India Property: CLSA India Real Estate Access Day

India Property
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Kunal Lakhan CLSA India Real Estate Access Day

kunal.lakhan@clsa.com Top developers targeting 2x sales in three to four years
+91 22 6650 5087
We hosted 11 top developers and two leading Prop Tech companies at CLSA India
Real Estate Access Day 2021. Top developers aim to double their sales over the
next three to four years, benefiting from strong demand, affordability and industry
consolidation. Most of them are targeting strong cash flow generation and aiming
to further reduce debt levels (debt already declined by ~27% in FY21). They also
aim to ramp up new project acquisitions. Rising vacancies mar the near-term
outlook in the office segment; however, it remains positive for the long-term. We
prefer developers who are focused on growth, healthy profitability and prudent
8 July 2021 capital allocation such as Sunteck Realty (BUY), Prestige Estates (BUY), and DLF
(upgrade to BUY from O-PF). Below are the takeaways from the event:
India #1 – Targeting double the sales in three to four years
Property q Top developers aim to double their sales over the next three to four years driven by
Sunteck Realty SRIN IB new launches planned n FY22, 2x FY21’s, and industry consolidation (market share of
Rec BUY the top 10 developers increased to 27% in CY20 from 15-16% in CY18-19).
Market cap US$0.6bn
Price Rs306.95 q There are early signs of prices hikes of 5-10% by a few well-reputed developers (eg
Target Rs425 DLF, Sobha, Mahindra) in the past six months, which have been absorbed by the
Up/downside +38% market, indicating strong demand, especially for reputable developers
Prestige Estates PEPL IB #2 – Increase spending on new acquisitions amid consolidation
Rec BUY
Market cap US$1.5bn q Land prices and deal terms have not yet turned lucrative, but most developers believe
Price Rs287.5 that with no interest moratorium this year (for smaller developers), unlike last year,
Target Rs370 acquisition opportunities could be strong over the next 12-24 months.
Up/downside +29%
q Developers such as Godrej, Lodha (N-R) and Mahindra (N-R) plan to spend significantly
DLF DLFU IB on new project acquisitions over the next two to three years.
Rec O-PF → BUY q Sunteck, Prestige and Brigade (N-R), conversely, will be looking at JD/JV deals.
Market cap US$9.8bn
Price Rs294.85
Target Rs350 →Rs355 #3 – Developers plan to keep balance sheets prudent
Up/downside +20% q The top 10 listed developers have lowered their net debt by ~27% in FY21, despite
lower collections (declined ~16% in FY21), mainly due to cost control.
The Phoenix Mills PHNX IB
Rec BUY → O-PF q Led by strong sales in FY20-21, most residential developers are targeting strong cash
Market cap US$2bn flow generation over the next few years and expect to lower debt levels.
Price Rs847.7
Target Rs970 #4 – Office demand – uncertainty in the near term, but long-term outlook positive
Up/downside +14%
q Large office landlords expect vacancy to increase by 1-2% in 1HFY22, and thereafter
Sobha SOBHA IB decline in 2HFY22. They maintain a positive long-term outlook on office demand.
Rec O-PF q The silver lining is that occupants have started calling their employees back to offices.
Market cap US$0.7bn
Price Rs516.95 Embassy REIT’s management highlighted that a few of its occupants that surrendered
Target Rs550 space earlier are having second thoughts and want to come back.
Up/downside +6%
Sales performance of top 10 listed developers vs. the industry
EMBASSY EMBASSY IB
Rec BUY → O-PF
Market cap US$4.6bn
Price Rs352.58
Target Rs365
Up/downside +4%
Oberoi Realty OBER IB

Rec O-PF
Market cap US$3.2bn
Price Rs654.2
Target Rs640 → Rs670
Up/downside +2%
Godrej Properties GPL IB
Rec SELL
Market cap US$5.5bn
Price Rs1,481.95
Target Rs1,145
Up/downside -23%
www.clsa.com Source: Companies, Anarock, CLSA
CLSA and CL Securities Taiwan Co., Ltd. (“CLST”) do and seek to do business with companies covered in its research reports. As such,
investors should be aware that there may be conflicts of interest which could affect the objectivity of the report. Investors should consider
this report as only a single factor in making their investment decisions. For important disclosures please refer to page 19.
Prepared for - RD: Visible Alpha
CLSA India Real Estate Access Day India Property
We would like to thank Evalueserve for its help in preparing our research reports. Ashit Jain (Consumer), Akshay Chandak (Strategy and Oil & Gas), Ayush Gandhi
(Strategy), Keshub Bhat (IT) and Zen Javeri (Power, Infra and Capital Goods) provide research support services to CLSA.
#1: Targeting 2x sales in three to four years

Figure 1
Pre-sales targets of top developers

Pre-sales (msf) Pre-sales target over 3-4 years
Company name FY20 FY21
Most large developers are
targeting 25-30% Cagr in DLF 24.9 30.8 Rs50-60bn over next 3-4 years
sales Lodha (Macrotech 65.7 59.7 Rs90bn in FY22
Developers)
Godrej Properties 59.2 67.3 Rs100bn in FY23
Prestige Estates 45.6 54.6 Rs65bn in FY22 and Rs80-100bn over next 3-5 years
Sunteck Realty 12.2 10.2 To double in next three years
Mahindra Lifespaces 6.7 7.0 Rs25bn by FY25
Source: Companies, CLSA
Figure 2
New launches targeted by top developers

Well-reputed developers New launches
are likely to dominate the
Company name FY21 Planned in FY22
new supply, which will (msf)
accelerate market share
DLF 1.0 8msf in FY22 and 35msf over next 4 years
gain
Lodha 0.8 More than FY20 - 4-5 projects totalling ~4msf planned
Oberoi 2.0 3-4msf - (Goregaon, Thane, Borivali)
Godrej Properties 8.0 12msf of new launches planned in FY22
Prestige Estates 11.9 32msf over next 2 years
Sobha 3.0 13msf in FY22
Brigade Enterprises 6.0 6-7msf in FY22
Sunteck Realty 1.0 Targeting to launch 3-4 new projects/ phases totalling
~3msf (new locations - Vasai, Vasind, Borivali)
Mahindra Lifespaces 0.9 3-3.5msf certain (of the 4.7msf identified) in FY22
Total 34.6 Planned new launches of 65-70msf in FY22
Price hikes by a few There are early signs of prices hikes of 5-10% by a few well-reputed developers (eg
developers have been DLF, Sobha, Mahindra) in the past six months, which have been absorbed by the
absorbed by the market market, indicating strong demand, especially for reputable developers.
Figure 3
Market share trend of top 10 listed developers
Top developers have

sharply increased market
share over the past 15
months
Source: Companies, Anarock, CLSA
Find CLSA research on Bloomberg, Thomson Reuters, FactSet and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
8 July 2021 kunal.lakhan@clsa.com 2

Figure 4
Sales - Top seven cities (no. of units)

Overall industry sales City FY20 FY21 YoY%
dropped 34% in FY21 NCR 41,330 23,850 (42%)
MMR 70,770 50,760 (28%)
Bangalore 43,500 24,950 (43%)
Pune 35,650 26,810 (25%)
Hyderabad 13,870 10,280 (26%)
Chennai 10,580 7,400 (30%)
Kolkata 12,350 7,390 (40%)
Total - Top seven cities 228,050 151,440 (34%)
Source: Anarock, CLSA
Figure 5
However, sales of top 10 Top 10 listed developer sales (mn sq ft)

listed developers increased Company name FY20 FY21 YoY%
8% YoY in FY21 Godrej Properties 8.80 10.81 23%
Lodha 6.18 5.11 (17%)
Prestige Estates 6.53 8.16 25%
Sobha 4.07 4.01 (1%)
Brigade Enterprises 4.27 4.60 8%
Oberoi Realty 0.66 1.72 160%
Puravankara 2.83 3.43 21%
Kolte Patil 2.51 2.08 (17%)
Sunteck Realty 1.86 0.98 (47%)
Mahindra Lifespaces 1.31 1.07 (18%)
Total - Top 10 listed developers 39.01 41.98 8%
Impact of second wave

Lockdown during the second wave subdued real estate demand. Sales in 2QCY21
decreased by 58% QoQ. However, lessons learned from the first wave, availability
of vaccines and receding fear of the virus helped business in 2QCY21. Sales
increased by 93% YoY (vs first wave). Largely stable property prices across the cities
along with all-time best affordability helped sales to remain buoyant.
Figure 6
Quarterly sales trend in top seven cities

Home sales in 2QCY21
declined 58% QoQ but were
up 93% YoY

Figure 7
Sales recovered to pre- City-wise sales trends in 1HCY21

Covid levels in 1QCY21
Figure 8
Well-reputed developers Illustration of outperformance by Sobha in the second wave

continue to outperform the
underlying market
Source: Sobha, Anarock, CLSA

#2: Ramp up in new project acquisitions

Land prices and deal terms have not yet turned lucrative, but most developers
believe that with no interest moratorium this year (for smaller developers), unlike
last year, acquisition opportunities could be strong over the next 12-24 months.
Developers such as Godrej, Lodha (N-R) and Mahindra (N-R) plan to spend
significantly on new project acquisitions over the next two to three years. Sunteck,
Prestige and Brigade (N-R), conversely, will be looking at JD/JV deals.
Figure 9
New project acquisition targets

Top developers are Company name New acquisition strategy
targeting sizeable new Godrej Properties Plan to spend Rs37bn of equity raised towards new acquisitions over next two
acquisitions amid industry years
consolidation Lodha To spend Rs25-30bn over next three years; JDA (Rs15-20bn) and owned
(balance)
Oberoi Realty No planned acquisitions, but it is likely to generate significant cash flow from
complete and near-complete projects, which can be deployed for growth
Prestige Estates It has turned net cash positive; plan to do JDA/JVs and land purchases
Phoenix Mills It has Rs35bn of liquidity to be used for new acquisitions in tier 1 cities
Brigade It plans to tie up more land, especially in Chennai and Hyderabad
Enterprises
Sunteck Realty It will continue to be aggressive in new acquisitions using JDA approach
Mahindra It plans to spend Rs5bn per annum on buying four to five land parcels
Lifespaces
#3: Prudency is key for balance sheets

The top 10 listed developers have lowered their net debt by ~27% in FY21, despite
lower collections (declined ~16% in FY21), mainly due to cost-control measures.
Benefiting from strong sales in FY20-21, most residential developers are targeting
strong cash flow generation over the next few years and expect to lower debt levels.
Figure 10
Top 10 developers have Debt reduction by top developers in FY21

reduced their net debt by
~27% in FY21

Figure 11
Leverage trend of top 10 developers
We assess the new acquisition strategies of developers vis-à-vis the size of their
existing land banks, their leverage and cash flow generation. We thus believe
companies such as Sunteck, Prestige Estates, Oberoi Realty and Mahindra
Lifespaces are being prudent in their acquisition strategies in terms of capital
allocation.
Figure 12
Comparison of land acquisition strategies

Company name Existing portfolio/ Annual pre-sales No. of years of CFO Net D/E (x) Land bank strategy
Land bank (msf) (msf) land bank
DLF 200 3.0 67 6.1 0.4 No planned land acquisition
Godrej Properties 187 10.8 17 4.9 (0.1) Asset-heavy
Lodha 360 5.1 70 3.6 1.9 Mixed
Oberoi Realty 16 1.7 9 7.0 0.1 Asset-heavy
Prestige Estates 82 8.2 10 4.8 0.2 Asset-light
Sobha 200 4.0 50 3.6 1.2 Asset-light
Sunteck Realty 8 1.0 8 2.0 0.2 Asset-light
Brigade Enterprises 36 4.6 8 5.5 1.2 Mixed
Mahindra Lifespaces 10 1.1 10 2.0 0.1 Asset-heavy
Source: Companies, CLSA; Note: Red colour above highlights a negative trait, whereas green colour highlights a positive trait, in our opinion
#4: Office demand subdued in the near term

While enquiries, requests for proposals (RFPs) and site inspections all increase in
1QCY21, the market became subdued after the Covid second wave. Recent
enquiries are driven by smaller tenants. Larger tenants will take decisions based on
their global strategy, which most likely will be more settled by 2HFY22. In the
interim, large office landlords expect vacancies to increase by 1-2% in 1HFY22, and
thereafter to start picking up in 2HFY22. However, they maintain a positive outlook
on office demand for the long term.
The silver lining is that occupants in the office parks have started calling their
employees back to offices. Embassy’s management highlighted that a few of its
occupants that had surrendered space earlier are having second thoughts and want
to come back.

Office market – 2QCY21 performance

India’s net office absorption stood at 4.39msf in the second quarter, representing
32% YoY growth in major cities, according to JLL. Because of the strict nationwide
lockdowns across the country in the second quarter, net absorption dipped by 16%
vs the previous quarter. However, the QoQ drop was lower than the 61% during
the same period last year when the first wave of the pandemic hit, which shows the
market’s improved resilience.
Figure 13
Office space absorption

City 1QCY20 2QCY20 QoQ 1QCY21 2QCY21 QoQ
(msf) (msf) (%) (msf) (msf) (%)
Absorption declined less in
the second wave than the Bengaluru 2.7 0.5 (83%) 2.2 2.3 5%
first wave Chennai 0.9 0.1 (90%) 0.4 0.1 (70%)
Delhi NCR 1.6 0.5 (68%) 1.1 0.6 (43%)
Hyderabad 0.9 1.2 29% 0.8 - -
Kolkata 0.0 - - 0.0 0.0 (60%)
Mumbai 2.1 0.5 (79%) 0.2 0.6 149%
Pune 0.4 0.6 77% 0.5 0.7 43%
Total 8.6 3.3 (61%) 5.2 4.4 (16%)
Source: JLL
New completions in 2QCY21 were recorded at 11.67msf, more than double than
those in 2QCY20. During the first wave of Covid-19, new completions took a hit
due to the unavailability of labour. The robust new completion level in 2QCY21
indicates that construction activity was not impacted significantly during the
second wave.
Figure 14
Office space supply

City 1QCY20 2QCY20 QoQ 1QCY21 2QCY21 QoQ
Supply has not been
(msf) (msf) (%) (msf) (msf) (%)
impacted significantly in the
Bengaluru 3.4 - - 4.3 5.2 20%
second wave
Chennai 0.5 - - - 0.5 -
Delhi NCR 1.9 1.94 0% 4.0 1.2 (70%)
Hyderabad 1.4 2.38 77% 2.2 1.6 (25%)
Kolkata - - - - - -
Mumbai 0.8 1.45 73% 2.2 2.5 16%
Pune 0.6 - - 0.7 0.6 (17%)
Total 8.6 5.77 (33%) 13.4 11.7 (13%)
Source: JLL
Due to a steady pipeline of assets coming online, the demand-supply gap has
momentarily widened. Vacancy levels across the top seven markets rose to nearly
16% at the end of 2QCY21, breaching the comfort zone of 13-14% for the first time
since 2017.

Figure 15
Vacancy levels are the Vacancy in Grade A office space

highest in the past four
years
Source: JLL
Office rentals remained stable across the major office markets in India in 2QCY21.
However, landlords continue to accommodate the demands of occupants and
support closure of deals. With vacancy levels already hovering at around 16%, the
next few quarters will be critical to see if pick-up in demand can maintain market
buoyancy as planned supply enters the market.
#5: Increased dependence on Prop Tech

A decade ago, a prop tech platform would mean only listing of properties and
revenue driven by advertising. Today prop tech companies offer high end solutions
like virtual property tours using VR tech, site and location visits using drones, virtual
fit outs, etc. These services have gained importance during the pandemic, when
buyers are unable to do site visits and physical evaluation. Most developers have
made extensive use of digital technologies and strengthened their systems so they
can continue to engage with customers even during lockdowns.
The Virtual Residential Demand Index is a barometer to gauge online consumer

interest for buying residential properties. The index has been moving north,
especially after lockdowns, owing to pent-up demand, the festive season and still-
prevalent social distancing norms that have encouraged buyers and renters to move
towards digital platforms.

Figure 16
More consumers are using Virtual demand index – Top eight cities
online platforms for their
property purchases or
rentals
Source: Housing.com
Figure 17 Figure 18
Homebuyer – Timeline of purchase Impact of work from home
Source: Housing.com survey Source: Housing.com survey
As the pandemic has given the market an impetus to explore online business
platforms, Housing.com’s survey suggests that a majority (60%) of the respondents
were willing to explore such platforms to both buy and rent a home. Although the
initial process of buying or renting a home may start online, 47% of respondents
were willing to close the deal after multiple site visits. However, a significant 37%
of respondents were willing to close the deal after one site visit or close it entirely
online.

Figure 19
Is India ready to buy homes online?

About 37% of buyers are
willing to close the deal
after one site visit
Source: Housing.com survey
Company section
DLF
DLF DLFU IB Key takeaways from interactions

Rec O-PF → BUY q Sales have dropped sharply in April and May 2021, but have revived sharply in June. It
Market cap US$9.8bn expects sales to be significantly better YoY in 1QFY22.
3M ADV US$35.0m
Price Rs294.85 q It is confident of achieving sales guidance of Rs40bn for FY22, despite the impact of
Target Rs350→Rs355 the second wave.
Up/downside +20% q Property prices in certain micro markets in Gurgaon have increased by 10-30% in the
past six months. DLF has hiked prices of ~20% in its second phase of its independent
floors project and the market has absorbed the price hike.
q It is operating at 85-90% of labour capacity at all sites in NCR and Chennai.
q However, it is facing some delays on approvals in NCR, which may impact new
launches.
q Cash flows: Ready inventory will generate significant cash flow. Cost will be managed,
new product launches will be cash-neutral in year one and cash positive in year two.
q It is confident of reducing net debt this year as well.
q It is currently evaluating two opportunities in stressed acquisitions (NCLT cases) in
NCR, one of them is an advanced stage.
q Change in leadership team – about 50% of the team members are new (procurement
head, marketing head, IT head).
q Impact of hybrid model: The IT sector accounts for ~70% of its tenants; IT was already
operating with 10% of employees working from home or remotely pre-Covid. It is not
seeing any impact on demand from large and mid-size tenants, who are not giving away
their office space.
q Impact of de-densification: Current density is 70-80 sq. ft. per employee, post de-
densification it could be 100-120 sq. ft., which is offsetting any slowdown in demand.
q Gross lease expirations in FY22 are 2msf (the same as in FY21), of which it is confident
of releasing ~80% (same as in FY21).
q It expects vacancy levels to increase by 1-2% in 1HFY22, and thereafter to start
picking up in 2HFY22. It maintains a positive outlook on office demand for the long
term.
q Malls: It has not yet renegotiated rents with retailers, but will do so in the next couple
of weeks.

Figure 20
SoTP Valuation
Business segment Valuation basis Stake (%) Equity value (Rs Rs per
bn) share
Residential business
- Residential projects DCF, WACC of 12% 100% 69 27.7
- Land bank 30% discount to 100% 464 187.5
market value
Commercial/ retail business

- DCCDL Cap rate of 8% 67% 285 115.1
- Standalone rental business Cap rate of 8% 100% 30 12.1
Other annuity business

- Services maintenance and power EV/EBITDA of 10x 100% 4 1.5
generation
- F&B and facilities management EV/EBITDA of 10x 100% 27 11.0
Total 878 355

Source: CLSA
Figure 21
Option value from REIT listing of DCCDL portfolio

Based on an implied Particulars (Rs bn)
aggregate cap rate of 6.6% Exit rental and service income of DCCDL (Mar-23) 47
for REITs, DLF should be able Implied cap rate of REITs (FY23 NOI) (%) 6.6%
to unlock significant value EV of DCCDL's rental business (Mar-22) 712
from a REIT listing of DCCDL Value of DCCDL's land bank 107
Less: balance capex 3
EV of DCCDL 815
PV of EV (Mar-22) 727
Net debt in DCCDL 189
Equity value of DCCDL 538
DLF's stake in DCCDL (%) 66.7%
Value of DLF's stake in DCCDL 359
Option value from REIT listing 74
Option value per share (Rs) 30
Source: CLSA
Embassy REIT
Key takeaways from interactions

EMBASSY EMBASSY IB q Tenants in the office parks have started calling their employees back to offices.
Rec BUY → O-PF
q A few occupants that surrendered space are having second thoughts and want to
Market cap US$4.6bn
3M ADV US$4.3m return.
Price Rs352.58 q It will announce some new leasing in 1QFY22; however, acceleration in demand will
Target Rs365 come towards the end of this year.
Up/downside +4%
q It may give NOI and DPU guidance with 1QFY22 results due to improved visibility.
q It expects 1.4msf of exits (~4% of rental income) in FY22, in line with normal churn.
q Vacancy may increase slightly in 1HFY22, but will improve towards the end of the
year.

Figure 22
SoTP valuation
Project name Location EOP REIT's Enterprise EOP REIT's
stake value stake in EV
(%) (Rs bn) (Rs bn)
Embassy Manyata Bangalore 100% 188 188
Embassy Tech Village Bangalore 100% 88 88
Express Towers Mumbai 100% 19 19
Embassy 247 Mumbai 100% 16 16
FIFC Mumbai 100% 14 14
Embassy Techzone Pune 100% 36 36
Embassy Quadron Pune 100% 14 14
Embassy Qubix Pune 100% 11 11
Embassy Oxygen Noida 100% 25 25
Embassy Galaxy Noida 100% 10 10
Embassy One Bangalore 100% 5 5
Hilton at Embassy Golflinks Bangalore 100% 1 1
Embassy Energy Bellary District, 100% 13 13
Karnataka
Total (100% owned assets) 442 442
Embassy Golflinks Bangalore 50% 63 32
Total EV 506 474
Less: Net debt (100% owned assets) 100% 100 100
Less: Net debt of Embassy Golf Links 50% 3 2
Less: PV of redemption premium on zero coupon NCDs 10 10
Less: Security deposits (incl. 50% of Golf Links) 16
Total equity value (Mar-22) 346
Units O/S (m) 948
Target price (Mar-22) (Rs/ share) 365
Source: CLSA
Godrej Properties

q Pick-up in sales volume is a couple of quarters away. Although cost inflation is present,
Godrej Properties GPL IB
Rec SELL
price hikes will depend on how Covid plays out.
Market cap US$5.5bn q It is targeting sales of Rs100bn in FY23 (from Rs65bn in FY21).
3M ADV US$14.0m q Currently, it is a unique opportunity for consolidation – there is stress on the supply
Price Rs1,481.95 side (developers), but at the same time the demand environment has improved.
Target Rs1,145
Up/downside -23% q Margin continues to be low due to the accounting policy. Expect margin to improve
from FY23 as newer projects start to hit revenue recognition.
q Earlier target of 20% RoE over next four years is not delayed to seven to eight years
because of the increased equity base due to the recent QIP.
q Deals in the market for project acquisition are not yet attractive, but it expects
significant opportunities will come up in FY22 due to liquidity challenges for the
sector.
q Aggressive land acquisition strategy: It plans to fully deploy Rs37bn in equity funds
raised in 4Q towards new project acquisitions over FY22-23.

Figure 23
SoTP valuation
Sale business (ex- Vikhroli land)
FY23 pre-sales (Rs bn) - ex Vikhroli 79 FY20 Rs59bn; Vikhroli (Mumbai)
valued separately
Assume steady state PAT margin (%) 10 Rising project stakes/JV project
share; Base fee/JV margins at 8-12%
Steady state PAT (Rs bn) 7.9
Target PAT multiple 35.0
Equity value business - ex Vikhroli (Rs bn) 277
Per share value of business ex Vikhroli (A) 1,098
Value of Vikhroli land

Assume annual development (m sf) 0.25 Have about 50-100m sf
Average sales price (Rs/sf) 22,500 Trees selling price
Revenue share of GPL 10% As per agreement
Annual revenues to GPL (Rs bn) 0.6
Costs incurred (% of revenues) 2.0% Sales and marketing costs only
Net annual PAT stream to GPL (Rs m) 0.3 25.17% tax rate assumed
Target PAT multiple 35.0 Same as above
EV of Vikhroli land (Rs bn) 12
Per share value of Vikhroli (B) 47
SoTP value for Godrej Properties (A+B) 1,145
Source: CLSA
Macrotech Developers (Lodha) – Not Rated

q It is targeting sales of Rs90bn, Rs100bn and Rs130-140bn for FY22, FY23 and FY24,
respectively, (from Rs60bn in FY21).
q Currently, it is present in only three micro markets out of the seven micro markets of
MMR. It plans to expand into these new micro-markets, which have sales potential of
Rs700bn (including Pune). It aims to achieve market share of at least 10% (sales of
Rs70bn) and thus can double its sales velocity.
q Its deleveraging target is Rs100bn by FY22, Rs60bn by FY23 and net cash by FY24
(from Rs125bn currently)
q It plans to spend Rs25-30bn towards new project acquisitions, of which Rs15bn-20bn
will spent towards acquiring JDAs and balance Rs5bn-10bn on outright purchase of
land.
q Change in land acquisition strategy: It will acquire mid-size projects with maximum of
two phases and monetization timeline of five to six years vs its historical strategy of
acquiring large projects where profitability goes out over a decade.
q It is confident of achieving ~350 acres of industrial land monetization annually. It is
seeing good enquiries from building materials, manufacturing, logistics, banking (MS),
pharma and ecommerce players.
Oberoi Realty
Oberoi Realty OBER IB Key takeaways from interactions

Rec BUY → O-PF
Market cap US$3.2bn q April and May were a washout, but it has seen revival from June onwards.
3M ADV US$4.9m q Expect significant ramp-up in sales over the next two to three years led by strong
Price Rs654.2 sustenance sales driven by its ready and near-ready inventory (Worli, Mulund, Borivali)
Target Rs640→Rs670
Up/downside +2%
and new launches (Thane and Goregaon III).
q It does not intend to take any price hikes as (1) margins on its projects remain healthy
despite increase in costs and (2) it does not want to impact demand momentum.
q Strong cash flow generation from sale of ready/ near-ready inventory will encourage it
to go for new land acquisitions. However, it will maintain caution and acquire projects
based on merits.

q It will look at acquiring relatively smaller land parcels (compared to its existing large
projects) to ensure faster churn of projects.
Figure 24
SoTP Valuation
Business segment Valuation basis Total value (Rs Rs per
bn) share
- Ongoing projects DCF, WACC of 12% 79.8 219.5
- Forthcoming projects/ land DCF, WACC of 12%/ market value of 61.8 170.0
bank land

- Operational projects Cap rate of 8% for office & 8.5% for mall 34.6 95.2
- Under-construction Cap rate of 8.5% for office & mall 74.2 204.1
projects
Hospitality business
- Operational projects EV/ EBITDA of 6x 1.8 4.8
- Under-construction Valued at purchase cost 5.4 14.9
projects
Less: Net debt (13.8) (38.0)

Total 243.8 670
Source: CLSA
Phoenix Mills

q Performance of its Pune mall after opening up in June was similar to the Jan-Feb
performance.
q It has not yet renegotiated rentals with its tenants, but mostly the terms will be similar
to last year or better (for Phoenix).
q After deals with CPPIB and GIC, it has liquidity of Rs35bn through which it has de-
Phoenix Mills PHNX IB risked its business as these funds are adequate to fund construction of its planned
Rec BUY → O-PF portfolio.
Market cap US$2bn
3M ADV US$2.4m q Also, such liquidity will allow it to do new acquisitions. It is looking at new markets in
Price Rs847.7 north and east India.
Target Rs970 q Debt levels may remain steady in FY22, but cost of borrowing, which is currently at
Up/downside +14% 8.17%, will continue to decline to below 8% in 1HFY22.

Figure 25
SoTP Valuation
Business segment Valuation basis Equity value (Rs bn) Rs per share
Malls
- Operational Cap rate of 6.2-7.0% 109.2 635
- Under-construction Cap rate of 8.5% 37.0 215
Offices
- Operational Cap rate of 8.5% 7.5 43
- Under-construction Cap rate of 9.5% 0.6 3
- Operational projects EV/ EBITDA of 6x 0.3 2
Residential business DCF; WACC of 12% 12.2 71

Total 166.7 970
Source: CLSA
Prestige Estates
Prestige Estates PEPL IB Key takeaways from interactions

Rec BUY q It is targeting pre-sales of Rs65bn in FY22 and Rs80-100 over the next three to five
Market cap US$1.5bn years.
3M ADV US$2.6m
q Operations were severely impacted in April-June 2021, but sales will be higher
Price Rs287.7
Target Rs370 compared to same quarter last year.
Up/downside +29% q Despite a slow 1QFY22, it is confident of achieving 20% sales growth in FY22 driven
by faster unlocking this year due to vaccinations and contribution from new high-value
markets such as Mumbai starting from FY22.
q It plans to launch two new projects in Mumbai - Jasden Classic (Mahalaxmi) and
Prestige Cosmos (Mulund) - in FY22. Jijamata Nagar project will be launched in FY23.
q Ebitda margin to improve going ahead as newer projects will have better margin of 25-
30%.
q Proceeds from phase two of the deal with Blackstone will be received in one to two
months. That will lower debt further by Rs16bn, turning it into a net cash company.
Figure 26
SoTP Valuation
Business segment Valuation basis Total value (Rs bn) Rs per share
- Ongoing projects DCF, WACC of 12% 32.2 80
- Forthcoming projects DCF, WACC of 14% 29.9 75
- Land bank 50% discount to market 12.0 30
value

- Operational projects Cap rate of 8% 34.4 86
- Under-construction projects Cap rate of 8.5% 52.2 130
- Operational projects EV/ EBITDA of 6x 6.3 16
- Under-construction projects No value assigned - -
Property management services P/E of 12x 4.2 11

Less: Net debt (Mar-22) 22.9 57
Total 148.3 370
Source: CLSA

Sobha
Sobha SOBHA IB Key takeaways from interactions

Rec O-PF q Property transactions have slowed down, lockdowns over the weekend have reduced
Market cap US$0.7b
3M ADV US$3.0m site visits.
Price Rs516.95 q It plans to launch ~13msf in FY22.
Target Rs550 q It aims to reduce debt by Rs1.5bn-2bn in FY22.
Up/downside +6%
q It will not look at new land acquisition until the net D/E reaches 1x (currently at 1.17x).
q Not many acquisition opportunities are available at distressed valuation - competitors
are buying land by paying top dollar due to the equity raised and it believes they are
making the same mistake of 2007-08 (which led to amassing huge land banks that were
not ready for monetization).
q Impact of work from home (WFH): It will not have an impact on domestic IT
companies. However, MNCs may ask significant portion of individual contributor
employees to WFH. And since 70-80% of employees are individual contributors, it will
have an impact on office space demand.
q It will expand into cities outside Bangalore, which will lead to sales and launches. The
contribution from Bangalore should fall to 50% over the next five years (from 65-70%
today).
q Promoter’s pledge is an old pledge done in 2012, mainly due to borrowing towards
Dubai project. Promoter’s plan is to retire the pledge in three to four years.
Figure 27
SoTP valuation
Business segment Valuation basis Total value (Rs bn) Rs per share
- Ongoing projects DCF, WACC of 12% 29.7 313
- Land bank At 35% discount to market 39.2 414
value
Contracts and manufacturing EV/ EBITDA of 10x 11.8 124

business
Less: Net debt (Mar'22) (28.5) (301)

Total 52.2 550
Source: CLSA
Sunteck Realty
Sunteck Realty SRIN IB Key takeaways from interactions

Rec BUY q It plans to more than double sales to Rs25bn over the next three years (vs Rs10bn in
Market cap US$0.6bn FY21).
3M ADV US$2.6m q It plans to launch new projects and phases in Vasai, Vasind and Naigaon in FY22.
Price Rs306.95
Target Rs425 q It targets IRR of 25% on new project acquisitions.
Up/downside +38% q It will continue to pursue land acquisitions in MMR via an asset-light JDA approach.
Focus will be on middle-income to affordable products.
q It expects strong cash generation due to its ready inventory and will continue to
reduce debt and borrowing cost as well.
q It maintains brand-wise Ebitda margin targets of:-
o Sunteck World 22-25%
o Sunteck City 30-35%
o Signature 45%+
o Signia 40-45%

q It will pay an upfront FSI premium in FY22 to take advantage of 50% cut in the
premium rates by the state government, which will result in overall savings of Rs2.5bn
on premium costs and also result in improved margins.
Figure 28
NAV
(Rs bn) Area (msf) Expected net Monetization period NPV
cash flow (no. of years)
BKC projects
Signature Island 0.7 7.5 5.0 5.6
Signia Isles 0.4 1.1 2.0 1.0
Signia Pearl 0.4 3.3 3.0 2.8
Sub-total 1.5 11.9 10.0 9.4
Goregaon (ODC) projects

Sunteck City - Avenue 1 & 2 1.4 4.3 3.0 3.9
Sunteck City - Avenue 4,5 &6 5.9 49.4 6-10 25.1
Sub-total 7.2 53.8 3.0 29.0
Naigaon project 12.0 11.3 9.0 8.1

Vasai project 4.5 11.7 8.0 7.5
Borivali West project 1.0 3.9 5.0 2.9
Others 4.3 13.7 2-6 12.8
Total EV 30.5 106.3 69.8
Less: Net debt 7.6
Equity value 62.2
Shares O/S (mn) 146.4
Equity value per share (Rs) 425
Source: CLSA
Brigade Enterprises (BRGD IN) – Not Rated

q Office demand: While it was experiencing increased momentum in enquiries, RFP
releases and site inspections, the market has gone into hibernation mode after the
second Covid wave. Enquiries are currently driven by smaller tenants. Larger tenants
have more propensity for the hybrid model; they will take decisions based on their
global strategy.
q Residential demand: The IT sector, which is a major contributor to the Bangalore
economy, will do well and hence residential demand will be sustainable. There is strong
inherent demand and customers are a lot more confident this time compared to the
last wave.
q Malls: It was able to get 25-50% of the minimum guaranteed (MG) rental. Once the
lockdown is over, it has a slab structure – for example, if the retailers did about 75% to
100% of pre-Covid sales, then it would charge them 100% of the MG. If it was
between 50-75%, it would be 75% of the MG, etc. It plans to follow a similar structure
as last time.
q Debt: It has already been reducing debt continuously in residential, so it does not
expect a major debt increase in the residential or hospitality segment. There will be an
increase in debt in the commercial segment due to capex.
q It is currently operating at 80-85% of labour strength. That has had no major impact on
newly launched projects, but projects near completion will be impacted. Labour
migration is not just due to the second Covid wave, but also that labourers have gone
back to their hometowns for farming, elections, etc.

Mahindra Lifespaces (MLIFE IN) – Not Rated

q It aims to increase sales 3x to Rs25bn by FY25.
q It is looking to spend Rs5bn annually on acquiring three to four new projects with sales
potential of Rs20bn. Focus markets would remain MMR, Pune and Bangalore.
q The M&M group is looking to monetize land that is not core to its larger businesses
(auto, IT). However, such land transactions will be done at arm’s length, in line with the
group’s goal of achieving RoE of 18%.
q Industrial cluster business will be cash flow positive as most spending towards land,
approval and coordination cost is done and it will only have to incrementally spend on
the development cost, which is not very significant.
q Labour: It was operating at 80-90% of pre-Covid levels in 4Q, but the second lockdown
brought it down to ~60%, which put the brakes on construction activity in 1QFY22
Housing.com (Unlisted)

q The Virtual Residential Demand Index, a barometer of online consumer interest for
buying residential properties, has been moving north, especially after lockdown, owing
to pent-up demand, the festive season and still-prevalent social distancing norms that
have encouraged buyers and renters to move towards digital platforms.
q Its survey suggests that ~78% of prospective home buyers want to purchase within
one year.
q Also, ~47% of respondents want to upgrade to larger homes due to WFH.
q Its survey also suggests that a majority (60%) of the respondents were willing to
explore such platforms to both buy and rent a home. Although the initial process of
buying or renting a home may start online, 47% of respondents were willing to close
the deal after multiple site visits. However, a significant 37% of respondents were
willing to close the deal after one site visit or close it entirely online.
CLSA Webinar: Housing.com (video)

Mumbai-based real estate search portal Housing.com has 6,000 brokers on
its platform and serves 40 cities in India. It is one of the fastest growing
players in the online property space. Join COO Mani Rangarajan as he
discusses outlook and strategy.
Propstack (Unlisted)

q It has seen a drop in rental transactions and increase in purchase transactions –
indicating strong demand for home ownership.
q About 60-70% of home buyers are selling their existing homes and upgrading, so there
is an interesting opportunity in the resale housing (secondary) market.
q Prices have increased at least 10-15% in the last six months, but it is more of a
recovery as prices had also fallen 9-12 months back during the first Covid wave.
q It has seen about a 30% decline in number of site visits before closing the transaction
as customers are tapping digital channels to do all the research on the project.
q While it is logical for developers to take services or collaborate with prop tech
companies, it has not seen major steps in that direction due to the unorganized nature
of the industry.
CLSA Conference call: Propstack (audio)
Propstack is India’s leading real estate data and workflow solutions
platform, with access to property transaction data totalling over 1bn
square feet. Listen to cofounder Shubhankar Dongre as he provides
insights on the company and industry.

Important disclosures India Property
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Companies mentioned
Brigade Enterprises Ltd (N-R)
DLF (DLFU IB - RS294.9 - O-PF)
Embassy REIT (EMBASSY IN - RS352.6 - BUY)
Godrej Properties (GPL IB - RS1,482.0 - SELL)
Housing.com (N-R)
Kolte Patil Developers Ltd (N-R)
Lodha International (N-R)
Macrotech (N-R)
Mahindra Lifespace (N-R)
Oberoi Realty (OBER IN - RS654.2 - BUY)
Phoenix Mills (PHNX IN - RS847.7 - BUY)
Prestige Estates (PEPL IN - RS287.5 - BUY)
Propstack (N-R)
Puravankara (N-R)
Sobha (SOBHA IS - RS517.0 - O-PF)
Sunteck Realty (SRIN IN - RS306.9 - BUY)
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India Property

Kunal Lakhan CLSA India Real Estate Access Day

Oberoi Realty OBER IB

www.clsa.com Source: Companies, Anarock, CLSA

#1: Targeting 2x sales in three to four years

Pre-sales targets of top developers

New launches targeted by top developers

Market share trend of top 10 listed developers

Top developers have

Source: Companies, Anarock, CLSA

8 July 2021 kunal.lakhan@clsa.com 2

Sales - Top seven cities (no. of units)

However, sales of top 10 Top 10 listed developer sales (mn sq ft)

Impact of second wave

Quarterly sales trend in top seven cities

Source: Anarock, CLSA

8 July 2021 kunal.lakhan@clsa.com 3

Sales recovered to pre- City-wise sales trends in 1HCY21

Source: Anarock, CLSA

Well-reputed developers Illustration of outperformance by Sobha in the second wave

Source: Sobha, Anarock, CLSA

8 July 2021 kunal.lakhan@clsa.com 4

#2: Ramp up in new project acquisitions

New project acquisition targets

#3: Prudency is key for balance sheets

Top 10 developers have Debt reduction by top developers in FY21

Source: Companies, CLSA

8 July 2021 kunal.lakhan@clsa.com 5

Leverage trend of top 10 developers

Source: Companies, CLSA

Comparison of land acquisition strategies

#4: Office demand subdued in the near term

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Office market – 2QCY21 performance

Office space absorption

Office space supply

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Vacancy levels are the Vacancy in Grade A office space

#5: Increased dependence on Prop Tech

The Virtual Residential Demand Index is a barometer to gauge online consumer

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Homebuyer – Timeline of purchase Impact of work from home

Source: Housing.com survey Source: Housing.com survey

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Is India ready to buy homes online?

Source: Housing.com survey

DLF DLFU IB Key takeaways from interactions

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Commercial/ retail business

Other annuity business

Total 878 355

Option value from REIT listing of DCCDL portfolio

Key takeaways from interactions

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Key takeaways from interactions

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Value of Vikhroli land

Macrotech Developers (Lodha) – Not Rated

Key takeaways from interactions

Oberoi Realty OBER IB Key takeaways from interactions

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Commercial/ retail business

Less: Net debt (13.8) (38.0)