IIFL - Lodha Developers - 20170220

Lodha Developers (Unlisted)
Printed Report
20 February 2017 Institutional Equities
'Banking' on Mumbai Market

DD MMM YYYY
Lodha Developers (LDPL), the largest real estate developer in Figure 1: Strong Revenue Cagr of 30% over FY12‐16
India by sales value, is primarily focused on residential
development. More than 90% of its sales, projects, and land (Rs bn) Revenue
bank are located in the Mumbai Metropolitan region (MMR). 100
LDPL has set an aggressive target of more than doubling
turnover over the next five years. Despite the challenging 80
30% Cagr
demand environment in the near term, we believe LDPL is well
placed given the strong growth drivers in the long term. 60
Strong project pipeline and land bank to support long-term
growth: LDPL has more than 90mn sq. ft. of projects planned. Out of 40
this, an ongoing 41mn sq. ft. are at various stages of completion and
LDPL will execute an upcoming 51mn sq. ft. over the next 5-10 years 20
(largely in MMR). Beyond this, it has more than 390mn sq. ft. of high-
quality contiguous developable area in the extended suburbs of Mumbai. 0
LDPL’s strong brand, aggressive sales strategy, and robust execution FY12 FY13 FY14 FY15 FY16
capability should ensure strong cash flow and earnings. Source: Company, IIFL Research
Balance sheet health to improve as execution gathers pace:

Figure 2: Net debt tripled over last 5 years on land capex of Rs102bn
LDPL’s operations have been cash-neutral-to-positive over the past five
years, underpinned by robust growth in customer collections. Despite (Rs bn) Net debt
this, its debt levels have tripled over this period due to aggressive land 160
buying. LDPL plans to deleverage by: 1) increasing focus on execution
140
to accelerate collections; 2) monetizing completed or near-complete
inventory of Rs60bn; 3) moderating its capex in land; and 4) reducing 120
its borrowing costs. In the near term, however, demonetisation could 100
delay deleveraging until sales momentum recovers. 80
Brighter days ahead for organized players; Mumbai remains the 60
best bet: Reforms initiated by Government will help organized players
40
to gain market share in the medium-to-long term and reduce
competition from small unorganized players due to increased cost of 20
compliance and financing. Mumbai, the largest real estate market in 0
India, enjoys the highest pricing premium, given strong demand for FY12 FY13 FY14 FY15 FY16
housing amid supply constraints. LDPL is well positioned to benefit from Source: Company, IIFL Research
the region, given its dominant market share in MMR and its diversified
360 degree offering from affordable to luxury housing.
Mohit Agrawal mohit.agrawal@iiflcap.com | |

91 22 4646 4675
Institutional Equities Lodha Developers
About Company Figure 3: Largest market share in Mumbai
FY16 Sales value (Rs bn)

Lodha Developers (LDPL) was established in Mumbai in 1980 by Mr.
Mangal Prabhat Lodha, a sitting MLA from Mumbai. LDPL delivered over
10 mn sq. ft. of low income affordable housing in the extended suburbs
of Mumbai (part of MMR now) from 1980s to 2002. The current LDPL,
managing director, Mr. Abhishek Lodha, joined the company in 2003. 65
Mumbai
Rs636 bn
LDPL started aggregating land parcels in suburbs and extended suburbs
of Mumbai such as the Kalyan-Dombivali and Thane regions since the
mid 90’s. In the mid-2000s, LDPL turned aggressive in buying land
parcels and projects across Mumbai through the auction route
Other,
(especially in central Mumbai) from government companies and private
571
developers. Its first big project launch was Lodha Bellissimo in 2006,
one of India’s first ‘by invitation only project’. Some of LDPL’s notable Source: Bloomberg, Liases Foras, Company, IIFL Research.
achievements include construction of the world’s tallest residential
tower (World One), striking the most valuable land deal in India (for Figure 4: Largest player in India by Sales
Rs41bn in Wadala, Mumbai), and launching India’s first greenfield smart FY16 Sales Value* Rs bn
city, Palava, that spans 4,000 acres. In FY14, the company went
Lodha Developers 65
international, acquiring two projects in London.
Godrej Properties 50
LDPL delivered more than 35mn sq. ft. until date, largely across DLF 32
Dombivali (including Palava), the eastern suburbs of Mumbai and Prestige Estates 31
Central Mumbai. Currently, it has 28 ongoing and 21 planned projects Source: Company, IIFL Research. * Gross Sales reported by Company.
with saleable area of more than 90mn sq. ft., spread across MMR,
London, Pune, and a few other cities in India. It has the largest land Figure 5: Scale of operations
bank by value in India of more than 4,700 acres, all in MMR. The
mn sq ft
company has a wide presence across segments in residential projects,
and a relatively smaller presence in commercial and retail. Ongoing Projects 41
Upcoming Projects 51
To double its turnover in next 5 years, LDPL has beefed up its Land Bank 390
management team over the past few years, to support its growth Source: Company, IIFL Research.
ambitions (Management details in Annexure 1). LDPL has more than
3,700 direct associates and 25,000 workers at its sites. It has the
largest technical manpower in real estate (engineers, management
professionals, designers and architects) supporting a 1,800 strong
construction management team.
moh it . agraw a l@ iif lcap.com 2

Figure 6: LDPL has a broad spectrum of presence, especially in the residential space Figure 7: More than 90% sales in the residential segment, of which ~60% is in the
affordable and aspirational category
Commercial
7%
Affordable
Luxury
44%
36%
Aspirational
13%
Source: Company, IIFL Research
Figure 8: LDPL has a deep project pipeline

60
(mn sq ft)
50 3.0
0.8
Others
3.1
1.2
40 The Park
6.0
11.0 New Cuffe Parade
8.5
30
4.3 World Towers
5.3
Source: Company, IIFL Research 20
3.1 Anjur
3.3 28.4
10 Clariant ‐ Thane
13.5
Palava
0
Ongoing Upcoming

Business Outlook – Aiming to grow at 20% Of the 50mn sq. ft. of upcoming projects, LDPL plans to launch 12.5 mn
sq. ft. over the next 12-24 months. Most of the upcoming projects are
Cagr over the next five years new phases within the existing projects. Nevertheless, LDPL also plans
to launch at a new location, Anjur (Bhiwandi, Thane) in FY18 where it
has a land bank of nearly 45 mn sq. ft.. Launches on commercial/retail
LDPL is uniquely positioned – it has the largest market share
will also see a pick up over the next 1-2 years in Palava, Lower Parel
(over 10%) in the primary sales segment of MMR, which is by
and Wadala, a segment relatively small for the company as of now.
and large an unorganized segment. Over the past five years,
LDPL delivered strong 30% revenue Cagr, and it expects to Figure 10:Aggressive launch pipeline of ~12.5mn sq. ft. planned over the next 12‐24
deliver at 20% Cagr over the next five years. We interacted with months
the management to analyze the growth drivers that underpin
Project Area (mn sq ft) Type
this ambitious target and look at the headwinds and tailwinds
the company might face: Palava 5.5 Residential & Commercial
Clariant, Thane 3.6 Residential
1) Healthy project pipeline healthy and focus on cash accretion: Anjur 1.5 Residential
LDPL has ~90mn sq. ft. of projects planned, of which more than 40
Shreeniwas Mills, Lower Parel 1.2 Commercial & Retail
mn sq. ft. comprise ongoing projects and 50mn sq. ft. constitute
upcoming projects. Most of the ongoing projects are at advanced New Cuffe Parade ‐Tower 11 0.6 Residential
stages of completion; inventory worth Rs60bn is either complete or Total 12.5
is close to completion. With a majority of the construction cost Source: Company, IIFL Research
already incurred on these projects, collections should accelerate
when sales are concluded, and generate cash surplus. The The management pegs collections from all its upcoming projects at
management pegs expected collections from all its ongoing projects Rs565bn, vs. cost-to-completion at Rs262bn. LDPL has been highly
at Rs520bn, which far outpaces the completion cost of Rs270bn. aggressive over the past decade in bidding for and acquiring projects
and land bank. We believe this strategy has engendered the following
Figure 9: LDPL has near complete inventory worth Rs60bn competitive advantages:
Master Project Project Name Value (Value Rs bn)
Palava Casa Rio, Casa Rio Gold and Lakeshore Greens 12  Well located, clean land parcels: A majority of LDPL’s
World Towers World Crest 4 land/projects are located at prime or key locations. Further, they
New Cuffe Parade Enchante and Evoq 11 have been acquired through transparent bidding and the auction
Altamount Altamount 9 routes from government companies or private developers. Such
acquisition, although expensive, reduces litigations on land titles and
Fiorenza Fiorenza 4
results in faster approvals. This reduces project timelines and
Belmondo Belmondo 5 improves brand value and quality of customer profile.
Others 15
Total 60

Figure 11:Land bought in auctions ensure clean titles and lesser litigations
Project Name Developable Area Seller Route London calling
(mn sq. ft.)
During FY14, the Lodha group (parent) acquired two properties in
The Park 5.1 DLF Auction
London: 1) MacDonald House for 306mn pounds; and 2) New Court
New Cuffe Parade 8.2 MMRDA (Maharashtra Govt.) Auction Property for 90mn pounds. The international foray was a part of
World Towers 4.4 NTC (Indian Govt.) Auction expanding its base beyond MMR, after evaluating other Indian cities.
Amara 12.4 Clariant Chemicals Auction Management believes the central London location has strong potential,
Macdonald House 0.2 Canadian Govt. Auction especially among NRIs, as it is under-supplied, unlike the outskirts of
London.
Lodha Altamount 0.2 US Govt. Auction
Source: Company, IIFL Research MacDonald House, located at Grosvenor Square in Mayfair district with
an area of 0.15mn sq. ft, housed the old headquarters of the Canadian
 Healthy asset turnover: Given the large ticket size of the projects, High commission for more than 50 years. It is a location with one of
minimizing turnaround time becomes crucial. LDPL has been prudent the highest premium in London. Lodha group is expected to come up
in launching the projects within 1-2 years of acquiring its large- with super-luxury condominiums here. The London WC2 (New Court)
ticket land parcels, which is healthy, considering the time taken to property is located on Carey Street, next to London School of
receive approvals. Economics, with saleable area of 0.2mn sq. ft.. The project has been
launched and ~20% has been sold until date.
Figure 12:Minimizing turnaround time in launching large projects the key to healthy
profitability Figure 13:London is Lodha’s first international foray
Project Name Land Purchase Project Launch Turnaround time Grosvenor Square Lincoln Square
The Park Nov‐12 Feb‐13 4 months Time of Purchase Nov‐13 Feb‐14
New Cuffe Parade May‐10 Apr‐11 11 months Old Property Name Macdonald House New Court
Lincoln WC2 Feb‐14 Apr‐16 2 years Land Consideration (mn pounds) 306 90
Amara Apr‐14 Jul‐15 15 months Area (mn sq. ft.) 0.156 0.21
Venezia Jun‐12 Oct‐12 5‐6 months Project Name NA London WC2
Altamount Dec‐12 Oct‐15 3 years No of Apts. 44 200
Sale Potential (mn Pounds) 950 500
% Sold NM 20%
 Land fully owned and paid for: LDPL has purchased its land Source: Company, IIFL Research
parcels outright with the company having 100% ownership of the
land for all its projects, which reducing litigations and uncertainty.
Furthermore, all land parcels are fully paid for by the company,
barring the New Cuffe Parade land from MMRDA, which is under a
‘deferred payment plan’.

company plans to launch in FY18 and develop over the next five to
Leasing portfolio to play a bigger role ten years.
Although LDPL has a diversified presence in the residential space, its Figure 15: LDPL has largest land bank by Value in India
presence in leasing of commercial and retail has been relatively small, Land Parcel Area (Mn sq. ft.) Area (in acres)
with only Xperia mall at the Palava township being leased currently. Palava 345 3,982
Its other commercial projects operate on a build-and-sell model. Anjur 45 711
However, over the next 3-5 years, LDPL plans to build ~6mn sq. ft. of
Total 391 4,693
leasable assets, which would accrue more than Rs6bn per annum of
rentals by FY20-21. Eventually, the company might look into roping in Source: Company, IIFL Research
a strategic investor or would follow a REIT model in the long term.
Over the past few years, owning a huge land bank by real estate
Figure 14: LDPL to scale up its leasing portfolio companies is seen as a drag on return ratios due to their long gestation
Location Name Status Type Area Rental Rentals periods of development. However, the pace of development at Palava
(mn (Psf/ (Annual) makes a strong case for long-term value accretion for LDPL. With prices
sq. ft.) month) constantly rising in the land-starved Mumbai, there are competitive
Palava Experia Mall Ongoing Retail 0.4 100 480 advantages to acquire and aggregate land at early stages. We highlight
Palava I‐think Upcoming Commercial 2.5 40 1,200 a few such advantages:
Wadala New Cuffe Parade Ongoing Commercial 0.9 150 1,620
Lower Parel Shreeniwas Upcoming Commercial 1.2 170 2,448  Sizeable, low-cost land bank: The book value of LDPL’s land bank
Thane Clariant Upcoming Commercial 0.8 55 495 across Palava and Anjur is Rs31bn, implying an average price of
Total 5.8 6,243 Rs6.6mn per acre. Recent deals suggest pricing of land in the
Source: Company, Cushman & Wakefield, IIFL Research vicinity of Palava (90% of land bank) at Rs50mn per acre, implying
6-7 times increase to LDPL’s carrying value.
2) High quality land bank to support growth: LDPL has one of the Figure 16: Current pricing at significant premium to LDPL’s carrying value
largest land banks in India by area and value. Beyond 90 mn sq. ft. Land Parcel Book Value (Rs mn per acre)
of planned projects, it has almost 4,700acres (~390mn sq. ft. of Palava 7.0
developable area) of land bank located in the extended suburbs of Anjur 4.2
Mumbai, in the Kalyan-Dombivali region under Thane district. Of this
almost 90% of land bank is in Palava, an upcoming satellite city Average 6.6
being developed by LDPL. Palava already has the basic infrastructure Source: Company, IIFL Research
ready, with 6,500 families already staying, a resident portal, school,
and a fully functional mall already developed by LDPL. Over the next  High-quality, contiguous land: The land bank is located in
decade, it plans to convert this into a fully integrated township with extended suburbs of Mumbai, with connectivity of roads and
over 80,000 families supported by 5 mn sq. ft. of office space, 1 mn suburban railways (Mumbai local trains). The land in Palava is
sq. ft. of retail space, with schools, a hospital and hotels. LDPL also contiguous, giving LDPL excellent visibility in planning and executing
has a sizeable land parcel (45mn sq. ft.) in Anjur, which the an integrated township.

 Vision and strong execution capability: LDPL has already planners, designers globally and it engages top-rated celebrities to
delivered more than 19,000 homes spread across 275 acres at endorse its projects. LDPL has a strong in-house marketing team for
Palava, and it is expected to deliver 8,000 homes over FY17/18. It is sales and distribution, along with tie-ups with channel partners, leading
also investing in developing infrastructure at Palava to support its to a healthy 50:50 mix between direct sales and channel partner sales.
vision of creating a self-sufficient, integrated smart city. About 14% of its sales come from international customers, largely
through its marketing offices at different overseas locations.
3) Strong Brand + Aggressive Marketing + Judicious Pricing =
Dominant market share: LDPL has adopted an aggressive sales Figure 18: Healthy mix of direct sales and channel partners; 14%sales made to NRIs
strategy for its launches, and it has never been a developer waiting
for demand to revive. Despite the residential markets reeling under Direct‐
weak demand for last 2-3 years, it has aggressively launched new New, NRI,
Direct‐
projects, largely concentrated in MMR. The launches have been 43% 14%
Loyalty,
carried out backed by strong advertising and innovative marketing; 7%
and the pricing aligned with the market resulting in projects being
well received. Over the past decade, this has resulted in LDPL
gaining a dominant 10%+ market share in the MMR. Indian,
Channel
Partners, 86%
Figure 17:LDPL’s pricing has been aligned with market average
50%
(Rs/sq ft) Lodha Average
40,000
35,000 4) Focus on Mumbai – the largest market in India – an
30,000 advantage: MMR is the largest real estate market in India by value
25,000 of sales, primarily because it is land-starved due to its geography.
Despite being the largest city by population, over 60% of the people
20,000 live in slums, low-rise unorganised settlements. Lack of an effective
15,000 slum rehabilitation policy, and inadequate growth in civic
10,000 infrastructure (to support higher FSI) have led to increasing
pressure on existing facilities. However, housing demand has
5,000 remained buoyant in the city, leading to upward pressure on prices,
0 which are 2x that of other metropolitan cities such as NCR and
Dombivali Wadala Thane Lower Parel Lower Parel Bangalore.
LDPL believes it is a consumer goods company selling homes and offices

as products, and hence, it lays a lot of emphasis on advertising and
branding of its projects. It uses wide range of media: print, social, OOH
and is now one of the few developers to have a national television
commercial to market its brand. It has tie-ups with leading architects,

Figure 19: MMR is the largest real estate market in India…. India. However, given regional disparities in India (and land being a
(FY16 Sales Value ‐ Rs bn) state subject), there are not many successful pan-Indian players yet.
LDPL’s focus in the largest real estate market of India has distinct
700 advantages: 1) leveraging its understanding of the market to cater to
600 needs of its customers; 2) having local expertise helping in approvals;
and 3) synergies in marketing and advertising.
500
400 Figure 21:LDPL is the largest developer by sales in India
90
300 (Rs bn)
80
200
70
100
60
0 50
MMR NCR Bengaluru
40
30
Figure 20:.. with property prices ~2x of NCR, Bangalore 20
(Rs/sq ft) MMR NCR Bengaluru India Average 10
14,000 0
FY12 FY13 FY14 FY15 FY16
12,000
10,000
8,000 Figure 22:Almost 90% of LDPL’s sales come from the MMR
6,000
4,000
2,000
Others
0 13%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 H1FY17
Since its inception, LDPL has remained a Mumbai-focused player. MMR

Although it does have a presence across other cities in India (Pune, 87%
Bangalore, and Hyderabad) and London – 90% of its sales come from
MMR. Real estate players of significant size have tried to expand pan Source: Company, IIFL Research

5) Government initiated reforms to aid organised players: The Figure 24: Majority of LDPL’s customers are end‐use buyers
central government has initiated significant reforms and introduced Customer Profile ‐ % End Use
new policies in the real estate sector over the last 2-3 years. 100%
Although laws related to land are governed by the state and local
bodies, transactions are regulated by the central government. The 80%
reforms aim to encourage end-use demand and curb the flow of
speculative and unaccounted money into the sector. These measures 60%
do entail a short-term negative impact on demand. However, they
40%
aim to create a healthy sector in the longer run.
20%
At the receiving end of these reforms are the small unorganised
developers with weak financial accountability. The housing sector 0%
has remained an unorganised market for years with no barriers to Western Palava Harbour Thane & Luxury South
entry. However, going forward, the cost of operating a small, Suburbs Eastern Central
unorganised business in real estate is expected to significantly Suburbs
increase, given higher compliance costs and tighter liquidity Source: Company, IIFL Research
requirements (post RERA), which increase working capital costs.
Given its dominant market share in Mumbai, LDPL stands to benefit 6) Favorable interest rate cycle firmly in place to spur housing
as competition from unorganised players reduces over time. Further, demand: We see the interest rate cycle turning favourable on the
with majority of its buyers (over 70%) in the end-use category, the back of: 1) expectation of consumer price inflation remaining benign
near-term impact of reduction in investment demand will be limited. and within RBI limits; and 2) recovery of growth rates and demand
expected to be gradual, especially post demonetisation. IIFL’s
Figure 23: Government has taken a slew of measures to reform the Real Estate sector
economist expects a probable cut in interest rates of up to 50-
Initiatives Timing Comments
100bps over 2017. Softer interest rates will help spur demand in
RERA May 2016 ‐ To regulate sale in primary markets housing, especially in the affordable and aspirational housing
May 2017 segments. LDPL has a healthy buyer profile, with almost 70-80%
Demonetization Nov‐16 To curb unaccounted and untaxed money flowing into Real buyers in the affordable and aspirational segments availing
Estate mortgage loans. In the past few months, transmission of lower
Benami Nov‐16 To curb unaccounted and untaxed money flowing into Real policy rates has been more pronounced, with government’s firm
Property Act Estate focus on encouraging affordable and end-user demand in the
REITs Aug 2014 Opening commercial property investments to capital markets housing sector.
Housing for all June 2015 20mn houses to be built for Urban poor, credit linked subsidy
and interest subvention scheme provided
Affordable Feb 2017 Declared Infrastructure status, relaxations in eligibility to
Housing claim 100% profit deduction on building affordable housing
for developers
Smart Cities June 2015 100 cities to reform their existing infrastructure to improving
living standards

Figure 25: Policy rates are trending downwards Figure 27: 70‐80% of buyers in affordable and aspirational segment are salaried
(%) Repo Rate % Salaried
10 100%
9
8 80%
7
6 60%
5
40%
4
3
20%
2
1
0%
0 Thane & Eastern Palava Western Suburbs
Jan‐10 Jan‐11 Jan‐12 Dec‐12 Dec‐13 Dec‐14 Dec‐15 Dec‐16 Dec‐17 Suburbs
Source: Company, IIFL Research Source: Company, IIFL Research
Figure 26:…and there has been more effective transmission in last few months Figure 28:……and are funded by banks
(%) 1 Yr SBI MCLR % Bank Funded
9.5 100%
9.0
8.5 80%
8.0
60%
7.5
7.0
40%
6.5
6.0 20%
Dec‐16
Aug‐16
Oct‐16
Apr‐16
Sep‐16
Nov‐16
Jan‐17
May‐16
Jun‐16
Jul‐16
0%
Thane & Eastern Suburbs Palava Western Suburbs
Source: Company, IIFL Research Source: Company, IIFL Research

Financials: Increasing execution to aid Figure 30: PAT growth of 20% Cagr impressive vs peers in listed space
balance sheet health (Rs bn)

8
PAT
1) Earnings growth of 20% Cagr over past five years; more 7

20% Cagr
projects to enter revenue recognition in FY18-19: LDPL follows the 6
percentage of completion method (POCM) for accounting, and it 5
reported strong revenue Cagr of 30% over the past five years, led by
4
steady growth in recognition of projects. During this period, its Ebitda
margins have been stable in the 20-25% range. Earnings growth of 3
20% Cagr is among the highest, compared with peers in the listed 2
universe. According to management, new projects and phases within 1
existing projects are expected to hit revenue recognition in FY18-19,
leading to continued strong growth in revenue and profits. 0
FY12 FY13 FY14 FY15 FY16
Figure 29: Revenue growth strong at 30% Cagr over FY12‐16 Source: Company, IIFL Research
(Rs bn) Revenue Figure 31: Strong revenue growth expected over FY18/19 due to recognition of these
100 new projects, in addition to existing ones
Area (mn sq ft)
80 World Tower ‐ Tower No 5 1.0
30% Cagr
NCP Tower 8 0.6
60
Lodha Park – Kiara 0.8
Palava – Epic 1.5
40
20
2) Debt build-up fuelled by land acquisitions: LDPL’s balance sheet
has been hamstrung by elevated levels of debt since FY13, owing to
0
FY12 FY13 FY14 FY15 FY16 large-scale land and project acquisitions the company undertook over
FY11-FY16. Although its operations have been cash-neutral-to-positive,
Source: Company, IIFL Research due to robust 16% Cagr in collections, investment in land of Rs102bn
over this period has led to net debt levels more than tripling over the
past five years to Rs140bn in FY16.

Figure 32: Collections steady at 16% Cagr over FY12‐16… Figure 34: Ex‐land capex, collections and costs fairly even out
Rs bn FY12 FY13 FY14 FY15 FY16
(Rs bn) Collections Collections 34 53 57 55 62
70
Less: Construction Costs 16 20 24 27 30
60 Less: Taxes and Admin Costs 4 5 7 12 13
50 Operating Cash flow before Interest 15 28 26 17 20
40 Less: Interest Costs 7 9 11 17 20
Operating Cash flow 8 20 14 0 0
30
Less: Land Capex 6 40 22 27 8
20
Net Cash flow 2 (20) (8) (27) (8)
10 Source: Company, IIFL Research
0
FY12 FY13 FY14 FY15 FY16 3) Increasing focus on execution to improve collections; reduce
debt in the long term: Despite sales value being flat in the past 4-5
years, collections have grown at 16% Cagr during the period, driven by
LDPL’s increasing focus on execution and completion of projects. Going
Figure 33: ..however debt elevated on Rs102bn of land capex during this period
forward, nearly inventory worth Rs60bn is nearing completion or has
(Rs bn) Net debt completed, which will accelerate collections on conclusion of sales. The
160 company also expects to receive milestone-based payments of Rs84bn
on existing sold projects, as execution ramps up. Thus, management
140
expects the momentum in collections to continue; it expects 15% YoY
120 growth in collections in FY17.
100
80 To speed up execution and shrink delivery timelines, the company has
employed some world-renowned contractors (like Arabian Construction
60
Company among others) and it is adopting advanced technologies like
40 MIVAN vs. conventional. LDPL recorded 33% Cagr in deliveries (of
20 completed projects) over the past five years, and it is targeting delivery
of projects covering 8mn sq. ft. in FY17, up 23% YoY and nearly twice
0
FY12 FY13 FY14 FY15 FY16 the average of 4-5mn sq. ft. delivered in the past five years. Its
construction spend in FY17 is expected at Rs39bn, the highest ever, and
Source: Company, IIFL Research higher than the average of the past five years at Rs23bn. This should
keep the collection trajectory healthy over the next few years.

Figure 35: Increasing focus on execution to keep construction cost elevated upcoming projects. It has a sufficient land bank in extended suburbs of
Mumbai to develop for a few years to come, considering its current pace
(Rs bn) Construction Cost of deliveries at ~8mn sq. ft. per annum. Although the company has all
45 its land under 100% ownership as of now, in future, the company is
40 open to acquiring projects through the JV/JDA route entailing minimal
35 upfront capex (a model increasingly being adopted by listed peers).
30
25 5) Demonetisation to delay debt reduction in near term....:
Demonetisation has had a short-term negative impact on the real estate
20
market, with buyers deferring their purchases. Even if this is a
15
phenomenon of a couple of quarter before volumes return to pre-
10 demonetisation levels, it will hurt collections even as construction costs,
5 interest payment and other overheads will remain sticky. Further, LDPL
0 has completed or is close to completing inventory of Rs60bn. However,
FY12 FY13 FY14 FY15 FY16 FY17e it could take longer to sell this inventory, especially in the high-ticket
Source: Company, IIFL Research segment.
Figure 36: Deliveries expected to be up 23% YoY at 8mn sq. ft. 6) …though reduction in interest cost in the near term feasible:
LDPL has a mix of term loans from banks and structured debt
(mn sq ft) Deliveries investments from private equity players either in the form of
9 construction or inventory financing. The current cost of debt stands at
8 13-14%, higher than comparable peers in the listed space, which is
7 between 10-12%. Our discussions with the management suggest that
6 with banks now flush with funds following demonetisation, the company
5 is planning to reduce its cost of debt, by refinancing some of its existing
4
debt.
3
2
1
0
FY12 FY13 FY14 FY15 FY16 FY17e
4) Land capex to moderate; may explore JV/JDA route for new

project acquisitions: Our discussions with management suggest that
in the near term, the company will go slow on buying more land parcels
and instead it will focus on execution and delivery of the existing and

Figure 37: LDPL’s key land projects and land bank

Figure 38: Company management details

Name Designation Experience and Education
 Associated with Lodha Group for past 13 years; formerly advising fortune 500 companies on Business Strategy as a consultant with McKinsey &
Abhishek Lodha Managing Director Company
 M.S., Industrial and Systems Engineering (Supply Chain and Logistics), Georgia Institute of Technology, Atlanta ‐ USA
 17 years; formerly Associate Principal in India for McKinsey & Company
Shaishav Dharia Regional CEO
 MBA from Booth School Chicago; MS from the Georgia Institute of Technology, USA
 20 years across The Boston Consulting Group (BCG) and Tata Administrative Service (TAS)
Arvind Subramanian Regional CEO
 PGDM from IIM Ahmedabad; B.Tech from IIT Madras
 38 years in real estate and engineering. Formerly Senior Vice‐President with K Raheja Corp
Kishore Tidke COO
 M. Tech. Structural Engineering from IIT Bombay; B.E. Civil from the University of Pune
 Over 18 years of experience in leadership positions across FMCG, Retail and Telecom
Prashant Bindal Chief Sales Officer
 MBA in Marketing from IMT, Ghaziabad; B.E. Mechanical Thapar Institute of Engg and Tech
Chief Marketing  Over 25 years of experience in leadership positions across FMCG, Telecom and Media
Viral Oza
Officer  Masters of Management Studies from Narsee Monjee Institute of Management Studies
Advisor to the  Over 30 years of experience in Finance with 8 years in real estate. Ex‐partner at BDO India
Piyush Vora
Board  Member of The Institute of Chartered Accountants of India
Advisor to the  35 years of experience in Finance & Accounts. Prior to this, he was with Dynamix group
Srichand Mandhyan
Board  M.Com, LLB, CAIIB, Dip in Financial Management
 Over 30 years of multi‐industry and cross functional experience; Prior to this, he was CFO at ING Vysya Bank
Jayant Mehrotra CFO
 Member of The Institute of Chartered Accountants of India; St. Xavier's College, Kolkata

Financial summary
Income Statement Balance Sheet
Y/e 31 Mar, Consolidated FY12A FY13A FY14A FY15A FY16A Y/e 31 Mar, Consolidated FY12A FY13A FY14A FY15A FY16A
Revenues 29,626 35,102 47,127 62,699 83,198 Cash & cash equivalents 2,212 6,791 5,298 4,346 3,043
Ebitda 7,232 7,373 8,990 14,212 20,112 Inventories 58,480 147,716 165,987 191,242 209,687
Depreciation and amortisation (374) (312) (473) (874) (3,934) Receivables 2,578 5,492 6,117 10,815 6,861
Ebit 6,858 7,061 8,517 13,338 16,178 Other current assets 16,761 22,661 26,480 30,731 47,734
Non‐operating income 42 160 153 150 267 Creditors 33,790 65,634 83,652 97,627 118,271
Financial expense 1,338 2,529 1,518 755 4,881 Other current liabilities 863 345 185 241 2,987
PBT 5,562 4,692 7,152 12,732 11,565 Net current assets 45,377 116,681 120,046 139,265 146,065
Exceptionals 48 220 (1) 0 5 Fixed assets 3,626 3,900 3,553 3,963 5,325
Reported PBT 5,610 4,912 7,151 12,732 11,570 Intangibles 48 68 1,049 9,820 7,776
Tax expense (1,803) (1,175) (2,896) (4,889) (4,777) Investments 1,816 2,494 13,809 18,035 19,916
PAT 3,807 3,737 4,255 7,843 6,793 Other long‐term assets 7,162 6,619 6,613 7,887 6,369
Minorities, Associates etc. 12 211 (50) (594) (475) Total net assets 58,028 129,762 145,070 178,972 185,451
Attributable PAT 3,819 3,948 4,205 7,249 6,318 Borrowings 44,263 106,963 116,882 141,622 140,757
Other long‐term liabilities 2,506 2,813 3,997 5,706 6,683
Ratio Analysis Shareholders’ equity 11,258 19,986 24,191 31,643 38,011
Y/e 31 Mar, Consolidated FY12A FY13A FY14A FY15A FY16A Total liabilities 58,028 129,762 145,070 178,972 185,451
Per share data (Rs)
Pre‐exceptional EPS 17.5 17.3 19.5 33.6 29.2 Cash Flow Statement
BVPS 52.1 92.5 112.0 146.5 176.0 Y/e 31 Mar, Consolidated FY12A FY13A FY14A FY15A FY16A
Growth ratios (%) Ebit 6,858 7,061 8,517 13,338 16,178
Revenues 36.1 18.5 34.3 33.0 32.7 Tax paid (1,011) (1,330) (2,020) (2,553) (3,394)
Ebitda 42.1 1.9 21.9 58.1 41.5 Depreciation and amortization 374 312 473 874 3,934
EPS 44.4 (1.1) 12.8 72.4 (12.9) Net working capital change 8,661 (33,494) (9,259) (26,049) (24,155)
Profitability ratios (%) Other operating items 4,158 9,526 4,946 13,611 12,544
Ebitda margin 24.4 21.0 19.1 22.7 24.2 Operating cash flow before interest 19,041 (17,925) 2,656 (779) 5,106
Ebit margin 23.1 20.1 18.1 21.3 19.4 Financial expense (6,728) (8,683) (11,348) (16,610) (20,246)
Tax rate 32.4 25.0 40.5 38.4 41.3 Non‐operating income 814 547 1,232 679 3,074
Net profit margin 12.9 11.2 8.9 11.6 7.6 Operating cash flow after interest 13,127 (26,061) (7,460) (16,710) (12,067)
Return ratios (%) Capital expenditure (937) (1,463) (1,526) (2,717) (1,099)
ROE 40.8 25.3 19.0 26.0 18.1 Long‐term investments 907 (7,846) (6,203) (7,746) (7,910)
ROCE 12.8 7.7 6.3 8.3 9.0 Others
Solvency ratios (x) Free cash flow 13,097 (35,370) (15,188) (27,173) (21,076)
Net debt‐equity 4.5 6.4 5.1 4.9 4.0 Equity raising 290 5,060 (52) (1,062) 0
Net debt to Ebitda 5.8 13.6 12.4 9.7 6.8 Borrowings (13,286) 29,924 14,954 31,495 19,712
Interest coverage 5.1 2.8 5.6 17.7 3.3 Dividend 0 0 0 0 0
Net chg in cash and equivalents 100 (386) (287) 3,259 (1,364)

Disclosure : Published in 2017, © India Infoline Ltd 2017
India Infoline Group (hereinafter referred as IIFL) is engaged in diversified financial services business including equity broking, DP services, merchant banking, portfolio management services, distribution of Mutual Fund,
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through branches and Customer Care.
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Name, Qualification and Certification of Research Analyst: Mohit Agrawal (Chartered Accountant)
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Key to our recommendation structure
BUY - Absolute - Stock expected to give a positive return of over 20% over a 1-year horizon.
SELL - Absolute - Stock expected to fall by more than 10% over a 1-year horizon.
In addition, Add and Reduce recommendations are based on expected returns relative to a hurdle rate. Investment horizon for Add and Reduce recommendations is up to a year. We assume the current hurdle rate at
10%, this being the average return on a debt instrument available for investment.
Add - Stock expected to give a return of 0-10% over the hurdle rate, i.e. a positive return of 10%+.
Reduce - Stock expected to return less than the hurdle rate, i.e. return of less than 10%.
Distribution of Ratings: Out of 202 stocks rated in the IIFL coverage universe, 114 have BUY ratings, 9 have SELL ratings, 53 have ADD ratings and 26 have REDUCE ratings
Price Target: Unless otherwise stated in the text of this report, target prices in this report are based on either a discounted cash flow valuation or comparison of valuation ratios with companies seen by the analyst as
comparable or a combination of the two methods. The result of this fundamental valuation is adjusted to reflect the analyst’s views on the likely course of investor sentiment. Whichever valuation method is used there is a
significant risk that the target price will not be achieved within the expected timeframe. Risk factors include unforeseen changes in competitive pressures or in the level of demand for the company’s products. Such demand
variations may result from changes in technology, in the overall level of economic activity or, in some cases, in fashion. Valuations may also be affected by changes in taxation, in exchange rates and, in certain industries,
in regulations. Investment in overseas markets and instruments such as ADRs can result in increased risk from factors such as exchange rates, exchange controls, taxation, and political and social conditions. This
discussion of valuation methods and risk factors is not comprehensive – further information is available upon request.

IIFL - Lodha Developers - 20170220

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Lodha Developers (Unlisted)

20 February 2017 Institutional Equities

'Banking' on Mumbai Market

Balance sheet health to improve as execution gathers pace:

Mohit Agrawal mohit.agrawal@iiflcap.com | |

About Company Figure 3: Largest market share in Mumbai

FY16 Sales value (Rs bn)

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Figure 8: LDPL has a deep project pipeline

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LDPL believes it is a consumer goods company selling homes and offices

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Since its inception, LDPL has remained a Mumbai-focused player. MMR

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balance sheet health (Rs bn)

1) Earnings growth of 20% Cagr over past five years; more 7

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4) Land capex to moderate; may explore JV/JDA route for new

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Figure 37: LDPL’s key land projects and land bank

Source: Company, IIFL Research

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Figure 38: Company management details

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Disclosure : Published in 2017, © India Infoline Ltd 2017

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Key to our recommendation structure

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