average age of Indians is 26 years. Around
4.7% of the total population are over 65 years of age.
India is the worlds third
largest economy in terms
of PPP.
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2004-05 to Rs22,450 in
2006-07.
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Global Research - India Global Investment House
6 India Real Estate Sector Report January 2008
Chart 4: Strong Population Growth
Source: Census India, Global Research
Demographic prole indicates that Indias working population forms around 61.6% of the
total population. Thus, India has a strong advantage in terms of cheap and abundant labour
and higher number of people contributing to the overall economic development. India is and
will remain one of the youngest countries in the world for some time. This demographic
dividend is seen as offering a window of opportunity to accelerate the countrys rate of
growth.
Chart 5: Favourable Demographics
Source: Census India, Global Research
Highly skilled professionals
India has around 50mn graduates and this number is rising rapidly. Every year India is
producing vast pool of professional manpower. The country is producing around 350,000
engineers every year which is second highest in the world after China. These talented and
highly skilled professionals are the growth drivers of todays India.
Indias working population
forms around 61.6% of the
total population.
The country is producing
around 350,000 engineers
every year.
1,200
1,000
800
600
400
200
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1990
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n
2000 2005 2007P 2010P
33.7%
4.7%
61.6%
Under 15 15-64 65+
2005
31.5%
4.9%
63.6%
2010 (P)
Under 15 15-64 65+
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 7
Table 1: Professionals in India
Profession Graduates Every Year
Lawyers 100,000
Engineers 350,000
Doctors 18,000
PhD 4,400
Source: Various Reports, Global Research
Rapid urbanization
India lives in villages and is predominantly a rural society though in recent years there has
been a gradual shift towards urbanization. While more than 300mn Indians now live in
urban areas, this means that nearly 900mn people are still living in rural areas. The degree of
urbanization has risen rapidly in recent decades to just over 28% at present. By 2020, around
32% of the population is expected to live in urban areas. Increasing professional workforce
is driving urbanization beyond the traditional metro cities.
Chart 6: Urban population as a percentage of total population
Source: Census India, Global Research
Rising Consumer Class
The most striking characteristic of todays India is the explosive growth in the middle class
people. The strong growth in economy led to sharp income generation which led to rise in
middle class segment. India currently has around 260mn middle class which is roughly the
same size as the population of the United States of America. The rising purchasing power and
propensity to consume of this segment is expected to drive and support a double-digit growth
rate of the economy in the coming years. That the middle class is ourishing is evident given
the number of multinationals scrambling to set up shop in India, the real estate boom, the
burgeoning of upscale restaurants, the emergence of India as one of the biggest markets for
luxury goods manufacturers and the booming car industry.
GDP growth likely to be sustainable
We expect above trend GDP growth to sustain in the context of a slowing global economy.
India has the advantage of being largely domestic driven with infrastructure and domestic
consumption being key growth drivers. However, the growth rate in the near future will be
slightly subdued as compared to the recent past. The GDP growth projection for 2007-08 has
been pegged by Confederation of Indian Industry (CII) at 8.5% while IMF forecast is 8.4%.
India currently has around
260mn middle class.
35%
30%
25%
20%
15%
10%
5%
0%
1991 2001 2020
25.7%
27.8%
32.0%
Global Research - India Global Investment House
8 India Real Estate Sector Report January 2008
We believe that factors such as global moderation of growth, ination, falling demand as a
consequence to spiraling interest rates, appreciating rupee and signicant supply shortages
in the global and Indian economy may restrict the GDP growth in the current year to around
8.5%. Agriculture is expected to improve its growth performance from 2.7% to 3%, mainly
owing to low base of last year and deliberate attempts to increase production of primary
articles in response to high prices. The strongest factor contributing to growth moderation is
going to be the result of repeated monetary interventions being made by the Reserve Bank of
India (RBI) to reign in ination.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 9
Overview of the Real Estate Sector
The real estate sector in India has assumed growing importance with the liberalisation of
the economy. The consequent increase in business opportunities and migration of labour
force has, in turn, increased the demand for commercial and housing space. Developments
in the real estate sector are being inuenced by the developments in the retail, hospitality
and entertainment (e.g., hotels, resorts, cinema theatres) segment, economic services (e.g.,
hospitals, schools) and information technology (IT)-enabled services (like call centres) etc.
and vice versa.
Construction sector contribution to GDP
The contribution of the construction sector to the total GDP of the country has been rising
rapidly since the past few years. The sector formed around 5.8% (Rs.1,083.6bn) of GDP in
2000-01 while its contribution increased to 6.9% or Rs.1,965.6bn in 2006-07. With the rapid
rise in demand from various segments of the economy we believe that the contribution of the
construction sector to the GDP of India is expected to rise at a steady rate going forward.
Chart 7: Construction sector as a percentage of GDP
Source: Central Statistical Organisation
Economic growth generated demand for property
Indias GDP growth rate has averaged over 8.5% in the last three years up from an average
of around 6% during the 1990s and highlights Indias emergence as a land of opportunities.
The principle drivers of Indias GDP are changing demographics, rising levels of foreign
investment, a vibrant services sector powered by the IT and ITES sectors and buoyant
exports. This economic growth has generated demand for property to help meet the needs of
business for expansion, warehouses, hotels and retail shopping centres. It has also boosted
housing demand as wealthier populace seeks upgraded accommodation. In addition to this,
shrinking household size and improved access to housing nance have boosted the demand
for residential property. Tax incentives has also been granted to interest and principal paid on
home loans which has made owner-occupied property more attractive.
Real Estate market size
Activities in the real estate sector may broadly be classied into residential, commercial
and the retail segment and hotels. The size in terms of total economic value of real estate
development activity of the Indian real estate market is currently US$40-45bn (5-6% of GDP)
The current size of the
Indian real estate market is
approx. US$40-45bn (5-6%
of GDP).
8%
7%
6%
5%
4%
3%
2%
1%
0%
2000-01
5.8%
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
5.7%
5.9%
6.1%
6.5%
6.8%
6.9%
Global Research - India Global Investment House
10 India Real Estate Sector Report January 2008
of which residential forms the major chunk with 90-95% of the market, commercial segment
is distant second with 4-5% of the market and organised retail with 1% of the market. Over
next ve years, Indian real estate market is expected to grow at a CAGR of 20%, driven
by 18-19% growth in residential real estate, 55-60% in retail real estate, and 20-22% in
commercial real estate.
Table 2: Real Estate Market Size
US$ bn 2005 2010E CAGR (%)
Residential 38.0 88.0 18.3
Commercial 1.5 3.8 20.5
Retail 0.6 6.0 56.2
Total 40.1 97.8 19.5
Real Estate market as proportion of GDP (%) 5.6 7.8
Source: CRIS Infac
Real Estate performed well in recent years
Real estate sector in India has performed exceptionally well since the past few years mainly
buoyed by the robust economic fundamentals. Commercial high rises, residential townships,
industrial parks and shopping malls are exploding into existence, encouraged by both long-
term and speculative investors. Ambitious private equity commitments by a growing number
of foreign investors and home-grown nancial institutions are helping to feed the frenzy.
Market is getting more organized
The Indian real estate market is still in its infancy, largely unorganised and dominated by
a large number of small players, with very few corporates or large players having national
presence. The Indian real estate market, as compared to the other more developed Asian and
Western markets is characterised by smaller size, lower availability of good quality space
and higher prices. Supply of urban land is largely controlled by state-owned development
bodies like the Delhi Development Authority (DDA) in Delhi and Housing Boards of each
state leaving very limited developable space free, which is controlled by a few major players
in each city.
Restrictive legislations and lack of transparency in transactions are other main impediments
to the growth of this sector. Limited investment from organised sector has also hindered
the growth of this sector. There is a thriving parallel economy in real estate, involving
large amounts of undeclared transactions, mainly due to high stamp duty rates. The current
legislative framework also leads to substantial losses to the Government.
For foreign investors, one troubling fact is a pan-India phenomenon of inadequate transparency
in land valuations use to price the investments. There is a lack of clarity in real estate
companies disclosures, especially with respect to their land banks. There is a marked lack of
transparency, corporate governance and accountability among Indias real estate developers.
But these issues will soon fade away as Indias real estate markets mature. Although real
estate is a regional and highly location-specic industry, India is likely to replicate the events
that occurred in emerging markets like Mexico and Central Eastern Europe including Russia,
Bulgaria and Poland. In these countries, too, foreign investments were the primary drivers for
transparency, accountability and higher capital appreciation in the real estate sector.
The Indian real estate
market is largely
unorganised and dominated
by a large number of small
players.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 11
However, market is changing rapidly for the better. Indias real estate sector changed
substantially with healthy economic growth, demand of residential, retail and commercial
space with number of proprietary rms coming to primary market to raise resources. Over the
years, real estate sector is getting more organised and transparent. This trend of growth and
modernisation with transparency is set to continue with real estate sector in India is expected
to grow from US$40bn in 2005 to US$100bn by 2010. International funds have also shown
tremendous interest in Indian property and are seeking transparent and liquid ways to invest.
Competition among the Indian players is on the rise with the entry of global property players.
This necessitated property rms to strengthen their operational infrastructures, personnel and
nances to better compete with global players and more organised Indian biggies.
Real estate a major employment driver in India
The real estate sector in India is a major employment driver, being the second largest
employer next only to agriculture. The housing and construction industry employs 30mn
people. This is because of the chain of backward and forward linkages that the sector has
with the other sectors of the economy, especially with the housing and construction sector.
About 250 ancillary industries such as cement, steel, brick, timber, building materials etc. are
dependent on the real estate industry.
Emergence of small cities
The most visible changes in the Indian real estate sector include the emergence of well
dened product categories, the division of the market into tiered cities and a widening of
nancing options. Among these three characteristics, emergence of tier-II and tier-III cities is
the most recent phenomenon. Indian cities are customarily divided into three groups: Tier I,
comprising of major urban centres like Delhi, Mumbai and Bangalore, Tier II includes cities
such as Hyderabad, Kolkata and Pune while Tier III consisting of cities such as Ahmedabad,
Nagpur, Gaziabad, Indore, Jaipur, Lucknow and 30 other smaller cities. Over the last few
years, modern real estate development and investor interest has widened beyond Tier 1 cities
to Tier II and Tier III cities. Most of the companies and especially IT and ITES companies are
expanding to small cities in view of the lower cost of real estate and ample quality manpower.
The investment risk is lower in the metros, but prices are much higher than those in tier II
cities. Several equity funds have consciously focused on tier II cities, because of the potential
involved. There are lots of opportunities outside the main metros. India has 30 cities with
a population of a million people each. The returns are huge in tier II cities, where there
is a large untapped potential. We see tremendous growth taking place in tier-II cities and
subsequently ltering down to tier-III cities in the next few years. The migration to tier-II
cities will result in a big demand for commercial space and subsequently from the residential
and hotel segment as well.
FDI in Indian realty
In 2003-04, India received total FDI inow of US$2.7bn of which only 4.5%was committed
to the real estate sector. In 2004-05 this increased to US$3.75bn of which the share of real
estate was 10.6%. However, in 2005-06, total FDI in India was estimated at US$5.46bn with
real estate share of around 16%. The projected total FDI in 2006-07 is expected to touch
about US$8bn in which the real estate share is estimated to be 26.5%.
The housing and
construction industry
employs 30mn people.
India has 30 cities with
a population of a million
people each.
India has 30 cities with
a population of a million
people each.
Global Research - India Global Investment House
12 India Real Estate Sector Report January 2008
Chart 8: FDI in Indian Real Estate Sector
Source: RBI, Global Research
Private equity investment in India has overtaken China this year to emerge as the biggest
Asian destination (excluding Japan) for PE funds. Investments have crossed US$10bn
between January-October 2007 as against US$8.3bn recorded in China in the same period.
Real estate and infrastructure emerged as the top sectors attracting PE investment this year
accounting for half of the total PE money owing into India through 52 deals. Out of this,
real estate received US$2.6bn through 32 deals.
Global funds queuing up
With yields between 30% and 40% during the past two years, Indias real estate industry
has been the toast of global investment funds. This is one of the factors encouraging foreign
players to look forward to Indian real estate. Other factors attracting attention from foreign
investors include high rental, capital value appreciation, and large availability of quality
supply in India. A major part of investments are being put in development of residential and
mixed-use real estate projects.
Since the past few years number of real estate funds from across the world are investing in
Indian realty sector to take advantage of the higher returns. In addition to this, the policy
changes introduced by the Government in February 2005 allowing 100% foreign investments
in construction projects with fast-track approvals has also lured foreign investors. A report by
property consultants Jones Lang LaSalle estimates that US$10bn foreign investment will be
injected into the Indian real estate sector in the next 12-18 months. International companies
like Ayala of the Philippines, Signature from Dubai, Och-Ziff Capital, EurIndia and Old
Lane have indicated their interest in entering the Indian real estate market soon. On the cards
is sizeable FDI inow from Middle East, Malaysia, UK, US, Israel and Singapore.
Considering the immense potential, around 90 foreign investors are already in the country
tapping investment avenues. Nearly two dozen US funds are raising US$3.5bn for investments
in Indian realty. Those raising the funds include Blackstone Group (US$1bn) Goldman Sachs
(US$1bn), Citigroup Property Investors (US$125mn), Morgan Stanley (US$70mn) and GE
Commercial Finance Real Estate (US$63mn). Others raising funds are JP Morgan, Warburg
Pincus, Merrill Lynch, Lehman Brothers, Warren Buffetts Berkshire Hathaway, Colony
Capital and Starwood Capital.
In mid-2007, Morgan Stanley closed a deal worth about US$150mn with Oberoi Constructions
in Mumbai. The Nakheel Group of Dubai entered into a US$10bn deal with DLF for
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2003-04
U
S
$
2004-05 2005-06
FDI in Realty Total FDI
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 13
residential projects in tier I and II cities. This was followed by three nancial institutions
namely Khaleej Finance and Investment (KFI) from Bahrain, Kuwait Investment Company
(KIC) and Kuwait Finance House (KFH) promoting a US$200mn fund for investing in India.
Called the Indian Private Equity Fund, it targets activities with controlled risks in growing
sectors like real estate. Close on its heels, California Public Employees Retirement System
entered India, investing US$100mn in a US$400mn real estate fund promoted by IL&FS.
Ascendas, Asias leading business space provider launched the rst property trust of Indian
assets worth US$500mn in Singapore in July 2007 with the renowned real estate developer
Embassy Group.
With ofcial estimates for IT space likely to be 150 mn sq. ft by 2010 and a shortage of
almost 24mn dwelling units, foreign funds from across the globe are condent of India as
an investment destination. Among those tapping investment avenues are US-based Warburg
Pincus, JP Morgan Partners, Merrill Lynch, Lehman Brothers, Warren Buffets Berkshire
Hathaway, Blackstone Group, Broadstreet, Columbia Endowment Fund, Hines, Sam Zells
Equity International, Colony Capital and Starwood Capital to name a few. In 2006, Tishman
Speyer Properties, co-owner of the New York Times building and Rockefeller Center, formed
a joint venture with the private-equity arm of ICICI Bank to fund new commercial properties.
Goldman Sachs Whitehall Street Real Estate Fund has plans to invest up to US$1bn over the
next two years in PE, real estate, private wealth management, and other businesses in India. In
mid-2007, Morgan Stanley closed a deal worth about US$150mn with Oberoi Constructions
in Mumbai. Farallon Capital Management LLC, a U.S. hedge fund, and its joint-venture
partner, Indiabulls, acquired an 11-acre property in central Mumbai for US$54.5mn.
Trinity Capital LLC, the New York-based fund, has planned an investment of US$10bn
in India for developing three satellite cities on the outskirts of Mumbai, New Delhi, and
Bangalore. The total investment might go up to US$12bn. Trinity has earmarked an
investment of US$2bn-US$4bn for each of the townships, which will spread across more
than 1,000-acre space. Delhi-based DLF Group has entered into a US$10bn deal with UAE-
based real estate rm Nakheel for residential projects in Tier I and II cities. The 50:50 joint
ventures projects will cover a total area of 40,000 acres near Gurgaon, Mumbai and in Pune.
The Nakheel Group, which has to its credit renowned projects like The Palm Islands, The
World, and Dubai Waterfront, is presently working on various other projects that amount
to more than US$30bn. Emaar is planning to set up a 100% subsidiary in India as it already
occupies an equal joint venture with Delhi-based realty company MGF. The Emaar-MGF
possesses a land bank of over 10,000 acres. The company has also launched a multitude
of residential real estate projects in the north and one commercial project in Mohali. It is
also engaged in another joint venture with the Andhra Pradesh government. Indonesias
biggest conglomerate, Jakarta-based Salim Group is to invest more than US$100mn in a
309-acre township project in Kolkata, capital city of the East Indian state of West Bengal.
This US$11mn project will be developed as a joint venture between Salim Group and the
Kolkata Municipal Development Authority.
Indias booming real estate market is becoming a hot investment spot for cash-rich
international pension funds, foundations, hedge funds, high net worth investors and foreign
provident funds. US-based hedge fund Trikona is considering a US$200mn investment
in Indias real estate sector. California Public Employees Retirement System (CalPERS)
entered India, investing US$100mn in a US$400mn real estate fund promoted by Indias
Global Research - India Global Investment House
14 India Real Estate Sector Report January 2008
Infrastructure Leasing & Financial Services (IL&FS). Leading pension funds from the US
such as the Pension Fund of Oregon State, Tiger Management, Oxif and prominent insurance
company American International Group Inc (AIG) are among those investing huge sums in
various real estate funds.
Others include High Point Rendel of the UK, Edaw-US, and Japans Kikken Sekkel. Singapore
based Lee Kim Tah Holdings with an investment of US$115mn is developing a 100-acre
mega township along with a commercial complex and related social infrastructure near
Mumbai. Another Dubai-based group Pegasus Realty will reportedly invest US$150.4mn
in Pune, Hyderabad, Chennai, and Coimbatore through joint ventures. The company has
also created a US$200mn corpus for the Indian hospitality sector. Hyatt, an international
hospitality brand within the Global Hyatt Corporation, Paramount Capital Corporation, a
U.S. based nancial advisory rm and New Vernon Capital, a New Jersey-based hedge fund
have already invested in hotel chains in India. One of the worlds largest hotel and tourism
rms Accor has also announced pan-India investment to the tune of US$200mn. For this, it
has tied with Delhi-based InterGlob Enterprises.
Impediments to FDI in Indian Real Estate
Since property is a subject that differs from state to state, there is a great degree of heterogeneity
across the country. Foreign investors have to comply with different state laws in order to obtain
state and city specic approvals depending on where the project is being undertaken. One of
the most critical obstacles to FDI is the lack of transactional transparency as the real estate
sector in India is still largely unorganised. Indias real estate markets are far less structured as
compared to western countries. Developers also tend to have localised knowledge as very few
developers have a pan-national presence. The rapid economic growth of the last few years
has put heavy stress on Indias infrastructural facilities. Despite improvements in some areas,
the deciencies in infrastructure - roads, electricity and water supply - have not been xed.
Problems include power demand shortfall and port trafc capacity mismatch. However, the
lack of infrastructure development creates huge opportunities for foreign investors. India is
one of the most attractive markets on two counts. One, with a billion-plus population, the
opportunity is huge; and two, the industry has an average Internal Rate of Return (IRR) on
capital investment between 25-30%.
Institutional Investment in Real Estate
Indian nancial institutions are not far behind in investing in the Indian realty space and
are competing with each other to invest in this high return segment. Some of the prominent
companies promoting real estate funds in India are HDFC Property Fund, DHFL Venture
Capital Fund, Kotak Mahindra Realty Fund, Kshitij Venture Capital Fund and ICICIs India
Advantage Fund, etc.
The Tata group has joined hands with private equity rm, Xander, through its group company
Trent in April 2007 to raise US$1bn for an institutional retail real estate fund. Indias top
real-estate rm DLF has raised US$2.24bn in the countrys largest initial public offering
in June 2007. It has also entered into a joint venture agreement with Indian pharmaceutical
major Ranbaxy group company Fortis Healthcare to set up hospitals across the country
with investments of about US$1.5bn. Recently, HDFC-sponsored real estate fund has been
permitted to bring up to US$790mn of FDI into the country, while Indiabulls Real Estate
(IREL) is looking to raise up to US$1.2bn.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 15
Central Banks Response
In recent years real estate sector witnessed several regulatory and policy interventions by the federal
and state governments as well as the monetary authorities. Fears of a real estate bubble and an
overheated economy have led Indias central bank to require a lender cutback on real estate loans.
To cool off the substantial price appreciation and ensuring sustainable liquidity in the sector, the
Reserve Bank of India increased interest rates as well as risk weightages for loans to real estate
sector and restricting the real estate companies from borrowing debt in international markets.
The rise in home loan rates lowered consumers appetites for home nancing and simultaneously
raising rents for apartments and ofces. Most Indian real estate companies are privately held and
their nancial information is not readily available. The absence of comprehensive market data
across product types like ofce, retail, industrial and residential properties further hurts the ability
of investors to read the right signals. The central bank is eager to tighten the credit ow to real
estate sector by banks and hence have raised weightage to the sector.
Areas of concerns
Despite the strong growth of the sector in recent years, areas of concerns remain. Prominent
concern being that the foreign investors have actually brought in only a small portion of
their promised investments. Second, soaring land prices and price resistance from buyers
are narrowing investors margins signicantly. Finally, concerns continue to run high about
the regulatory opaqueness for real estate ventures, bureaucratic red tape and the absence of
title insurance, in addition to a host of other issues. All these factors are tempering investors
appetites for Indian real estate.
Government needs to pursue financial Reforms
The government needs to pursue the nancial reforms in order to help the real estate industry
to move to the next level of growth. The Planning Commission of India recommends the
following measures for healthy growth of real estate sector in India.
Allow the pension funds, provident fund and insurance sector to invest in real estate.
Provident and pension funds must be allowed to invest in deposits/bonds of housing
nance companies.
Encourage creation of real estate mutual funds/real estate investment trusts.
Promote trading in mortgage-backed securities. The introduction of foreclosure norms
and establishment of recovery tribunals is essential. Though securitization of mortgage
debt has just started in India it has not succeeded due to the high incidence of stamp duty
on documents.
The present stipulation that FDI will only be allowed for the development of integrated
townships of a minimum area of 100 acres needs to be relaxed to 50 acres or less, as such vast
expanse of land may not be available in urban areas. FDI in the rest of the real estate sector may
be permitted up to 74% with a lock-in period of three years and there should be no repatriation
of dividend during the construction period. Repatriation thereafter may be allowed.
Develop a grading system among real estate developers to keep y-by-night operators out
and control default rates among developers. This will help investors (end user/buyer of
property) be aware of the risks regarding the developers ability to deliver as per specied
terms and quality parameters and transfer of ownership on time.
Reserve Bank of India
increased interest rates as
well as risk weightages for
loans to real estate sector.
Global Research - India Global Investment House
16 India Real Estate Sector Report January 2008
Residential Segment
The residential segment, the largest in the real estate sector in India, involves development
of properties for housing and includes apartments, villas, row houses and bungalows. India
continues to face an acute shortage of housing units. Based on the 2001 census, the housing
shortage is estimated at 12.7mn units in urban area alone and according to tenth ve year
plan; it has grown to 24.7mn units (combined rural and urban) in 2007.
Only 51% of all households live in good dwellings
As per the census 2001, there are around 192mn households in India. Between 1991 and 2001
the number of housing units grew by about 54mn. Only 51% of all households live in good
dwellings in India while 44% live in livable households.
Chart 9: Households living conditions
Source: Census India, Global Research
Housing Demand
Favourable policy change in the form of reduced minimum area requirements for FDI
compliant township projects, coupled with robust demand from both end users and investors,
resulted in substantial growth of residential segment during the past few years. The demand
for housing has been growing at a very robust rate since the past few years, which is in line
with the rising income and growth of population. As per the reports of HDFC, the demand for
housing is expected to be around 24.7mn. In the coming decades India possess the elements
of very strong demand growth on the housing markets. The demand in India is so huge that
as per industry sources, each year some 5mn housing units would have to be completed up
to 2030. This gure is based on additional demand of roughly 3mn housing units and annual
replacement demand of roughly 2mn dwellings.
Only 51% of all households
live in good dwellings in
India.
Each year approx. 5mn
housing units would have to
be completed up to 2030.
Good Livable Dilapidated
44%
5%
51%
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 17
Chart 10: Housing Demand
Source: HDFC, Global Research
According to Indicus Analytics there will be demand for over 24.7mn new dwellings for
self-living in urban India, and over half of this will come from outside top 100 cities. Delhi
will be the biggest generator of demand for residential housing in the country, followed by
Mumbai and Thane. The national capital will see an extra demand of 697,000 dwelling units
in the next 8 years, up to 2015, the highest anywhere in the country. Mumbai with an extra
demand of 586,000 units of housing for self living and Thane (370,000) will be the next
two residential property markets. Urban areas of North 24 Parganas (West Bengal), Pune,
Ahmedabad, Bangalore, Jaipur Chennai and Kolkata are the expected to make up the top 10
residential property markets during the period.
While easier credit availability is likely to drive greater ownership in futurehome loans
owners will go up from 4mn currently to around 10mn by 2015. The changing family structure
in urban India will be fundamental driver for housing growth. According to the Indicus
Analytics study, the number of nuclear families grew from 37.01mn in 1999-00 to 44.2mn
in 2004-05 in urban India. Today, nuclear families (couple with/out children) account for as
high as 67% of the total 66,782,719 urban households with extended families (parents with
one married child with/out children) accounting for 29% and joint families comprise 4 % of
all urban households in the country. Chennai has the highest proportion of nuclear households
(74 %) and Mumbai & Ahmedabad has the highest proportion of extended households (36%)
amongst the top ten cities on housing demand 2007-15.
Table 3: Top ten cities as per the demand for extra housing units for purchase by the
household sector for residential use, 2007-2015
Delhi 696,621
Mumbai 585,932
Thane 369,863
Urban areas of North 24 Parganas 294,808
Pune 270,161
Ahmedabad 234,927
Bangalore 214,909
Jaipur 212,328
Chennai 196,314
Kolkata 193,998
Source: Indicus Analytics
25
20
15
10
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0
15.2
17.6
23.3
22.9
24.7
1
9
6
1
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Global Research - India Global Investment House
18 India Real Estate Sector Report January 2008
The trend of nuclearisation is likely to accelerate, therefore, theres a strong likelihood of
higher demand for smaller houses in future. Also, the bulk of the urban housing demand
will come in from lower-middle to middle-middle class (annual household income between
Rs75,000 to Rs500,000) and super rich households (annual income over Rs1mn).
Residential supply
The shortage of 24.7mn housing units and mushrooming of retail projects would provide a
huge opportunity for domestic as well as global infrastructure players in the country. The
Indian real estate market is expected to grow from the current level of US$40bn to US$102bn
in the next few years. The housing segment of the real estate is expected to form the major
portion of this growth. As per the study of the real estate consultancy rm Knight Frank, the
residential supply will be higher in NCR followed by Mumbai and Pune by 2010.
Chart 11: Estimated new residential supply by 2009-10
Source: Knight Frank, Global Research
Spending on housing
The declared spending on new houses is estimated at Rs.1,718bn in 2004-05 in the middle
and higher income housing category and is expected to grow at a CAGR of 18.6% over the
next 5 years to Rs.4,034bn in 2009-10. In real terms, after eliminating the effects of ination
and the rising proportion of declared housing expenditures versus undeclared expenditures,
the spending on new houses is estimated at 9.1%. The overall housing spending in the
middle and higher income housing category segment is a function of the housing budgets
and the number of new houses being constructed every year in that segment. The housing
budgets themselves are inuenced by housing nance, ination and improving of lifestyles.
Households with higher income spend more on housing.
Housing still affordable
The housing market has picked up considerably in recent years. Strong demand stimuli have
caused shortages in almost all cities, pushing up residential property prices. On the supply
side too, steep rises in raw material costs and more importantly accelerating land prices are
fuelling the cost of the property. But these substantial price increases do not automatically
impose heavier burden on households. This is because income levels for skilled employees
have soared in recent years. In addition, mortgage rates are still lower from their 1990s highs
despite recent hikes. Moreover, tax incentives have been granted for nance property. Tax
savings thus made owner-occupied property more attractive.
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Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 19
Underdeveloped mortgage market
Mortgage loans as percentage of GDP in India is around 6% currently as compared to 94%
in Denmark and 71% in USA. Even countries like Malaysia and Thailand has far higher
mortgage penetration as compared to India. Given the huge housing shortage in India there
exists ample scope for higher mortgage penetration. The low penetration of nancial institution
in mortgage market has thrown doors open for making rapid inroad in the area. This will lead
to growth in residential sales ultimately beneting developers. However, recent increase in
mortgage loan rate and cautious approach of regulator (RBI) towards the sector has slowed
down the demand for loans. Further increase in the interest rate can affect the housing loan
demand and in turn residential sale by the developers.
Chart 12: Mortgages as % of GDP
Source: HDFC, Global Research
Demand drivers of residential segment
Growth in population and urbanization
Indias population is expected to grow from an estimated 1,095mn in 2005 to 1,184mn by
2010. Urban centers are expected to grow at a faster rate, driven by attractive employment
opportunities and better social infrastructure. The urban population is expected to grow at a
CAGR of 2.6% over the period 2005-06 to 2009-10.
Reduction in average size of household
Average size of the Indian household has been falling since the past few years. This resulted
in the number of households growing at a pace faster than the growth in the population itself.
It is expected that the average size of a household will continue to decline over the next 5
years. Given this decline, the number of households in the urban segment is expected to grow
at a CAGR of 2.9% between 2004-05 and 2009-10.
Rising middle class
As the Indian economy continues its forward march, the middle class segment is also growing
rapidly with increased disposable income. Over time a high proportion of the population has
moved, and is expected to continue to move, into higher income brackets. In particular, the
higher income groups have grown at a greater rate in urban centres than in rural areas.
Mortgage loans as
percentage of GDP in India
is around 6%.
100%
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40%
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Global Research - India Global Investment House
20 India Real Estate Sector Report January 2008
Table 4: The Great Indian Middle Class
Classication
Income Class
Rs. '000 pa
No of households in 000 Annual Growth
2005-06 2009-10 2005-06 to 2009-10 (%)
Urban Rural Urban Rural Urban Rural
Deprived <90 23,156 109,093 18,019 96,345 -6.0 -3.0
Aspirers 90-200 25,158 28,118 29,249 46,055 3.8 13.1
Seekers 200-500 8,889 4,923 14,313 7,955 12.6 12.7
Strivers 500-1000 2,301 911 4,629 1,544 19.1 14.1
Near Rich 1000-2000 842 280 1,793 581 20.8 19.9
Clear Rich 2000-5000 360 94 825 212 23.0 22.5
Sheer Rich 5000-10000 87 16 219 37 25.7 23.7
Super Rich >10000 46 6 126 16 28.2 27.4
Total 60,839 143,441 69,173 152,745
Source: NCAER Report
The overall improvement in income levels is driving a reduction in the number of deprived
households (annual household income less than Rs90,000) while the number of rich
households (annual household income greater than Rs2m) is increasing at a CAGR of 22.5%.
Over the period FY06-10, 2.96mn new households will enter the Rs5,00,000-10,00,000 per
year income bracket. This growth in middle income group of population will add to the
growth momentum of the real estate development in India. The growth of the Indian economy
and the growth of the Indian middle class has contributed to increased demand for housing
units. As a result, growth of the Indian economy has been the primary growth driver for the
overall real estate sector in India.
Middle class population is
rising rapidly.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 21
Commercial Segment
IT/ITES driving commercial realty
Commercial segment of the real estate comprises ofce space, hotels, hospitals, schools
and stadiums. In India, most of the investment in this segment is driven by ofce space
construction. Within ofce space construction activity, almost 70-75% of the demand
comes from Information Technology (IT), Business Process Outsourcing (BPO) and call
centres. The other key demand drivers include banking and nancial services, Fast Moving
Consumer Goods (FMCG) and telecom. This dependency is expected to continue due to
Indias emergence as a preferred outsourcing destination. Growth in commercial ofce space
requirement is led by the burgeoning outsourcing and information technology (IT) industry.
By 2010, the IT sector alone is expected to require 150mn sq. ft. of space across major
cities.
IT/ITES growing rapidly
During the last four years, IT sector continued to grow at a healthy rate, while ITES showed
48% growth. Going forward revenue from Information Technology Enabled Services (ITES)
is expected to grow at a CAGR of 30% to reach US$19.7bn in 2009-10 and revenue from
the IT service industrys expected to grow at a CAGR of 26% to reach US$28.5bn by 2008-
09. Consequently, growth in the sector should translate into substantially higher demand for
commercial space.
Commercial demand remained buoyant
According to Jones Lang La Salle, the total demand for commercial ofce real estate in 2005
in the top seven centres of Bangalore, Chennai, Delhi-NCR, Mumbai, Pune, Hyderabad and
Kolkata was over 36mn sq ft and is expected to be over 45mn square feet in 2006. Even
with the growth in the IT/ITES sector gradually tapering off, we estimate that there will be
a demand for 150 mn sq ft of ofce space in FY08-10E and another 550 mn sq ft in FY11-
17E. It is estimated that around 90 commercial complexes are currently lined up. The total
investment involved in these projects ranges from Rs.125bn to Rs.150bn.
Chart 13: Estimated new ofce space supply by 2008
Chart: Knight Frank
The IT and ITES would
require additional space of
approximately 87mn sq ft.
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Global Research - India Global Investment House
22 India Real Estate Sector Report January 2008
Commercial locations in India
Over the past ve years, locations such as Bangalore, Gurgaon, Noida, Hyderabad, Chennai,
Kolkata and Pune have evolved and have established themselves as emerging business
destinations increasingly competing with the traditional business destinations of Mumbai
and Delhi as far as commercial real estate occupancy is concerned. The key to the growth of
these destinations has been their ability to provide the necessary human resources base with
the required skill sets, competitive business environment, operating cost advantages, and
quality of urban infrastructure offered.
Tier III Cities- untapped potential
The locations that would fall under tier III category include Jaipur, Coimbatore, Ahmedabad,
Indore, Nagpur, Lucknow, etc. Increasing real estate costs and a shortage of manpower in tier
I and II locations is encouraging IT companies to set up ofces in tier III cities. Tier III cities
such as Chandigarh, Jaipur, Kochi, Mysore, Indore, Bhuwaneswar, Ahmedabad and Nagpur
are seeing strong interest from commercial ofce space users. However, this shift will only
be gradual and the tier I and II cities will still constitute around 80% of the total commercial
ofce stock in the next ten years.
The construction activity for commercial purpose which was until recently focused on
metropolitan areas is spreading to tier II and tier III cities as well. Currently almost 60%
of the new projects are concentrated in cities such as Bangalore, Chennai and Hyderabad.
Besides these cities, activity is also seen in other cities, notably Pune, Hyderabad, Chennai
and Kolkata. Over the next 3-5 years, these markets are likely to see signicant growth in the
commercial real estate.
Ongoing office space trends in India
Demand for commercial properties in India has got a major push by a substantial growth in
IT and ITES companies. Over the years, IT sector in India has reached to a new high and so
have multinationals which now look out for bigger spaces to enhance their operations into a
single large building. Such a growing trend among companies of national and international
repute in India is leading to the growth of built to suit commercial space in India. According
to the property data showcased by DTZ, in 2006, 10.6 mn sq ft commercial space came up in
the NCR. Of the total, 4.6 mn sq ft was pre-committed.
Initially, Indian conglomerates used to have their own buildings. Contrary to this, MNCs
nowadays prefer to take the space on lease. Today, developers are developing more and
more ofce space, even without having any pre-commitments because of the ever growing
demand.
Many builders customize buildings for their clients. For example: they will construct an
external faade or large open oor plate with a few columns etc. And, the clients who lease
ofce spaces have the liberty to customize the space as per their own requirements. However,
pre-commitments are increasing day by day, a factor motivating the developers to come up
with more and more space. Most DLF buildings in Gurgaon which are on the completion
stage have all been pre-committed.
Construction activities are
rising in tier III cities.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 23
Retail Segment
Retail gaining popularity
The retail sector in India has been booming since the past few years. The country has witnessed
large retail spaces and the entry of big corporates in the retail sector. India has emerged as the
most attractive destination for retailers in 2007. According to the latest AT Kearney study,
for the third year in a row, India leads the annual list of most attractive emerging markets for
retail investment followed by Russia and China.
The robust macro-economic scenario and changing demographic proles has a major role
to play in the growth and emergence of the retail sector in India. In addition to these factors
like rise in per capita income, increase in household consumption coupled with changing
consumption patterns, easy access to low-cost consumer credit, improved standards of living,
infrastructure improvements and increased availability of retail space have served as key
catalysts for the retail sector growth.
Retail dominated by unorganised sector
Historically, the Indian retail sector has been dominated by small independent players such
as the local kirana stores (traditional, small-format, neighborhood grocery stores). However,
during 1990s, organised retail gained increased acceptance, due to changing demographic
factors such as the increasing number of working women, changes in perception of branded
products, the entry of international retailers into the market and the growing number of retail
malls.
Market size
Organised retail in India currently accounts for only 4.6% of the US$270bn Indian retail
sector. According to India Retail Report 2007, organised retail is expected to grow by 37% in
2007 and 42% in 2008. The organised retail in India has the potential to add over US$45bn
business by the year 2010. This is expected to create a demand for around 220mn sq feet of
retail space by 2010. According to industry estimates, 27mn sq feet of organised retail space
is currently available. Another 90mn sq feet is expected to be added by 2008 from 263 mall
projects. Of these, 18mn sq feet is slated to come up in Delhi as well as in Mumbai, 9.5mn sq
feet in Ludhiana, 6mn sq feet in Chandigarh and 3.6mn sq feet in Ahmedabad.
Large Retail Spaces
With the retail sector experiencing a boom, the country is witnessing a spurt in extremely
large retail spaces. Shopping malls with over 1mn sq ft of space have become the order of
the day. About 20 of these huge malls are now at various stages of construction across the
country. In the National Capital Region (NCR), Unitechs Great India Place has a million
square feet of retail space. In Mumbai, at least eight malls covering over 1mn sq ft each
are under construction. In Bangalore, at least three malls with similar dimensions are under
development. Ludhiana will soon have a 1.6mn sq ft mall by Today Homes. Though the
players in the organised retail segment have concentrated on larger cities in the country,
retailers have also announced expansion plans into towns and rural areas.
Specialized Malls
As the competition in the market intensies, builders are going out of their way to be
different. Specialised malls, designer brands and multi-movie options are the new trends
in the mall business. Gurgaon, on the suburbs of New Delhi, has a jewellery mall and will
Indian retail sector has
been dominated by small
independent players.
Organised retail in
India currently accounts
for only 4.6% of the
US$270bn Indian retail
sector.
Global Research - India Global Investment House
24 India Real Estate Sector Report January 2008
soon have an auto mall. Bangalore will get an exclusive furniture mall. Two malls, rst of
their kind, targeting foreign tourists, will come up at tourist hotspots like Goa and Udaipur
with a projected cost of around US$22mn each. A furnishings mall is coming up in Kolkata.
Indias largest theme amusement park, Noida Entertainment City (E-City), will be developed
on 150 acres of land. Discount malls are also on the rise. Top realtors and local retail chains
are developing malls in regional boroughs, specically to sell premium branded goods at
prices 30 to 40% cheaper than the maximum retail price. At least 50 discount malls are
expected to come up in the next two years across the country, positioned in the middle-to-
the-premium end of the market. DLF Universal has planned to develop what it called as the
biggest mall of the world Mall of India in North India which will have 32 acres spanning a
huge entertainment area and large city town squares offering a total retail experience.
Rising number of malls
There are around 220 shopping malls which will come up in the next 3 years. This malls also
includes specialised malls catering to jewellery, furniture, electronics and automobiles. The
total investment plans of the major players who are the new entrants in this space are to the
tune of Rs.700bn. By 2010-11, the additional retail space expected to be generated is pegged
at around 300 mn sq ft.
Table 5: Number of malls coming up in next 3 years.
City Number of malls
Delhi 60
Mumbai 30
Bangalore 10
Chennai 5
Kolkata 10
Hyderabad 15
Pune 11
Ahmedabad 4
Tier III Cities 75
Total 220
Source: Business Standard
Supply of retail malls
Retail and real estate compliment each other. The current growth trends in Indian retail
market present large prospects in the retail real estate segment. Indian retail enjoys the status
of representing one of the 10 largest retail markets in the world. If the progress forecasted for
retail sector in India keeps moving like this, then, by the end of 2008, a supply of 66 mn sq ft
of new retail space will be developed in the eight largest Indian cities.
Specialised malls,
designer brands and
multi-movie options are
the new trends in the mall
business.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 25
Chart 14: Future scenario of Retail Sector in India:
Source: Various Reports, Global Research
Developers are primarily focusing on the metros like Delhi and Mumbai for the supply of
retail space as these cities enjoy advantages because of their sheer size and population. They
have emerged as the most lucrative consumer markets in Asia. Close by heels are the cities
such as Bangalore, Hyderabad, Chennai, Pune, where per capita income is increasing due to
high proliferation of IT companies.
Big Realty players Unitech, Omaxe, Suncity Projects among others are planning to come up
with big retail projects in tier-II cities like Ludhiana, Jaipur, Chandigarh, and Amritsar. What
is attracting these majors to foray into these cities is their increasing customer base. Around
100 shopping malls are already operating here, generating 20 mn sq ft of retail space. Around
60 more malls are likely to spring by the end of next scal year.
Increasing Jobs in Retail
Jobs in the retail sector has been rising rapidly since the past few years, a trend much similar
to the job scenario prevailing in IT and BPOs few years back. Big players in Indian retail
sector such as Big Bazaar and Pantaloons are planning to recruit 110,000 more people by
2010 to stay in step with rapid expansion plans. Recruitment process in organized retail
industry has peaked over the past, with the total employee strength up from 0.54mn two years
ago to the present 1.6mn.
Currently, around 1.6mn
people are working in the
organized retail sector.
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Global Research - India Global Investment House
26 India Real Estate Sector Report January 2008
Hospitality
In recent years, hospitality sector witnessed excellent performance mainly buoyed by the
rapidly rising international and domestic corporate tourists as well as steep rise in leisure
tourism. An estimated 2.02mn foreign tourist came to India in the rst ve months of the
calendar year 2007, a 12% increase over the previous year and the trend is expected to
continue going forward. It is estimated that the room demand in the premium segment hotels
in 10 major cities in India increased by around 5% since the past one year. The room demand
in India is expected to grow by approximately 10% over the next ve years. This is expected
to be accompanied by increases in average room rates of 27% and 21% in scal 2006 and
2007. It is expected that the growth in occupancy rates will be assisted by factors such as the
10% CAGR in the number of incoming travellers into India over the next ve years.
Healthy growth in room rates
The majority of segments in the Indian hotel industry have shown robust growth in room
rates as well as occupancy rates. With increased demand and limited availability of quality
accommodation, the average room rates in metropolitan markets have shown signicant
growth in 2006 including 36.7% for Hyderabad, 32.5% for Delhi, 30.5% for Jaipur, 24.7%
for Mumbai and 24.0% for Bangalore. Agra, Kolkata, Chennai and Goa experienced
a growth range of between 17.0% to 21.0% in 2006. The general increase in both room
rates and occupancy rates is expected to contribute signicantly to the demand for new
hotel developments. Around 60 properties are expected to be developed in India, across all
categories with a room inventory of 6,500 at a total investment of over Rs.45bn.
The travel and tourism industry in India has been displaying massive growth trends for the
past years. There is a considerable increase in number of visitors to India resulting in a stiff
competition. With a plethora of business opportunities, India has now become an important
destination for business travelers. The trend has largely evolved in major metros including
New Delhi, Mumbai, Chennai, and Bangalore.
Service apartment concept gaining ground
With the strong demand for hotels coupled with low vacancies in all hotel categories,
Serviced Apartments concept is gaining ground in India since the past couple of years.
Various private developers and individual investors came out with a number of Serviced
apartments in most of the major cities in India. However, the concept of Serviced apartments
has witnessed acceptability mainly near established and emerging IT/ITES clusters such as
those in Bangalore, Pune, Hyderabad, Chennai, etc.
Oberoi Group earmarks Rs45bn for hospitality projects in India
The Oberoi Group of Hotels is planning to invest Rs45bn in new hotel projects for 60%
capacity augmentation in national as well as international market. The plans will be executed
over the next ve to six years. Of the total investment, EIH Ltd, the agship company of
the Oberoi Group, will contribute Rs10bn whereas the rest will come from borrowings and
partners. The number of rooms during the period would increase to 6,800 rooms from the
present 4,100 rooms.
The Group envisages a 50% capacity addition in the country alone. EIH will develop around
1,400 rooms in its Trident Hilton Category projects in Mumbai, Bangalore International
Average room rates in
metropolitan markets have
shown signicant growth
in 2006.
Oberoi group plans to
increase the number of
hotel rooms to 6,800.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 27
Airport, and Hyderabad City, involving an investment of Rs8bn. The development of the 440
rooms Trident Hilton located at Bandra-Kurla, Mumbai, is under development and scheduled
to be over by the third quarter of 2008. The Group also has a joint venture project with
L&T in Bangalore, which is expected to be completed by 2010. EIH is eager to establish its
second property in Kolkata in league with a partner. The company also has plans to infuse
another whopping Rs700mn for new ight kitchens at the international airports at Kolkata
and Mauritius.
Global hotel chains on the way to India
Increasing tourism in India has made a dozen global hotel chains bullish on to expand their
horizons in the country. Putting it altogether, they have plans to set up over 350 ve star
hotels, four star and budget hotels and 50 villas. If all plans are actually implemented, it would
translate into 65,000 additional rooms. The total number of hotel rooms in all categories has
only grown by 10%, accounting for around 92,000 rooms.
India has been gaining high popularity on the global tourism circuit for the past couple of
years. It is further cleared in light of the data which says the foreign tourist arrivals in India
have reached to 4.43mn in 2006 from 3.92mn in 2005. Foreign business travelers make
a high percentage of the total inbound travel. Besides, India sees around 300mn domestic
travelers each year and the number is likely to soar by 10-15% every year.
The global hoteliers with plans to set hotels in India are making joint ventures with prominent
realty companies. The renowned Hilton Group has joined hands with Indian real estate giant
DLF to develop 25,000 hotel rooms within the next ve years. DLF will invest a whopping
Rs120bn in the project to build a chain of hotels, including around 10-12 premier ve star
hotels and 100 business hotels in tier-II cities. Bangalore based developer, Nitesh Estates tied
up with Ritz Carlton to develop a 250 rooms ve star property with a project cost of around
US$100mn in Bangalore.
Accor, a pioneering hotel group in Europe, will introduce the Formule 1 budget hotels in
India and set up hotels with the capacity of 5,000 rooms over ve years. The company has
also signed a deal with Mumbai based Nirmal Lifestyle to build 5 hotels with 1,080 rooms.
The rooms will carry its different hotel brands.
Hilton Group has joined
hands with Indian real
estate giant DLF to develop
25,000 hotel rooms.
Global Research - India Global Investment House
28 India Real Estate Sector Report January 2008
Special Economic Zones
The Special Economic Zones (SEZ) Act 2005 provides for the establishment, development
and management of SEZs for the generation of additional economic activity, promotion of
exports of goods and services, promotion of domestic and foreign investment and development
of infrastructure facilities. The Governments policy of providing various tax incentives to
developers of, and units in, SEZs has resulted in signicant acceleration in applications for
SEZ development from property companies and other corporates. SEZs could provide an
additional thrust to property development activity, both residential and commercial.
New Norms for SEZ
Some of the new norms for SEZs are as follows:
Ceiling on the maximum land size at 5,000 hectares
Minimum processing area has been increased from 35% to 50%
State Governments not allowed to acquire land for SEZ on behalf of private developers
nor can they form JVs with private developers for the same
State Governments allowed to acquire land to develop SEZs on their own, provided they
follow the new relief and rehabilitation package
Tremendous Response
A large number of companies and real estate developers have been attracted to this
proposition by the Government given the tax benets and simplicity of procedures involved.
Land acquisition is key to the success of SEZ projects. At this point in time, there is some
uncertainty around the concept of SEZ and its implementation. Despite protests from several
quarters, large number of prominent SEZ approvals were granted by the Government of India
in 2006-07. Under the new SEZ Policy, formals approvals have been granted to 366 SEZ
proposals, out of which 142 have already been notied as SEZs till the end of August 2007.
In addition, around 176 proposals have been granted in-principle approvals.
Industry Wise Classification of SEZs
In terms of industry focus, IT/ITES/Electronics/Hardware sector witnessed the maximum
number of approvals followed by bio-technology, engineering, etc. With respect to type of
SEZs, almost 90% approved SEZs are sector specic followed by multi-product (5%), multi-
services (2%), and free trade and warehousing zone (1%). Geographically, the maximum
number of approvals were bagged by the state of Maharashtra (75) followed by Andhra
Pradesh (61), Tamil Nadu (53) and Karnataka (36), etc.
Under the new SEZ Policy,
formal approvals have
been granted to 366 SEZ
proposals.
With respect to type
of SEZs, almost 90%
approved SEZs are sector
specic.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 29
Chart 15: Industry wise classication of formally approved SEZs
Source: sezindia
Huge investments and more jobs as well
Signicance of SEZs can be highlighted from the fact that for 142 notied SEZs, total
investment requirement is expected to be around Rs.900bn. These SEZs are expected to
generate 2mn additional jobs by December 2009. If all the formally approved SEZs become
operational it will require total investment of Rs.3,000bn and 4mn additional jobs will be
created by December 2009.
Table 6: Some of the Prominent SEZs
Company
No of SEZs
proposed
Comments
Reliance Group - Mukesh
Ambani
3 Navi Mumbai SEZ-450 hectares by Reliance &
850 hectares from CIDCO
Haryana SEZ spread over 25000 acres
Another SEZ in Maharashtra
Adani Group 2
Videocon 9 In Maharashtra-2, West Bengal-5, Karnataka
and Gujarat- 1 each
DLF 4 All in northern India spread over 26000 acres
Unitech 2 Gurgaon and WB
Parsvnath 9 In various states
Bharat Forge 1 Pune, 2000 hectares for auto components
Biocon 1 Biotech Products
Bajaj Auto 1 In Pune
GIDC 1 Multiproduct
Suzlon Energy 1 Renewable Energy
Mahindra Gesco 1
Source: Various Reports, Global Research
11%
4%
5%
2%
5%
4%
69%
IT/ITES/Electronics/Hardware
Textile
Games & Jewellery
Pharmaceuticals
Others
Engineering
Biotechnology
Global Research - India Global Investment House
30 India Real Estate Sector Report January 2008
Role of Capital Market
With the boom in the Indian real estate sector, most of the real estate players are raising huge
amount of money both in the domestic as well as international markets to fund their various
projects.

Rush to tap primary market
The last few years were spectacular for the real estate companies in India. Marked by the
listing of several large real estate companies in both domestic as well as international stock
exchanges, the IPO market witnessed the shifting focus towards the realty sector. In recent
times the real estate companies ocked to the capital market to raise funds. In the last year,
around 18 real estate and construction companies went public. These companies raised around
US$4.35bn from the public for various projects. The largest real estate development company,
DLF, launched Indias largest ever IPO of over US$2bn and was oversubscribed by 2.47
times. Some of the other public issues in the pipeline are Emmar MGF, RNS Infrastructure,
SVEC Constructions, Supreme Constructions, IRB Infrastructures, Man Infraconstruction,
etc. In addition, Ansal API plans to raise close to US$242mn through a follow on public
offer.
Table 7: Prominent Real Estate IPOs
Company Issue Size (US$ Mn)
DLF 2,210
Housing Development and Infrastructure Limited 413
Lanco Infratech Ltd. 314
Parsvnath Developers Ltd 242
Puravankara Projects 207
Omaxe Limited 147
Sobha Developers Ltd 121
Akruti Nirman Ltd 88
Unity Infraprojects Ltd 53
Source: Various Sources, Global Research
AIM Listing
Another interesting trend that was witnessed during the last year was the listing of several
Indian real estate companies on the offshore exchanges like AIM, Singapore listed REIT,
Singapore Stock Exchange and Dubai International Financial Exchange. AIM has become
famous avenue since it is specically tailored for smaller and younger companies seeking
growth capital. In addition, the more exible regulatory regime makes it even more attractive.
AIM London was the most preferred exchange for listing for the Indian real estate companies.
Some of the real estate companies have raised more than US$4bn at AIM London during the
past one year.
Companies raised around
US$4.35bn from the public
for various projects.
AIM has become famous
avenue for the companies
seeking growth capital.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 31
Table 8: Prominent AIM listing
Company Fund Raised (US$ Mn)
Hiranandanis HIRCO 761
Unitech 716
Trinity Capital 500
Dev Property Development Plc 412
Ishaan Real Estate 341
Naya Bharat Property Company 119
Eredene Capital Plc 114
West Pioneer 80
Source: Various Sources, Global Research
Private Equity flow remained robust
Reserve Bank of India (RBI) and the central Government has recently moved in tandem to
curb overheating in the real estate sector which has slowed down the ow of money to the
real estate sector through the traditional channels such as bank loans. Foreign ow into the
Indian realty market is the only funding option that the Government has not been able to
block successfully.
Table 9: Top % sectors for Private Equity investment (Jan-June 2007)
Sector Investment (US$) % Volume %
Real Estate and Infrastructure 2.19 32.10 27.00 13.50
Banking and Financial Services 2.15 31.60 34.00 17.00
Media 0.72 10.50 19.00 19.50
IT and ITES 0.50 7.30 40.00 20.00
Pharma and Healthcare 0.22 3.20 19.00 19.50
Source: Economic Times, Global Research
Apart from tapping primary market and AIM listing, private equity emerged as one of
the most preferred options for the foreign investors to enter the Indian real estate market.
With rising property prices, real estate and infrastructure has become attractive investment
destination for private equity funds. For the rst half of 2007, real estate and infrastructure
sector accounted for US$2.2bn investment or about one-third of all private equity money
owing into India. Some of the prominent large private equity deals in the Indian real estate
sector in recent months are as follows:
Avenue Capitals 26% stake in SKIL Infrastructure for US$500mn
D E Shaws US$400mn investment in DLF Assets which will develop SEZs across the
country
IL&FS US$100mn investment in QVC Realty
Morgan Stanley Real Estates US$150mn in Oberoi Constructions
For the rst half of
2007, real estate and
infrastructure sector
accounted for US$2.2bn
investment.
Global Research - India Global Investment House
32 India Real Estate Sector Report January 2008
Singapore based GIC, George Soros and Morgan Stanley joint investment of US$166mn
in Anant Raj Industries
TPG-Aon Capitals US$100mn investment in Divya Sree Developers
ECB route
Recently, foreign investments through partial, optional and non-convertible preference
shares have been classied as external commercial borrowings (ECBs). Further, norms for
investments through the ECB route have been tightened. This has signicantly impacted
developers capital raising plans. Reduction of foreign capital ow into the Indian real estate
market would affect the overall health of the sector and jeopardise many large development
plans. The changed guidelines for ECB have lowered the cap on interest rates at which the
companies can raise loans abroad. Every year, the government xes the maximum interest
rate at which a company can raise credit overseas. The interest rate ceilings have been
lowered from 200 basis points (bps) above Libor to 150 bps above Libor for loans with a 3-5
year maturity. For debt with a maturity exceeding ve years, the ceiling has been lowered
from 350 bps above Libor to 250 bps above Libor. The new ceilings will be applicable
to companies raising debt under the automatic route as well as those raising it under the
approval route.
Companies with poorer balance sheets or low credit rating may nd it difcult to raise debt
at lower interest rates. The new guidelines have barred realty companies from raising debt in
overseas markets for the development of integrated townships. Till date, the government had
allowed real estate companies to raise foreign funds for integrated townships developed on
a minimum of 100 acres.
Norms for investments
through the ECB route have
been tightened.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 33
Recent Developments
Emaar planning to set up a 100% subsidiary in India
Emaar, the Dubai based Real Estate Company, is planning to set up a 100% subsidiary in India.
Emmar already has joint venture with Delhi based realty company MGF. The new venture
will be executed through Hamptons International, one of the UKs premier international
residential agents which Emaar acquired in 2006 for US$500mn. There is no obligation for
the company to go with the current joint venture. The subsidiary will operate independently
as Hamptons does in UAE with its own distinct identity and operations.
Emaar-MGF possesses a land bank of over 10,000 acres in India. The company has also
launched a multitude of residential real estate projects in the north India and one commercial
project in Chandigarh. The company is also engaged in another joint venture with the Andhra
Pradesh government. However, the venture does not have any involvement of MGF. As
per the rules stated by the government, an overseas company needs to get a no-objection
certicate from its Indian partner before foraying into the same business in India through a
wholly owned subsidiary.
Dubai developers make beeline for India
The booming Indian real estate market is now attracting a growing number of developers
based in the United Arab Emirates (UAE). After Emmar and Nakheel the two other property
developers from UAE are already planning the launch of mega projects in the subcontinent.
KM Properties, the real estate arm of Dubai-based KM Holding, is scouting for partners for
commercial projects in India. Another company looking at India is Rakeen, the real estate
development arm of the Ras Al Khaimah (RAK) government.
JP Morgan to invest Rs4bn in Indian Realty
JP Morgan Property Fund, which has already invested over US$300mn to carve out a
signicant niche in Indian real estate, is soon to come up with a residential project in Chennai,
with the investment of Rs4bn. Arihant Foundations and Housing Ltd. (AFHL), Chennais
leading developer, will develop the residential property over an area of 45 acres of land. The
company is taking up the project in a joint venture with JP Morgan. JP Morgan has formed a
50:50 joint venture with AFHL.
JP Morgan targets key economic centers in India to develop real estate projects along with
domestic partners. The list includes Mumbai, Bangalore, Chennai, Kolkata, Hyderabad, and
New Delhi among other major and upcoming cities. JP Morgan Asset Management, the
investment arm of JP Morgan Chase, had announced the mobilization of US$360mn from
institutional and high net worth investors (HNIs) from the US, Asia, Europe, and the Middle
East to make investments in booming property market in India.
DLF to develop new city centre in Gurgaon
Indian property giant DLF Ltd plans to come up with a modern city centre near the 18-
hole Golf Course Road in the north Indian city of Gurgaon. The company will take up the
construction in collaboration with global construction major Hines. The complex will be
designed by the famous architecture Robert A M Stern. The centre will be developed over a
large area of 20 acres with the total 2.5 mn sq ft of constructed area.
Emaar-MGF possesses a
land bank of over 10,000
acres.
Global Research - India Global Investment House
34 India Real Estate Sector Report January 2008
The entire complex will be dedicated to the commercial space. It will have high end retail
shops, restaurants, and a 5-star hotel. Skyscrapers in the complex will include large green
areas. Only 10% of the space will be covered by the construction and the rest of the area will
left green. The proposed city centre is believed to serve as a major land mark in the area and
is scheduled to be operational in 2010. The centre will be well connected to Delhi through
metro and a widened national highway, which would be a matter of major convenience for
all. Since the land is already acquired by DLF, development work is likely to start soon.
DLFs upcoming investments
DLF has plans to invest around Rs10bn for the establishment of Special Economic Zones
(SEZ) for information technology. DLFs rst IT SEZ will come up at Nagpur, and will be
operational by 2010. The SEZ will cover over an area of 140 acres. The IT Park is a part of
the 3,250 acres multi modal international hub airport SEZ project at Nagpur. To be located
adjacent to the international cargo hub airport in Nagpur, the SEZ would have an international
and national information technology rms.
Recently, DLF secured the proposed integrated Township project in West Bengal. It is
public-private partnership project that has the potential to attract investment up to Rs40bn.
Apart from this project, the company is also working on a 500 acre township, a textile SEZ,
two IT parks and hotels in Kolkata.
Indiareits Retail Fund garners Rs4bn
Indiareit, the real-estate fund promoted by Piramal Enterprises raised Rs4bn through its rst
retail focused fund Indiareit Fund Scheme III. Indiareit is also considering a greenshoe
option for another Rs3bn. The fund is holding talks with some renowned corporate investors
and is likely to close the fund with Rs7bn.
Urban Land Ceiling & Regulation Act repealed
Maharashtra Governments move to repeal the ULCRA (one of the last vestiges of the
socialist& permit raj era) is a signicant move to promote more land development. The
passage of this act was mandatory, as the Centre has set a March 2008 deadline to do so or
to avail funds under JNNURM (Jawaharlal Nehru National Urban Renewal Mission). The
move demonstrates that the state government is willing to make the difference in terms of
proactive reforms and measures to remove bottlenecks and cobwebs in promoting more real
estate & infrastructural development in the city. This will ensure that permissions, which are
stuck for ULC permissions etc, will come in faster, with lesser amount spent on it. Following
the repeal of the Urban Land Ceiling and Regulation Act, popularly called the ULCRA by
the Maharashtra Assembly Act, around 15,000 acres of land for development is likely to be
free. There were large tracts of lands for which companies had to get ULC clearance from
the government & had to give away a certain part of the developed land to the government
& most of land bank owner and were reluctant to do that. Thats why we never saw large
land banks being developed. because developers were reluctant to part with their lands to the
government. Now, with this development, a lot of real estate would come in. A lot of middle-
income, lower income and weaker sections will benet from this. Its just a step towards
increasing supply of land in the city, which continues to be a priced possession.
DLF plans IT park in
Nagpur and Durgapur.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 35
Regulatory Issues
India has plethora of laws governing the real estate sector, as both the central and state
governments has jurisdiction over the real estate sector. Most of the laws governing various
aspects of real estate sector are almost a century old. Despite the existence of numerous laws,
the situation appears to be far from satisfactory and major amendments to existing laws are
required to make them relevant to modern day requirements. The Central laws governing real
estate includes the following.
A. ULCRA (Urban Land Ceiling and Regulation Act, 1976)
One of the acts main provisions includes setting a limit on the ownership of vacant land
(graded according to the classication of the urban conurbation) so as to provide cheaper
land to poor communities. The Act gives power to state governments to acquire any excess
vacant land above the limits set by the Act, to regulate the transfer of ownership of the vacant
land and distribute it according to the common good. Under the Act, individual states are
authorised to grant exemptions depending on the category of land. However, the Act has
been criticized on a number of aspects. It has vested too much discretionary power in the state
governments to grant exemptions which has led to corruption, resulting in lengthy court cases
and that it does not provide for a mechanism to force the entry of vacant urban land onto
the market, thereby resulting in an unduly low supply of land for housing and development,
and boosting land prices, particularly in the larger cities. As such, its repeal is likely to add
further momentum to growth of the real estate sector in India. ULCRA has been repealed
by all states except West Bengal and Andhra Pradesh. Repealing of the act would enable
development of land of size more than 500 sq metres in metros.
B. Transfer of Property (TP) Act
Transfer of Property Act, 1882, is an act by which a living person conveys property in
present or in future to one or more other living persons or to himself and one or more other
living persons and to transfer property is to perform acts like sale, mortgage, gift, lease
and exchange etc. The TP Act establishes the general principles relating to the transfer of
property, including among other things, identifying the categories of property that are capable
of being transferred, the persons competent to transfer property, the validity of restrictions
and conditions imposed on the transfer, and the creation of contingent and vested interest in
the property.
C. Registration Act
The Registration Act, 1908 (Registration Act) has been enacted to provide public notice
of the execution of documents affecting transfer of interest in immoveable property. The
purpose of the Registration Act is to conserve evidence, assurances, title, and publish
documents and prevent fraud. It details the formalities for registering an instrument. The Act
identies documents for which registration is compulsory and includes, among other things,
any non-testamentary instrument which purports or operates to create, declare, assign, limit
or extinguish (whether in present or in future) any right, title or interest (whether vested or
contingent) in immovable property of the value of Rs100 or more, and a lease of immovable
property for any term exceeding one year or reserving a yearly rent. A document will not
Act gives power to state
governments to acquire any
excess vacant land above
the limits set by the Act.
Global Research - India Global Investment House
36 India Real Estate Sector Report January 2008
affect the property comprised in it, nor be treated as evidence of any transaction affecting such
property (except as evidence of a contract in a suit for specic performance or as evidence of
part performance under the T.P. Act or as collateral), unless it has been registered.
D. Land Acquisition Act, 1894
This Act authorises governments to acquire land for public purposes such as planned
development, provisions for town or rural planning, provision for residential purpose to
the poor or landless and for carrying out any education, housing or health scheme of the
Government. In its present form, the Act hinders speedy acquisition of land at reasonable
prices, resulting in cost overruns.
In addition to these laws, there are certain laws under state legislation like urban development
laws and agriculture development laws which also govern the real estate sector. While each
state has its own set of laws, which govern planned development, rules for construction
and oor-area-ratio (FAR) or oor-space-index (FSI) and formation of societies and
condominiums, two laws that exist in every state, are the stamp duty and rent laws.
E. Rent Control Act
The objective of the Rent Control Act was to protect the exploitation of tenants by landlords
after the Second World War. Initially the act was enacted as temporary measure however
it became almost a permanent feature. Rent legislation provides payment of fair rent to
landlords and protection of tenants against eviction. Besides, it effectively allows the tenant
to alienate rented property. Tenants occupying properties since 1947 continue to pay rents
xed then, regardless of ination and the realty boom.
The Rent Control Act, in fact, is the single most important reason for the proliferation of
slums in India by creating a serious shortage of affordable housing for the low income
families. Low and middle-income families typically live in rented accommodation and the
need for such accommodation in Indian cities will only increase as the economy modernises,
labour mobility increases and urbanisation takes place. It is, therefore, necessary to increase
the stock of rental housing. Promotion of rental housing can have a signicant impact on the
economy in many ways:
It reduces shortage of housing for a large section of the population who cannot afford
ownership.
Housing construction being a labour intensive activity, investment in housing generates
employment for both skilled and unskilled labour.
Housing has backward and forward linkages with many other industries.
Rental housing helps in stabilising real estate prices and checking speculation and, thus,
makes housing affordable for the weaker sections.
It helps check proliferation of slums.
The Act authorises
governments to acquire
land for public purposes.
Rent legislation provides
payment of fair rent to
landlords and protection of
tenants against eviction.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 37
In the absence of rent control, dilapidated urban housing would be periodically pulled down
and replaced by modern apartment buildings and other complexes leading to more rational
use of prime locations and also creating a continuous process of urban renewal. This has not
happened in India because rent control combined with security of tenure provides no incentive
for house owners to undertake renovation work. This explains the run down appearance of
many buildings in prime locations of major cities. Repeal of the Rent Control Act could
unleash a construction boom as has happened in many major cities all over the world. This is
not only necessary to meet the growing unmet demand for housing but it would also have a
highly favourable effect on employment generation.
F. The Indian Stamp Act
There is a direct link between the Registration Act and the Indian Stamp Act, 1899 (Stamp
Act). Stamp duty should be paid on all documents specied under the Indian Stamp Act and
at the rates specied in the Schedules there under. The rate of stamp duty varies from state
to state. The stamp duty is payable on instruments at the rates specied in Schedule I of the
said Act. The applicable rates for stamp duty on these instruments, including those relating
to conveyance, are prescribed by the state legislation. Instruments chargeable to duty under
the Stamp Act, which are not duly stamped, are incapable of being admitted in court as
evidence of the transaction contained there in. The Stamp Act also provides for impounding
of instruments which are not sufciently stamped or not stamped at all.
Most state governments charge very high registration fees and stamp duties on property
transactions. The rate of stamp duty varies from 5% in Andhra Pradesh to 14.7% in Orissa.
Some states even have double stamp incidence, rst on land and then on its development.
Table 10: Stamp Duty and Registration Charges
City Stamp Duty (%) Registration Charge (%)
Delhi* 8% 1.25
Mumbai 10 1
Bangalore 8.6 1
Chennai 8 1
Source: Various Reports, Global Research.
*- 6% for women purchasing residential property
Legislative Reforms - Road Ahead
There are three critical issues in real estate development - archaic rules and regulations, lack
of affordable nance on a mass scale and inadequate land availability. The regulatory issues
become prime importance for the rapid development of the real estate industry in India. The
following legislative reforms are necessary for the growth of the real estate industry in India.
Revise the number of legislations governing property transactions and merge them into
one comprehensive law.
The repeal of the Urban Land (Ceiling & Regulation) Act by various states which have
not done so is necessary. This is expected to facilitate the release of 220,000 hectares of
urban land, which remains frozen.
Most state governments
charge very high
registration fees and
stamp duties on property
transactions.
Global Research - India Global Investment House
38 India Real Estate Sector Report January 2008
Amend the Rent Control Act so as to remove the absolute authority of the rent controller
over the disposition of the rented property. This allows the rent controller to virtually
divest the owners of the natural right to his property and transfer it to the tenant.
Amendment of the Indian Stamp Act, 1899 and the Indian Registration Act to delink the
process of registration from the payment of stamp duty and also to liberate the registration
process from the requirement of various no-objection certicates.
Policy Issues
In order to provide a conducive investment environment and to remove some of the barriers for
investment, the Government of India is in the process of taking number of policy initiatives.
Some of them are enumerated below:
Regulator for Real Estate Industry
One of the most important initiatives by the Government of India was the preparation
of the draft Real Estate Management (Regulation and Control) Bill. The bill enables
the Government to establish the regulator for the real estate sector, property dealers and
developers. The proposed bill is likely to have important clauses such as issuing of licenses
to developers, architects, contractors, and real estate consultants renewable at every ve
years. The setting up of the regulator would result in transparency of system, better quality
standards and ensuring structural safety of the buildings.
National Housing and Urban Habitat Policy
The Government of India is expected to introduce the National Housing and Urban Habitat
Policy 2006 by the end of 2007. This policy is aimed to bridge the gap between the supply
and demand of housing and infrastructure in the country. The policy is expected to address
the issue of affordable housing for all the sections of the society. Some of the key features
of the policy are:
A new centrally sponsored scheme to provide an interest subsidy of 5% per annum for
a period of ve years to commercial lenders for lending to economically weaker section
and low income group segment of the urban areas.
The National Housing Board and Housing & Urban Development Corporation would be
nodal agencies for disbursement of subsidies.
Integrated Township Policies
Recognising the importance and the need for sustainable growth and reducing pressure on
city centres, several state governments have taken initiatives for creating guidelines for
development of integrated townships. State government of Rajasthan, Maharashtra, Gujarat
have released Integrated Township Policy/ Housing Policies. Many other states are in the
process of developing new policies for Integrated Townships.
The setting up of the
regulator would result in
transparency of system.
Government expected to
introduce the National
Housing and Urban Habitat
Policy 2006 by the end of
2007.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 39
Challenges Facing the Indian Real Estate Sector
With the rapid growth in real estate, some challenges may emerge in the way of taking India
to the higher growth trajectory.
Regional reach of existing players
Most of the real estate developers in India have regional focus where the conditions are most
suitable to them. There are very few players in the country having a pan-India presence. The
challenge for real estate developers is to move ahead in the value chain and expand in other
areas of the country as the boom in the real estate encompasses almost the entire country.
Mushrooming of smaller players
The recent real estate boom has seen players without track record and credibility. In the
absence of regulatory framework, these new comers are mushrooming and affecting the
credibility and reliability of the system. In expectations of higher prots in short run, most
of the developers are coming forth with signicant expansion plans irrespective of their
historical performances and size of the projects undertaken. Under the circumstances, the
strengths of the concerned company to manage the increased size and geographical spread,
their ability to execute projects within time and cost and ability to arrange capital are the
important issues which need to be addressed.
Majority of market belonging to unorganised segment
The Indian real estate sector is highly fragmented with the unorganised segment comprising
of small builders and contractors accounting for a majority of the housing units constructed.
As a result, there is not a large degree of transparency in sharing of data across the industry.
Soaring land prices
Soaring land prices and price resistance from buyers are narrowing investors margins
signicantly. The land prices have risen tremendously since the past two years forcing many
real estate developers to change their strategy of rapid expansion to other geographies. For
example, around two years back, land cost as a percentage of total project cost was around
25-30% in tier I cities, which has now increased to around 60-65% in recent times.
Increasing raw material prices
Construction activities are often funded by the client, which makes cash advances at
different stages of construction. In other words, the total amount of revenue from a project
is predetermined and the realisation of this revenue is scattered across the period of
construction. A signicant challenge that real estate developers face is dealing with adverse
movements in costs. The real estate sector is dependent on a number of raw materials, such
as cement, steel, bricks, wood, sand, gravel and paints. As the revenues from sale of units are
predetermined, adverse price changes in any of the raw materials directly affect the bottom
lines of developers.
Appreciating Rupee
Indian currency has appreciated by almost 12% on a year-on-year basis. Rising rupee
severely hurts exporters and IT companies. Further appreciation of rupee from the current
levels will see topline as well as bottomline of IT companies nosedive sharply. These might
force IT companies to put on hold their expansion plans thus putting pressure on demand for
commercial as well as residential space.
New comers are
mushrooming and affecting
the credibility and
reliability of the system.
Global Research - India Global Investment House
40 India Real Estate Sector Report January 2008
Interest rates
One of the main drivers of the growth in demand for housing units is the availability of
nancing at lowrates. Interest rates however have shown signs of increasing in recent months
and most of the leading nancial institutions have recently raised interest rates on housing
loans. This trend of rising interest rates could dampen growth in demand for housing units.
Rising interest rates have impacted the installment to income ratio in a big way especially
the advances which were oated about a year back. After the recent hikes in home loan rates,
nancing institutions are devising ways for smooth recoveries of passed-on costs. This, inter
alia, includes increasing the tenure of Equated Monthly Installments for existing customers, a
combination of prepayment and staggered differential payments, etc. Though few banks have
reduced their rates on housing loans in the past one month the rates are still higher to have
any substantial positive impact on the real estate sector.
The Government is working on a plan to offer housing loan to urban poor at a subsidized
rate of around 7% per annum. The Government may offer subsidized rate for loans up to
Rs150,000 for 5-7 year period. The Government may consider an easy nancing scheme for
the rural population as well at a later stage.
Regulatory opaqueness
Real estate demand in India is good however several regulatory hurdles exist. For example
the Land Ceiling Act in various states lead to problems in consolidation of land banks and
this in turn leads to routing of numerous transactions through shell companies. Signicant
Stamp Duty, Registration Charges and Capital Gain Taxes lead to high incidence of cash
transactions. Similarly, there are ownership issues because of too little computerization of
land titles. This has lead to transparency and disclosures related issues as also corporate
governance issues by the real estate companies as well as the nancers. Improvement in
regulatory framework is required with respect to modications in antiquated land laws, duty
rationalization, single window clearance and computerization of land records, setting up of
minimum quality standards of registration of builders, setting up of reliable industry wide
database, adoption of uniform valuation practices and improvement in accounting quality. All
these issues will go a long way in building mutual trusts amongst the real estate community.
The concerns continue to run high about the regulatory opaqueness for real estate ventures,
bureaucratic red tape and the absence of title insurance, in addition to a host of other issues.
All of these factors are tempering investors appetites for Indian real estate.
Government is working
on a plan to offer housing
loan to urban poor at a
subsidized rate.
Regulatory measures
required to streamline the
system.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 41
Outlook
Outlook for Real Estate Industry
Real Estate industry had a dream run over the past few years with prices across the verticals
moving in northward direction. The industry saw the sea change in their fortunes due
to many factors like robust demand due strong economic activity in India and access to
nancial resources have increased signicantly. Many real estate players have scaled up their
development plans and want to monetize their land bank over next 6-7 years. Most of the
recent real estate IPOs has tremendous success on the bourses.
Booming economy has opened many new business opportunity in the sector like SEZs, IT/
ITES Parks, service apartments, hotels, entertainment parks, multiplexes and innovation
leading to luxurious living due to growing middle income earning class. Players have already
started going to locations mainly in tier II and tier III cities where they have been seen as next
growth drivers of real estate industry.
Real estate industry is expected to grow due to increasing urbanization and working middle
class, easier access to nance, higher disposable incomes, tax incentives for housing loans,
one of the most attractive destinations for the IT and BPO industry, organised retail gaining
momentum, increasing tourism and heavy inow of foreign money wanting a pie in Indian
real estate growth story. Growth of the sector is dependent on the availability of nances
to individual players for executing its development plans. Inorganic growth might also
start happening in the industry with smaller players selling out to the larger and organised
players.
Though its been quite a rosy picture for the industry so far, industry might face some issues
which could slowdown its growth. Rupee appreciation is a cause of worry for IT/ITES
industry. IT/ ITES directly accounts for approximately 80% of the demand for ofce space and
indirectly accounts for signicant demand for retail and residential properties as employees
from IT/ ITES sector would account for a sizeable chunk of purchasers in retail malls and
of residential properties in major IT centres like Bangalore, NCR, Chennai, Hyderabad and
Pune. If rupee continues its upward march then it will have adverse impact on the expansion
plans of the IT/ITES industry upsetting the plans of many real estate players.
Last 6-7 months have seen very few deals happening in all major cities in residential market.
This is now closely watched by observers as festive season is expected to increase the off
take in the residential space with little help from lower bias from mortgage loans. RBI is
cautioning government on the heavy inow of money into the sector through FDI and ECB
route. Government might tinker the FDI guidelines for real estate industry by routing the
proposals through FIPB (Foreign Investment Promotion Board). This might pose some
serious problems for the growth plans of many developers. Having said that, the genuine
demand is so huge and the housing shortage is so large that the industry is all set to grow at a
robust rate. There might be small hiccups down the road but the growth seems to be robust.
We feel, more organised and bigger real estate players will overcome most of the difculties
faced by the industry and will continue to grow at healthy pace.
Global Research - India Global Investment House
42 India Real Estate Sector Report January 2008
Listed Companies
Realty Index
The Bombay Stock Exchange Ltd. announced the launch of BSE Realty Index on July 9,
2007. BSE reality Index presently comprises of 14 stocks. This universe represents around
95% of the market capitalisation of listed real estate companies on BSE 500 stocks. The
index is dominated by two heavyweights namely DLF and Unitech with their respective
weightages of 49.51% and 21.44% as per their market cap on 31st Dec, 2007. Most of the
companies are recently listed on the exchanges like DLF, HDIL, Parsvnath, Akruti Nirman,
Omaxe, Purvankara Projects and Sobha Developers. Currently, this index is under watch of
most of the investors given the recent out performance of real estate companies and money
owing into the sector though it has been a laggard in the more recent times.

Table 11: BSE Realty Index
Company Weightage as on 31st Dec, 2007 Mkt Cap (Rs Bn)
Akruti Nirman 2.17% 80.2
Anant Raj Ind 2.29% 84.5
Ansal API 1.30% 48.2
DLF 49.51% 1,830.6
HDIL 6.22% 230.1
Indiabulls Real Est 4.64% 171.5
Mahindra Gesco 0.91% 33.7
Omaxe 2.69% 99.4
Parsvnath 2.25% 83.3
Peninsula Land 0.92% 33.9
Phoenix Mills 1.23% 45.3
Purvankara Projects 2.63% 97.4
Sobha Developers 1.80% 66.5
Unitech 21.44% 792.6
Source: BSE, Various Reports, Global Research.
Performance of real estate companies
Comparison of the real estate companies is dependent on various factors like geographical
presence in various regions (land bank distribution in tier I, II and III cities), presence in
various verticals (composition of revenue break up from residential, commercial, retail,
SEZs, hotels, entertainment, contractual development for fee, etc.). In addition to this, there
are many companies having presence in many verticals but have very complicated ownership
structure and have entered recently. Land details of the companies are not available easily
and if its available then ownership of land bank is not clear like percentage of money is paid,
held by company itself or in some JV. Many times, company claims to be having a particular
size of land bank but part of the land bank is yet to be transferred in the name of the company
and company has just entered into a MoU with some other company.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 43
Table 12: Performance of some real estate companies
Company
Rs. Mn
Land Bank*
(acre)
Planned
Development
(Mn Sq Ft)
FY07 Q1 FY08
Equity Total
Income
PAT
Total
Income
PAT
DLF 13,055 738 40,341.0 19,413.0 31,209.8 15,154.8 3,409.7
Unitech 12,450 646.1 32,883.3 13,058.3 8,996.7 3,656.7 1,623.4
HDIL 2,574 66.6 12,041.9 5,481.7 4,458.4 2,026.9 1,803.0
Ansal API 7,270 266.9 7,537.0 1,319.1 1,533.8 325.9 567.5
Ansal Hsg 2,582 62.5 2,014.6 427.4 508.7 126.4 167.1
Sobha 4,012.4 27.76# 12,882.0 1,615.0 2,692.0 408.0 729.0
Parsvnath 3,100 191.1 15,345.0 2,922.1 4,144.6 1,021.8 1,846.9
*- Total land (owned by company, owned in JV/JDAs, etc.)
#- currently under development
Source: BSE, Various Reports, Global Research.
DLF and Unitech are the two biggest developers in India but both have their prominent
presence in Northern India mainly in Delhi and region around DMR (Delhi Metropolitan
Region). Both these players have quality land banks with chunk of it present in tier I cities
which give them upper hand in protability and land valuation. Also players like Ansal
housing and Ansal API have their presence in North India with their land distributed in Delhi
and tier II and III cities around Delhi. HDIL is primarily a Mumbai based developer with
total development in Mumbai city. HDIL has very strong presence in the slum rehabilitation
schemes. Sobha Developer has its forte in Southern India with strong presence in Bangalore.
It also has very large development project for some of its marquee clients like Infosys.
Parsvnath Developers Limited is among the very few developers which has widespread land
bank across India. Though quality of this land bank is not very high as majority of the land
bank (80% of total) is in tier II and tier III cities.
Most of the major developers have jumped into newer business areas like SEZ development,
hotels, multiplexes, entertainment malls. Plans regarding this business segment are still not
clear with its impact on protability for all the players. Given the strong economic activity
in India, all players are having plenty opportunities and witnessing good momentum in their
topline and bottomline.
DLF and Unitech are the
two biggest developers in
India.
Global Research - India Global Investment House
44 India Real Estate Sector Report January 2008
Valuation and Recommendation
In recent past, most of the developers have witnessed brisk rate of growth with most of the
companies currently in the process of scaling up their operations. We have used NAV (Net
Asset Value) method of valuation for real estate companies. NAV methodology works out
best for the real estate companies as it captures the expected value to be created from the
current project basket with the company.
In our calculations, we have made the following assumptions in order to arrive at the equity
value of real estate companies.
1. Cost of capital derived using Capital Asset Pricing Model (CAPM).
2. Risk free rate of 7.96%, as per the yield on the 10-year bond issued by the Government.
3. Equity risk premium of 6%.
4. Beta of 1.0 to 1.5. (Some of the companies have been listed recently and beta is taken as
per the data available for maximum trading period of these companies).
5. Cost of Debt as guided by management varies between 10.5% to 12.75%. (DLFs cost of
debt is at 10.5% while Omaxe is having highest cost of debt at 12.75%).
6. Targeted debt to equity ratio of 1:1.
7. Effective tax rate of 33.3% (for PDL, effective tax rate considered is 30% as high
proportion of SEZs in project portfolio which is likely to bring down its tax rate).
We have classied the companies into two categories for giving premiumto NAVdepending
upon various factors. DLF and Unitech (these two are largest listed real estate companies
in India) have established execution capabilities with scale up plan in place. We have given
20% premium to these two companies given quality of land bank, their nancial strength,
capacity to raise resources through innovative ways and quality of management. In addition
to this, these companies have huge projects which have not been considered due to lack of
complete information. Sobha, Parsvnath, Ansal Housing, Ansal Properties and Omaxe, are
also frontline and established companies in real estate sector. We have given 15% premium
to this companies depending upon factors as discussed above.
Valuation Comparison
The following valuation matrix compares the price to book value (P/BV) multiples and (P/E)
multiples enjoyed by companies under coverage.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 45
Table 13: Global Valuation Matrix
In Rs. Price Target Recc. Change % BV EPS P/BV P/E
PDL 450.0 466.2 HOLD 3.6 80.77 15.82 3.21 16.37
AHCL 360.1 389.8 HOLD 8.3 87.59 28.07 3.08 9.61
APIL 425.9 446.7 HOLD 4.9 165.78 23.28 1.59 11.33
Unitech 489.3 497.5 HOLD 1.7 24.59 16.09 15.76 24.08
DLF 1,073.9 1,046.0 HOLD -2.6 23.24 12.64 40.61 74.66
Sobha 911.2 1,187.4 BUY 30.3 111.87 22.16 7.16 36.14
Omaxe 572.7 518.5 HOLD -9.5 30.24 15.74 10.08 19.37
Source: Global Research, Based on FY2007 actual nancials, Market price is as of 31st Dec, 2007.
The following chart compares price to earnings (P/E) multiples and Return on Average
Assets (RoAA) enjoyed by companies under coverage.
Chart 16: P/E and RoAA comparison
Source: Global Research, Based on FY2007 actual nancials, Market price is as of 31st Dec, 2007.
80
70
60
50
40
30
20
10
0
35%
30%
25%
20%
15%
10%
5%
0%
PDL AHCL APIL Unitech DLF Sobha Omaxe
P/F. RoAA
Global Research - India Global Investment House
46 India Real Estate Sector Report January 2008
Players Prole
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 47
Parsvnath Developers Limited
Reuters Code:
PARV.BO
Listing:
Bombay Stock Exchange
National Stock Exchange
Current Price
Rs. 450 (Dec 31, 2007)
Key Data
EPS (Rs.) : 15.82 Avg. Daily Volume (000) : 978.9
BVPS (Rs.) : 80.77 52 week High/Low (Rs.) : 475/221.1
P/E (x) : 16.37 Market Cap (Rs Bn) : 83.1
P/BV (x) : 3.21 Target Price (Rs.) : 466.2
Source: Global Research
Company Background
Incorporated in July 1990, Parsvnath Developers Limited (PDL) is one of the premier real
estate development company in India with pan-India presence.
Mr. Pradeep Kumar Jain is the Executive Chairman of PDL and has two decades of
experience in the real estate sector. The management of the company has vast experience
of over two decades in the real estate market in India.
The key business segments of the company include development of integrated townships,
group housing projects, shopping malls & multiplexes, commercial ofces, hotels
& resorts, IT parks, Built Operate and Transfer (BOT) projects like Delhi Metro Rail
Corporation (DMRC) and Special Economic Zones (SEZs).
In view of rapid expansion plans and growth, PDL entered the capital markets in November
2006 with a public issue of 36.3mn equity shares aggregating Rs.10,900mn inclusive of
a green shoe option. The IPO received an overwhelming response at the bourses as it was
oversubscribed 56 times. The stock is now listed on BSE and NSE and is part of BSE 500
and S&P CNX 500.
Promoters hold the largest stake in the company with shareholding of 80.33% followed
by individuals with around 8.67% stake as of September 2007. Mutual funds hold 0.6%;
nancial institutions hold 0.13%while Foreign Institutional Investors (FIIs) hold 7.2%in
the company. Together these institutions hold 7.93% in the company.
Recommendation
HOLD
Global Research - India Global Investment House
48 India Real Estate Sector Report January 2008
Chart 1: Shareholding Pattern of PDL as on September 2007
Source: BSE
PDL has completed around 14.91 mn sq ft of construction till March 2007 covering
28 completed projects including 12 residential projects having 4.77 mn sq ft of area,
10 commercial and shopping complexes having 0.73 mn sq ft of area and 6 DMRC
(Delhi Metro Rail Corporation) projects having 0.33 mn sq ft of area. Apart from this,
construction of 4.1 mn sq ft of residential projects, 0.34 mn sq ft of commercial and
shopping complexes, 0.24 mn sq ft of DMRC projects and 4.4 mn sq ft of integrated
townships have been completed till March 2007.
PDL has land bank of approximately 3,100 acres spanning 17 states and covering 48
cities, which it plans to develop over the next 6-7 years. PDL currently has 191.08 mn
sq ft of developable area including 6 SEZs with developable area of 56.96 mn sq ft. PDL
already commenced work on 76.4 mn sq ft and expects the construction on the remaining
to start in the current scal. The company has already sold 37.92 mn sq ft of area. The
total development cost including the land cost, construction and development cost for the
total area is Rs.264.05bn.
Currently, no city accounts for more than 10% of the land bank with largest land being
in Sonepat comprising 9.7% of the total land bank followed by Gurgaon with 9.6% of
the land. As per projects under development, National Capital Region (NCR) region has
highest contribution in term of saleable area with 34% of the development. NCR area
includes Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad, Sonepat and Rohtak.
Haryana contributes 17% while Punjab contributes 11% of the total development projects
under implementation/planning.
7.93%
8.67%
3.07%
80.33%
Promoters MFs/FIs/FIIS Bodies Corporate Individuals
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 49
Table 1: Projects under development
Region in Percentage
NCR* 34.0%
Haryana 17.0%
Punjab 11.0%
Rajasthan 7.0%
U.P. 7.0%
Madhya Pradesh 6.0%
Kerala 4.0%
Karnataka 3.0%
Tamil Nadu 2.0%
Delhi 2.0%
Jharkhand 1.0%
Uttarakhand 1.0%
Gujarat 1.0%
Maharashtra 1.0%
West Bengal 1.0%
J&K 1.0%
Goa 0.5%
Andhra Pradesh 0.5%
Source: PDL, Global Research
*- NCR includes Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad, Sonepat and Rohtak.
Table 2: Project Portfolio Distribution
Project Nos
Saleable Area Land Cost Const and Dev cost Total Cost estimate
Mn sq ft Rs. Bn Rs. Bn Rs. Bn US$mn
Residential 35 35.43 12.51 41.05 53.56 1356
Commercial 23 4.78 7.98 8.74 16.72 423
Townships 18 80.2 13.77 63.15 76.92 1947
DMRC 7 1.98 4.5 3.91 8.41 213
Hotels 17 2.27 1.45 6.06 7.51 190
IT Parks 5 9.46 0.06 14.06 14.12 357
SEZs 6 56.96 0.75 86.06 86.81 2198
Total 111 191.08 41.02 223.03 264.05 6684
Source: PDL, Global Research
1US$=Rs.39.5.
Recent Developments
In August 2007, PDL has recently launched Pride Asia, Chandigarh project. It will be an
integrated township project in Rajiv Gandhi Technology Park, Chandigarh. This will be a
high end residential project spanning over 129 acre area with a developable area of 4.32
mn sq ft and realizable value of Rs.41bn.
Global Research - India Global Investment House
50 India Real Estate Sector Report January 2008
PDL has added 2 mn sq ft in area under construction, taking it 76.4 mn sq ft in second
quarter of 2008.
PDL has decided to diversify into mobile telecommunications market. The company has
already submitted applications to the Department of Telecom for providing UAS (Unied
Access Services) in 22 telecom circles across the country. The total cost of licenses across
the country along with bank guarantees can cost the company about Rs.17bn.
PDL is in talks with international retail chains for a joint venture (JV) in an effort to
deploy its funds and leverage its land bank protably. Parsvnath is looking for a retail
partner to provide mostly back-end support as it has no expertise in this area.
Parsvnath is also joining the ranks of developers bidding for airport management and
modernization projects and is in advanced stage of talks with an international airport
operator to jointly bid for projects in India. Parsvnath is looking at forming a joint venture
with the airport operator. The company would manage the real estate, with the airport
operator bringing in its expertise in airport design and development.
Financial Performance - FY07
PDL has reported excellent performance since the past few years. Income from operations
grew at a CAGR of 137.9% during the period 2004-07 and stood at Rs.15.1bn at the end
of Mar 31, 2007. During the same period, cost of construction/development grew at a
CAGR of 129.9% to Rs.10.4bn in FY07. This resulted in PBT and PAT growing at a
CAGR of 172.6% and 151.3% to Rs.4.08bn and Rs.2.9bn respectively during the same
period.
The total assets of PDL recorded a CAGR of 213.6% during past four years and stood
at Rs.26.6bn at the end of March 2007. Fixed assets of PDL grew at a CAGR of 201.8%
over the period of 2004-07 to Rs.1.1bn in FY07. Inventory recorded a CAGR of 130.4%
during the similar period to Rs.16.4bn. Net current assets grew at a CAGR of 212.3% to
Rs.24.9bn.
Return on Average Assets (RoA) and Return on Average Equity (RoE) for FY2007 stands
at 18.86% and 34.52% respectively.
First Half Yearly Result H1FY08
PDL recorded consolidated revenue of Rs.8.04bn for the half year ended September 30,
2007. PDL recorded revenue of Rs.7.4bn for the half year ended September 30, 2007
on standalone basis an increase of 38.1% from Rs.5.3bn in the corresponding period
of last year. Operating margins stood at 38.4% for the rst half of 2008 and was higher
compared to 28.78% recorded by PDL for FY2007. EBITDA was at Rs.2.8bn, an increase
of 111.4% as compared to Rs.1.3bn in H1FY07. Net prot stood at Rs.1.8bn up by 116.7%
from Rs.854.7mn. The non annualized EPS at the end of the half year was at Rs.11.1 and
Rs.10.03 on consolidated and standalone basis respectively.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 51
Table 3: Parsvnath Developers Consolidated Figures
Rs. Mn
Standalone
Change (%)
Consolidated
H1 2007 H1 2008 H1 2008
Net Sales 5,382.3 7,433.9 38.1% 8,042.0
Other Income 41.2 211.9 413.8% 229.8
Total Income 5,423.5 7,645.8 41.0% 8,271.7
Cost of construction/development 3,778.5 4,324.9 14.5% 4,646.0
Staff cost 65.0 173.8 167.6% 173.8
Other Expenditure 218.0 268.3 23.0% 272.4
Total Expenditure 4,061.5 4,767.0 17.4% 5,092.2
EBIDTA 1,362.0 2,878.8 111.4% 3,179.5
Interest 51.0 129.6 154.0% 129.6
Depreciation 53.7 94.0 74.8% 94.6
Prot before Tax 1,257.3 2,655.3 111.2% 2,955.3
Tax 402.6 803.3 99.5% 905.8
Prot after Tax but before minority interest 854.7 1,852.0 116.7% 2,049.5
Net Prot 854.7 1,852.0 116.7% 2,049.5
Equity Capital 1,483.7 1,847.0 24.5% 1,847.0
EPS 5.76 10.03 74.1% 11.10
Source: PDL, Global Research
At the current market price, the company currently trades at 18.64x and 10.14x of its
earnings for FY08E and FY09E and 4.44x and 3.19x of its book value respectively.
We initiate our coverage of PDL with a Hold rating and value the PDLs share at an
intrinsic value of Rs.466.2 based on the NAV method. The intrinsic value is higher than
the current market price by 3.6%.
Global Research - India Global Investment House
52 India Real Estate Sector Report January 2008
Amount in Rs. Mn
Parsvnath Developers Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Share capital 82.4 989.1 1847.0 1,847.0 1,847.0 1,847.0 1,847.0
Minority interest - - 0.0 - - - -
Reserves and surplus 933.5 1,022.4 13071.1 16,881.2 24,211.6 34,510.7 47,188.1
Shareholders funds 1,016.0 2,011.5 14918.0 18,728.2 26,058.6 36,357.7 49,035.1
Secured loans 1,207.0 2,358.5 11695.0 18,712.1 25,261.3 31,576.6 39,470.7
Deferred tax liability 0.2 - 0.0 - - - -
Total Liabilities 2,223.1 4,370.0 26613.1 37,440.2 51,319.8 67,934.2 88,505.8
Gross Block 205.0 446.5 950.3 1,708.7 2,862.1 4,303.8 6,033.8
Depreciation 49.9 90.2 233.4 405.0 675.6 1,036.5 1,517.6
Capital work in progress - 172.7 387.3 464.7 511.2 511.2 511.2
Incidental expenditure - - 2.4 2.4 2.4 2.4 2.4
Fixed Assests 155.2 529.0 1106.5 1,770.8 2,700.0 3,780.8 5,029.8
Investments 42.0 80.2 534.0 667.5 801.0 961.2 1,153.4
Deferred tax assets - 0.6 32.3 32.3 32.3 32.3 32.3
Inventory 2,471.1 3,894.2 16438.4 28,490.9 50,043.6 63,375.8 78,318.8
Sundry Debtors 433.8 637.7 5578.8 6,973.5 8,716.8 9,588.5 10,547.3
Cash and bank balances 841.0 412.5 5457.5 3,181.2 1,340.5 3,386.2 8,107.8
Loans and advances 1,642.1 3,608.5 7129.0 9,267.8 12,048.1 14,457.7 17,349.2
Current liabilities and provisions 3,362.4 4,792.5 9670.1 12,950.4 24,369.0 27,654.9 32,039.5
Net current assets 2,025.7 3,760.3 24933.6 34,962.9 47,779.9 63,153.2 82,283.7
Preliminary expenses 0.3 - 6.6 6.6 6.6 6.6 6.6
Total Assets 2,223.1 4,370.0 26613.1 37,440.2 51,319.8 67,934.2 88,505.8
Balance Sheet
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 53
Amount in Rs. Mn
Parsvnath Developers Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Income from Operations 3,032.1 6,438.3 15,103.0 25,492.9 42,830.8 56,707.0 70,077.7
Other Income 36.4 99.4 242.1 407.9 685.3 907.3 1,121.2
Income 3,068.5 6,537.7 15,345.0 25,900.8 43,516.1 57,614.3 71,198.9
Cost of construction/development 2,213.2 4,649.5 10,373.6 16,317.5 26,980.0 35,144.8 43,431.3
Manpower cost 42.8 75.6 218.2 362.6 609.2 806.6 996.8
Selling general & administrative
expenses
54.3 269.0 337.1 621.6 1,044.4 1,382.7 1,708.8
Financial expenses 10.7 26.9 193.2 2,058.3 2,905.1 3,662.9 4,618.1
Depreciation 14.3 58.8 143.3 171.5 270.7 360.9 481.1
Expenditure 2,335.2 5,079.7 11,265.3 19,531.6 31,809.3 41,357.8 51,236.1
Adjusted prot before tax 733.3 1,457.9 4,079.7 6,369.2 11,706.8 16,256.5 19,962.9
Provision for taxation
Tax adjustment for earlier year - - 58.5 - - - -
Current tax 70.0 400.0 950.0 1,847.1 3,395.0 4,714.4 5,789.2
Deferred Tax 4.4 (7.0) (31.7) 0.0 0.0 0.0 0.0
Fringe Benet Tax - 2.5 4.3 63.7 117.1 162.6 199.6
Less: share of prot upto the date of
acquisition transferred to minority
- - 176.5 - - - -
Prot after Tax 658.9 1,062.5 2,922.2 4,458.4 8,194.8 11,379.6 13,974.0
P&L Appropriation Account
Proposed Dividend 16.5 65.2 461.7 554.1 738.8 923.5 1,108.2
Corporate Dividend Tax 2.3 9.1 78.5 94.2 125.6 157.0 188.4
Transfer to General Reserve 75.0 80.0 300.0 400.0 500.0 600.0 600.0
Balance c/f to Balance Sheet 565.1 908.1 2,082.0 3,410.2 6,830.4 9,699.1 12,077.4
Total 658.9 1,062.5 2,922.2 4,458.4 8,194.8 11,379.6 13,974.0
Prot and Loss Statement
Global Research - India Global Investment House
54 India Real Estate Sector Report January 2008
Cash Flow Statement
Amount in Rs. Mn
Parsvnath Developers Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Operating
Operating
Prot before tax and appropriations 730.0 1,470.3 4,079.7 6,369.2 11,706.8 16,256.5 19,962.9
adjustments for
Depreciation 20.3 42.2 143.3 171.5 270.7 360.9 481.1
Loss(-)/(prot) on sale of xed assets - (0.1) (0.1) - - - -
Prot on sale of investments (0.5) - (3.0) - - - -
Preliminary expenses written off 0.1 0.3 0.1 - - - -
Bad debts/advances written off/rebates - 16.1 - - - - -
Interest and nance charges 10.6 124.6 752.0 2,058.3 2,905.1 3,662.9 4,618.1
Provision for retirement benet 1.3 4.3 29.5 - - - -
Interest income (14.3) (7.3) (107.4) - - - -
Dividend income - (0.0) (52.6) - - - -
Operating prot before working capital changes 747.4 1,650.3 4,841.5 8,599.1 14,882.5 20,280.3 25,062.0
adjustments for
(Increase)/decrease in sundary debtors (304.0) (203.9) (4,941.1) (1,394.7) (1,743.4) (871.7) (958.9)
(Increase)/decrease in loans and advances (1,476.9) (2,090.8) (3,520.6) (2,138.7) (2,780.3) (2,409.6) (2,891.5)
(Increase)/decrease in inventories (1,126.3) (1,423.1)(12,544.3)(12,052.4)(21,552.7)(13,332.2)(14,943.0)
Increase/(decrease) in current liabilities 2,483.8 1,308.4 4,323.2 3,280.3 11,418.6 3,285.8 4,384.6
Cash generated from operations 323.9 (759.1)(11,841.2) (3,706.5) 224.8 6,952.6 10,653.2
Tax paid (52.9) (263.6) (1,055.1) (2,005.0) (3,637.6) (5,033.9) (6,177.2)
Net cash generated/used in operating activities 271.1 (1,022.7)(12,896.3) (5,711.5) (3,412.8) 1,918.6 4,476.0
Investing
Investing
Purchase of xed assets (136.5) (417.3) (718.4) (835.9) (1,199.8) (1,441.7) (1,730.0)
sale of assets 1.3 1.5 0.7 - - - -
Investment (41.8) - (453.9) (133.5) (133.5) (160.2) (192.2)
Sale of investment 3.0 - 3.0 - - - -
Interest received 14.3 7.3 107.4 - - - -
Dividend received - 0.0 52.6 - - - -
Net cash from/(used in) investing activities (159.7) (408.5) (1,008.5) (969.4) (1,333.3) (1,601.9) (1,922.3)
Financing
Financing
Interest expenses (10.6) (124.6) (752.0) (2,058.3) (2,905.1) (3,662.9) (4,618.1)
Increase/(decrease) in secured loans 722.3 1,146.0 9,336.5 7,017.0 6,549.2 6,315.3 7,894.1
Increase/(decrease) in unsecured loans - - - - - - -
Preliminary expenses - - - - - - -
Dividend paid (8.0) (18.8) (74.3) (554.1) (738.8) (923.5) (1,108.2)
Increase in share capital - - 10,897.7 - - - -
Share issue expenses - - (458.1) - - - -
Net cash from/(used in) nancing activities 703.8 1,002.6 18,949.9 4,404.6 2,905.4 1,729.0 2,167.9
Net increase/(decrease in cash and cash
equivalents)
815.2 (428.6) 5,045.1 (2,276.3) (1,840.8) 2,045.7 4,721.6
Cash and cash equivalents as at beginning of
year
25.9 841.0 412.5 5,457.5 3,181.2 1,340.5 3,386.2
Cash and cash equivalents as at end of year 841.0 412.5 5,457.5 3,181.2 1,340.5 3,386.2 8,107.8
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 55
Ratios
Parsvnath Developers Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Protability
- Return on Average Assets 42.70% 32.23% 18.86% 13.92% 18.47% 19.08% 17.87%
- Return on Average Equity 94.52% 70.19% 34.52% 26.50% 36.59% 36.46% 32.73%
- Dividend payout ratio 2.50% 6.13% 15.80% 12.43% 9.02% 8.12% 7.93%
Margins
- Net income/ revenues 21.47% 16.25% 19.04% 17.21% 18.83% 19.75% 19.63%
- Operating prot / revenues 24.71% 23.61% 28.78% 33.20% 34.20% 35.20% 35.20%
Efciency
-Total Cost to Total Income 76.10% 77.70% 73.41% 75.41% 73.01% 71.78% 71.96%
- Staff Expense to Total Op Income 1.39% 1.16% 1.42% 1.40% 1.40% 1.40% 1.40%
Operating Performance
- Growth in Operating Income 170.37% 112.34% 134.58% 68.79% 68.01% 32.40% 23.58%
- Growth in cost of construction 159.26% 110.09% 123.11% 57.30% 65.34% 30.26% 23.58%
- Growth in Financial Expenses 200.56% 151.12% 619.09% 965.28% 41.14% 26.09% 26.08%
- Growth in operating prot 264.00% 98.83% 179.83% 56.12% 83.80% 38.86% 22.80%
Leverage and coverage
- Debt to Equity 118.82% 117.25% 78.40% 99.91% 96.94% 86.85% 80.49%
- Financial Expenses to net income 1.62% 2.53% 6.61% 46.17% 35.45% 32.19% 33.05%
Valuation
- Shares in Issue (mn) 8.24 98.91 184.70 184.70 184.70 184.70 184.70
- EPS (Rs) 79.93 10.74 15.82 24.14 44.37 61.61 75.66
- Dividend Declared (%) 20.0% 6.6% 25.0% 30.0% 40.0% 50.0% 60.0%
- Book Value Per Share (Rs) 123.25 20.34 80.77 101.40 141.09 196.85 265.49
- Market Price Year End (Rs)* - - 259 450 450 450 450
- EV/Sales - - 3.52 3.81 2.46 1.93 1.61
- EV/EBIDTA - - 12.24 11.47 7.19 5.49 4.57
- Sales/Assets - - 0.58 0.69 0.85 0.85 0.80
- Interest Coverage - - 21.86 3.18 4.12 4.54 4.43
- P/E - - 16.37 18.64 10.14 7.30 5.95
- P/BV - - 3.21 4.44 3.19 2.29 1.70
* Market Price for FY07 onwards is price as of Dec 31, 2007
Amount in Rs. Mn
Parsvnath Developers Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Operating
Operating
Prot before tax and appropriations 730.0 1,470.3 4,079.7 6,369.2 11,706.8 16,256.5 19,962.9
adjustments for
Depreciation 20.3 42.2 143.3 171.5 270.7 360.9 481.1
Loss(-)/(prot) on sale of xed assets - (0.1) (0.1) - - - -
Prot on sale of investments (0.5) - (3.0) - - - -
Preliminary expenses written off 0.1 0.3 0.1 - - - -
Bad debts/advances written off/rebates - 16.1 - - - - -
Interest and nance charges 10.6 124.6 752.0 2,058.3 2,905.1 3,662.9 4,618.1
Provision for retirement benet 1.3 4.3 29.5 - - - -
Interest income (14.3) (7.3) (107.4) - - - -
Dividend income - (0.0) (52.6) - - - -
Operating prot before working capital changes 747.4 1,650.3 4,841.5 8,599.1 14,882.5 20,280.3 25,062.0
adjustments for
(Increase)/decrease in sundary debtors (304.0) (203.9) (4,941.1) (1,394.7) (1,743.4) (871.7) (958.9)
(Increase)/decrease in loans and advances (1,476.9) (2,090.8) (3,520.6) (2,138.7) (2,780.3) (2,409.6) (2,891.5)
(Increase)/decrease in inventories (1,126.3) (1,423.1)(12,544.3)(12,052.4)(21,552.7)(13,332.2)(14,943.0)
Increase/(decrease) in current liabilities 2,483.8 1,308.4 4,323.2 3,280.3 11,418.6 3,285.8 4,384.6
Cash generated from operations 323.9 (759.1)(11,841.2) (3,706.5) 224.8 6,952.6 10,653.2
Tax paid (52.9) (263.6) (1,055.1) (2,005.0) (3,637.6) (5,033.9) (6,177.2)
Net cash generated/used in operating activities 271.1 (1,022.7)(12,896.3) (5,711.5) (3,412.8) 1,918.6 4,476.0
Investing
Investing
Purchase of xed assets (136.5) (417.3) (718.4) (835.9) (1,199.8) (1,441.7) (1,730.0)
sale of assets 1.3 1.5 0.7 - - - -
Investment (41.8) - (453.9) (133.5) (133.5) (160.2) (192.2)
Sale of investment 3.0 - 3.0 - - - -
Interest received 14.3 7.3 107.4 - - - -
Dividend received - 0.0 52.6 - - - -
Net cash from/(used in) investing activities (159.7) (408.5) (1,008.5) (969.4) (1,333.3) (1,601.9) (1,922.3)
Financing
Financing
Interest expenses (10.6) (124.6) (752.0) (2,058.3) (2,905.1) (3,662.9) (4,618.1)
Increase/(decrease) in secured loans 722.3 1,146.0 9,336.5 7,017.0 6,549.2 6,315.3 7,894.1
Increase/(decrease) in unsecured loans - - - - - - -
Preliminary expenses - - - - - - -
Dividend paid (8.0) (18.8) (74.3) (554.1) (738.8) (923.5) (1,108.2)
Increase in share capital - - 10,897.7 - - - -
Share issue expenses - - (458.1) - - - -
Net cash from/(used in) nancing activities 703.8 1,002.6 18,949.9 4,404.6 2,905.4 1,729.0 2,167.9
Net increase/(decrease in cash and cash
equivalents)
815.2 (428.6) 5,045.1 (2,276.3) (1,840.8) 2,045.7 4,721.6
Cash and cash equivalents as at beginning of
year
25.9 841.0 412.5 5,457.5 3,181.2 1,340.5 3,386.2
Cash and cash equivalents as at end of year 841.0 412.5 5,457.5 3,181.2 1,340.5 3,386.2 8,107.8
Global Research - India Global Investment House
56 India Real Estate Sector Report January 2008
Ansal Housing and Construction Limited
Reuters Code:
ANSL.BO
Listing:
Bombay Stock Exchange
National Stock Exchange
Current Price
Rs. 360.1 (Dec 31, 2007)
Key Data
EPS (Rs.) : 28.07 Avg. Daily Volume (000) : 81.3
BVPS (Rs.) : 87.59 52 week High/Low (Rs.) : 405/147
P/E (x) : 9.61 Market Cap (Rs Bn) : 6.05
P/BV (x) : 3.08 Target Price (Rs.) : 389.8
Source: Global Research
Company Background
Ansal Housing and Construction Limited (AHCL) was incorporated in 1983 and is one of
the premier North India based real estate developer. Mr. Deepak Ansal is the Chairman
and Managing Director of the company having over two decades of experience in the
eld.
The company is primarily involved in real estate development like high rise buildings,
group housing projects, residential units and country houses. AHCL is also present
in hospitality, estate management and car sales and service business (40:60 JV with
Itochu Corporation of Japan) through its subsidiaries and joint ventures with different
companies.
Promoters hold the largest stake in the company with 40.21% followed by individuals and
others which hold around 23.11% stake as of September 2007. Mutual funds held 1.47%,
nancial institutions held 0.02%while Foreign Institutional Investors (FIIs) hold 20.18%
in the company.
Recommendation
HOLD
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 57
Chart 1: Shareholding Pattern of AHCL as on September 2007
Source: BSE
Over the years, AHCL has developed 67.6 mn sq ft of construction which includes
integrated townships, residential apartments, country houses and commercial premises.
AHCL had about 54.1% (36.6 mn sq ft) of development into country houses followed by
41% (27.7 mn sq ft) of integrated townships.
AHCL has well spread land bank of 2,582 acres across 22 cities primarily in the northern
and central parts of India. AHCL also has some land pieces in cities like Mumbai and
Bangalore. The company plans to develop entire land bank over the next 6-7 years.
Most of the development of the land is being carried out with some collaboration. Of
the total 2,582 acres of land, 41% (1,059 acres) is owned by AHCL while remaining
59% (1,523 acres) belongs to collaborators. The total acquisition cost of the land is
approximately Rs.4.93bn. This indicates the low cost of acquisition of land which is
approximately Rs.107 psf.
AHCL has 62.5 mn sq ft of projects under planning and work has been started on many
of these projects.
Hospitality division is currently very small compared to real estate segment. Hospitality
has contributed around 1.5% to the consolidated revenues in FY07. Going forward, we
do not expect hospitality division to be the major growth driver for the company. Its
contribution is expected to be in line with the past.
AHCL has a 40:60 JV (Joint Venture) with Itochu Corporation of Japan called Capital
Cars Private Limited. This JV has set up a state of the art sales cum service facility
for Honda Cars at Vaishali in Ghaziabad. Currently revenue coming from car sales and
services division is signicant but is low margin business with a net margin of 0.5%.
Contribution of this division to the topline in FY07 is around 40.2%.
Promoters MFs/FIs/FIIS Bodies Corporate Individuals & Others
23.11%
21.66%
40.21%
15.02%
Global Research - India Global Investment House
58 India Real Estate Sector Report January 2008
Table 1: Diversied Land Bank
City Land (acres) In Percentage
Agra, Uttar Pradesh 251.8 9.8%
Karnal, Haryana 214.2 8.3%
Rewari, Haryana 200 7.7%
Kurukshetra, Haryana 70 2.7%
Jammu, J&K 132 5.1%
Meerut, Uttar Pradesh 140 5.4%
Jhansi, Uttar Pradesh 127.5 4.9%
Lucknow, Uttar Pradesh 5.8 0.2%
Ghaziabad, Uttar Pradesh 66.7 2.6%
Indore, Madhya Pradesh 70 2.7%
Bangalore, Karnataka 27 1.0%
Mumbai, Maharashtra 3.4 0.1%
Amritsar, Punjab 150 5.8%
Parwanoo, Himachal Pradesh 2.1 0.1%
Alwar, Rajasthan 50.6 2.0%
Narnaul, Haryana 80 3.1%
Shahpur, Uttar Pradesh 150 5.8%
Ajmer, Rajasthan 125 4.8%
Zirakpur, Punjab 2.7 0.1%
Poanta Sahib, Himachal Pradesh 400 15.5%
Panchkula, Haryana 150 5.8%
Yamuna Nagar, Haryana 163.6 6.3%
Total 2582.4
Source: AHCL and Global Research
AHCL has aggressive plan of developing the complete existing land bank during the
next 6-7 yrs involving the development of 62.52 mn sq ft. Around 75.4% (47.18 mn sq
ft) of the development will be for integrated townships. Major part of this development is
through plotted development (86.1%).
AHCL is also into development of residential apartments and commercial space. AHCL
has plans to develop 10.58 mn sq ft of commercial space and 4.76 mn sq ft of residential
space across 22 locations in India.
Recent Developments
AHCL has announced start of 3 new projects in last two months: Ansals Courtyard in
Meerut, Ansal Town in Karnal and Ansals Woodbury Apartments in Zirakpur with
combined revenue potential of Rs.3.65bn and is expected to be complete in 3 yrs.
Capital Cars Private Limited aims to be no 1 dealer for Honda cars and is in the process
of setting up another facility in Delhi which will be operational by the end of December,
2007.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 59
Financial Performance - FY07
AHCL has reported excellent performance since the past few years. Income from
operations grew at a CAGR of 36.3% during the period 2004-07 and stood at Rs.3.6bn at
the end of Mar 31, 2007. During the same period, cost of construction/development grew
at a CAGR of 29.3% to Rs.1.08bn as of March, 2007. Cost of sales (share in JV) grew at
a CAGR of 33.4% to Rs.1.4bn as of March, 2007. This resulted in PBT and PAT growing
at a CAGR of 162.7% to Rs.649.1mn and 169.7% to Rs.463.3mn respectively during the
period 2004-07.
Revenue from the real estate segment constitutes around 58.3% of the total revenues
as compared to 55.5% in FY06. Revenue from restaurants division formed 1.5% of the
total revenues while revenues from car sales and services formed 40.2% of the total for
FY07.
The total assets of AHCL recorded a CAGR of 44.9% during the past four years and stood
at Rs.4.06bn at the end of March 2007. Inventory recorded a CAGR of 15.7% during
the similar period to Rs.1.9bn in FY07. Net current assets grew at a CAGR of 60.1% to
Rs.3.4bn.
Return on Average Assets (RoA) and Return on Average Equity (RoE) for FY2007 stands
at 15.71% and 40.14% respectively.
First Half Year Results H1FY08
AHCL recorded standalone revenue of Rs.1,148.6mn for the half year ended September
30, 2007 as compared to Rs.890.4mn in corresponding period last year representing a
increase of 29%. Operating margins stood at 36.7% for the rst half of 2008 (operating
margins for real estate segment only) and was higher compared to 21.41% recorded by
AHCL for FY2007(operating margins for consolidated real estate activities, restaurants
and car sales and service). EBITDA was at Rs.427mn, an increase of 44.6% as compared
to Rs.295.2mn in H1FY07. Net prot stood at Rs.257.2mn in H1FY08 up by 57.1%from
Rs.163.8mn. The non annualized EPS at the end of the half year was at Rs.15.39.
Table 2: First Half Yearly Result of AHCL (Standalone)
Rs. Mn H1 2007 H1 2008 Change (%)
Net Sales 890.4 1,148.6 29.0%
Other Income 6.9 14.2 106.6%
Total Income 897.3 1,162.8 29.6%
Expenditure (602.1) (735.8) 22.2%
EBIDTA 295.2 427.0 44.6%
Interest (54.2) (44.0) -18.8%
Gross Prot 241.1 383.0 58.9%
Depreciation (3.9) (6.1) 56.9%
Prot before Tax 237.2 376.9 58.9%
Tax (73.4) (119.7) 63.1%
Prot after Tax 163.8 257.2 57.1%
Equity Capital 167.1 167.1 0.0%
EPS 11.21 15.39 37.3%
Source: AHCL, Global Research
Global Research - India Global Investment House
60 India Real Estate Sector Report January 2008
At the current market price, the company currently trades at 8.71x and 4.28x of its earnings
for FY08E and FY09E and 2.85x and 1.73x of its book value respectively.
We initiate our coverage of AHCL with a Hold rating and value the AHCLs share at
an intrinsic value of Rs.389.8 based on the Sum of Parts method. The intrinsic value is
higher than the current market price by 8.3%.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 61
Amount in Rs. Mn
Ansal Housing and Construction Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Share capital 127.0 145.2 168.0 168.0 168.0 168.0 168.0
Amount received against convertible
warrants
0.0 19.0 0.0 0.0 0.0 0.0 0.0
Reserves and surplus 431.1 713.9 1,303.7 1,958.3 3,322.6 5,696.3 9,483.8
Shareholders funds 558.1 878.1 1,471.7 2,126.3 3,490.7 5,864.4 9,651.9
Sunsidiarys ahare application money 0.0 3.9 3.9 3.9 3.9 3.9 3.9
Secured loans 546.2 745.4 1,088.9 1,742.2 2,526.2 3,284.1 4,105.1
Unsecured loans 212.3 313.0 1,499.8 1,499.8 1,499.8 1,499.8 1,499.8
Total Loans 758.4 1,058.4 2,588.7 3,242.1 4,026.1 4,783.9 5,604.9
Total Liabilities 1,316.5 1,940.3 4,064.3 5,372.3 7,520.7 10,652.2 15,260.8
Gross Block 567.1 565.7 613.1 667.9 711.8 756.6 810.2
Depreciation 199.0 201.0 235.7 275.7 317.9 360.4 405.3
Fixed Assests 368.1 364.7 377.5 392.3 393.9 396.2 404.9
Investments 61.9 2.7 257.4 321.8 386.2 463.4 556.1
Inventory 1,151.1 1,665.2 1,891.5 2,973.9 4,682.7 6,346.1 7,972.4
Sundary Debtors 342.7 484.5 823.9 1,029.9 1,287.4 1,416.1 1,557.7
Cash and bank balances 93.0 91.4 211.6 149.5 150.9 1,019.6 3,464.4
Loans and advances 357.5 826.7 1,916.6 2,874.9 4,024.9 5,232.3 6,278.8
Current assets, loans & advances 1,944.3 3,067.7 4,843.7 7,028.2 10,145.9 14,014.1 19,273.3
Current liabilities and provisions 1,117.8 1,542.5 1,423.5 2,379.1 3,414.5 4,230.7 4,982.7
Net current assets 826.5 1,525.2 3,420.2 4,649.0 6,731.4 9,783.4 14,290.5
Deferred tax assets (net) 50.2 51.8 12.6 12.6 12.6 12.6 12.6
Group share in joint ventures 0.0 -4.6 -4.1 -4.1 -4.1 -4.1 -4.1
Miscellaneous expenditure 9.8 0.4 0.7 0.7 0.7 0.7 0.7
Total Assets 1,316.5 1,940.3 4,064.3 5,372.3 7,520.7 10,652.2 15,260.8
Balance Sheet
Global Research - India Global Investment House
62 India Real Estate Sector Report January 2008
Amount in Rs. Mn
Ansal Housing and Construction Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Income from Operations 869.5 1,350.9 2,154.2 3,834.5 6,710.3 10,401.0 15,601.5
Group share in JV 1,000.2 1,008.2 1,458.0 1,968.3 2,854.1 3,424.9 3,938.6
Other Income 92.6 56.2 23.4 145.1 191.3 276.5 390.8
Income 1,962.2 2,415.2 3,635.6 5,947.9 9,755.7 14,102.4 19,930.9
(Increase)/decrease in stock in trade 26.2 -35.0 25.7 29.7 48.8 70.5 99.7
Cost of construction/development 539.1 819.9 1,081.3 1,936.4 3,355.2 5,148.5 7,722.7
Cost of sales- share of JV 952.0 941.3 1,361.4 1,840.4 2,654.3 3,185.1 3,662.9
Manpower cost 57.8 73.7 102.7 178.4 292.7 423.1 597.9
Administrative expenses 165.2 175.9 286.4 475.8 741.4 1,015.4 1,355.3
Financial expenses 97.7 102.5 92.7 405.3 503.3 574.1 672.6
Depreciation 30.2 38.9 36.5 40.1 42.2 42.5 44.9
Expenditure 1,868.2 2,117.3 2,986.5 4,906.1 7,637.8 10,459.2 14,156.0
Adjusted prot before tax 94.0 298.0 649.1 1,041.7 2,117.9 3,643.2 5,774.9
Provision for taxation
Current tax 20.4 76.7 129.0 331.3 673.5 1,158.5 1,836.4
Deferred Tax 2.7 3.5 39.1 0.0 0.0 0.0 0.0
Fringe Benet Tax 0.0 1.6 2.4 5.2 10.6 18.2 28.9
Group share in JV 7.1 4.7 7.1 10.4 21.2 36.4 57.7
Prot after Tax before prior period adj 63.8 211.4 471.6 694.8 1,412.6 2,430.0 3,851.9
less: tax adjustment for earlier years 0.0 0.0 8.2 0.0 0.0 0.0 0.0
less: prior period expenses 0.1 0.0 0.2 0.0 0.0 0.0 0.0
Prot after tax 63.7 211.4 463.3 694.8 1,412.6 2,430.0 3,851.9
Carry Forward prot from previous year 96.2 140.7 306.7 0.0 0.0 0.0 0.0
Total 159.9 352.1 770.0 694.8 1,412.6 2,430.0 3,851.9
P&L Appropriation Account
Proposed Dividend 13.0 21.6 30.1 33.6 40.3 47.1 53.8
Corporate Dividend Tax 1.8 3.0 5.1 5.7 6.9 8.0 9.1
Dividend tax- share in JV 0.4 0.7 0.8 0.9 1.1 1.3 1.4
Transfer to General Reserve 0.0 20.0 50.0 70.0 100.0 150.0 180.0
Balance c/f to Balance Sheet 144.7 306.7 684.0 584.6 1,264.4 2,223.7 3,607.5
159.9 352.1 770.0 694.8 1,412.6 2,430.0 3,851.9
Prot and Loss Statement
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 63
Amount in Rs. Mn
Ansal Housing and Construction Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11 E
Operating
Operating
Prot before tax and appropriations 94.0 291.5 649.1 1,041.7 2,117.9 3,643.2 5,774.9
adjustments for
Loss(-)/(prot) on sale of xed assets 1.7 0.2 0.3 0.0 0.0 0.0 0.0
Depreciation 30.7 29.8 32.0 40.1 42.2 42.5 44.9
Impairment loss 0.0 9.4 4.7 0.0 0.0 0.0 0.0
Amount written off 24.7 -2.8 0.3 0.0 0.0 0.0 0.0
Miscellaneous expenses written off 4.5 4.5 0.4 0.0 0.0 0.0 0.0
Interest and nance charges 97.6 102.4 92.5 405.3 503.3 574.1 672.6
Interest received (gross) -0.1 -0.0 -0.0 0.0 0.0 0.0 0.0
Investment income -0.0 -1.3 -6.9 0.0 0.0 0.0 0.0
Interest received on calls in arrear -2.1 0.0 0.0 0.0 0.0 0.0 0.0
Prior period income -0.1 0.0 -0.2 0.0 0.0 0.0 0.0
Amount written back 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Prot on sale of assets -0.7 -5.0 -0.9 0.0 0.0 0.0 0.0
Loss on sale of investment 0.0 -31.9 6.9 0.0 0.0 0.0 0.0
Prot on sale of investments 0.0 0.0 -4.6 0.0 0.0 0.0 0.0
Operating prot before working capital changes 250.1 396.7 773.5 1,487.1 2,663.3 4,259.8 6,492.4
adjustments for
Increase/(decrease) in current liabilities 124.7 425.6 -212.3 955.7 1,035.3 816.2 752.0
(Increase)/decrease in inventories 52.3 -520.5 -197.8 -1,082.4 -1,708.8 -1,663.4 -1,626.3
(Increase)/decrease in sundary debtors 7.9 -134.3 -259.2 -206.0 -257.5 -128.7 -141.6
(Increase)/decrease in loans and advances -203.2 -517.3 -1,120.5 -958.3 -1,150.0 -1,207.5 -1,046.5
Adj on account of foreign currency translation of
WC of foreign subsidiary
-0.6 -0.4 -2.6 0.0 0.0 0.0 0.0
Cash generated from operations 231.4 -350.2 -1,018.8 196.0 582.5 2,076.5 4,430.0
Tax paid -22.2 -51.8 -173.4 -353.5 -713.2 -1,222.4 -1,933.6
Net cash generated/used in operating activities 209.2 -402.0 -1,192.2 -157.5 -130.7 854.0 2,496.4
Investing
Investing
Sale of investment 0.0 111.3 661.8 0.0 0.0 0.0 0.0
Investment income received 0.1 1.9 6.9 0.0 0.0 0.0 0.0
Interest income received 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Sale of xed assets 4.4 28.1 4.1 0.0 0.0 0.0 0.0
Purchase of xed assets -13.4 -68.63 -54.94 -54.8 -43.9 -44.8 -53.6
Payment of preliminary expenses 0.0 -0.1 0 0.0 0.0 0.0 0.0
Adj on account of foreign currency translation of
xed assets of foreign subsidiary
0.1 0.0 0.0 0.0 0.0 0.0 0.0
Purchase of investment -0.2 -1.7 -918.8 -64.4 -64.4 -77.2 -92.7
Net cash from/(used in) investing activities -9.0 70.8 -300.8 -119.2 -108.2 -122.0 -146.3
Financing
Financing
Proceed from issuance of share capital- calls unpaid
on equity shares/ warrants and share application
money
0.2 143.9 170.7 0.0 0.0 0.0 0.0
Proceeds from long term borrowing 262.3 458.3 1,611.4 653.3 784.0 757.9 821.0
Proceeds from short term borrowings 14.5 13.8 252.8 0.0 0.0 0.0 0.0
Repayment of long term borrowing -337.6 -131.6 -331.7 0.0 0.0 0.0 0.0
Repayment of short term borrowing 0.0 -33.8 -8.3 0.0 0.0 0.0 0.0
Interest and nance charges -99.6 -103.5 -57.7 -405.3 -503.3 -574.1 -672.6
Interest received on calls-in-arrears 2.1 0.0 0.0 0.0 0.0 0.0 0.0
Payment of dividend/transferred to investor
education and protection fund
-0.5 -14.4 -23.9 -33.6 -40.3 -47.1 -53.8
Dividend tax paid -0.4 -0.3 -0.7 0.0 0.0 0.0 0.0
Net cash from/(used in) nancing activities -159.0 332.4 1,612.5 214.5 240.4 136.8 94.7
Net increase/(decrease in cash and cash
equivalents)
41.2 1.2 119.5 -62.2 1.4 868.7 2,444.8
Cash and cash equivalents as at beginning of year 51.1 93.0 91.4 211.6 149.5 150.9 1,019.6
Taken over from subsidiaries 0.7 0.7
Due to disposale of JV 2.8
Cash and cash equivalents as at end of year 93.0 91.4 211.6 149.5 150.9 1,019.6 3,464.4
Cash Flow Statement
Global Research - India Global Investment House
64 India Real Estate Sector Report January 2008
Ratios
Ansal Housing and Construction Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Protability
- Return on Average Assets 4.81% 12.98% 15.71% 14.73% 21.91% 26.74% 29.73%
- Return on Average Equity 11.92% 29.44% 40.14% 38.62% 50.30% 51.95% 49.65%
- Dividend payout ratio 20.30% 10.24% 6.38% 4.84% 2.85% 1.94% 1.40%
Margins
- Net income/ revenues 3.25% 8.75% 12.97% 11.68% 14.48% 17.23% 19.33%
- Operating prot / revenues 11.31% 18.19% 21.41% 25.00% 27.30% 30.21% 32.57%
Efciency
-Cost to Total Op Income 95.21% 87.66% 82.15% 82.49% 78.29% 74.17% 71.03%
- Staff Expense to Total Op Income 2.94% 3.05% 2.82% 3.00% 3.00% 3.00% 3.00%
Operating Performance
- Growth in Income 36.67% 23.09% 50.53% 63.60% 64.02% 44.56% 41.33%
- Growth in other income 55.29% -39.33% -58.33% 519.96% 31.86% 44.56% 41.33%
- Growth in cost of construction 7.71% 52.08% 31.88% 79.08% 73.27% 53.45% 50.00%
- Growth in manpower cost -31.99% 27.57% 39.28% 73.83% 64.02% 44.56% 41.33%
- Growth in Financial Expenses -12.01% 4.87% -9.59% 337.41% 24.18% 14.07% 17.16%
- Growth in operating prot -447.49% 216.87% 117.86% 60.49% 103.30% 72.02% 58.51%
Leverage and coverage
- Debt to Equity 135.90% 120.53% 175.90% 152.47% 115.34% 81.58% 58.07%
- Financial Expenses to net income 153.21% 48.47% 19.65% 58.32% 35.63% 23.62% 17.46%
RATIOS USED FOR VALUATION
- Shares in Issue (mn) 12.70 14.52 16.80 16.80 16.80 16.80 16.80
- EPS (Rs) 5.02 14.56 28.07 41.35 84.07 144.62 229.24
- Dividend Declared 10.0% 15.0% 18.0% 20.0% 24.0% 28.0% 32.0%
- Book Value Per Share (Rs) 43.93 60.46 87.59 126.55 207.74 349.01 574.42
- Market Price Year End (Rs)* 44.85 329.8 269.8 360.1 360.1 360.1 360.1
- EV/Sales 0.63 2.38 1.90 1.54 1.02 0.70 0.41
- EV/EBIDTA 5.57 13.10 8.88 12.09 12.82 13.11 13.04
- Sales/Asstes 1.49 1.24 0.89 1.11 1.30 1.32 1.31
- Interest Coverage 1.12 3.45 6.69 11.68 5.33 7.32 10.14
- P/E 8.93 22.65 9.61 8.71 4.28 2.49 1.57
- P/BV 1.02 5.45 3.08 2.85 1.73 1.03 0.63
* Market Price for FY07 onwards is price as of Dec 31, 2007
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 65
Ansal Properties and Infrastructure Limited
Reuters Code:
ANSP.BO
Listing:
Bombay Stock Exchange
National Stock Exchange
Delhi Stock Exchange

Current Price
Rs. 425.9 (Dec 31, 2007)

Key Data
EPS (Rs.) : 23.28 Avg. Daily Volume (000) : 173
BVPS (Rs.) : 165.78 52 week High/Low (Rs.) : 501.8/217.5
P/E (x) : 11.33 Market Cap (Rs Bn) : 48.3
P/BV (x) : 1.59 Target Price (Rs.) : 446.7
Source: Global Research
Company Background
Ansal Properties and Infrastructure Limited (APIL) was incorporated in 1967. The
company is one of the leading real estate development companies in India with focus on
National Capital Region, Delhi (NCR) and second tier cities in the states of Uttar Pradesh,
Haryana, Rajasthan and Punjab. Mr. Sushil Ansal, who is the promoter and Chairman of
APIL, has more than 40 years of experience in the real estate industry in India.
The key business segments of APIL are development of integrated townships, which
includes plotted development of land, commercial development, residential projects, and
retail use.
APIL is amongst the rst few Indian real estate companies to be publicly traded in 1993,
and is listed on Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and
Delhi Stock Exchange (DSE).
Promoters hold the largest pie of the company stake at 65.91% followed by institutions
which holds 23.71% stake as of September 2007. Among the nancial institutions,
mutual funds held 6.38%, nancial institutions (1.05%), insurance companies (0.51%)
while Foreign Institutional Investors (FIIs) hold 15.78% in the company.
Recommendation
HOLD
Global Research - India Global Investment House
66 India Real Estate Sector Report January 2008
Chart 1: Shareholding Pattern of APIL as on 30th September 2007
Source: BSE
Ansal Township and Projects Limited (ATPL) was merged with APIL in 2006 in order to
develop the potential for further growth and expansion of their respective businesses and
to take advantage of synergies, optimization of resources and fund raising capabilities.
Over the past four decades both APIL and ATPL developed 1,386 acres of townships.
These townships consists of over 3.96 mn sq ft of residential space, 1.47 mn sq ft
of commercial space, 0.4 mn sq ft of retail space such as shopping malls, hotels and
community centres and 18.27 mn sq ft of development plots. APIL also developed over
2.97 mn sq ft of residential space, high rise commercial buildings with a saleable area of
3.47 mn sq ft and retail developments such as shopping malls and hotels with a saleable
area of 1.44 mn sq feet.
The company has a land bank of around 7,270 acres (including land for Hi-tech city in
National Capital Region, Delhi) spread across 25 cities and 5 states in the country.
Two cities accounts for more than 20% of the land bank with largest land being held for
Hi-tech city in Lucknow comprising 24.28% of the total land bank followed by Hi-tech
city at NCR with 21.70% of the land. As per projects under development, NCR region has
highest contribution in term of saleable area with 25.46% of the development. Lucknow
has 20.01% of the development planned.
Chart 2: Geographical Distribution of land bank of APIL
Source: APIL, Global Research
8.59%
1.79%
23.71%
65.91%
Promoters MFs/FIs/FIIS Bodies Corporate Individuals
9.9%
11.7%
16.6%
36.2%
25.7%
Haryana Punjab Rajasthan UP NCR
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 67
Chart 3: Geographical Distribution of planned development of APIL
Source: APIL, Global Research
APIL currently has 266.91 mn sq ft of developable area for plotted development,
residential, commercial, retail, IT Parks and SEZs. Around 73.7% of the development is
contributed from plotted and residential development. As on November, 2006, the share
of residential development along with plotted development was 77% of which plotted
development was about 56%. In the last few months, share of plotted development has
come down to 46.6% of the total planned development.
Chart 4: Distribution of planned development
Source: APIL, Global Research
Recent Developments
APIL has entered into various tie ups for different projects. Real estate developer Deyaar
of UAE, which has entered into an agreement with APIL, plans to develop a mixed use
township that will have an IT park and a biotech park, apart from shopping mall, hospital,
school and residential units. APIL has announced its foray into the hospitality sector
through a Special Purpose Vehicle (SPV) with Ambience Hospitality Management and
unveiled plans to invest Rs.20bn to set up 30 hotels in the next 10 years. The Ranbaxy-
promoted company, Fortis Healthcare will be investing between Rs.5-8bn over a period
of 7-8 years in establishing a medicity on 52 acres of land that it has purchased from APIL
in the Sushant Golf City in Lucknow.
APIL has signed an MoU to form a joint venture company with the UEM Builders, a
Haryana Punjab Rajasthan UP NCR
8.6%
13.3%
12.1%
21.2%
44.8%
Open Plot Residential, Grp Housing, Row Houses
Commercial Retial IT Park/IT SEZ/SEZ/Other
12.66%
2.93%
10.79%
27.07%
46.55%
Global Research - India Global Investment House
68 India Real Estate Sector Report January 2008
2subsidiary of Malaysias largest Conglomerate UEM Group. APIL will engage the JV
Company to carry out building/construction and engineering activity work in India. The
JV will be called UEM Builders-Ansal API Contracts Pvt Ltd.
APIL has successfully diversied in the new business of Power by establishing &
commissioning wind mills with a capacity of 12 MW, at Kutch, Gujarat.
Financial Performance - FY07
APIL has reported excellent performance since the past few years. Income from operations
grew at a CAGR of 70.8% during the period 2004-07 and stood at Rs.8.4bn at the end
of Mar 31, 2007. During the same period, cost of construction/development grew at a
CAGR of 78.6% to Rs.5.4bn as of March,2007. This resulted in PBT and PAT growing
at a CAGR of 216.5% to Rs.2.09bn and 179% to Rs.1.3bn respectively during the same
period.
The total assets of APIL recorded a CAGR of 70.8% during past four years and stood at
Rs.14,170.7mn at the end of March 2007. Fixed assets of APIL grew at a modest CAGR
of 8% over the period of 2004-07 to Rs.518.2mn in FY07. Inventory recorded a CAGR
of 26.6% during the similar period to Rs.7,459.3mn in FY07. Net current assets grew at a
CAGR of 79.8% to Rs.13,404.7mn.
Return on Average Assets (RoA) and Return on Average Equity (RoE) for FY2007 stands
at 15.39% and 24.21% respectively.
First Half Yearly Results H1FY08
APIL recorded consolidated revenue of Rs.4.7bn for the half year ended September 30,
2007. Comparable period result for the previous year is not available due to merger with
ATPL. APIL recorded standalone revenue of Rs.4.1bn for the half year ended September
30, 2007, an increase of 34.1% from Rs.3.07bn in the corresponding period of last year.
Operating margins stood at 30.7% for the rst half of 2008 and was higher compared to
26.49% recorded by APIL for FY2007. EBITDA was at Rs.1.3bn, an increase of 57.8%
as compared to Rs.850.3mn in H1FY07. Net prot stood at Rs.841.4mn up by 67.5%
from Rs.502.3mn. The non annualized EPS at the end of the quarter was at Rs.7.41 on
standalone basis and Rs.8.02 on consolidated basis.
The company had some problems with the state government authorities in Punjab in
rst quarter of 2008. In respect of Mohali project in Punjab, the State Government has
withdrawn the license for development of the project and up to June, 07 an expenditure
of Rs.1,005mn (including Rs.516.6mn on license fees and external development charges
paid to the state government authorities) has been incurred and is carried forward in
work-in-progress. APIL has recognised the expenses in the consolidated results. As per
recent updates, the state government has restored the license for the Mohali project in
Punjab.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 69
Table 1: First Half Yearly Result of APIL
Rs Mn H1 2007 H1 2008 Change (%) H1 2008 Consolidated
Net Sales 3,074.3 4,124.0 34.1% 4,665.8
Other Income 33.5 27.3 -18.5% 60.0
Total Income 3,107.8 4,151.3 33.6% 4,725.8
Total Expenditure (2,257.5) (2,809.7) 24.5% 3,276.6
EBITDA 850.3 1,341.6 57.8% 1,449.2
Interest (73.5) (124.1) 68.8% 127.3
PBDT 776.8 1,217.5 56.7% 1,321.9
Depreciation (12.5) (21.0) 68.0% 24.3
Tax (262.0) (355.1) 35.5% 387.4
Reported Prot After Tax 502.3 841.4 67.5% 910.2
Equity 250.0 567.5 127.0% 567.5
EPS (Basic) 4.43 7.41 67.3% 8.02
Source: APIL, Global Research
* Change is for standalone results, comparable consolidated results are not available due to merger with ATPL.
At the current market price, the company trades at 22.65x and 12.12x of its earnings and
4.24x and 3.17x of its book value for FY08E and FY09E respectively.
We initiate our coverage of APIL with a Hold rating and value APILs share at an intrinsic
value of Rs.446.7 based on NAV method. The intrinsic value is higher than the current
market price by 4.9%.
Global Research - India Global Investment House
70 India Real Estate Sector Report January 2008
Amount in Rs. Mn
Ansal Properties and Infrastructure Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Share capital 116.7 175.0 283.8 567.5 567.5 567.5 567.5
Share application money 0.0 2.5 0.0 0.0 0.0 0.0 0.0
Reserves and surplus 981.3 1,329.5 9,124.0 10,843.5 14,684.5 21,306.9 32,070.5
Shareholders funds 1,098.0 1,507.0 9,407.8 11,411.0 15,252.0 21,874.4 32,638.1
Secured loans 1,232.7 1,193.3 3,986.5 6,378.3 8,610.8 10,763.4 13,454.3
Unsecured loans 134.2 251.2 732.6 732.6 732.6 732.6 732.6
Total Loan 1,366.9 1,444.5 4,719.0 7,110.9 9,343.3 11,496.0 14,186.9
Minority Interest 0.2 44.0 44.0 44.0 44.0 44.0 44.0
Total Liabilities 2,465.0 2,995.5 14,170.8 18,565.9 24,639.3 33,414.4 46,868.9
Gross Block 722.0 806.2 768.3 968.9 1,187.8 1,455.3 1,762.3
Depreciation 306.9 258.2 250.1 301.3 364.4 441.8 531.0
Provision for impairment of xed
assets
5.0 0.0 0.0 0.0 0.0 0.0 0.0
Fixed Assests 410.1 548.0 518.2 667.5 823.4 1,013.5 1,231.3
Investments 117.7 57.3 233.3 291.7 350.0 420.0 504.0
Deferred tax assets 18.3 28.2 14.4 14.4 14.4 14.4 14.4
Inventory 4,069.7 4,754.1 7,459.3 10,857.6 16,107.3 17,533.8 21,035.3
Sundary Debtors 702.9 766.0 1,564.2 1,955.2 2,444.1 2,688.5 2,957.3
Cash and bank balances 191.1 345.6 2,352.2 1,419.4 2,226.6 12,124.2 25,916.8
Loans and advances 2,251.0 3,327.4 10,379.7 13,493.7 17,541.8 21,050.1 25,260.1
Current assets, loans & advances 7,214.7 9,193.2 21,755.5 27,726.0 38,319.6 53,396.6 75,169.5
Current liabilities and provisions 5,296.1 6,831.2 8,350.8 10,133.8 14,868.3 21,430.2 30,050.5
Net current assets 1,918.6 2,362.0 13,404.7 17,592.2 23,451.4 31,966.4 45,119.1
Miscellaneous Expenditure 0.3 0.1 0.1 0.1 0.1 0.1 0.1
Total Assets 2,465.0 2,995.5 14,170.8 18,565.9 24,639.3 33,414.4 46,868.9
Balance Sheet
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 71
Amount in Rs. Mn
Ansal Properties and Infrastructure Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11 E
Sales, Maintenance charges 2,071.8 3,467.6 8,436.4 13,920.0 23,942.4 37,829.1 58,635.1
Other Income 245.7 302.6 379.2 556.8 838.0 1,134.9 1,465.9
Income 2,317.5 3,770.3 8,815.6 14,476.8 24,780.4 38,963.9 60,100.9
(Increase)/decrease in stock in trade 176.5 -37.3 65.9 72.4 123.9 194.8 300.5
Cost of construction/development 1,379.8 2,418.8 5,385.5 8,686.1 14,744.4 22,988.7 35,459.5
Manpower cost 95.9 124.5 267.5 434.3 743.4 1,168.9 1,803.0
Other expenditure 252.5 332.6 724.1 1,085.8 1,858.5 2,805.4 4,086.9
Other amounts written off/prov for
contigency
13.3 101.3 37.6 57.9 99.1 116.9 180.3
Financial expenses 176.1 137.1 204.8 888.9 1,167.9 1,437.0 1,773.4
Depreciation 20.2 30.2 37.5 51.3 63.0 77.5 89.2
Expenditure 2,114.2 3,107.1 6,722.9 11,276.6 18,800.3 28,789.2 43,692.8
Adjusted prot before tax 203.3 663.2 2,092.7 3,200.2 5,980.2 10,174.7 16,408.2
Prior period adjustment 5.7 1.4 6.4 0.0 0.0 0.0 0.0
Prot after prior period adjustment 197.6 661.7 2,086.2 3,200.2 5,980.2 10,174.7 16,408.2
Provision for taxation
Tax adjustment for earlier year 7.1 -3.0 3.8 0.0 0.0 0.0 0.0
Current year 65.6 194.8 680.4 1,049.7 1,961.5 3,337.3 5,381.9
Fringe benet tax 0.0 3.2 5.6 16.0 29.9 50.9 82.0
Deferred tax -8.5 -10.0 13.7 0.0 0.0 0.0 0.0
Total tax 64.1 185.0 703.5 1,065.7 1,991.4 3,388.2 5,463.9
Prot after Tax 133.4 476.7 1,382.7 2,134.6 3,988.8 6,786.5 10,944.2
Exceptional items 0.0 102.9 61.6 0.0 0.0 0.0 0.0
Net Prot 133.4 373.8 1,321.1 2,134.6 3,988.8 6,786.5 10,944.2
Adjustment on consolidation 0.0 2.1 -0.1 0.0 0.0 0.0 0.0
Minority Interest 0.0 0.7 0.0 0.0 0.0 0.0 0.0
Carry Forward prot from previous year 66.4 159.6 196.3 0.0 0.0 0.0 0.0
Total 199.8 536.2 1,517.4 2,134.6 3,988.8 6,786.5 10,944.2
P&L Appropriation Account
Proposed Dividend 17.4 35.0 99.3 113.5 127.7 141.9 156.1
Corporate Dividend Tax 2.4 4.9 15.6 17.8 20.1 22.3 24.5
Transfer to General Reserve 20.4 300.0 750.0 1,200.0 1,600.0 2,000.0 2,500.0
Balance c/f to Balance Sheet 159.6 196.3 652.5 803.2 2,241.0 4,622.4 8,263.7
199.8 536.2 1,517.4 2,134.6 3,988.8 6,786.5 10,944.2
Prot and Loss Statement
Global Research - India Global Investment House
72 India Real Estate Sector Report January 2008
Amount in Rs. Mn
Ansal Properties and Infrastructure Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11 E
Operating
Operating
Prot before tax and appropriations 203.3 774.2 2,092.7 3,200.2 5,980.2 10,174.7 16,408.2
adjustments for
Adjustments pertaining to earlier years -5.7 -1.4 -6.4 0.0 0.0 0.0 0.0
Assets written off 2.6 1.8 0.0 0.0 0.0 0.0 0.0
Depreciation 20.2 34.8 38.2 51.3 63.0 77.5 89.2
Deferred expenses adjustment -0.1 0.3 0.0 0.0 0.0 0.0 0.0
Employee stock option expenses 0.0 0.0 4.6 0.0 0.0 0.0 0.0
Provision for doubtful debts, advances and others 12.6 8.4 0.0 0.0 0.0 0.0 0.0
Interest and nance charges 176.1 139.0 204.8 888.9 1,167.9 1,437.0 1,773.4
Interest income -80.8 -139.2 -233.3 0.0 0.0 0.0 0.0
Amounts written back -18.5 -24.8 -44.2 0.0 0.0 0.0 0.0
Amounts written off 0.1 91.1 37.0 0.0 0.0 0.0 0.0
Prot on sale of investments -0.1 -0.1 0.0 0.0 0.0 0.0 0.0
Dividend income -0.0 -1.3 -15.9 0.0 0.0 0.0 0.0
Loss(-)/(prot) on sale of xed assets -0.6 -1.0 71.0 0.0 0.0 0.0 0.0
Exchange Gains 0.0 2.0 -0.2 0.0 0.0 0.0 0.0
Operating prot before working capital changes 309.1 883.7 2,148.3 4,140.4 7,211.1 11,689.2 18,270.7
adjustments for
Trade payable and others 1,328.4 2,064.7 207.6 1,783.0 4,734.5 6,561.9 8,620.3
Inventories -397.6 -1,118.0 -1,993.9 -3,398.3 -5,249.7 -1,426.5 -3,501.6
Trade and other receivables 134.3 -97.1 -817.4 -391.1 -488.8 -244.4 -268.8
Loans and advances -841.9 -1,463.4 -6,423.2 -3,113.9 -4,048.1 -3,508.4 -4,210.0
Cash generated from operations 532.4 269.8 -6,878.6 -979.9 2,159.0 13,071.8 18,910.6
Tax paid 72.4 -165.0 -743.3 -1,083.5 -2,011.5 -3,410.5 -5,488.4
Net cash generated/used in operating activities 604.7 104.8 -7,621.8 -2,063.4 147.5 9,661.4 13,422.1
Exceptional items 0.0 -155.1 -61.6 0.0 0.0 0.0 0.0
Cash ow from operations 604.7 -50.3 -7,683.5 -2,063.4 147.5 9,661.4 13,422.1
Investing
Investing
Dividend received 0.0 1.3 15.9 0.0 0.0 0.0 0.0
Interest received 80.8 116.9 233.3 0.0 0.0 0.0 0.0
sale of assets 1.4 2.4 4.2 0.0 0.0 0.0 0.0
Purchase of xed assets -30.2 -36.3 17.8 -200.5 -218.9 -267.5 -307.0
Adjustment on consolidation 0.3 2.2 -78.5 0.0 0.0 0.0 0.0
Sale of investment 0.4 61.4 0.3 0.0 0.0 0.0 0.0
Investment -2.9 -6.3 -176.3 -58.3 -58.3 -70.0 -84.0
Net cash from/(used in) investing activities 49.9 141.6 16.7 -258.9 -277.2 -337.5 -391.0
Financing
Financing
Interest expenses -169.9 -137.3 -160.9 -888.9 -1,167.9 -1,437.0 -1,773.4
Proceeds from share capital 492.8 119.5 6,643.8 0.0 0.0 0.0 0.0
Proceeds from long term borowings -877.5 557.9 5,865.0 2,391.9 2,232.4 2,152.7 2,690.9
Repayment of long term borrowings 0.0 -447.2 -2,627.6 0.0 0.0 0.0 0.0
Dividend paid -13.2 -10.0 -87.5 -113.5 -127.7 -141.9 -156.1
Interim dividend paid including dividend tax -9.9 0.0 0.0 0.0 0.0 0.0 0.0
Net cash from/(used in) nancing activities -577.7 83.0 9,632.9 1,389.5 936.8 573.8 761.4
Net increase/(decrease in cash and cash
equivalents)
76.9 174.3 1,966.1 -932.8 807.1 9,897.7 13,792.5
Cash and cash equivalents as at beginning of year 140.9 211.8 386.1 2,352.2 1,419.4 2,226.6 12,124.2
Cash and cash equivalents as at end of year 217.8 386.1 2,352.2 1,419.4 2,226.6 12,124.2 25,916.8
less provision for doubtful bank balance -26.7
Cash and cash equivalents as at end of year 191.1 386.1 2,352.2 1,419.4 2,226.6 12,124.2 25,916.8
Cash Flow Statement
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 73
Ansal Properties and Infrastructure Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Protability
- Return on Average Assets 5.03% 13.69% 15.39% 13.04% 18.46% 23.38% 27.26%
- Return on Average Equity 12.19% 28.70% 24.21% 20.51% 29.92% 36.56% 40.15%
- Dividend payout ratio 13.02% 9.36% 7.52% 5.32% 3.20% 2.09% 1.43%
Margins
- Net income/ revenues 5.76% 9.92% 14.99% 14.74% 16.01% 17.42% 18.21%
- Operating prot / revenues 17.24% 22.03% 26.49% 28.60% 29.10% 30.00% 30.40%
Efciency
-Cost to Total Op Income 91.23% 82.41% 76.26% 77.89% 75.87% 73.89% 72.70%
- Staff Expense to Total Op Income 4.14% 3.30% 3.03% 3.00% 3.00% 3.00% 3.00%
Operating Performance
- Growth in Income 23.31% 62.68%133.82% 64.22% 71.17% 57.24% 54.25%
- Growth in other income 31.91% 23.15% 25.30% 46.84% 50.50% 35.43% 29.17%
- Growth in cost of construction 46.05% 75.30%122.66% 61.29% 69.75% 55.92% 54.25%
- Growth in manpower cost 16.94% 29.83%114.86% 62.37% 71.17% 57.24% 54.25%
- Growth in Financial Expenses -20.01% -22.15% 49.43% 333.95% 31.39% 23.04% 23.41%
- Growth in operating prot 208.05%226.23%215.56% 52.93% 86.87% 70.14% 61.26%
Leverage and coverage
- Debt to Equity 124.49% 95.86% 50.16% 62.32% 61.26% 52.55% 43.47%
- Financial Expenses to net income 131.95% 36.67% 15.50% 41.64% 29.28% 21.17% 16.20%
RATIOS USED FOR VALUATION
- Shares in Issue (mn) 11.67 17.50 56.75 113.50 113.50 113.50 113.50
- EPS (Rs) 11.43 21.36 23.28 18.81 35.14 59.79 96.43
- Dividend Declared (%) 15.0% 20.0% 25.0% 20.0% 22.5% 25.0% 27.5%
- Book Value Per Share (Rs) 94.08 86.12 165.78 100.54 134.38 192.73 287.56
- Market Price Year End (Rs)* 27.99 180.33 263.75 425.9 425.9 425.9 425.9
- EV/Sales 0.65 1.13 1.97 3.73 2.24 1.22 0.61
- EV/EBIDTA 3.76 5.12 7.42 13.05 7.69 4.08 2.00
- Sales/Asstes 0.94 1.26 0.62 0.78 1.01 1.17 1.28
- Interest Coverage 1.27 5.06 10.40 3.66 5.17 7.13 9.30
- P/E 2.45 8.44 11.33 22.65 12.12 7.12 4.42
- P/BV 0.30 2.09 1.59 4.24 3.17 2.21 1.48
* Market Price for FY07 onwards is price as of Dec 31, 2007
Ratios
Global Research - India Global Investment House
74 India Real Estate Sector Report January 2008
Unitech Limited
Reuters Code:
UNTE.BO

Listing:
Bombay Stock Exchange
National Stock Exchange

Current Price
Rs.489.25 (Dec 31, 2007)
Key Data
EPS (Rs.) : 16.09 Avg. Daily Volume (000) : 1,134.5
BVPS (Rs.) : 24.59 52 week High/Low (Rs.) : 494.8/162.6
P/E (x) : 24.08 Market Cap (Rs Bn) : 794.2
P/BV (x) : 15.76 Target Price (Rs.) : 497.5
Source: Global Research
Company Background
Established in 1971, Unitech Limited (Unitech) is Indias leading real estate development
company with market capitalisation of around Rs.500bn. Unitech was listed on the BSE in
April 1986 and on the NSE in September 1999. The stock is recently added to benchmark
index NIFTY.
Mr. Ramesh Chandra is the promoter and Chairman of Unitech and has been actively
associated since its inception in 1971. He has more than 35 years of experience in real
estate development and construction industry in India.
Unitech has most diversied product mix comprising residential, commercial, IT parks,
retail, amusement parks and hotels. Unitech is already a market leader in NCR and Kolkata
market and has plans to achieve leadership position in every market it operates in.
Promoters hold the largest pie of the companys stake at 74.56% followed by individuals
which holds around 9.06% of stake as of September 2007. Mutual funds held 0.13%,
nancial institutions held 1.02% while Foreign Institutional Investors (FIIs) hold 6.82%
in the company. Together these institutions held 7.97% in the company with prominent
investor Quantum (M) Ltd with 1.84% stake.
Recommendation
HOLD
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 75
Chart 1: Shareholding Pattern of Unitech as on September 2007.
Source: BSE
With over 35 years of experience in the real estate market Unitech is one of the largest real
estate developers in the country with sound track record in real estate development. In the
last three years company has developed 1,200 acres of land in ve townships delivering
12 mn sq ft of saleable area and has close to 50 mn sq ft of projects under development.
Unitech has geographically diversied land reserve of over 16,388 acres and economic
share of over 12,450 acres with a development pipeline of approximately 646.13 mn sq
ft over the next 10 years. Unitech has 22 major ongoing residential projects in 9 regions
across India. The total residential space offering from the ongoing projects is over 32 mn
sq ft. The company plans to start construction on around 10 mn sq ft of retail space by
year end. Currently, Unitech has over 50 mn sq ft of saleable area under development
across different segments it operates in. Recently, Unitech has acquired 1,750 acre land
in Visakhapatnam from the Andhra Pradesh Infrastructure and Industrial Corporation
(APIIC) for Rs.33.3bn.
During FY2007, Unitech has come up with an innovative way to raise capital and unlock
value. Unitech sponsored an investment vehicle called Unitech Corporate Park Plc
(UCP), listed in Alternate Investment Market (AIM) of the London Stock Exchange. This
investment vehicle has a wide international shareholding with 60% stake in all the special
purpose vehicles (SPVs) that owned the six IT Parks/SEZs being developed in India.
This vehicle has raised Rs.32bn for Unitech and the funds will be used for development
of 21.5 mn sq ft of commercial space. The arrangement with UCP entitles Unitech to 2%
of Assets under Management (AUM) as investment fees per year and prot based on IRR
delivered.
Unitech has New Kolkata Integrated Project Development (NKIPD) SEZ to be developed
over 22,500 acres in alliance with Salim Group and Universal Success Group and 9,884
acres SEZ at Kundli.
74.56%
9.06%
8.41%
7.97%
Promoters MFs/FIs/FIIS Bodies Corporate Individuals
Global Research - India Global Investment House
76 India Real Estate Sector Report January 2008
Table 1: Land Details
City/Region Total Land Area in acres
NCR 2,565
Chennai 2,085
Kolkata 5,198
Kochi 673
Hyderabad 359
Bangalore 103
Mohali, Chandigarh 423
Agra 1,500
Varanasi 1,500
Siliguri 232
Visakhapatnam 1,750
Total 16,388
*Share of Unitech in land at certain locations is less than 100%
Unitech's share in total land is approx. 12,450 acres.
Source: Unitech, Global Research
Unitech has major focus in development of residential projects across location on its land
bank. The company has around 78% of the announced development plan (646.13 mn sq
ft) for residential projects. Around 60% of this residential development will come up in
NCR, Chennai and Kolkata region. These three cities constitute around 60.1% of the land
bank (% of land in 3 cities irrespective of Unitechs share in this land).
Table 2: Development Plan
City/Region
Total Saleable Area
Mn Sq Ft % of total
NCR 116.4 18.0%
Chennai 104.7 16.2%
Kolkata 167.06 25.9%
Kochi 38.34 5.9%
Hyderabad 18.7 2.9%
Bangalore 9.92 1.5%
Mohali, Chandigarh 12.55 1.9%
Agra 31.36 4.9%
Varanasi 34.1 5.3%
Siliguri 13 2.0%
Visakhapatnam 100 15.5%
Total 646.13
Source: Unitech, Global Research
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 77
Recent Developments
Unitech has submitted application to the Department of Telecommunications to provide
Unied Access Services (UAS) in 22 telecomcircles across the Country. The continuous
rapid growth in India's telephone services business indicates the enormous potential for
future growth in this business. Unitech has synergy in telecom foray as it would help
boost the group's telecom and transmission tower manufacturing business in addition to
diversication.
Unitech has replaced IPCL on National Stock Exchanges (NSE) benchmark index Nifty
from October 5, 2007. Unitech has become the rst realty rm to be included on Nifty, a
well diversied 50 stock index representing for 22 sectors of the economy.
Unitech has acquired 1,750 acre land in Visakhapatnam from the Andhra Pradesh
Infrastructure and Industrial Corporation (APIIC) for Rs.33.3bn. The project will be
developed in phased manner over the next 10 years at a total estimated investment of
around Rs.300bn as industry reports.
Unitech is developing a super luxury commercial property in the heart of Mumbai in
the Bandra-Kurla Complex. The development cost of the project is around US$1 billion
(about Rs.39bn). Unitech will build the complex on 80 acres of land in the Bandra-Kurla
Complex in a joint venture with the land owner. The value of the land is Rs.40bn. Unitech
will pay around Rs.20bn for the land to the land owner, staggered over a few years, the
person added. The joint venture with the land owner is on a revenue-sharing basis and the
super luxury complex will be a commercial complex with retail space on the lower level.
It will also have a hotel in it. The entire project is expected to be completed in ve years.
Financial Performance - FY07
Unitech has reported above industry protability over the past few years. Income from
operations grew at a CAGR of 87.1% during the period 2004-07 and stood at Rs.32.9bn at
the end of Mar 31, 2007. During the same period, construction expenses grew at a CAGR
of 151.1% to Rs.27.9bn. This resulted in PBT and PAT growing at a CAGR of 262.7%
and 290.5% to Rs.17.9bn and Rs.13.06bn respectively during the same period.
The company has continued this growth momentum in 2007 to register an impressive
year-on-year improvement in nancial performance. Total income from operations
increased by 254.8% to Rs.33.9bn in FY07 from Rs.9.5bn in FY2006 on back of strong
demand for the real estate mainly from residential projects.
The total assets of Unitech recorded a CAGR of 170.8% during past four years and stood
at Rs.75.6bn at the end of March 2007. Fixed assets of Unitech grew at a CAGR of 84.5%
over the period of 2004-07 to Rs.8.1bn in FY07. Projects in progress recorded a CAGR
of 126.2% during the similar period to Rs.86.4bn. Net current assets grew at a CAGR of
216.7% to Rs.61.7bn.
Return on Average Assets (RoA) and Return on Average Equity (RoE) for FY2007 stands
at 29% and 114.6% respectively.
Global Research - India Global Investment House
78 India Real Estate Sector Report January 2008
First Half Yearly Results H1FY08
During the rst half of FY08, Unitech launched The Gateway, a residential project
spread across 35 acres in Kolkata, Harmony, eighth phase of Uniworld City, Kolkata,
Capella, rst phase of Uniworld City, Greater Noida, The Grande, an ultra modern
luxury residential project, at Noida, Worlds of Wonder at entertainment city, Noida and
commenced construction of two more hospitality projects in Gurgaon.
Unitech recorded revenue of Rs.18.8bn for the half year ended September 30, 2007,
recording an increase of 156.5% from Rs.7.3bn in the corresponding period of last year.
Operating margins stood at 55.6% for the rst half of 2008 and was lower compared to
62.03% recorded by Unitech for FY2007. EBITDA was at Rs.10.9bn, an increase of
303.8% as compared to Rs.2.7bn in H1FY07. Net prot stood at Rs.7.7bn up by 329.8%
from Rs.1.8bn. The non annualized EPS at the end of the half year was at Rs.4.78 on
consolidated basis.
Table 3: First half yearly result of Unitech (Consolidated)
Rs. Mn H12007 H12008 Change (%)
Net Sales 7,347.5 18,843.1 156.5%
Income from sale of investments 300.1 199.7 -33.5%
Other Income 195.7 596.5 204.8%
Total Income 7,843.3 19,639.3 150.4%
Expenditure (5,138.1) (8,714.8) 69.6%
EBIDTA 2,705.2 10,924.5 303.8%
Interest (362.6) (1,390.6) 283.5%
Gross Prot 2,342.6 9,533.9 307.0%
Depreciation (30.5) (61.5) 101.6%
Prot before Tax 2,312.1 9,472.4 309.7%
Tax (505.0) (1,706.2) 237.9%
Prot after Tax 1,807.1 7,766.2 329.8%
Equity Capital 1,623.4 3,246.8* 100.0%
EPS 2.22 4.78 115.3%
*Increase in equity capital is subsequent to bonus issue in the ratio 1:1
Source: Unitech, Global Research
At the current market price, the company currently trades at 45.56x and 24.87x of its
earnings for FY08E and FY09E and 21.57x and 11.66x of its book value respectively.
We initiate our coverage of Unitech with a Hold rating and value the Unitechs share at an
intrinsic value of Rs.497.5 based on the NAV method. The intrinsic value is higher than
the current market price by 1.7%. (We have not considered value creation opportunities
due to recent land acquisition at Visakhapatnam and SEZs as detailed plans are not
available. Also Unitech has not made public announcements for the land acquisition since
September 2006 except land acquisition at Visakhapatnam. The company is likely to do
so in near future which might result in value accretion to NAV).
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 79
Amount in Rs. Mn
Unitech Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Share capital 124.9 124.9 1,623.4 3,246.7 3,246.7 3,246.7 3,246.7
Minority interest 210.0 236.8 12.5 12.5 12.5 12.5 12.5
Reserves and surplus 1,831.6 2,472.3 18,320.4 33,559.0 64,832.9 121,597.7 211,738.4
Shareholders funds 2,166.5 2,833.9 19,956.3 36,818.2 68,092.2 124,856.9 214,997.7
Secured loans 3,257.7 9,556.9 39,499.2 35,549.2 24,884.5 13,686.5 5,474.6
Unsecured Loans 505.8 892.5 306.1 306.1 306.1 306.1 306.1
Deferred liability- against land 2,048.9 1,056.0 15,787.4 15,787.4 15,787.4 15,787.4 15,787.4
Deferred tax liability 120.8 150.8 20.4 20.4 20.4 20.4 20.4
Sources of Funds 8,099.6 14,490.1 75,569.4 88,481.5 109,090.7 154,657.4 236,586.3
Gross Block 2,179.7 4,530.2 6,470.3 8,564.5 11,178.3 14,480.2 18,693.7
Depreciation 831.7 910.7 475.5 575.1 695.2 837.4 1,004.0
Capital work in progress 133.1 1,267.6 2,153.4 2,529.6 2,905.8 3,282.0 3,658.2
Fixed Assests 1,481.1 4,887.1 8,148.2 10,518.9 13,388.8 16,924.8 21,347.8
Investments 502.2 144.5 4,547.6 5,684.5 6,821.4 8,185.6 9,822.8
Goodwill on consolidated 845.4 823.7 1,125.9 1,125.9 1,125.9 1,125.9 1,125.9
Inventory 601.3 695.6 548.5 685.9 1,149.5 1,810.1 2,666.8
Project in progress 15,961.1 30,174.0 86,446.5 91,448.6 110,840.3 132,275.3 155,565.2
Sundary Debtors 852.9 1,032.5 1,458.1 1,822.7 2,278.3 2,506.2 2,756.8
Cash and bank balances 2,717.6 3,899.4 10,227.3 6,754.4 16,956.4 51,063.8 131,064.4
Loans and advances 1,403.9 2,859.9 18,396.6 27,594.9 38,632.8 52,154.3 67,800.6
Current assets, loans & advances 21,536.8 38,661.3 117,077.0 128,306.3 169,857.3 239,809.5 359,853.8
Current Liabilities and provision 16,268.2 30,032.1 55,330.6 57,155.4 82,103.9 111,389.7 155,565.2
Net current assets 5,268.6 8,629.2 61,746.5 71,151.0 87,753.3 128,419.9 204,288.5
Miscellaneous expenditure 2.4 5.5 1.3 1.3 1.3 1.3 1.3
Application of funds 8,099.6 14,490.1 75,569.4 88,481.5 109,090.7 154,657.4 236,586.3
Consolidated Balance Sheet
Global Research - India Global Investment House
80 India Real Estate Sector Report January 2008
Amount in Rs. Mn Unitech Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Income from Operations 6,447.4 9,267.0 32,883.3 44,392.5 79,906.5 135,841.1 217,345.7
Other Income 201.5 278.1 1,000.3 1,331.8 2,197.4 3,396.0 4,890.3
Income 6,649.0 9,545.0 33,883.6 45,724.3 82,103.9 139,237.1 222,236.0
(Increase)/decrease in stock in trade -2,365.0 -3,010.9 -26,309.4 -23,776.6 -36,946.8 -58,479.6 -84,449.7
Cost of construction/development 4,175.0 6,101.0 27,880.6 25,148.4 43,515.1 69,618.6 111,118.0
Receipts of real estate projects adjusted 2,407.3 1,341.4 1,682.0 1,829.0 2,873.6 4,873.3 6,667.1
Expenses of real estate completed projects 0.0 57.1 296.4 457.2 821.0 1,392.4 2,222.4
Expenses of projects on % of completion basis 521.5 1,642.5 7,614.2 9,602.1 17,241.8 27,847.4 40,002.5
Manpower cost 249.1 365.5 568.3 731.6 1,313.7 2,158.2 3,444.7
Excise duty on stock 3.5 4.5 3.4 3.4 3.4 3.4 3.4
Selling general & administrative expenses 734.1 1,077.3 1,129.5 1,371.7 2,381.0 3,898.6 6,000.4
Financial expenses 246.5 464.9 3,020.1 4,123.4 2,896.9 1,539.2 635.9
Depreciation 112.7 112.2 80.0 99.7 120.1 142.2 166.6
Expenditure 6,084.7 8,155.5 15,965.1 19,589.8 34,219.9 52,993.6 85,811.1
Adjusted prot before tax 564.3 1,389.6 17,918.5 26,134.5 47,884.1 86,243.5 136,424.9
Provision for taxation 216.3 513.1 4,863.5 8,702.8 15,945.4 28,719.1 45,429.5
Prot after Tax but before shares in associates
and minority interest
348.0 876.5 13,055.0 17,431.7 31,938.7 57,524.4 90,995.4
Less: share of prot/(loss) of associate and
minority interest
-3.1 -30.7 3.3 0.0 0.0 0.0 0.0
Prot after Tax 344.9 845.8 13,058.3 17,431.7 31,938.7 57,524.4 90,995.4
Add/(less)
Carry Forward prot from previous year 620.9 838.5 1,456.2 0.0 0.0 0.0 0.0
addition/(deduction) during the year -12.2 31.7 -124.1 0.0 0.0 0.0 0.0
less: Capitalised for issue of bonus shares 0.0 0.0 -806.0 0.0 0.0 0.0 0.0
Taxes paid for earlier years -11.2 -5.0 3.2 0.0 0.0 0.0 0.0
Debenture redemption reserve written back 37.5 0.0 0.0 0.0 0.0 0.0 0.0
Foreign project reserve written back 40.0 31.8 30.0 0.0 0.0 0.0 0.0
Prot Available for Appropriation 1,019.8 1,742.7 13,617.6 17,431.7 31,938.7 57,524.4 90,995.4
P&L Appropriation Account
Proposed Dividend 99.1 162.3 407.7 487.0 568.2 649.3 730.5
Corporate Dividend Tax 13.0 26.0 69.3 82.8 96.5 110.3 124.1
Transfer to Debenture redemption reserve 0.0 0.0 1,600.0 0.0 0.0 0.0 0.0
Transfer to General Reserve 52.5 98.2 4,001.8 5,000.0 6,000.0 7,000.0 8000
Transfer to capital redemption reserve 16.8 0.0 0.0 0.0 0.0 0.0 0.0
Transfer to reserve U/s 451C of RBI act 0.0 0.0 352.4 0.0 0.0 0.0 0.0
Balance c/f to Balance Sheet 838.5 1,456.2 7,186.4 11,861.9 25,274.0 49,764.7 82,140.8
1,019.8 1,742.7 13,617.6 17,431.7 31,938.7 57,524.4 90,995.4
Consolidated Prot and Loss Statement
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 81
Amount in Rs. Mn
Unitech Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11 E
Operating
Operating
Prot before tax and appropriations 564.3 1,389.6 17,918.5 26,134.5 47,884.1 86,243.5 136,424.9
adjustments for
Depreciation 112.7 112.2 80.0 99.7 120.1 142.2 166.6
Provision for gratuity/leave encashment 0.5 9.3 11.5 - - - -
Miscellaneous expenses written off 0.7 0.3 4.0 - - - -
Provision for doubtful advances 0.3 6.5 1.0 - - - -
Prot on sale of shares - 56.4 (300.1) - - - -
Loss on sale of xed assets 13.9 1.0 (10.5) - - - -
Investment income (4.1) (2.9) (103.8) - - - -
Adjustment for opening prot - 31.7 (124.1) - - - -
Interest (net) 177.5 337.0 2,660.1 4,123.4 2,896.9 1,539.2 635.9
Operating prot before working capital
changes
865.7 1,941.0 20,136.6 30,357.6 50,901.1 87,924.9 137,227.4
adjustments for
Trade and other receivables (3,455.8) (15,755.5) (57,504.5) (14,564.8) (30,885.4) (35,184.2) (39,186.9)
Inventories (3,502.7) (1,179.8) 147.1 (137.4) (463.6) (660.6) (856.8)
Trade payable 7,397.3 13,360.8 19,836.9 1,824.8 24,948.6 29,285.7 44,175.5
Cash generated from operations 1,304.6 (1,633.5) (17,383.9) 17,480.2 44,500.7 81,365.8 141,359.3
Interest paid (246.5) (464.9) (2,534.4) (4,123.4) (2,896.9) (1,539.2) (635.9)
Tax paid (89.3) (148.3) (235.5) (8,785.5) (16,041.9) (28,829.4) (45,553.6)
Net cash generated/used in operating
activities
968.9 (2,246.7) (20,153.8) 4,571.2 25,561.9 50,997.1 95,169.8
Investing
Investing
Purchase of xed assets (351.2) (3,999.7) (5,218.1) (2,470.3) (2,990.1) (3,678.1) (4,589.7)
sale of xed assets 40.4 461.4 1,878.2 - - - -
Purchase of Investment (23.1) (1.7) (2,575.9) (1,136.9) (1,136.9) (1,364.3) (1,637.1)
Purchase of intangibles (637.9) 21.7 (302.2) - - - -
Increase in share application money (182.5) 157.5 (1,812.9) - - - -
Sale of investments 117.7 147.3 314.6 - - - -
Interest received 69.0 127.9 360.0 - - - -
Dividend received 4.1 2.9 103.8 - - - -
Net cash from/(used in) investing
activities
(963.4) (3,082.8) (7,252.5) (3,607.2) (4,126.9) (5,042.4) (6,226.8)
Financing
Financing
Proceeds from borrowings 1,820.2 6,603.3 29,425.4 (3,949.9) (10,664.8) (11,198.0) (8,211.9)
Proceeds from share premium - (23.5) 4,699.4 - - - -
Miscellaneous expenditure (net) 3.6 (1.5) (3.0) - - - -
Minority interest (101.7) (7.4) (202.6) - - - -
Dividend paid (89.2) (59.7) (185.1) (487.0) (568.2) (649.3) (730.5)
Net cash from/(used in) nancing
activities
1,632.9 6,511.3 33,734.2 (4,436.9) (11,233.0) (11,847.4) (8,942.4)
Net increase/(decrease in cash and
cash equivalents)
1,638.4 1,181.8 6,327.9 (3,472.9) 10,202.0 34,107.4 80,000.6
Cash and cash equivalents as at
beginning of year
1,079.3 2,717.6 3,899.4 10,227.3 6,754.4 16,956.4 51,063.8
Cash and cash equivalents as at end
of year
2,717.6 3,899.4 10,227.3 6,754.4 16,956.4 51,063.8 131,064.4
Cash Flow Statement
Global Research - India Global Investment House
82 India Real Estate Sector Report January 2008
Unitech Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Protability
- Return on Average Assets 5.79% 7.49% 29.00% 21.25% 32.33% 43.62% 46.52%
- Return on Average Equity 16.61% 33.83% 114.60% 61.41% 60.89% 59.63% 53.55%
- Dividend payout ratio 28.73% 19.19% 3.12% 2.79% 1.78% 1.13% 0.80%
Margins
- Net income/ revenues 5.19% 8.86% 38.54% 38.12% 38.90% 41.31% 40.95%
- Operating prot / revenues 13.89% 20.60% 62.03% 66.39% 62.00% 63.15% 61.75%
Efciency
-Cost to Total Op Income 91.51% 85.44% 47.12% 42.84% 41.68% 38.06% 38.61%
- Staff Expense to Total Op Income 3.75% 3.83% 1.68% 1.60% 1.60% 1.55% 1.55%
Operating Performance
- Growth in net revenue 28.36% 43.73% 254.84% 35.00% 80.00% 70.00% 60.00%
- Growth in other income 40.80% 37.96% 259.76% 33.14% 65.00% 54.55% 44.00%
- Growth in cost of construction 137.18% 46.13% 356.98% -9.80% 73.03% 59.99% 59.61%
- Growth in manpower cost 29.69% 46.74% 55.48% 28.73% 79.56% 64.29% 59.61%
- Growth in Financial Expenses 18.77% 88.63% 549.60% 36.53% -29.74% -46.87% -58.69%
- Growth in operating prot 50.22% 146.24% 1189.52% 45.85% 83.22% 80.11% 58.19%
Leverage and coverage
- Debt to Equity 173.72% 368.72% 199.46% 97.38% 36.99% 11.21% 2.69%
- Financial Expenses to net prot 71.46% 54.97% 23.13% 23.65% 9.07% 2.68% 0.70%
RATIOS USED FOR VALUATION
- Shares in Issue (mn) 12.49 12.49 811.69 1623.37 1623.37 1623.37 1623.37
- EPS (Rs) 27.62 67.73 16.09 10.74 19.67 35.44 56.05
- Dividend Declared (%) 80.0% 130.0% 25.0% 30.0% 35.0% 40.0% 45.0%
- Book Value Per Share (Rs) 173.50 226.95 24.59 22.68 41.95 76.91 132.44
- Market Price Year End (Rs)* 337.35 2785.45 387.36 489.25 489.25 489.25 489.25
- EV/Sales 0.79 4.33 10.15 18.35 9.97 5.55 3.08
- EV/EBIDTA 5.69 21.02 16.37 27.64 16.08 8.79 4.99
- Sales/Asstes 0.82 0.66 0.45 0.52 0.75 0.90 0.94
- Interest Coverage 2.75 3.23 5.96 6.36 16.57 56.12 214.81
- P/E 12.21 41.12 24.08 45.56 24.87 13.81 8.73
- P/BV 1.94 12.27 15.76 21.57 11.66 6.36 3.69
* Market Price FY07 onward are prices on Dec 31, 2007
Ratios
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 83
DLF Limited
Reuters Code:
DLF.BO
Listing:
Bombay Stock Exchange
National Stock Exchange
Current Price
Rs.1,073.9 (Dec 31, 2007)
Key Data
EPS (Rs.) : 12.64 Avg. Daily Volume (000) : 2,422.9
BVPS (Rs.) : 23.24 52 week High/Low (Rs.) : 1,099/490
P/E (x) : 74.66 Market Cap (Rs Bn) : 1,830.8
P/BV (x) : 40.61 Target Price (Rs.) : 1,046
Source: Global Research
Company Background
Incorporated in 1963, DLF is one of the largest real estate development companies in
India with market capitalisation of around Rs.1500bn. DLF has historically focused in the
National Capital Region (NCR) but in recent times the company has forayed in different
parts of India. DLF currently operates in around 19 states and is looking to expand in
newer locations.
Mr. K.P. Singh is the promoter and chairman of the company and is having four decades
of experience in the Indian real estate industry.
The key business segments of the company include development of residential projects,
commercial projects, retain, hospitality, SEZs, IT Parks, Hotels and entertainment.
In view of rapid expansion plans and growth, DLF went public in 2007 with the issue
of approx. 175mn shares of Rs.525 per share. This was the biggest IPO in the real estate
sector in India raising about US$2.4bn. The stock is listed on BSE and NSE and is part
of BSE 500 and S&P CNX 500. Recently, it has been added to BSE benchmark index
Sensex.
Promoters hold the largest stake in the company with shareholding of 88.21% followed
by FIIs (Foreign Institutional Investors) with around 7.3% stake as of September 2007.
Mutual funds hold 0.35%; nancial institutions hold 0.1%.
Recommendation
HOLD
Global Research - India Global Investment House
84 India Real Estate Sector Report January 2008
Chart 1: Shareholding Pattern of DLF Ltd as on September 2007.
Source: BSE
As of May 2007, DLF has developed and sold around 224 mn sq ft of area which
includes around 195 mn sq ft of plots, 19 mn sq ft of residential properties, 7 mn sq. ft. of
commercial properties and 3 mn sq. ft. of retail properties.
DLF is the undisputed leader in the Indian real estate industry in terms of total developable
area. The quality of land bank is good compared to many of its peers in the sector. DLF
has quality land bank of 13,055 acres (as on June 2007). Total developable area is 738 mn
sq ft at the end of September 2007. (The developable area has increased by 123 mn sq ft
mainly on account of Bidadi project near Bangalore which is spread over 9,178 acres of
land.) DLF has stopped giving land bank in terms of acres. The land bank is spread across
19 states in India. A vast portion of the land bank is in NCR (41%) and West Bengal
(18%). The company has acquired lands in some of the best locations in the country like
Tulsiwadi and Mulund in Mumbai, Greater Kailash, and Chanakyapuri in Delhi. These
markets have seen continuous rise in property prices and outlook for future looks bright.
Since its IPO in July 2007, DLF has added around 164 mn sq ft to its pre-IPO land bank
of 574 mn sq ft. DLF has sole ownership to 96% of the land bank in terms of developable
area with the balance under a Joint Development Agreement (JDA).
Table 1: Land Bank distribution**
Region % of land bank
NCR* 41%
Punjab 3%
West Bengal 18%
Maharashtra 6%
Chennai 8%
Goa 4%
Hyderabad 3%
Karnataka 6%
Others 11%
Source: DLF, Global Research
*NCR region includes Delhi and adjoining regions like Gurgaon and Noida. **Position at the end of rst quarter
2008.
Promoters MFs/FIs/FIIS Bodies Corporate Individuals
88.21%
3.10%
0.83%
7.86%
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 85
Average cost of land acquisition for DLF is approximately Rs.330 per sq ft. Total cost
of land acquisition is around Rs.244bn which is very competitive considering the quality
of land bank and prevailing market rate for the land. The unpaid land cost is Rs.35bn
of which 50% of the unpaid amount is for the Dhankuni project in West Bengal where
payment is to be made to the government in different phases.
The product mix of DLF is very robust. Around 66.5% of the development will be for
residential segment followed by commercial space of 19.1% and retail space of around
14.4%.
Table 2: Project Portfolio Distribution
Super Metros Metros Tier I Tier II Total % of total
Ofce 58 42 30 11 141 19.1%
Retail 35 41 14 16 106 14.4%
Super Luxury 4 0 0 0 4 0.5%
Luxury 38 7 2 0 48 6.5%
Mid Income/Villas/Plots 121 243 59 15 439 59.5%
Total 256 333 105 42 738
% of total 34.7% 45.1% 14.2% 5.7%
Source: DLF, Global Research
-Super Metros are Delhi Metropolitan Region and Mumbai. Metros are Chennai, Bangalore and Kolkata. Tier
I- Chandigarh, Pune, Goa, Cochin, Nagpur, Hyderabad, Coimbatore and Bhubneshwar. Tier II- Vadodra, Gandhi
Nagar, Ludhiana, Amritsar, Jalandhar, Sonepat, Panipat, Lucknow, Indore and Shimla.
DLF has recently acquired in-principle approval for a multi sector SEZ in Amritsar and
multi-product SEZ in Gurgaon, Ambala, and Ludhiana. DLF has tied up with Nakheel
Group of Dubai for SEZs. The proposed SEZ in Amritsar will be an integrated SEZ,
covering products such as textiles, garments, and engineering goods and services such as
food processing. The Amritsar SEZ will cover an area of 1,100 acres. The integrated SEZ
at Gurgaon will be developed in four phases of 5,000 acres each. The SEZs in Ambala
and Ludhiana will each cover an area of 2,500 acres.
DLF has signed MoU with Nakheel Group of Dubai to develop through one 50:50 JV,
two projects in Gurgaon and South Maharashtra.
DLF Assets Limited (DAL) is wholly owned company of promoters. Sale of commercial
properties to DAL constituted almost 55% and 77% of DLFs FY07 revenue and PAT
respectively. DLF plans to sell more such commercial and retail properties to DAL or
other institutions in future. Currently, DAL is not listed and held by the promoters.
Recent Developments
DLF plans to build its biggest project on the outskirts of Bangalore at a cost of Rs.600bn.
It will be thrice the size of DLF City in Gurgaon. DLF has bagged the 9,178 acre project
at Bidadi, 30 km from Bangalore. The project will be a 50:50 joint venture between
Dubai-based Limitless Holdings and DLF.
DLF has entered into JV with Bharat Hotels and Hilton to develop super luxury and
Global Research - India Global Investment House
86 India Real Estate Sector Report January 2008
budget business hotels along with serviced apartments. Under the terms of the Alliance
Agreement with Hilton, the JV plans to acquire and develop 50-75 hotels and serviced
apartments in India under certain Hilton brands. Hilton will manage all the hotels
developed under this JV. DLF will contribute US$407mn or 74% of the total equity share
capital. DLF plans to construct about 25,000 rooms, catering to business, four star, ve
star, and deluxe segments of the hotel and serviced apartments market.
DLF has entered into a JV with Laing ORourke Plc, a leading UK-based construction
company with a strong track record of executing major construction projects globally.
The company has 14 projects under construction. The JV has submitted 10 tenders for
construction of various infrastructure projects including roads, lying of railway tracks,
airport terminals, and a port. This JV works on cost plus basis and currently has 45 mn sq
ft under construction. DLF is open to enter into more such JVs with foreign contractors in
FY08.
Recently, DLF struck one of the largest real estate deals by entering into an agreement to
acquire 38 acre land in Central Delhi. DLF already owned 25 acre land in adjoining area;
this acquisition has given a strategic position to DLF to fully leverage the efciency of
the contiguous parcels of land adjoining a greenbelt of approximately 100 acres.
DLF is planning to raise money through Ofce trust listing in Singapore, where, DAL
will exit. During rst half of FY08, DLF has booked revenues of Rs.30bn by sale of
properties to DAL. DLF is condent of raising money at lower cap rate of around 6-7%
while it has earlier sold these properties at cap rate of 9%. This will also benet the DLF
due to lower cap rate will ow in to company. Issue is expected to come up in Q42008.
DLF has divested 49% stake in 7 mid housing projects for Rs.14.8bn to private equity
investors. The deal was struck at 20% premium to its costs. The deal has helped DLF to
advance the cash ow and partially mitigate the project risk.
DLF has formed an equal partnership with the founder of Aman Resorts to acquire the
company at an EV of US$400mn (including debt of US$150mn). It includes an agreement
to acquire a controlling interest in Aman Resort. The acquisition will be largely nanced
through plans to raise debt. Aman resorts is luxury hotel chain operating 22 hotels and
owns properties in France, Phuket, Bali, Indonesia, SriLanka and India.
On November 19, 2007, DLF has replaced Dr. Reddys to become a part of the Sensex. This
is a quantum jump for the real estate sector whose share in the BSE market capitalisation
was barely 1% till some time ago.
Financial Performance - FY07
DLF has reported robust performance since the past few years. Total income of the
company grew at a CAGR of 97.4% during the period 2004-07 and stood at Rs.40.53bn
at the end of Mar 31, 2007. During the same period, cost of revenue grew at a CAGR
of 39.4%. This resulted in PBT and PAT growing at a CAGR of 216.4% and 230% to
Rs.25.4bn and Rs.19.3bn respectively during the same period.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 87
The total assets of DLF recorded a CAGR of 108% during past four years and stood at
Rs.135.1bn at the end of March 2007. Fixed assets of DLF grew at a CAGR of 59.9% over
the period of 2004-07 to Rs.15.6bnn in FY07. Inventory recorded a CAGR of 105.3%
during the similar period to Rs.56.8bn. Net current assets grew at a CAGR of 104.9% to
Rs.82.3bn. Return on Average Assets (RoA) and Return on Average Equity (RoE) for
FY2007 stands at 20.71% and 84.83% respectively.
Return on Average Assets (RoA) and Return on Average Equity (RoE) for FY2007 stands
at 20.71% and 84.83% respectively.
Operating margins stood at 71.3% for the rst half of 2008 and was marginally lower
compared to 71.68% recorded by DLF for FY2007.
First Half Yearly Results H1FY08
DLF recorded revenue of Rs.63.2bn for the half year ended September 30, 2007 on
consolidated basis. EBITDA was at Rs.46.1bn while net prot stood at Rs.35.4bn. On
standalone basis, DLF recorded revenue of Rs.22.4bn and net prot of Rs.13.4bn. The
non annualized EPS at the end of the half year was at Rs.21.81 on consolidated basis.
In Q2, DLF saw increased delivery in the ofce segment, an increase by 67% quarter on
quarter basis. Bookings grew by 55% quarter on quarter basis in the retail mall business.
Land reserves in the Super Metro/Metro have grown from 74% to 80% in Q2 of 2008.
Table 3: DLF 1QFY08
Rs. Mn H1 2008- Consolidated H1 2008-Standalone
Net Sales 63,236.9 22,430.5
Other Income 1,465.3 2,463.2
Total Income 64,702.2 24,893.7
Expenditure (18,561.6) (7,187.1)
EBIDTA 46,140.6 17,706.6
Interest (1,113.5) (1,366.8)
Gross Prot 45,027.1 16,339.8
Depreciation (275.3) (66.1)
Prot before Tax 44,751.8 16,273.7
Tax (9,338.7) (2,814.9)
Prot after Tax 35,413.1 13,458.8
Minority Interest (67.3) -
Share of Prot / Loss in Associates (5.8) -
Income Attributable to Consolidated Group 35,340.0 13,458.8
Equity Capital 3,409.7 3,409.7
EPS (Basic) 21.81 8.30
Source: DLF, Global Research
At the current market price, the company currently trades at 25.19x and 19.83x of its
earnings and 9.43x and 6.57x of its book value for FY08E and FY09E respectively.
Global Research - India Global Investment House
88 India Real Estate Sector Report January 2008
We initiate our coverage of DLF with a Hold rating and value DLFs share at an intrinsic
value of Rs.1,046 based on NAV method. The intrinsic value is lower than the current
market price by 2.6%. (We have not considered value creation opportunities due to
various plans pertaining to hotels and SEZs as detailed plans are not available. Also
there can be signicant value addition due to Ofce trust listing in Singapore if DLF is
able to raise money at lower cap rate. Recent acquisition of Aman Resort is also likely to
add to DLFs NAV. But due to limited information, value of this business segments are
not reecting in NAV.)
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 89
Amount in Rs. Mn
DLF Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Share capital 35.0 377.7 12,557.2 12,907.2 12,907.2 12,907.2 12,907.2
Reserves and surplus 7,436.0 9,660.7 22,992.0 181,222.4 265,590.4 359,359.7 467,591.9
Shareholders funds 7,471.0 10,038.4 35,549.2 194,129.6 278,497.6 372,266.8 480,499.1
Minority interest 43.0 54.1 91.9 91.9 91.9 91.9 91.9
Secured loans 7,952.0 39,560.0 92,053.2 64,437.2 38,662.3 19,331.2 9,665.6
Unsecured loans 1,724.0 1,760.4 7,273.5 7,273.5 7,273.5 7,273.5 7,273.5
Deferred tax liability 962.0 183.3 197.1 197.1 197.1 197.1 197.1
Total Liabilities 18,152.0 51,596.1 135,164.9 266,129.3 324,722.4 399,160.5 497,727.1
Goodwill 522.0 8,499.7 8,935.3 8,935.3 8,935.3 8,935.3 8,935.3
Gross Block 8,253.0 10,052.8 18,043.8 35,003.3 75,870.4 121,790.4 160,972.6
Depreciation 1,549.0 1,886.9 2,411.7 3,031.3 3,905.1 4,969.7 6,215.9
Fixed Assests 6,704.0 8,165.9 15,632.2 31,972.0 71,965.3 116,820.7 154,756.7
Capital work in progress 3,506.0 16,632.7 26,218.9 32,773.6 37,689.6 41,458.6 43,531.5
Investments 400.0 8,148.9 2,107.0 2,633.7 3,160.4 3,792.5 4,551.0
Pre operative expenses - 2.8 - - - - -
Stocks 7,049.0 8,804.1 56,799.0 122,207.0 146,648.4 153,980.8 164,429.5
Sundry Debtors 2,852.0 6,580.6 15,057.1 42,912.7 53,640.9 64,369.1 77,242.9
Cash and bank balances 424.0 1,949.9 4,155.1 55,882.0 42,679.3 44,614.3 63,849.2
Loans and advances 6,019.0 10,772.2 52,258.2 70,548.6 88,185.7 97,004.3 106,704.7
Other current assets 20.0 24.8 74.1 103.7 134.8 168.5 210.6
Current assets, loans & advances 16,364.0 28,131.6 128,343.4 291,654.0 331,289.1 360,137.0 412,436.9
Current liabilities and provisions 9,344.0 17,985.5 46,071.8 101,839.2 128,317.3 131,983.6 126,484.2
Net current assets 7,020.0 10,146.1 82,271.7 189,814.8 202,971.8 228,153.4 285,952.7
Total Assets 18,152.0 51,596.1 135,164.9 266,129.3 324,722.4 399,160.5 497,727.1
Balance Sheet
Global Research - India Global Investment House
90 India Real Estate Sector Report January 2008
Prot and Loss Statement
Amount in Rs. Mn
DLF Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Sales and other income 6,260.0 19,602.2 40,533.0 135,785.6 183,310.5 219,972.6 252,968.5
Total Income 6,260.0 19,602.2 40,533.0 135,785.6 183,310.5 219,972.6 252,968.5
Cost of revenue 3,165.0 9,285.6 7,277.8 24,441.4 33,912.4 41,794.8 48,064.0
Establishment expenses 447.0 395.4 1,051.4 3,530.4 4,766.1 5,719.3 6,577.2
Other expenses 787.0 1,176.3 3,147.9 8,826.1 11,915.2 13,198.4 15,178.1
Financial expenses 390.0 1,684.8 3,075.9 2,724.6 2,687.7 2,660.5 1,693.9
Depreciation 333.0 358.2 578.1 619.7 873.7 1,064.6 1,246.3
Expenditure 5,122.0 12,900.2 15,131.1 40,142.1 54,155.1 64,437.5 72,759.5
Adjusted prot before tax and
minority interest
1,138.0 6,702.0 25,401.9 95,643.4 129,155.4 155,535.1 180,209.0
Provision for taxation 259.0 2,590.3 6,051.8 22,954.4 36,809.3 51,793.2 60,009.6
Prot before Minority Interest 879.0 4,111.7 19,350.1 72,689.0 92,346.1 103,741.9 120,199.4
Share of loss in associates - (0.1) (12.7) - - - -
Minority Interest (14.0) (9.6) (11.1) - - - -
Prot after tax and minority interest 865.0 4,102.0 19,326.3 72,689.0 92,346.1 103,741.9 120,199.4
Earlier year Items
Income Tax (net) - 8.3 10.2 - - - -
Depreciation - 0.1 - - - - -
Prot after Tax 865.0 4,110.3 19,336.5 72,689.0 92,346.1 103,741.9 120,199.4
Transfer from Capital Reserve 82.4 14.0 - - - -
Balance as per balance sheet 4,534.2 8,439.2 - - - -
Issue of bonus sharea -
(2,153.8)
- - - -
865.0 8,726.9 25,635.8 72,689.0 92,346.1 103,741.9 120,199.4
P&L Appropriation Account
Proposed Dividend 15.5 3,409.7 5,114.4 6,819.2 8,524.0 10,228.8
Corporate Dividend Tax 2.2 579.5 869.2 1,158.9 1,448.7 1,738.4
Transfer to General Reserve 270.0 485.0 5,000.0 10,000.0 15,000.0 20,000.0
Balance c/f to Balance Sheet 8,439.2 21,161.7 61,705.4 74,368.0 78,769.3 88,232.2
Total - 8,726.9 25,635.8 72,689.0 92,346.1 103,741.9 120,199.4
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 91
Amount in Rs. Mn
DLF Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11 E
Operating
Operating
Prot before tax and appropriations 1,138.0 6,702.0 25,401.9 95,643.4 129,155.4 155,535.1 180,209.0
adjustments for
Depreciation 333.0 358.2 578.1 619.7 873.7 1,064.6 1,246.3
Prot on sale of xed assets (6.0) (51.1) (5,344.0) - - - -
Interest charges 391.0 1,684.8 3,075.9 2,724.6 2,687.7 2,660.5 1,693.9
Provision for doubtful advances 5.0 185.3 142.4 - - - -
Preoperative expenses - - 2.8 - - - -
Advances written off - 28.8 2.3 - - - -
Exchange (gain)/loss - 0.3 (0.6) - - - -
Preliminery expenses written off - 1.1 0.5 - - - -
Prot/loss on sale of investment - (58.6) (7,709.4) - - - -
Unclaimed balances and provisions
written back
- (0.3) (2.1)
Interest (75.0) (1,044.0) (942.1) - - - -
Operating prot before working capital
changes
1,786.0 7,806.4 15,205.8 98,987.7 132,716.8 159,260.2 183,149.2
adjustments for
Trade and other receivables 6,036.0 (8,355.7)(43,889.4)(46,175.6)(28,396.4)(19,580.4)(22,616.4)
Inventories 1,439.0 (6,995.6)(48,003.7)(65,408.0)(24,441.4) (7,332.4)(10,448.7)
Trade payable (3,059.0) (434.1) 18,398.8 55,767.4 26,478.2 3,666.2 (5,499.3)
Cash generated from operations 6,202.0 (7,978.9)(58,288.5) 43,171.4 106,357.2 136,013.5 144,584.8
Tax paid (448.0) (751.3) (6,032.9)(23,823.6)(37,968.2)(53,241.8)(61,748.0)
Net cash generated/used in operating
activities
5,754.0 (8,730.2)(64,321.4) 19,347.8 68,389.0 82,771.7 82,836.8
Investing
Investing
Purchase of xed assets (8,329.0) (6,466.6)(21,620.3)(23,514.2)(45,783.1)(49,688.9)(41,255.2)
sale of xed assets 30.0 139.1 9,346.2 - - - -
Interest/dividend received 92.0 1,006.0 892.9 - - - -
Purchase of Investment - (15,588.4) (3,935.6) (526.7) (526.7) (632.1) (758.5)
Sale of investments 591.0 65.6 16,368.0 - - - -
Others (65.0) - - - - - -
Net cash from/(used in) investing
activities
(7,681.0)(20,844.4) 1,051.1 (24,040.9)(46,309.9)(50,321.0)(42,013.7)
Financing
Financing
Proceeds from issue of debenture - 342.6 - - - - -
Proceeds from borrowings 6,211.0 35,084.5 72,517.0 (27,616.0)(25,774.9)(19,331.2) (9,665.6)
Repayment of long term borrowings (3,612.0) (5,449.2)(24,086.0) - - - -
Proceeds from issuance of prefenrence
shares
- - 9,498.3 - - - -
Proceeds from short term borrowings (4.0) 2,009.1 9,579.7 - - - -
Dividend paid (16.0) (15.9) (17.7) (5,114.4) (6,819.2) (8,524.0)(10,228.8)
Increase in share capital - - 4.7 350.0 - - -
Share application money received - - - 93,251.4 - - -
Interest charges (645.0) (1,488.3) (2,901.8) (2,724.6) (2,687.7) (2,660.5) (1,693.9)
Net cash from/(used in) nancing
activities
1,934.0 30,482.9 64,594.1 58,146.5 (35,281.8)(30,515.6)(21,588.3)
Net increase/(decrease in cash and cash
equivalents)
7.0 908.3 1,323.8 53,453.4 (13,202.7) 1,935.0 19,234.9
Cash and cash equivalents as at
beginning of year
196.6 1,104.8 2,428.6 55,882.0 42,679.3 44,614.3
Cash and cash equivalents as at end of
year
1,104.8 2,428.6 55,882.0 42,679.3 44,614.3 63,849.2
Cash Flow Statement
Global Research - India Global Investment House
92 India Real Estate Sector Report January 2008
DLF Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Protability
- Return on Average Assets 5.22% 11.79% 20.71% 36.23% 31.26% 28.66% 26.80%
- Return on Average Equity 12.29% 46.95% 84.83% 63.30% 39.08% 31.88% 28.19%
- Dividend payout ratio 0.38% 17.63% 7.04% 7.38% 8.22% 8.51%
Margins
- Net income/ revenues 13.82% 20.97% 47.71% 53.53% 50.38% 47.16% 47.52%
- Operating prot / revenues 29.73% 44.61% 71.68% 72.90% 72.40% 72.40% 72.40%
Efciency
-Total Cost to Total Income 81.82% 65.81% 37.33% 29.56% 29.54% 29.29% 28.76%
Operating Performance
- Growth in Income 18.88% 213.13% 106.78% 235.00% 35.00% 20.00% 15.00%
- Growth in cost of revenue 17.88% 193.38% -21.62% 235.84% 38.75% 23.24% 15.00%
- Growth in Financial Expenses 18.18% 331.99% 82.57% -11.42% -1.35% -1.01% -36.33%
- Growth in PBT 41.90% 488.93% 279.02% 276.52% 35.04% 20.42% 15.86%
Leverage and coverage
- Debt to Equity 129.51% 411.62% 279.41% 36.94% 16.49% 7.15% 3.53%
- Financial Expenses to net income 45.09% 40.99% 15.91% 3.75% 2.91% 2.56% 1.41%
Valuation
- Shares in Issue (mn) 3.50 37.77 1,529.40 1,704.80 1,704.80 1,704.80 1,704.80
- EPS (Rs) 247.14 108.83 12.64 42.64 54.17 60.85 70.51
- Dividend Declared (%) 40.0% 100.0% 150.0% 200.0% 250.0% 300.0%
- Book Value Per Share (Rs) 2134.57 265.79 23.24 113.87 163.36 218.36 281.85
- Market Price Year End (Rs)* 943.9 1073.9 1073.9 1073.9 1073.9
- EV/Sales 37.96 13.60 10.01 8.24 7.05
- EV/EBIDTA 52.96 18.66 13.82 11.38 9.74
- Sales/Assets 0.34 0.38 0.30 0.51 0.56 0.55 0.51
- Interest Coverage 3.77 4.19 8.45 35.33 48.38 58.86 107.12
- P/E 74.66 25.19 19.83 17.65 15.23
- P/BV 40.61 9.43 6.57 4.92 3.81
* Market Price for FY07 is price on Dec 31, 2007.
Ratios
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 93
Sobha Developers Limited
Reuters Code:
SOBH.BO
Listing:
Bombay Stock Exchange
National Stock Exchange
Current Price
Rs.911.15 (Dec 31, 2007)
Key Data
EPS (Rs.) : 22.16 Avg. Daily Volume (000) : 197.3
BVPS (Rs.) : 111.87 52 week High/Low (Rs.) : 1,128.2/620
P/E (x) : 36.14 Market Cap (Rs. Bn) : 66.4
P/BV (x) : 7.16 Target Price (Rs.) : 1,187.4
Source: Global Research
Company Background
Incorporated in 1995, Sobha Developers Ltd. (Sobha) is one of the leading real estate
developers in South India.
Sobha Developers was incorporated in Bangalore by Mr P N C Menon who has rich
experience in ne interior decoration services in Muscat. In the Gulf, Mr Menon's service
and trade group had built up a wide reputation for its excellent work in palaces, villas,
large hotels, resorts, etc.
The key business segments of the company include development of residential projects
with plotted development, commercial projects and contractual development for its
marquee clients like Infosys, Hewlett Packard, Dell, Taj group among others.
In view of rapid expansion plans and growth, Sobha entered the capital markets in
December 2006 with a public issue of 8.89mn equity shares aggregating Rs.5,694mn.
The IPO received an overwhelming response at the bourses as it was oversubscribed
126.9 times. The stock is now listed on BSE and NSE and is part of BSE 500 and S&P
CNX 500.
Promoters hold the largest stake in the company with shareholding of 87%. As of
September 2007. Mutual funds hold 0.32%, nancial institutions hold0.81%while Foreign
Institutional Investors (FIIs) hold 7.41% in the company. Together these institutions hold
8.53% in the company. Individuals hold 3.1% in the company.
Recommendation
BUY
Global Research - India Global Investment House
94 India Real Estate Sector Report January 2008
Chart 1: Shareholding Pattern of Sobha as on September 2007.
Source: BSE
Sobha has developed 7.72 mn sq ft of real estate space involving 42 projects covering
residential, commercial and factory space. Sobha has developed 33 residential space
developing 7.04 mn sq ft. In the last 12 months, Sobha has developed 2.9mn sq ft of
residential space and 0.58 mn sq ft of factory space. Contractual business is a key business
segment of Sobhas business strategy. Sobha has constructed 104 contractual projects in
eight states of India covering 11.07 mn sq ft of development.
The company provides turnkey solutions, including design, civil construction, ttings
and interiors, and exteriors of commercial complexes. The company has developed 11.07
mn sq ft of contractual projects (Infosys being the largest customer with around 90%
development for them). This resulted in strong association with Infosys which in turn
helped the company gain further market share through similar contracts from other IT/
ITES companies.
Currently, Sobha has a land bank of 4,012.4 acres with total developable area under
development of 11.97 mn sq ft and 15.79 mn sq ft of forthcoming projects. Sobha has
majority of its projects as residential development, constituting 85% of the projects.
Sobha has a project pipeline of 174.7 mn sq ft over the next ten years in ten cities, mainly
Bangalore, Cochin, Chennai and Gurgaon (assuming FSI of 1 for the land bank). Of the
total 27.76 mn sq ft of ongoing and forthcoming projects, residential comprises around
85% of the total development while commercial comprises 15% of the development. The
company is now considering diversifying into other geographies and segments. Sobha
has a robust order book of 11.06 mn sq ft construction contracts. Contractual construction
represented 62%, 32% and 34% of its revenues in FY05, FY06 and FY07 respectively.
Bangalore accounts for the chunk of the land bank with 1,643 acres constituting 40.9%
of the land bank followed by Hosur and Chennai with 719.4 acres and 540 acres of land
respectively. Sobha also has land in Gurgaon (192 acres) and Pune (152.7 acres).
Promoters MFs/FIs/FIIS Bodies Corporate Individuals
8.53%
1.37%
3.10%
87.00%
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 95
Chart 2: Land Bank distribution (in acres)
Source: Sobha, Global Research
Sobha has currently 42 residential projects under construction and it will soon launch
development of 23.57 mn sq ft in stages with maximum development in Bangalore of
about 77% of total development. Sobha has already launched projects in cities like Pune
and Trissur. Sobha plans to launch its projects in cities like Coimbatore, Mysore and
Chennai in this nancial year. Sobha also has strong order book of 11.06 mn sq ft of
contractual development.
Table 1: Project Portfolio Distribution
In mn sq ft Ongoing Forthcoming Total
Residential 11.55 12.02 23.57
Commercial* 0.42 3.77 4.19
Total 11.97 15.79 27.76
*Commercial includes retail malls, ofces, hotels, multiplexes, etc.
Source: Sobha, Global Research
Recent Developments
Sobha has acquired about 300 acres across south India in the last three months at a cost
of about Rs.20bn. Further, the company has close to 11.54 mn sq ft under development in
Bangalore and Trissur.
Sobha has also obtained an in principle approval from the Kerala government for
development of Hi Tech City at Kochi. The company is expected to ink MoU with the
Kerala government in due course.
Sobha has entered in to a joint development agreement with QVC Realty Pvt Ltd and
Chintels India Ltd to develop an integrated township spread over 192 acres in Gurgaon for
integrated township of world-class design and quality consisting of homes, apartments,
commercial, retail and ofce space at a projected investment of over Rs.20bn and a total
development in excess of 6.5 mn sq ft.
15.0%
11.6%
192.0%
78.0%
1643.0%
156.3%
152.7%
504.5%
540.0%
719.4%
Bangalore
Hosur
Mysore
Trissur
Pune
Coimbatore
Chennai
Gurgaon
Global Research - India Global Investment House
96 India Real Estate Sector Report January 2008
Sobha is planning 100-oor trade tower on the outskirts of Hyderabad which would be the
tallest building in India when complete. A special purpose vehicle, two-thirds owned by
Reliance Energy Ltd, has won contract to build the Rs.60bn tower and a business centre
in Manchirevula in Ranga Reddy district, Hyderabad. The contract was awarded by the
Andhra Pradesh government. The consortium led by Reliance Energy received the Letter
of Award to develop over 77 acres. The other major partner is Sobha Developers with 23
per cent stake in the SPV, and Andhra Pradesh Industrial Infrastructure Corporation, with
11 per cent stake.
Financial Performance - FY07
Sobha has reported robust performance since the past few years. Income from operations
grew at a CAGR of 77.7% during the period 2004-07 and stood at Rs.11,864.7mn at the
end of Mar 31, 2007. During the same period, construction expenses grew at a CAGR
of 53.6%. This resulted in PBT and PAT growing at a CAGR of 107.1% and 132% to
Rs.1,865.8mn and Rs.1,615.12mn respectively during the same period.
The company has continued this growth momentum in 2007 to register an impressive
year-on-year improvement in nancial performance. Total income from operations
increased by 89.8% to Rs.11,864.7mn in FY07 from Rs.6,252.3mn in FY2006 on back of
strong demand for the real estate mainly from residential projects.
The total assets of Sobha recorded a CAGR of 153.8% during past four years and stood
at Rs.14,014.5mn at the end of March 2007. Fixed assets of Sobha grew at a CAGR
of 115.7% over the period of 2004-07 to Rs.1,947.8mn in FY07. Inventory recorded a
CAGR of 80.2% during the similar period to Rs.3,778mn. Net current assets grew at a
CAGR of 190% to Rs.11,539mn.
Return on Average Assets (RoA) and Return on Average Equity (RoE) for FY2007 stands
at 19.01% and 33.92% respectively.
First Half Yearly Results H1FY08
Sobha has launched its rst real estate project "Sobha Carnation" in Pune on October 31,
2007. This will be developed in 5.70 acres of land with a developable area of over 0.3 mn
sq ft. This project is expected to be completed over a period of 25 months.
Sobha recorded revenue of Rs.5.9bn for the half year ended September 30, 2007, an
increase of 11.6% from Rs.5.3bn in the corresponding period of last year. Operating
margins stood at 26.3% for the rst half of 2008 and was higher compared to 20.06%
recorded by Sobha for FY2007. EBITDA was at Rs.1.58bn, an increase of 59.7% as
compared to Rs.993mn in H1FY07. Net prot stood at Rs.970mn up by 79.6% from
Rs.540mn. The non annualized EPS at the end of the half year was at Rs.13.3.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 97
Table 2: Sobha Developers 1QFY08
Rs. Mn H1 2007 H2 2008 Change (%)
Net Sales 5,315 5,932 11.6%
Share of prots from partnership rm - 55
Other Income 5 36 620.0%
Total Income 5,320 6,023 13.2%
Total Expenditure (4,327) (4,437) 2.5%
EBIDTA 993 1,586 59.7%
Interest (273) (234) -14.3%
PBDT 720 1,352 87.8%
Depreciation (108) (171) 58.3%
PBT 612 1,181 93.0%
Tax (72) (211) 193.1%
Prot After Tax 540 970 79.6%
Equity Capital 634 729 15.0%
EPS 8.46 13.30 57.2%
Source: Sobha, Global Research
At the current market price, the company trades at 28.71x and 19.30x of its earnings and
6.70x and 5.22x of its book value for FY08E and FY09E respectively.
We initiate our coverage of Sobha with a BUY rating and value the Sobhas share at an
intrinsic value of Rs.1,187.4 based on the Sum of Parts method (Real estate vertical and
Contractual projects vertical). The intrinsic value is higher than the current market price
by 30.3%.
Global Research - India Global Investment House
98 India Real Estate Sector Report January 2008
Amount in Rs. Mn
Sobha Developers Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Share capital 298.7 298.7 729.0 729.0 729.0 729.0 729.0
Reserves and surplus 356.8 1,069.6 7,426.4 9,185.6 11,988.0 16,736.6 24,347.9
Shareholders funds 655.5 1,368.3 8,155.4 9,914.6 12,717.0 17,465.6 25,076.9
Secured loans 2,210.7 4,208.1 5,452.3 8,178.4 10,631.9 13,289.9 13,954.4
Unsecured loans 23.6 23.0 384.5 384.5 384.5 384.5 384.5
Deferred tax liability 22.1 16.7 22.3 22.3 22.3 22.3 22.3
Total Liabilities 2,911.8 5,616.1 14,014.5 18,499.9 23,755.8 31,162.3 39,438.1
Gross Block 556.8 1,251.5 2,333.7 3,649.7 5,019.8 6,250.3 7,819.8
Depreciation 125.5 252.4 494.8 881.7 1,413.8 2,074.3 2,897.4
Net Block 431.3 999.1 1,838.9 2,768.0 3,606.0 4,176.1 4,922.4
Capital work in progress 122.9 21.1 108.9 130.7 150.3 172.9 198.8
Fixed Assests 554.2 1,020.2 1,947.8 2,898.8 3,756.3 4,348.9 5,121.2
Investments 0.2 27.0 527.7 659.6 791.5 949.8 1,139.8
Inventory 1,905.4 2,544.0 3,778.0 5,688.5 7,889.0 11,830.2 15,171.9
Sundry Debtors 363.9 803.0 1,577.4 2,366.1 3,430.8 4,803.1 6,244.1
Cash and bank balances 65.8 449.7 683.6 413.3 671.2 1,279.9 2,332.3
Loans and advances 2,236.4 5,177.0 11,818.2 15,954.5 20,740.9 26,963.2 33,703.9
Current assets, loans & advances 4,571.6 8,973.6 17,857.1 24,422.3 32,731.9 44,876.4 57,452.2
Current liabilities and provisions 2,214.2 4,404.7 6,318.0 9,480.8 13,524.0 19,012.8 24,275.1
Net current assets 2,357.4 4,568.9 11,539.0 14,941.5 19,207.9 25,863.6 33,177.1
Total Assets 2,911.8 5,616.1 14,014.5 18,499.9 23,755.8 31,162.3 39,438.1
Balance Sheet
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 99
Amount in Rs. Mn
Sobha Developers Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Sales and Contracted Receipts 4,530.6 6,252.3 11,864.7 17,203.7 25,805.6 38,708.4 56,127.2
Other Income 121.2 21.1 28.8 37.5 46.9 58.6 70.3
Increase in Inventories 1,259.8 638.5 1,017.3 1,720.4 2,322.5 3,483.8 4,490.2
Income 5,911.7 6,911.8 12,910.8 18,961.6 28,175.0 42,250.8 60,687.7
Land cost 1,054.0 781.1 1,832.0 2,559.8 4,085.4 6,337.6 9,103.2
Construction expenses 3,604.1 3,613.1 4,952.5 6,731.4 9,861.2 14,787.8 21,240.7
Raw material consumption - - 1,051.5 1,516.9 2,254.0 3,168.8 4,551.6
Production expenses - - 235.7 341.3 507.2 760.5 1,092.4
Administrative Expenses 596.4 1,113.9 2,248.9 3,128.7 4,648.9 6,971.4 9,710.0
Financial expenses 109.4 208.3 480.7 828.0 1,125.8 1,358.0 1,540.7
Depreciation 62.8 128.2 243.9 386.9 532.1 660.5 823.1
Expenditure 5,426.6 5,844.6 11,045.0 15,493.0 23,014.5 34,044.6 48,061.6
Adjusted prot before tax 485.1 1,067.3 1,865.8 3,468.7 5,160.5 8,206.2 12,626.0
Provision for taxation
Total Tax 138.5 182.3 250.7 1,155.1 1,718.4 2,732.7 4,204.5
Prot after Tax 346.5 885.0 1,615.1 2,313.6 3,442.0 5,473.5 8,421.6
Balance of prot brought forward 68.7 306.3 819.2
Income tax related to earlier years 0.4 - -
415.6 1,191.3 2,434.3 2,313.6 3,442.0 5,473.5 8,421.6
P&L Appropriation Account
Proposed Dividend 63.4 144.8 401.0 473.9 546.8 619.7 692.6
Corporate Dividend Tax 8.3 20.3 68.1 80.5 92.9 105.3 117.7
Dividend on preference shares 0.0 6.1 4.6 - - - -
Tax on preference share dividend 0.9 0.8 - - - -
Transfer to capital redemption reserve - 87.3 - - - -
Capitalisation towards bonus issue - 422.8 - - - -
Transfer to General Reserve 37.5 200.0 200.0 300.0 400.0 500.0 600.0
Balance c/f to Balance Sheet 306.3 819.2 1,249.7 1,459.2 2,402.4 4,248.6 7,011.3
Total 415.6 1,191.3 2,434.3 2,313.6 3,442.0 5,473.5 8,421.6
Prot and Loss Statement
Global Research - India Global Investment House
100 India Real Estate Sector Report January 2008
Amount in Rs. Mn
Sobha Developers Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Operating
Operating
Prot before tax and appropriations 485.0 1,067.2 1,865.8 3,468.7 5,160.5 8,206.2 12,626.0
adjustments for
Depreciation 62.8 128.2 243.9 386.9 532.1 660.5 823.1
Interest and nance charges 107.1 208.3 480.7 828.0 1,125.8 1,358.0 1,540.7
Dividend income (2.5) (0.2) (18.1) - - - -
Prot on sale of investments (3.8) (0.1) - - - - -
Loss(-)/(prot) on sale of xed assets - (0.3) (0.5) - - - -
Operating prot before working capital changes 648.6 1,403.1 2,571.9 4,683.5 6,818.3 10,224.7 14,989.9
adjustments for
(Increase)/decrease in inventories (1,259.8) (638.5) (1,234.0) (1,910.5) (2,200.5) (3,941.2) (3,341.7)
(Increase)/decrease in sundary debtors (83.4) (439.0) (774.4) (788.7) (1,064.7) (1,372.3) (1,440.9)
(Increase)/decrease in loans and advances (996.8) (2,726.7) (6,412.2) (4,136.4) (4,786.4) (6,222.3) (6,740.8)
Increase/(decrease) in current liabilities 382.5 2,007.4 1,182.4 3,162.8 4,043.2 5,488.9 5,262.2
Cash generated from operations (1,308.9) (393.7) (4,666.3) 1,010.7 2,809.9 4,177.7 8,728.7
Tax paid (93.4) (246.6) (307.2) (1,235.6) (1,811.3) (2,838.0) (4,322.2)
Net cash generated/used in operating activities (1,402.3) (640.3) (4,973.4) (224.9) 998.6 1,339.8 4,406.5
Investing
Investing
Purchase of xed assets (422.8) (595.2) (1,173.3) (1,337.8) (1,389.7) (1,253.1) (1,595.4)
Sale of investment 221.8 0.2 5,117.4 - - - -
Interest received 2.4 9.7 31.2 - - - -
Dividend received 2.5 0.2 18.1 - - - -
sale of assets - 1.3 2.3 - - - -
Investment (28.0) (26.9) (5,618.1) (131.9) (131.9) (158.3) (190.0)
Net cash from/(used in) investing activities (224.1) (610.8) (1,622.5) (1,469.7) (1,521.6) (1,411.4) (1,785.4)
Financing
Financing
Increase/(decrease) in borrowings 1,676.8 1,998.5 1,605.7 2,726.1 2,453.5 2,658.0 664.5
Increase in share capital 87.3 - 94.8 - - - -
Decrease in share capital - - (87.3) - - - -
Increase in share premium - - 5,959.2 - - - -
Share issue expenses - - (320.2) - - - -
Interest expenses (109.6) (218.7) (415.4) (828.0) (1,125.8) (1,358.0) (1,540.7)
Dividend paid (71.7) (144.8) (6.9) (473.9) (546.8) (619.7) (692.6)
Net cash from/(used in) nancing activities 1,582.8 1,635.0 6,829.8 1,424.3 781.0 680.3 (1,568.8)
Net increase/(decrease in cash and cash
equivalents)
(43.7) 383.9 233.9 (270.3) 258.0 608.7 1,052.4
Cash and cash equivalents as at beginning
of year
109.4 65.8 449.7 683.6 413.3 671.2 1,279.9
Cash and cash equivalents as at end of year 65.8 449.7 683.6 413.3 671.2 1,279.9 2,332.3
Cash Flow Statement
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 101
Sobha Developers Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Protability
- Return on Average Assets 25.74% 25.03% 19.01% 14.23% 16.29% 19.93% 23.86%
- Return on Average Equity 73.07% 87.46% 33.92% 25.61% 30.42% 36.27% 39.59%
- Dividend payout ratio 18.30% 16.36% 24.83% 20.48% 15.88% 11.32% 8.22%
Margins
- Net income/ revenues 5.86% 12.80% 12.51% 12.20% 12.22% 12.95% 13.88%
- Operating prot / revenues 11.12% 20.31% 20.06% 24.70% 24.20% 24.20% 24.70%
Efciency
-Total Cost to Total Income 91.80% 84.56% 85.55% 81.71% 81.68% 80.58% 79.20%
- Administrative Expense to Total
Op Income
10.09% 16.12% 17.42% 16.50% 16.50% 16.50% 16.00%
Operating Performance
- Growth in Operating Income 114.34% 38.00% 89.77% 45.00% 50.00% 50.00% 45.00%
- Growth in cost of construction 163.84% 0.25% 37.07% 35.92% 46.50% 49.96% 43.64%
- Growth in Financial Expenses 129.99% 90.51%130.74% 72.23% 35.97% 20.62% 13.46%
- Growth in operating prot 133.75%113.61% 84.53% 80.80% 45.58% 49.96% 46.60%
Leverage and coverage
- Debt to Equity 340.88%309.22% 71.57% 86.37% 86.63% 78.29% 57.18%
- Financial Expenses to net income 31.56% 23.54% 29.76% 35.79% 32.71% 24.81% 18.30%
Valuation
- Shares in Issue (mn) 21.14 21.14 72.90 72.90 72.90 72.90 72.90
- EPS (Rs) 16.39 41.86 22.16 31.74 47.22 75.08 115.52
- Dividend Declared (%) 30.0% 68.5% 55.0% 65.0% 75.0% 85.0% 95.0%
- Book Value Per Share (Rs) 31.01 64.73 111.87 136.00 174.44 239.58 343.99
- Market Price Year End (Rs)* - - 800.7 911.15 911.15 911.15 911.15
- EV/Sales - - 10.24 3.93 2.72 1.87 1.29
- EV/EBIDTA - - 92.12 15.92 11.26 7.71 5.23
- Sales/Asstes 2.03 1.23 0.92 1.03 1.19 1.36 1.54
- Interest Coverage 5.01 5.74 4.39 4.66 5.06 6.53 8.73
- P/E - - 36.14 28.71 19.30 12.14 7.89
- P/BV - - 7.16 6.70 5.22 3.80 2.65
* Market Price for FY07 onwards is price as of Dec 31, 2007
Ratios
Global Research - India Global Investment House
102 India Real Estate Sector Report January 2008
Omaxe Limited
Reuters Code:
OMXA.BO
Listing:
Bombay Stock Exchange
National Stock Exchange

Current Price
Rs. 572.7 (Dec 31, 2007)
Key Data
EPS (Rs.) : 15.74 Avg. Daily Volume (000) : 962
BVPS (Rs.) : 30.24 52 week High/Low (Rs.) : 612.5/263.2
P/E (x) : 19.37 Market Cap (Rs Bn) : 99.4
P/BV (x) : 10.08 Target Price (Rs.) : 518.5
Source: Global Research
Company Background
Omaxe Ltd. started its business as a construction and contracting company in 1989 and
entered into real estate business in 2001. The company has presence in 30 cities in 9 states
predominantly in north India.
Mr. Rohtas Goel is the promoter and chairman of Omaxe. He is a Civil Engineer and has
two decades of experience in the real estate sector.
The key business segments of the company include development of residential and
commercial real estate development projects ranging from integrated townships, group
housing and retail and other commercial properties, hotels, information technology and
bio-tech parks to special economic zones.
Omaxe entered the capital market in July 2007 with a public issue of 17.8mn equity
shares and a green shoe of 1.75mn shares at a price band of Rs.265 to Rs.310 aggregating
Rs.5,517mn at upper band of the issue to take care of the growing need of the expansion
plan and continue the growth momentum. The IPO received an overwhelming response at
the bourses as it was oversubscribed 68 times. The stock is now listed on BSE and NSE
and is part of BSE 500 and S&P CNX 500.
Promoters hold the largest stake in the company with shareholding of 89.28% followed
by institutions with around 3.75% stake as of September 2007. Mutual funds have 0.59%
stake in the company; other shareholders include nancial institutions (0.16%) andForeign
Institutional Investors (3.01%). Individual investors hold 3.74% in the company.
Recommendation
HOLD
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 103
Chart 1: Shareholding Pattern of Omaxe as on September 2007.
Source: BSE
Omaxe has completed around 5.13 mn sq ft of construction till March 2007 delivering 10
completed projects including 8 residential projects and 2 commercial projects. Given the
fact that company has started its operations in 2001, it shows strong execution capability
which can be scaled up with time.
Omaxe has land bank of approximately 3,255 acres spanning 9 states and covering 30
locations, which it plans to develop over the next 4-5 years. Currently, Omaxe is having
planned development of 149.82 mn sq ft involving 52 projects. Omaxe has 52 ongoing
projects including group housing development of 66.6 mn sq ft covering 21 projects,
township development of 77.3 mn sq ft covering 16 projects, commercial development
of 4.89 mn sq ft covering 14 projects and development of one hotel over 1.03 mn sq ft.
Many of these projects have already in advance stages of development. Total land cost of
land bank is around Rs.22bn. Omaxe lacks long term development pipeline.
Table 1: Development Plan
Type of development Saleable Area (mn sq ft)
Group Housing 66.6
Townships 77.3
Commercial 4.89
Hotel 1.03
Total 149.82
Source: Omaxe, Global Research
Haryana accounts for over 31.15% of land bank having ongoing development followed
by Uttar Pradesh with 15.18% of the land bank. In terms of cities, Jaipur (Rajasthan)
holds largest land with 12.91% followed by Patiala (Punjab) and Sonepat (Haryana) with
10.98% and 10.81% of the land bank respectively.
3.75%
3.23%
3.74%
89.28%
Promoters MFs/FIs/FIIS Bodies Corporate Individuals
Global Research - India Global Investment House
104 India Real Estate Sector Report January 2008
Table 2: Land Bank Details
State Land (in acres) % holding
Haryana 1013.8 31.15%
Uttar Pradesh 494.01 15.18%
Madhya Pradesh 256.16 7.87%
Rajasthan 557.01 17.11%
Punjab 485.19 14.91%
Himachal Pradesh 27.38 0.84%
Chattisgarh 208.01 6.39%
Uttaranchal 47.8 1.47%
Delhi 3.02 0.09%
Land where development not planned currently 162.42 4.99%
Total 3254.8
Particulars
Land Owned 1006.9 30.94%
By Itself 581.65 17.87%
Through Subsidiaries 425.25 13.07%
Land Over company has sole development rights 1483.35 45.57%
MoU with various governments for leasehold land 193.64 5.95%
Land with Joint Development Agreements 570.91 17.54%
Total 3254.8
Source: Omaxe, Global Research
Omaxe currently has 149.82 mn sq ft of developable area across 9 states. Haryana has the
largest planned development with 41.91 mn sq ft comprising 28% of the total development
followed by Uttar Pradesh with 27.88 mn sq ft of development representing 18.6% of the
total development. Omaxe has projects under development at an approximate aggregate
cost of Rs.138.6bn across verticals comprising of 52 projects. Currently, 38 projects are
under development covering 100 mn sq ft of saleable area and remaining 14 projects are
at various stages of approval.
Table 3: Project Portfolio Distribution
State No of projects Saleable Area (mn sq ft) % of total
Delhi 2 0.44 0.3%
Punjab 10 25.85 17.3%
Haryana 15 41.91 28.0%
Rajasthan 4 23.96 16.0%
Uttar Pradesh 15 27.88 18.6%
Himachal Pradesh 1 2.35 1.6%
Madhya Pradesh 3 10.29 6.9%
Chattisgarh 1 13.59 9.1%
Uttaranchal 1 3.55 2.4%
Total 52 149.82
Source: Omaxe, Global Research
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 105
Recent Developments
Omaxe Ltd has made investments for making some companies wholly owned
subsidiaries like Rs.0.1mn by way of investment in the equity shares of Omaxe Powers
Pvt Ltd., Rs.0.5mn by way of investment in the equity shares of Omaxe Infrastructure
& Construction Pvt Ltd. and Rs.1,400mn by way of investment in the equity shares of
Satvik Hitech Builders Pvt Ltd.
Omaxe is differentiating itself from other real estate developers by pioneering its offering.
The company is constructing wedding malls to cater as one stop shop for all wedding
centric requirements. The company is also developing thematic residential lifestyle
projects incorporating Egyptian architectural designs.
Omaxe has bought a land parcel of 19.53 acres in Visakhapatnam in auction for
Rs.1,005.8mn from Visakhapatnam Urban Development Authority (VUDA) through its
subsidiary Finishing Touch Properties and Developers Pvt Ltd.
Omaxe Ltd has acquired land admeasuring 11.012 acres at Faridabad, Haryana at a total
consideration of Rs.450mn including share purchase consideration through the process of
acquisition of S N Realtors Pvt Ltd (Land owning Company).
Omaxe entered into a MoU with the government of Rajasthan for setting up a multi-
product special economic zone at Alwar district. Omaxe has invested Rs.0.5mn to oat
a subsidiary, Omaxe Rajasthan SEZ Developers. The proposed SEZ, which is spread
over 5,000 hectares (about 12,500 acres) has received an in principle approval from the
Ministry of Commerce and Industry.
Omaxe is planning to foray into infrastructure (airport, highway development etc) and
power transmission segments and has oated 2 subsidiaries in this regard. The company
is looking for a JV partner for these subsidiaries.
Financial Performance - FY07
Omaxe has reported excellent performance over last few years. Income from operations
grew at a CAGR of 71.6% during the period 2004-07 and stood at Rs.14.3bn at the end
of Mar 31, 2007. During the same period, operating cost grew at a CAGR of 58.1% to
Rs.10.1bn in FY07. This resulted in PBT and PAT growing at a CAGR of 165.6% and
208% to Rs.3.2bn and Rs.2.4bn respectively during the same period.
The total assets of Omaxe recorded a CAGR of 108.8% during past four years and stood
at Rs.17.3bn at the end of March 2007. Fixed assets of Omaxe grew at a CAGR of 49.4%
over the period of 2004-07 to Rs.403.8mn in FY07. Inventory recorded a CAGR of
234.2% during the similar period to Rs.4.5bn. Net current assets grew at a CAGR of
110.5% to Rs.16.6bn.
Return on Average Assets (RoA) and Return on Average Equity (RoE) for FY2007 stands
at 21.04% and 71.37% respectively.
Global Research - India Global Investment House
106 India Real Estate Sector Report January 2008
Operating margins stood at 34.9% at the end of Q22008 and was higher compared to
24.74% recorded by Omaxe for FY2007.
Second Quarter Results Q2FY08
Omaxe recorded consolidated revenue of Rs.7.1bn for the quarter ended Sept 30,
2007 while on standalone basis revenue was Rs.4.5bn. Net prot stood at Rs.1.6bn on
consolidated basis while on standalone basis, it was Rs.1.2bn. The non annualized EPS at
the end of the quarter was at Rs.9.6 on consolidated basis.
Table 4: Omaxe Limited Consolidated Figures
Rs. Mn Q2 2008-Standalone Q2 2008-Consolidated
Net Sales 4,469.1 7,036.6
Other Income 77.7 84.6
Total Income 4,546.7 7,121.1
Expenditure (2,874.7) (4,638.4)
Interest (127.6) (127.9)
Prot Before Depreciation and Tax 1,544.4 2,354.8
Depreciation (12.5) (13.8)
Prot before Tax 1,532.0 2,341.1
Tax (364.7) (732.3)
Net Prot 1,167.3 1,608.8
Equity Capital 1,735.7 1,735.7
Basic EPS 7.0 9.6
Source: Omaxe, Global Research
At the current market price, the company currently trades at 19.86x and 12.38x of its
earnings for FY08E and FY09E and 6.64x and 4.44x of its book value respectively.
We initiate our coverage of Omaxe with a Hold rating and value the companys share at
an intrinsic value of Rs.518.5 based on the NAV method. The intrinsic value is lower than
the current market price by 9.5%.
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 107
Amount in Rs. Mn
Omaxe Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Share capital 96.7 774.8 1,549.5 1,735.7 1,735.7 1,735.7 1,735.7
Share application money 319.0 0.0 227.0 227.0 227.0 227.0 227.0
Reserves and surplus 375.9 1,375.2 2,908.3 13,002.0 20,438.7 31,797.4 49,177.5
Stock options outstanding 0.0 0.0 0.9 0.9 0.9 0.9 0.9
Minority Interest 0.0 0.0 0.5 0.5 0.5 0.5 0.5
Shareholders funds 791.6 2,150.0 4,686.3 14,966.0 22,402.7 33,761.5 51,141.6
Secured loans 1,649.5 3,710.9 12,182.1 18,273.1 24,668.7 30,835.9 37,003.1
Unsecured loans 0.0 11.8 454.4 454.4 454.4 454.4 454.4
Total Loan 1,649.5 3,722.7 12,636.5 18,727.5 25,123.1 31,290.3 37,457.5
Total Liabilities 2,441.1 5,872.7 17,322.8 33,693.6 47,525.9 65,051.8 88,599.1
Gross Block 227.7 258.4 520.5 776.6 1,098.5 1,440.5 1,873.9
Depreciation 65.6 83.2 125.9 185.7 268.9 379.3 526.4
Net block 162.1 175.2 394.6 590.9 829.6 1,061.2 1,347.6
Capital work in progress 6.3 2.9 9.2 9.2 9.2 9.2 9.2
Fixed assets 168.5 178.0 403.8 600.1 838.8 1,070.4 1,356.8
Goodwill on consolidatin 57.6 70.2 209.4 209.4 209.4 209.4 209.4
Investments 0.1 2.1 0.4 1,400.6 1,540.7 1,694.7 1,864.2
Deferred tax assets/(liability) -4.8 5.7 12.5 12.5 12.5 12.5 12.5
Inventory 1,474.3 2,589.6 4,510.4 7,671.4 11,890.7 15,371.3 22,288.5
Projects in progress 731.4 6,174.6 14,571.9 21,918.4 29,726.9 36,891.2 44,576.9
Sundary Debtors 181.2 169.6 116.4 128.1 140.9 154.9 170.4
Cash and bank balances 484.7 1,038.9 1,650.7 8,037.6 11,726.0 21,239.0 32,893.3
Loans and advances 1,770.0 2,022.2 2,951.1 3,688.8 4,426.6 5,311.9 6,374.3
Current assets, loans & advances 4,641.7 11,994.9 23,800.4 41,444.3 57,911.0 78,968.4 106,303.4
Current liabilities and provisions 2,422.9 6,378.4 7,174.2 10,043.8 13,057.0 16,974.0 21,217.5
Net current assets 2,218.7 5,616.5 16,626.3 31,400.5 44,854.1 61,994.3 85,085.8
Miscellaneous Expenditure 0.9 0.3 70.4 70.4 70.4 70.4 70.4
Total Assets 2,441.1 5,872.7 17,322.8 33,693.6 47,525.9 65,051.8 88,599.1
Balance Sheet
Global Research - India Global Investment House
108 India Real Estate Sector Report January 2008
Amount in Rs. Mn
Omaxe Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Operating Income 3,954.7 8,251.5 14,312.7 27,194.1 42,150.8 61,118.7 88,622.1
Income from associates 0.0 0.0 0.1 0.0 0.0 0.0 0.0
Other Income 11.3 52.6 86.4 204.0 316.1 366.7 531.7
Income 3,966.0 8,304.1 14,399.2 27,398.0 42,466.9 61,485.4 89,153.8
Operating cost 3,466.0 6,136.8 10,110.4 16,438.8 25,480.2 36,891.2 53,492.3
Employee cost 47.9 102.8 213.9 411.0 615.8 891.5 1,248.2
Administration cost 137.2 308.4 408.3 767.1 1,189.1 1,537.1 2,228.8
Selling cost 19.0 90.3 103.9 219.2 318.5 461.1 668.7
Depreciation 15.7 22.8 35.9 59.9 83.2 110.4 147.1
Finance cost 16.4 36.2 297.8 1,999.5 2,740.7 3,525.8 4,124.9
Expenditure 3,702.3 6,697.2 11,170.2 19,895.4 30,427.4 43,417.3 61,909.9
Adjusted prot before tax 263.7 1,606.9 3,229.1 7,502.6 12,039.6 18,068.1 27,243.9
Provision for taxation
Total tax 213.4 324.9 789.5 2,498.4 4,009.2 6,016.7 9,072.2
Prot after Tax 50.4 1,281.9 2,439.6 5,004.2 8,030.4 12,051.4 18,171.7
less: minority interest in share of prot 0.0 0.0 -0.01 0.0 0.0 0.0 0.0
Surplus brought forward from previous year 173.2 244.3 1,257.5 0.0 0.0 0.0 0.0
Adjustments -18.1 0.7 0.0 0.0 0.0 0.0 0.0
Prot Available for appropriation 205.5 1,526.9 3,697.1 5,004.2 8,030.4 12,051.4 18,171.7
P&L Appropriation Account
Issue of bonus shares 0.0 167.9 710.5 0.0 0.0 0.0 0.0
Interim dividend 0.0 0.0 116.3 0.0 0.0 0.0 0.0
Proposed dividend 16.5 32.6 0.0 433.9 520.7 607.5 694.3
Dividend tax 2.3 4.6 16.3 60.8 73.0 85.2 97.3
Transfer to debenture redemption reserves 0.0 0.0 882.6 0.0 0.0 0.0 0.0
Transfer to general reserves 6.5 64.3 0.0 1,000.0 2,000.0 3,000.0 4,000.0
Surplus carried to balance sheet 180.2 1,257.5 1,971.4 3,509.5 5,436.7 8,358.8 13,380.1
205.5 1,526.9 3,697.1 5,004.2 8,030.4 12,051.4 18,171.7
Prot and Loss Statement
Global Research - India Global Investment House
January 2008 India Real Estate Sector Report 109
Amount in Rs. Mn
Omaxe Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Operating
Operating
Prot before tax and appropriations 263.7 1,606.9 3,229.1 7,502.6 12,039.6 18,068.1 27,243.9
adjustments for
Depreciation 28.9 32.8 45.1 59.9 83.2 110.4 147.1
Dividend income 0.0 0.0 -24.4 0.0 0.0 0.0 0.0
Interest income -8.7 -18.1 -56.4 0.0 0.0 0.0 0.0
Interest and nance charges 66.6 204.9 1,113.5 1,999.5 2,740.7 3,525.8 4,124.9
Loss on sale of xed assets 0.5 0.2 -0.0 0.0 0.0 0.0 0.0
Provision for doubtful debts, advances and
others
3.1 16.1 12.2 0.0 0.0 0.0 0.0
adjustments -18.1 0.4 0.8 0.0 0.0 0.0 0.0
Deffered revenue and miscellaneous
expenditure written off
0.2 0.6 0.3 0.0 0.0 0.0 0.0
Liabilities written back -0.1 -12.0 -0.5 0.0 0.0 0.0 0.0
Employee compensation expenses 0.0 0.0 0.9 0.0 0.0 0.0 0.0
Prot on sale of investments -0.9 -0.6 -0.3 0.0 0.0 0.0 0.0
Operating prot before working capital
changes
335.3 1,831.1 4,320.4 9,561.9 14,863.4 21,704.3 31,515.9
adjustments for
Inventories -1,353.5 -1,115.2 -1,920.8 -3,161.1 -4,219.3 -3,480.6 -6,917.1
Projects in progress 582.6 -4,538.0 -8,397.3 -7,346.5 -7,808.4 -7,164.4 -7,685.7
Sundry debors 11.5 -4.5 47.7 -11.6 -12.8 -14.1 -15.5
Loans and advances -1,215.0 -339.8 -935.5 -737.8 -737.8 -885.3 -1,062.4
Current liabilities and provisions 1,683.4 2,997.7 512.7 2,869.7 3,013.1 3,917.1 4,243.5
Cash generated from operations 44.2 -1,168.7 -6,372.8 1,174.5 5,098.3 14,077.1 20,078.7
Tax paid 61.1 121.5 761.2 -2,559.2 -4,082.2 -6,101.9 -9,169.6
Net cash generated/used in operating activities -16.8 -1,290.2 -7,134.0 -1,384.7 1,016.1 7,975.2 10,909.2
Cash ow from operations
Investing
Investing
Purchase of xed assets -79.5 -51.8 -273.9 -256.2 -321.9 -342.0 -433.4
sale of assets 2.6 3.8 3.0 0.0 0.0 0.0 0.0
Investment -0.1 -7.1 -5,947.5 -1,400.2 -140.1 -154.1 -169.5
Sale of investment 1.7 5.7 5,949.4 0.0 0.0 0.0 0.0
Goodwill on consolidation -57.6 -12.6 -139.2 0.0 0.0 0.0 0.0
Capital Reserve 72.3 0.0 0.9 0.0 0.0 0.0 0.0
Minority Interest 0.0 0.0 -0.5 0.0 0.0 0.0 0.0
Interest received 8.7 18.1 56.4 0.0 0.0 0.0 0.0
Dividend received 0.0 0.0 24.4 0.0 0.0 0.0 0.0
Net cash from/(used in) investing activities -51.8 -43.9 -327.0 -1,656.3 -461.9 -496.1 -602.9
Financing
Financing
Interest and nance charges -55.8 -186.4 -810.9 -1,999.5 -2,740.7 -3,525.8 -4,124.9
Repayment of long term borrowings -197.6 -486.5 -2,575.5 0.0 0.0 0.0 0.0
Proceeds from long term borowings 399.9 2,508.5 11,474.8 6,091.1 6,395.6 6,167.2 6,167.2
Dividend paid -5.0 -14.4 -172.3 -433.9 -520.7 -607.5 -694.3
Share capital issued -67.0 67.0 0.0 186.1 0.0 0.0 0.0
Share issue expenses 0.0 0.0 -70.4 0.0 0.0 0.0 0.0
Share application money received 319.0 0.0 227.0 5,584.1 0.0 0.0 0.0
Net cash from/(used in) nancing activities 393.5 1,888.2 8,072.8 9,427.9 3,134.2 2,033.9 1,348.1
Net increase/(decrease in cash and cash
equivalents)
324.8 554.1 611.8 6,386.9 3,688.4 9,513.0 11,654.3
Cash and cash equivalents as at beginning
of year
159.9 484.7 1,038.9 1,650.7 8,037.6 11,726.0 21,239.0
Cash and cash equivalents as at end of year 484.7 1,038.9 1,650.7 8,037.6 11,726.0 21,239.0 32,893.3
Cash Flow Statement
Global Research - India Global Investment House
110 India Real Estate Sector Report January 2008
Omaxe Limited
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Protability
- Return on Average Assets 2.32% 30.84% 21.04% 19.62% 19.77% 21.41% 23.65%
- Return on Average Equity 8.08% 87.16% 71.37% 50.93% 42.98% 42.92% 42.81%
- Dividend payout ratio 32.74% 2.55% 4.77% 8.67% 6.48% 5.04% 3.82%
Margins
- Net income/ revenues 1.27% 15.44% 16.94% 18.27% 18.91% 19.60% 20.38%
- Operating prot / revenues 7.46% 20.06% 24.74% 34.90% 35.00% 35.30% 35.35%
Efciency
-Cost to Total Op Income 93.35% 80.65% 77.57% 72.62% 71.65% 70.61% 69.44%
- Staff Expense to Total Op Income 1.21% 1.24% 1.49% 1.50% 1.45% 1.45% 1.40%
Operating Performance
- Growth in Operating Income 39.50%108.65% 73.46% 90.00% 55.00% 45.00% 45.00%
- Growth in operating cost 35.47% 77.05% 64.75% 62.59% 55.00% 44.78% 45.00%
- Growth in manpower cost -6.72%114.52%108.04% 92.17% 49.83% 44.78% 40.00%
- Growth in Financial Expenses 5.53%120.49%723.51% 571.45% 37.07% 28.65% 16.99%
- Growth in PBT 52.94%509.28%100.96% 132.34% 60.47% 50.07% 50.78%
Leverage and coverage
- Debt to Equity 208.37%173.15%269.65% 125.13% 112.14% 92.68% 73.24%
- Financial Expenses to net income 32.57% 2.82% 12.21% 39.96% 34.13% 29.26% 22.70%
RATIOS USED FOR VALUATION
- Shares in Issue (mn) 9.67 77.48 154.95 173.57 173.57 173.57 173.57
- EPS (Rs) 5.21 16.55 15.74 28.83 46.27 69.43 104.70
- Dividend Declared (%) 10.0% 25.0% 30.0% 35.0% 40.0%
- Book Value Per Share (Rs) 81.90 27.75 30.24 86.23 129.07 194.52 294.65
- Market Price Year End (Rs)* 304.95 572.7 572.7 572.7 572.7
- EV/Sales 4.02 2.66 1.78 1.17
- EV/EBIDTA 20.23 12.24 7.58 4.53
- Sales/Asstes 1.62 1.41 0.83 0.81 0.89 0.95 1.01
- Interest Coverage 17.04 45.07 10.96 3.78 4.42 5.16 6.64
- P/E 19.37 19.86 12.38 8.25 5.47
- P/BV 10.08 6.64 4.44 2.94 1.94
* Market Price for FY07 onwards is price on Dec 31, 2007
Ratios
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