Institutional Equities

4QFY12 Realty Sector Preview

13 April 2012

New Launches: Some Hits, Some Misses

We expect 4QFY12 results of companies under our coverage universe to improve sequentially on account of uptick in execution and projects crossing the threshold limit. New launches during the quarter were a mixed bag with Bangalore and Chennai continuing to witness strong absorption. Barring Sobha Developers and Prestige Estate Projects, all other companies have missed their FY12 project launch guidance, thereby resulting in a decline in FY12 pre-sales. Lack of asset sales and subdued pre-sales led most of the companies to miss their debt reduction targets. We expect companies under our coverage to post revenue growth of 18.5%, EBITDA growth of 26.3% and profit growth of 10.0% sequentially. New launches were a mixed bag: During the quarter, Sobha Developers (SDL), Prestige Estates Projects (PEPL) and DLF were very aggressive in respect of new project launches, leading to 14%, 46% and 32% YoY increase, respectively, in new launches in FY12. However DLFs 4mn sq ft of new projects launched in 4QFY12 was skewed towards low-value plot sales (3mn sq ft). On the other hand, Mumbai property market continued to remain weak, resulting in no new launches by HDIL and Oberoi Realty in 4QFY12. Godrej Properties launched 2mn sq ft in 4QFY12 and 3.2mn sq ft in FY12 (37% YoY decline) as against the companys guidance of 6-7mn sq ft. Debt reduction to remain muted: We expect muted debt reduction in 4QFY12 on account of subdued pre-sales of all companies, barring SDL. Further, we expect reduction in debtors from Shantiniketan for PEPL, as the company focused on handover and also on improvement in leasing which will result in improvement in operating cash flow. Lack of asset sales by DLF will keep debt reduction muted. Also, HDILs debt reduction will largely depend on cash collection from FSI sales. Outlook: We believe the volume recovery hinges on price correction in overheated markets, faster approvals for projects and quick project execution. We expect South-based developers to outperform owing to better absorption level, stable inventory and better affordability. While share prices of most real estate companies are at a significant discount to our NAV barring GPL, we believe those having good visibility on new project launch/pricing strategy, well capitalised balance sheet and positive cash flow to be able to outperform. Our top pick is PEPL.

Param Desai param.desai@nirmalbang.com +91-22-3926 8128

Sector Preview

CMP Rsmn DLF Godrej Properties HDIL Oberoi Realty Prestige Estates Sobha Developers Total 198 613 83 266 120 334

TP Sell 174 Sell 503 UR* Hold 268 Buy 143 Hold 354

Net sales 23,769 2,312 4,564 1,971 2,601 3,556 38,772 (11.4) (29.5) (12.9) (26.1) 79.5 3.3 (15.9) 16.8 54.4 8.0 5.2 129.4 14.1 18.5

EBITDA 10,211 591 2,083 1,178 832 810 15,706 53.3 (38.2) (18.5) (18.7) (3.8) 20.7 19.3 24.1 121.1 32.6 3.9 66.1 102.0 26.3

OPM (%) 43.0 1,813bp 25.6 (362bp) 45.6 (316bp) 59.8 22.8 546bp 329bp 32.0 1,340bp 40.5 1,197bp 250bp 770bp 850bp (74bp) 196bp (68bp) 252bp 2,690 478 1,544 1,067 526 441 6,746

RPAT (21.9) (20.4) (21.8) (21.9) (25.1) 9.8 (20.5) 4.0 67.0 (0.9) 4.6 87.3 10.1 10.0

(Rs) Rating (Rs) 4QFY12E YoY % QoQ % 4QFY12E YoY % QoQ % 4QFY12E

YoY % QoQ % 4QFY12E YoY % QoQ %

Source: Company, Nirmal Bang Institutional Equities Research Note; UR-Under Review; Our previous rating on HDIL was Sell.

Please refer to the disclaimer towards the end of the document.

Institutional Equities
Company-wise result expectations
DLF: The company maintained its aggressive launch momentum i.e. 4mn sq ft in 4QFY12 as against 4.5mn sq ft in 3QFY12, unlike its peers, but new projects launched were largely skewed towards low-value plot sales. Hence, we expect it to report 3mn sq ft of development volume in 4QFY12, flat QoQ (but down 21% YoY). The YoY improvement in OPM is because DLF had made a one-time cost adjustment to the tune of Rs Rs4.8bn in 4QFY11. Further, there was tax write-back in 4QFY11. Hence, we expect DLF PAT to decline 21.9% YoY. We expect debt reduction to remain muted on lack of asset sales. Key things to watch out for are new project launch guidance and net leasing activity. Godrej Properties: The companys volume is expected to register a growth of 15% QoQ in 4QFY12 on account of new project launches (2mn sq ft). However, we expect profits to jump 67% QoQ as the company sold 49% stake in one of its subsidiaries for Rs200mn. GPLs net D/E ratio is likely to come down with recent equity dilution of Rs4.7bn. Key things to watch out for are the volume from its Garden City project in Ahmedabad and new project launch guidance for FY13. HDIL: Revenue would be largely driven by FSI sales at Goregaon (Guru Ashish project) and Virar/Vasai projects (in Maharashtra) as the transfer development rights (TDR) market continues to remain weak. This is the third consecutive quarter in which HDIL did not launch any project because of uncertainty in respect of government approvals. We expect HDIL to report a 21.8% YoY decline in profit on account of weak TDR sales. Key things to watch out for are incremental pre-sales, update on Mumbai international airport project and de-leveraging. Oberoi Realty: The company is expected to report a sequential drop in volume, in line with the slowdown in Mumbai property market. Volume would be largely driven by the newly launched Esquire project (at Goregaon (in Mumbai) in 4QFY11. However, revenue booking wouldl be largely driven by Oberoi Splendor, Oberoi Splendor Grande and rental assets as the Esquire project has still not crossed the threshold limit, which we expect to take place in 1HFY13. Consequently, we expect 26.1% YoY decline in revenue. Key things to watch out for are the status of its Worli project launch in Mumbai and the execution status of Esquire project. Prestige Estates: The company is likely to report strong pre-sales of Rs7bn (up 48% QoQ) in 4QFY12, thanks to sales at its Chennai project (Bella Vista). We expect a 87.3% QoQ growth in profit led by some of its projects crossing the threshold limit. Key things to watch out for are the new launch pipeline and the leasing activity. Sobha Developers: The company reported strong pre-sales of Rs4.6bn in 4QFY12, up 4% QoQ (up 57.3% YoY), driven by the launch of new projects of 1.73mn sq ft in Bangalore (0.57mn sq ft), Chennai (0.9mn sq ft) and Coimbatore (0.26mn sq ft).We expect SDLs net D/E ratio to come down to 0.6x from the current level of 0.65x in 4QFY12. Key things to watch out for are new launch pipeline and the margins in its real estate business.

4QFY12 Realty Sector Preview

Institutional Equities
Ratings track - DLF
Date 4 October 2011 11 November 2011 11 January 2012 13 February 2012 Rating Sell Sell Sell Sell Market price (Rs) 201 234 191 231 Target price (Rs) 174 174 174 174

Godrej Properties
Date 4 October 2011 5 October 2011 24 October 2011 11 January 2012 20 January 2012 Rating Sell Sell Sell Sell Sell Market price (Rs) 660 626 667 631 651 Target price (Rs) 600 503 503 503 503

Ratings track - HDIL

Date 4 October 2011 14 November 2011 15 December 2011 11 January 2012 15 February 2012 Rating Buy Buy Hold Hold Sell Market price (Rs) 92 91 65 71 104 Target price (Rs) 142 113 73 73 92

Oberoi Realty
Date 4 October 2011 17 October 2011 11 January 2012 23 January 2012 Rating Buy Buy Buy Hold Market price (Rs) 229 225 227 250 Target price (Rs) 283 283 283 268

Prestige Estates Projects

Date 9 April 2012 Rating Buy Market price (Rs) 106 Target price (Rs) 143

Sobha Developers
Date 4 October 2011 10 October 2011 15 November 2011 11 January 2012 23 January 2012 11 April 2012 Rating Hold Hold Hold Hold Sell Hold Market price (Rs) 208 212 226 220 246 321 Target price (Rs) 227 227 227 227 227 354

4QFY12 Realty Sector Preview

Institutional Equities
Disclaimer
Stock Ratings Absolute Returns
BUY > 15% HOLD 0-15% SELL < 0%
This report is published by Nirmal Bangs Institutional Equities Research desk. Nirmal Bang has other business units with independent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. This report is for the personal information of the authorised recipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general information for the clients of Nirmal Bang Equities Pvt. Ltd., a division of Nirmal Bang, and should not be construed as an offer or solicitation of an offer to buy/sell any securities. We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates to current and historical information, but do not guarantee its accuracy or completeness. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. Nirmal Bang or any persons connected with it do not accept any liability arising from the use of this document or the information contained therein. The recipients of this material should rely on their own judgment and take their own professional advice before acting on this information. Nirmal Bang or any of its connected persons including its directors or subsidiaries or associates or employees or agents shall not be in any way responsible for any loss or damage that may arise to any person/s from any inadvertent error in the information contained, views and opinions expressed in this publication.

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4QFY12 Realty Sector Preview