Real Estate Initiation - Feb 2018

INITIATING COVERAGE ON REAL ESTATE SECTOR
 Initiating SOBHA: ADD (TP - Rs.550)

 Initiating PRESTIGE: SELL (TP - Rs.265)
April 13, 2018
 GIRISH CHOUDHARY  girish@sparkcapital.in  +91 44 4344 0021

 GAURAV NAGORI CFA  gaurav@Sparkcapital.in  +91 44 4344 0072
Page 1
REAL ESTATE SECTOR
Industry recovery to be gradual at best
The real estate sector in India has seen a prolonged slowdown in demand coupled with increasing unsold units over the last five to six years.
Combination of high prices, poor execution from developers (denting consumer confidence), and lack of affordable products contributed to the
slowdown and eventual stress in the sector. Further, demand for new homes and launches fell to decadal lows in CY2017 led by host of regulatory INITIATING COVERAGE
events such as Demon, RERA, and GST. While we expect demand to recover from the lows seen in 2017, a full fledged recovery appears unlikely over the 13 April 2018
next 18-24 months. On the demand side, the key positives which will aid recovery from the lows are: (1) improved affordability, (2) Government push
and developer focus on launches of affordable homes where there is a latent demand, and (3) improving consumer sentiment post RERA. However a full Performance (%)
fledged demand recovery appears unlikely led by (1) muted jobs and salary growth especially in the IT/ITES sector and (2) lack of investor demand. On
the supply side, the key positives are (1) crash in launches over the last two years; (2) majority of the supply is coming or expected to come in at 1M 3M 6M 12M
affordable ticket points and (3) RERA will curb launches/supply over time. However concerns on supply side is (1) high unsold inventory levels at ~four
years based on last years absorption rate with only ~10% of inventory is read to move in where the demand is better; 3) around 35% of inventory is Sensex 1% -1% 5% 16%
3BHK and above where the demand remains slow; and (3) scalability of affordable projects given high land prices and low margins for developers. In
conclusion, real estate cycles are long in nature and in our view the sector in India has seen the worst in 2017 and from hereon we expect the recovery to
PEPL 0% -8% 29% 51%
be gradual at best. Top tier developers with strong execution track record, good product portfolio, and financial capability will be big beneficiaries of the
changing landscape in the industry.
Key thoughts/takeaways in this note: SOBHA -1% -11% 5% 34%
1. Demand outlook is neutral, Supply levels have started coming off; Expect the cycle to enter into a consolidation phase: Absorption and new launches
have seen consistent decline over the last six years, with 2017 levels below 2007 levels. Over the last two years supply has fallen at a faster rate than
GPL -2% -14% 13% 70%
absorption, thereby reducing the absolute inventory levels slightly in the market. Demand in CY17 is down 40% at ~200k units from the peak levels
seen in CY10-12. Our view is demand has bottomed out at these levels as is expected to see better trajectory largely due to improved affordability led by
(1) Housing price inflation lower than per capita income growth; (2) Decadal low mortgage rates; (3) government incentives/subsidies; (4) developer OBER -5% -5% 20% 33%
focus on compact/affordable homes. However full fledged demand recovery remains unlikely given weak job trends and outlook and lack of investor
demand. While inventory levels have receded slightly from the peak levels, it is still high based on the last two years absorption levels at ~ four years.
Going ahead, with industry focus on launching more end user centric projects and with RERA making it tighter to launch new projects, the new supply DLFU -4% -22% 21% 31%
will be at manageable levels. We expect the Indian real estate cycle to enter into a consolidation phase and recovery will be gradual at best.
2. RERA will over time aid consolidation in a highly fragmented sector: With the establishment of pro consumer RERA Act in 2H CY2017, the sector has
now come under regulation. The key impact of this over time will improve the consumer sentiment and gradually bring in consolidation in the sector,
which is highly fragmented with top 30 developers garnering only ~20% market share in top tier cities. However post RERA, we have already seen top 30
players garnering 40% of new launches. Given high liabilities for non compliance, restriction on usage of cash flows, and higher working capital
requirements, we expect marginal players to over time to exit the business. We expect project IRRs to fall from high 30-35% to ~20-25% post RERA.
3. Commercial real estate outlook remains healthy: Commercial RE has been resilient over the last few years with falling vacancies and rising rental yields.
Commercial RE in India is relatively consolidated market (top five players control ~20% of the supply) as higher capital requirements restricts the number
RESEARCH ANALYSTS
of players. The sector has seen declining supply with steady demand and outlook remains robust limited supply pipeline. Bangalore remains the best
micro market within commercial RE space and now is the largest market in India with annual absorption of ~10-11 mn sq ft. Despite the concerns of GIRISH CHOUDHARY
slowdown in IT/ITES hiring, the boom in captives of global firms have more than offset the absorption. girish@sparkcapital.in
Stock selection and view: We prefer developers with strong execution capability reflecting in positive operating cash flows track record, exposure to steady +91 44 4344 0021
micro markets (Bangalore), strong pipeline of launches , focus on affordable projects, and improvement in cash flows and return metrics. Indian Real estate
stocks have outperformed significantly over the last 12 months, with BSE Realty index doubling in CY2017. As a result, sector valuations are trading at GAURAV NAGORI CFA
cyclical highs and hence appear fully valued. Going ahead, we expect sector to enter in to a consolidation phase, as a result expect multiples to revert to gaurav@sparkcapital.in
average cycle valuations. We prefer Sobha over Prestige. Initiate coverage on Sobha with an ADD rating and Prestige with a SELL rating. +91 44 4344 0072
find SPARK RESEARCH on Page 2

(SPAK <go>)
Real Estate Sector Initiation
Valuations summary
Revenue in Rs.mn EBITDA in Rs.mn PAT in Rs.mn EPS in Rs. Growth (FY18-20E)
FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E Revenue EBITDA PAT
Prestige Estates 50,211 52,133 54,250 10,587 11,829 12,482 3,538 4,120 4,149 9.4 10.9 11.1 4% 9% 8%
Sobha 25,374 29,510 33,767 4,883 5,989 6,898 2,002 2,750 3,350 20.8 28.6 34.8 15% 19% 29%
Godrej Properties 18,941 20,425 22,968 3,147 4,420 5,312 2,453 3,899 5,199 11.3 18.0 24.0 10% 30% 46%
Oberoi Realty 16,731 30,102 34,114 8,539 15,051 16,839 5,509 11,993 13,079 16.2 35.5 38.7 43% 40% 54%
DLF 73,694 70,969 72,759 33,437 31,805 32,711 3,047 7,040 10,504 1.6 3.3 5.0 -1% -1% 86%
EBITDA margins % PAT margins % ROE% Net debt to Equity OCF in Rs.mn
FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E
Prestige Estates 21% 23% 23% 7% 8% 8% 8% 10% 10% 1.1 1.1 1.1 7,705 7,501 10,526
Sobha 19% 20% 20% 8% 9% 10% 7% 10% 11% 0.9 0.8 0.8 962 3,688 5,398
Godrej Properties 17% 22% 23% 13% 19% 23% 11% 17% 19% NA NA NA NA NA NA
Oberoi Realty 51% 50% 49% 33% 40% 38% 9% 17% 16% NA NA NA NA NA NA
DLF 45% 45% 45% 4% 10% 14% 1% 2% 3% NA NA NA NA NA NA
Mcap (Rs. PE(x) P/B(x) EV/EBITDA (x)

CMP Rating TP
Mn) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E
Prestige Estates 300 1,12,650 31.8 27.3 27.1 2.4 2.2 2.1 14.1 12.7 11.9 SELL 265
Sobha 546 51,791 26.5 19.3 15.8 1.9 1.8 1.7 15.5 12.7 10.9 ADD 550
Godrej Properties 720 1,55,866 63.5 40.0 30.0 7.1 6.2 5.3 58.6 41.2 33.8 NA NA
Oberoi Realty 504 1,71,160 31.1 14.2 13.0 2.8 2.3 2.0 21.1 11.5 9.8 NA NA
DLF 209 3,73,049 130.0 62.9 41.5 1.3 1.4 1.3 17.5 17.2 16.4 NA NA
Source: Spark Capital Research, Bloomberg Estimates
Page 3
Consistent fall in Real estate demand in last six years; FY17 witnessed decadal low demand
Total residential demand in Tier 1 cities declined by 40% from peak of CY12. Infact, total absorption in CY2017 was lower than CY07 due to host of regulatory factors such as
demonetization, RERA and GST disrupting industry and decelerating the demand further
Units sold (In thousands) Residential Demand in both Tier 1 and Tier 2
Tier 1 Cities Tier 2 Cities Cities have dropped to decadal lows
450
361 357 357 344
300 311
284
300
274 221
196
134 141 199
121 127 123 108
150 81
53 49
60 76
-
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Robust Demand Demand Consolidation Start of Down Cycle
Note: Tier 1 cities comprise 7 top cities i.e. MMR, NCR, Chennai, Bangalore, Kolkata, Hyderabad, Pune by absorption. Source: Propequity, Spark Capital
All key cities have seen demand declining to the tune of more than 30% from peak and currently at same level as CY2007
Units sold (In thousands)

2008 Peak 2017
160 141
130
-46%
120 106 -34%
-82%
70 76
80 -36% 62 -51%
56 53
-26% 49
-29% 36 36 -66% 37
40 32 27 30
21 21 24
12 17 12 16 13 11
-
Kolkata Pune Hyderabad Chennai Bengaluru MMR NCR Tier II Cities
Page 4
New launches have also declined to the decadal lows in CY2017 amid tepid demand
Launches have declined sharply given persistent lower demand; Developers remain in wait and watch mode to prepare for the new RERA/GST regime
New Units launched (In thousands)

Tier 1 Cities Tier 2 Cities
600
491 482
451 457
500
398
400 345
239 274
300 219
192 177 173 186
200 119 142 123
97 139
68 51 52
100
34
-
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Unsold units piled up in the market and have doubled from CY2010 levels Majority of the inventory lies in MMR and NCR region
Inventory months based on last two year average absorption

Unsold Units (Inventory in thousands) 56
60
1,000 875 866 50

841 41 43
900 805 39
800 743 40 35
631 32
700 28
600 505 30 25
500 411
400 267 263 281 20
300
200 10
100
- -
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Hyderabad Tier II Cities Bengaluru Pune Kolkata Chennai MMR NCR
Page 5
Property prices have not gone anywhere in last 3 years; In fact discounts and offers up to 5-10% are available on the official advertised price in
most of the Tier-1 cities
Residential prices have increased sharply from 2005-2012 period and consolidating since then; Prices have not matched inflation in last five years
All India average price index

180
Price CAGR: 15% 171
160 CPI Average: 10%
140
120
100
100 Price CAGR: 5% Price CAGR: 2%
CPI Average: 7% CPI Average: 4%
80
Q4-2009
Q1-2010
Q2-2010
Q3-2010
Q4-2010
Q1-2011
Q2-2011
Q3-2011
Q4-2011
Q1-2012
Q2-2012
Q3-2012
Q4-2012
Q1-2013
Q2-2013
Q3-2013
Q4-2013
Q1-2014
Q2-2014
Q3-2014
Q4-2014
Q1-2015
Q2-2015
Q3-2015
Q4-2015
Q1-2016
Q2-2016
Q3-2016
Q4-2016
Q1-2017
Q2-2017
Q3-2017
Q4-2017
Region wise also, property prices have lagged inflation returns since CY14
Real estate city wise cumulative price performance %

80% 73%
70% 59% 60%
60% 53%
42% 42% 46% 44%
50% 39%
40%
30%
20% 13%
5% 4% 7% 6% 4% 6% 3%
10% 0% 2%
0%
-10%
-20%
-30% -17%
Kolkata Hyderabad Pune Mumbai Bengaluru Chennai MMR Delhi/Gurgaon Noida All India
2010-14 2014-17
Page 6
Indian Real estate market has seen only one end user driven cycle (2003-2008) in 25 years when demand and supply increased in tandem
1993-1995 and 2011-2013 saw high interest of investors/speculators leading to sharp increase in prices despite inventory buildup
Speculative phase Consolidation phase First end user demand driven phase Speculative phase
Consolidation phase
Asian financial crisis led to

flight of capital and prices Lower job creation and GDP growth
crashing by 20% given sharp took toll on the demand further.
increase was not accompanied Post allowing FDI in sector in 2005, RERA and GST imposition creates
by any underlying demand lot of investors entered into sector disruption in the industry and
leading to prices outstripping recalibrate the model to meet real
Host of reforms post Asian financial demand by 2010 onwards. Issues end user demand
crisis led to job creation in IT sector such as piling of inventory,
with high paying salaries. This developers trust deficit and stalling
Government for the first time of project marred consumer
resulted into first end user driven
allowed NRIs to invest in Real Estate, confidence further
demand rally. Supply increased in
which led to lot of investors interest.
tandem with
Most of the investments limited to
Tier 1-2 cities
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Source: Spark Capital
Real estate market phases in India- A full cycle takes 10-15 years to complete Real estate cycles are quite long in nature compared to other asset classes:
 Typically Real estate cycle (15 years) is longest compared to other asset classes i.e.
Period Real estate cycle No. of years Equities (7-8 years), Gold (10 years) etc.
 Indian Real estate market has seen only one end user driven cycle in last 25 years
1991-1995 Rising 5 Years which is between 2004-2009 when India has seen the highest job creation and
urbanization due to flourishing IT industry .
1996-1999 Falling 4 Years
 2010-2013 rally was more driven by investors money pouring in even in Tier 2-3 cities
2000-2003 Consolidation 4 Years where there was no underlying demand trigger.
 Typically Real estate boom phase is followed by correction and consolidation phase.
2004-2009 Rising 5 Years  2014-2017 saw correction phase with demand falling off cliff and supply pressure
2010-2013 Rising 4 Years receding. Going forward, we expect the onset of recovery with consolidation phase
over next 3-4 years.
2014-2017 Correction 4 Years
Page 7
Identifying the phase of current cycle- “Falling to worst” or “Onset of recovery”
Per Capita Income  Per Capita Income 

 
INDICATORS
Affordability Affordability
Inventory  Inventory 
Commercial Property  Commercial Property 
Consumer Confidence  Consumer Confidence 
Start of Up-Cycle Consolidation

from Peak
PHASE
Equilibrium Rate
Year: 2005-2010 Year: 2011-2013 Property Demand ↔
Year: 2014-2017 Year: 2018-?

Equilibrium Rate
Property Demand ↔
PHASE
Falling to Worst Recovery
Per Capita Income  Per Capita Income 

INDICATORS
Affordability  Affordability 
Inventory  Inventory 
Commercial Property  Commercial Property 
Consumer Confidence  Consumer Confidence 
Page 8
Assessing Real estate demand potential in India- Shortage of 0.8mn houses in urban areas in Mid/High income group segment as of 2012
Real estate industry size is US$100bn and contributes 5-6% to GDP Housing shortage as of 2012 in MIG/HIG segment
Total housing demand in India MIG and above,

US$100bn 40mn 0.8mn , 4%
100% 6%
10% Most of the
30%
80%
organized developers
60%
focus on this pie
23%
40% 84%
LIG, 7.4mn , 40%
EWS, 10.6mn , 56%
20% 47%
0%
Value Volume
Social Mid-segment Luxury
Source: Census 2011, GoI, Spark Capital
Majority of demand in India is still led by population and urbanization growth unlike China and USA Indian Real estate market remains at a very nascent
stage; Huge latent demand due to urbanization:
 With increasing GDP per capita income, Real estate
Demand drivers India China USA What decides the buying? demand graduates from basic need led to investment
led.
 India has a very high latent demand due to housing
Population growth High Moderate Low  Basic requirement shortage, lower per capita income and rapid pace of
urbanization.
 Job creation, Salary levels, Affordability, Urban  On the contrary, China has seen large scale of
Urbanisation High Moderate Low urbanization in last 10 years which led to its property
Infrastructure development
market growing by almost 10x+ in last 15 years.
 Given current economic parameters such as GDP size,
Upgradation Moderate High High  High disposable income urbanization rate, per capita income, demographics in
India mirrors that of China of 2003, we expect underlying
structural demand to remain intact atleast for next 10
Aspirational Low High High  Investment years.
Page 9
Urbanisation and Nuclearisation remains the key demand driver for housing stock growth in India
Housing shortage for MIG/HIG segment in urban areas increases by 0.8mn due to just population and urbanization growth
Assuming MIG/HIG
Population + Urbanisation Nuclearisation requirement
remains 4% of
439
overall new
98 20 mn demand 0.8 mn
78 new
shortage for
390 households
MIG/HIG
Requirement
segment
in 5 years
2011 2017E 2011 2017E
Total Urban Population in mn Total Urban Households in mn
Source: World Bank, Spark Capital
India demographics are favorable enough to generate demand over next few
Migration to cities grew at 2x pace between 2001-2011 than in 1991-2001
decades
Migrants stating economic reasons for migration (million) 45.0% 18% of the population (~225mn or 41.1%
40.0% 50mn households) will be ready to
60 2.4% 4.5%
buy their first homes after 5 years
35.0%
50 27.3%
51 30.0%
40 25.0%
33
20.0% 17.8%
30 26
15.0%
20
10.0% 7.5% 6.2%
10 5.0%
0 0.0%
1991 2001 2011 0-14 years 15-24 years 25-54 years 54-64 years 65 years+
Source: Economic Survey-2016-17, Spark Capital Source: Census, Spark Capital
Page 10
Despite high latent demand and housing shortage, Current demand remains subdued due to lower consumer confidence, unaffordability, declining
salary growth and job creation
Salaries in IT have been quite tepid due to falling revenue growth on increasing
IT professionals are the key source of demand in real estate cycle
automation and digitization
Others, 6% IT sector wage growth %
NRI, 11% 11%
10% 10%
IT professional, 28% 10% 9% 10%
9%
8%
8%
7%
7%
6% 6%
Businessman, 22% 5%
4%
3%
Non IT professional, 2%
33% FY11 FY12 FY13 FY14 FY15 FY16 FY17
Onshore mix continues to decline … New employees addition in FY17 and FY18 is one of the lowest
Offshore Onshore
100% New Employees added by top 6 IT companies
90% 100,000
80% 90,000
70% 80,000
67 70 70,000
60% 75
Effort mix
60,000
50%
50,000
40% 40,000
30% 30,000
20% 20,000
33 30
10% 25 10,000
0% -
2005 2010 2015 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17
Source: Spark Capital Source: Spark Capital
Page 11
Other organised sectors such as BFSI, Manufacturing and Services also grapple with lower job creation
Naukri job index y-o-y growth is one of the lowest in last three years…
Naukri job Index Y-o-Y growth %

30
25
20
15
10
5
0
-5
-10
-15
Source: Spark Capital, Naukri
New employment outlook is one of the lowest in 2018; Expect Real estate demand to remain subdued for Organized sector job outlook remains bleak
fairly long period of time
 The Naukri job index (as seen above) shows the severity of the
60 situation in terms of job creation over the last few quarters.
50 The graph on the left substantiates this while suggesting that
the job market in India as of FY18 looks very bleak.
40  The majority of jobs in cities like Bangalore, Pune and
30 Hyderabad were formerly in the IT space. But this trend is
expected to shift due to the advent of GICs, E-Commerce
20
companies and start-ups.
10  However, since these companies are still finding a footing in
0 India, aggressive hiring is yet to take place. Cities like
Hyderabad, Bangalore, Gurugram and Pune are still expected to
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
-10 do well as far as job creation in concerned.
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017  Given subdued employment outlook, we expect Real estate
-20
demand to remain similar to seen in 2015-16.
Net Employment Outlook Seasonally Adjusted Outlook
Source: Manpower consulting, Spark Capital; No bar indicates net employment outlook of zero
Page 12
While real estate demand in 2017 remains cyclically lowest in last decade due to consumer confidence amid job creation, industry goes through
self correcting mode on supply side leading to onset of recovery stage
Comfortable balance sheet position of

organized developers
Developers Focus on
Product and affordability
Receding supply, Improving inventory

position
Steady Commercial demand
Organized players increasing markets

No Investor Demand
share
Affordability Regulatory support
Page 13
#1. Affordability: While salary growth has been subdued in last few years but there are host of factors such as range bound property prices, lower
mortgage rates and tax incentives have only increased affordability
Factors affecting Real estate affordability in India
One of the biggest driver to affect demand.

While prices have increased steeply by 170%
between 2008-13, Last 5 year prices have
not gone anywhere
Salary levels for organized industry and esp.
IT has been subdued in last few years
Salary Price
Levels
Developers are focusing more on 1-2

AFFORDABILITY BHK’s or compact units to make
Product affordable for buyers
Availability
Interest
Rate
Lower interest rates and availability Tax Tax incentives upto Rs.0.2mn for interest
of high tenor loans has certainly Incentives repayment for first home buyers and upto
made EMI’s more affordable in last Rs.0.2mn loss set off for second home
few years buyers. Additional incentives under PMAY
scheme for MIG I and MIG II buyers
Page 14
While salary growth has certainly come off in last couple of years, but if seen in context of property prices, affordability has improved only
Salary growth in last couples of years have come down with IT sector witnessing the maximum slowdown
14%
13%
12%
12%
10% 10% 10% 10%
10% 10% 10%
10% 9% 9%
8%
8% 7%
6%
6%
4%
2%
FY11 FY12 FY13 FY14 FY15 FY16 FY17
Organized sector wage growth, % IT sector wage growth %

But given RE prices have also gone through a time correction, affordability has certainly improved to a sweet spot
240
220 222
200
180 186
160 177
140
120 100
100
80
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E
Organized sector wage IT sector wage RE Prices

Page 15
Lower mortgage rates and high tenor products have increased the affordability as well
While Govt plugged in the loophole in second home buy, tax incentives remains
Interest rates have been at lowest levels in last 10 years
same in First home buy
20.0 SBI Housing loan rate % Tax Benefits On Principal Repaid On Interest Paid
18.0
Upto Rs. 0.2 mn (Rs. 0.3 mn for seniors)
First Home – Self Upto Rs. 0.15 mn (Rs. 0.2 mn for
16.0 deductible if construction is completed in
Occupied seniors) deductible under 80C
14.0 5 years since start of loan term
12.5
12.0 Additional exemption of upto Rs. 50,000
on interest paid for loans upto Rs.3.5 mn
10.0 with cost of home upto Rs.5 mn.
8.0 8.7
8.3 Upto Rs. 0.15 mn (Rs. 0.2 mn for
First Home – Lower of actual interest paid by owner or
6.0 senior citizens) deductible if owner is
Rented/ Vacant Rs. 0.2 mn
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
living in different city
Lower of actual interest paid by owner or
Second Home None
Rs. 0.2 mn
Under
Construction None Upto Rs. 0.2 mn deductible
Property
Coupled with longer tenor for the loan increases affordability
Tax incentives alone increase saving in EMI to the tune of 12% for loan value of
Increase in affordability Loan Tenor
Rs.5mn
to change in tenor and
pricing 10 Yrs 15 Yrs 20 Yrs 25 Yrs 30 Yrs Tax benefit on first house
In Rs.mn Case I Case II
9.0% 0% 20% 29% 34% 36% Property Value 5.0 7.5
Loan amount 4.0 6.0
Interest Rate on
8.5% 2% 22% 31% 36% 39%

Home Loans
Annualised Interest Cost 8.5% 8.5%

Interest 0.3 0.5
8.0% 4% 25% 34% 39% 42%
Amount applicable for exemption 0.3 0.2
7.5% 6% 27% 36% 42% 45% Effective tax rate 20% 20%
Tax Savings 50,000 40,000
7.0% 8% 29% 39% 44% 47% Savings as % of total annual installment 12% 6%
Page 16
Affordability in Mumbai, Bangalore and Jaipur- Analyzing affordability in last 10 years
Table showing affordability in Metros, Tier 1 and Tier 2 cities: Affordability has improved in Tier 1 and Tier 2 cities despite lower salary hikes
Mumbai- Suburbs Bangalore Ahmedabad
2007 2012 2017 2007 2012 2017 2007 2012 2017
Price/sq-ft 6,500 10,953 13,979 3,500 4,800 5,500 2,000 2,740 3,100
% CAGR 11% 5% 7% 3% 7% 3%
Size of house 900 900 900 1,200 1,200 1,200 1,200 1,200 1,200
Cost of house (Rs.mn) 5.9 9.9 12.6 4.2 5.8 6.6 2.4 3.3 3.7
Loan eligibility (70% of house cost) 4.1 6.9 8.8 2.9 4.0 4.6 1.7 2.3 2.6
Interest rate 10% 11% 9% 10% 11% 9% 10% 11% 9%
EMI in Rs. 39,518 71,224 76,427 28,372 41,618 40,093 16,212 23,758 22,600
Annual income in Rs.mn 1.0 1.5 1.9 0.7 1.0 1.3 0.4 0.6 0.8
Increase in income % 8% 5% 8% 5% 8% 5%
Post tax monthly income in Rs. 66,667 97,955 125,018 46,667 68,569 87,513 30,000 44,080 53,133
EMI to income ratio 47% 58% 49% 49% 49% 37% 49% 49% 36%
House to income ratio 5.9 6.7 6.7 6.0 5.6 5.0 6.0 5.6 5.0
Page 17
Affordable housing push by Govt. will further aid in increasing affordability and high launches in sub 5mn ticket size
Incentives to developers and consumers for affordable housing PMAY CLSS subsidy component reduces EMI burden by 5-10%
Incentives for Developers Incentives for Buyers

Savings on EMI MIG I MIG II
Slashing of tax rate from 10% to 5% for
Cheaper financing options as affordable housing
individuals in the lowest income slab (Rs. 2.5-
was granted infrastructure status Loan Amount (Rs. Mn) 3 5
5 lakh)
Better liquidity due to capital from pension Additional tax benefit of Rs. 50,000 over the
funds/insurance funds 80C amount of Rs. 2 lakh
Interest 9% 9%
Completion period on affordable housing Tax on interest paid is deductible upto Rs. 2
projects increased to 5 years from 3 years lakh per annum for self occupied properties
Tenor (years) 20 20
One-year tax exemption from notional rental Change in built-up area to carpet area
income from unsold inventory after obtaining requirement of 30 and 60 sqm provides for
completion certificate bigger houses
EMI without subsidy (Rs.) 26,992 44,986
Details of PMAY-CLSS component for MIG I and MIG II Subsidy (Rs.) 2,35,068 2,30,156
MIG I MIG II
Net Principal 27,64,932 47,69,844
Household Income in Rs.mn 6 to 12 12 to 18
Interest Subsidy 4% 3% EMI post subsidy (Rs.) 24,877 42,916
Max Loan Tenor in years 20 20

Savings per month (Rs.) 2,115 2,071
Eligible loan amount for subsidy in Rs. 9,00,000 12,00,000
Savings % on EMI 7.80% 4.60%

Carpet Area (in sq.mts) 90 110
Page 18
All major listed players are recalibrating their business models to accommodate demand from lower ticket size
“With this partnership, we are poised to grow

manifold, and it will help us continue to build on
This Government scheme means great news for
the legacy of trust and efficacy that we are known
us, as it will lower developers’ borrowing costs “Yes, I think certainly we feel there are a large
for. Our endeavour is to scale up our residential
and increase homebuyer loan limits for affordable number of our existing projects for which could
platform, especially in the affordable housing
housing. In a move that shows that SOBHA has take benefit of the new affordable housing
sector that’s picked up huge demand and is
always looked ahead and has been future ready, benefits especially I think the government is
currently vacuumed of supply and we are positive
the Company has already ventured into the 650 obviously made its intent clear in terms of driving
that this platform will facilitate long-term,
sq. feet to 1200 sq. feet segment, a new growth the growth for this part of the sector.”
sustainable value creation.” – Irfan Razack
vertical through the launch of SOBHA Dream — Pirojsha Godrej
(Chariman and MD, PEPL) on the partnership with
Acres.
HDFC Capital to jointly invest Rs. 2,500 crore in
affordable housing.
Provident brand is attractively placed to capitalise

on the projected growth of the affordable housing
“The affordable housing segment is a key focus
sector – with sales of 0.62 mn sq. ft in 2016-17 and
To play on the Government’s affordable stimulus area for Mahindra Lifespaces, and will play an
a pipeline of 4.9 mn sq.ft. Our development
theme, the Company is also evaluating an important role in our development journey. We
pipeline has a bias towards value-for money and
expansion into the affordable housing in are delighted to kickstart 2018 with the launch of
affordable housing. We have already rolled out
subsequent phases of existing projects, which Happinest – Palghar, the first of multiple
the CLSS across our brands and markets, and the
could help drive pre-sales growth. affordable housing projects envisioned under our
initial response has been encouraging has grown
joint venture with HDFC Capital.”
from strength to strength, having successfully
completed a cumulative 7.70 mn sq. ft.
NCR-based real estate player Supertech on Friday

announced an affordable housing project 'Basera'
“This subvention scheme has come for the first
in Gurgaon Manesar Urban Complex region.
“..we are selectively evaluating opportunities in time for middle class home buyer with annual
The company will offer flats ranging from Rs 12
the mid-income value homes segment as well, income of upto `18 Lakhs. This is also our target
lakh to Rs 20 lakh.
under a new brand, where using the benefits customer segment and we expect this scheme to
The proposed project will be developed as per the
available under the affordable housing boost demand from first time home buyers as it
terms and conditions of the policy prescribed by
regulations, we will maintain our profitability will make the houses more affordable. In fact, we
the Town and Country Planning Department,
levels.” have already achieved some bookings under the
Government of Haryana, Supertech Chairman R K
CLSS.”
Arora said.
Source: Nov, 2014 The Hindu Business Line
Page 19
Expect affordable housing or mid-segment demand to be the key growth driver over next two-three years
We expect Rs.3-5mn ticket size units to see strong growth traction
Affordable Housing/Low Cost

Mid-segment housing Premium/Luxury Housing
Housing
Demand
High Moderate Low
expectations
Supply/New
launches Increasing Moderate Reducing
Unsold Inventory Low Moderate High
Medium term Prices to remain steady as we believe price correction is difficult given higher
Prices to remain under pressure
outlook on prices input costs and lower margins in segment
Page 20
Given lower profit margins, supply will take time to scale up
Comparative P&L of a typical middle income project and affordable housing
(Rs/sf) Mid-segment Affordable Assumptions
Ticket size in Rs.mn 5.0 4.0  Affordable housing price is lower than Mid-segment housing
Saleable area in sf 900 900  Assumed 900sf SBA
Selling price (Rs/sf) 5,556 4,444  Around 25% premium pricing on per/sf basis for similar location
Costs (Rs/sf) 
Land cost 1,000 850  Land cost correction of 15% correction reflected for both
Cost of construction 2,000 1,700  Cost of construction is lower for affordable housing
Other costs 500 500  Overheads to remain same
Operating costs 3,500 3,050 
EBITDA 2,056 1,394 
EBITDA margins % 37% 31% 
Interest cost (%) 10% 9%  Lower interest cost due to infra status
Interest during construction 980 769  Assuming 30% is funded by customer advances; Rest by debt for four year construction cycle
PBT 1,075 626 
PBT margin 19% 14% 
Tax rate (%) 34% 20%  Assume MAT applicable for affordable project
PAT 1,072 625 

 Post tax margins are quite low in affordable housing. Any project delay will lead to cost
PAT margins % 19% 14%
overruns and lower returns
Page 21
#2. RERA will aid in increasing lost consumer confidence by increasing accountability for developers; Expect consolidation in industry to accelerate
on increased compliances and lower project IRR’s
The Real Estate (Regulation and Development) Act which came into force on 1 st May 2016, seeks to protect home-buyers as well as help boost
investments in the real estate industry. The Act establishes Real Estate Regulatory Authority (RERA) in each state for regulation of the real estate
sector and also acts as an adjudicating body for speedy dispute redressal. This regulatory authority aims to safeguard consumers interest by
monitoring development process from registering to the delivery of projects.
Impact on Developers
RERA Impact on Consumers
Real Estate Regulation Act
 Fine up to 10% in case of any regulatory offences

 Delay in delivery can lead to fine/jail time for developer  Compensation of full amount or interest on amount provided in case
Penalties Penalties
of delay
 Compensation of full amount or interest on amount provided in case
of delay
Buyers can
 Need to provide title reports, disclosures about court cases and  The buyer (s) has the right to claim possession of the unit (s) as
claim
incumbrancers, if any. declared by the developer during time of sale.
Transparency possession
 Mandatory registrations increase compliance cost of project
 Need for consistent ethical behavior  Buyer can file complaint if there are any changes made without
Consent for
consent.
 Separate escrows for each project with 70% of cash collections (ex- plan changes
land costs)  In case of a group of buyers, consent of 2/3rd members is needed
Cashflows  Development of project can only be done with cash collected for that
project  All disclosures and information pertaining to the project(s) should be
 Increased working capital requirements Disclosures made available on the RERA website
 Promoter/developer information should be given to buyers
Business  Development plans cannot be changed without prior consent
Development  Consumers are to be educated on development plans
Compensatio  Promoter need to give the buyer a schedule delineating the
Plan  Legal costs for due diligence increases
n for delay compensation in case the timeline isn't met
 Project has to be compulsorily registered with RERA before
marketing
Presales and Defect
 Project launches will be delayed due to conservative delivery date set  If a buyer finds any inherent defect within five years from the date of
launches Rectification acquisition, the developer must rectify it without further charge
by developer
 Each phase of a project needs to get an approval
Page 22
RERA will accelerate industry consolidation as cash flows post RERA will be more back loaded leading to high equity requirements from developers
RERA if enforced stringently will warrant rethinking of the business model for most of developers
Industry Smaller players with lack of strong financial and execution capability may find it challenging to
consolidation survive, leading to consolidation
Increased project Registration with the RERA and insurance cost for construction and land title, mayReal
result in higher
estate traditionally
cost project costs has worked
Pre-launch concept would be a thing of the past; land and approval costs would have to be meted out
Tight liquidity
of internal accruals
Rise in cost of
The cost of capital may go up as developers need to fund the land and approval cost through equity
capital
Initial backlog A lot of work needs to be done initially to get the existing and new projects registered
Increased project The project launch time may increase since a lot of time would be invested in finalizing the finer
launch time details before a project launch
Page 23
RERA will leads to consolidation in highly fragmented industry
Real estate industry size is pecked at ~100bn currently… …but industry is highly unorganized as well as fragmented
180
Indian Real estate Industry size in US$bn Commercial
160 15%
160
140
Un organized 85%
120
100 90
80 Residential
60 85%
60 Organized 15%
40
16
20
0
2006 2010 2015 2020E
Top 30 players in each market holds less than 30% of market share of organized industry
Top 30 players market share as % of organised market in CY17

35% 31%
30% 28%
25% 24%
25% 22% 22%
20%
20% 16%
15%
10%
5%
0%
Kolkata NCR Bengaluru Chennai MMR All India Hyderabad Pune
Source: Spark Capital , Propequity
Page 24
Type of players- Unorganised players will have to rethink their business model given stringent clauses in RERA
Real estate sector is mushroomed with number of players given no barriers to entry. Lot of land owners have also become developers given development can be funded
through customer advances
Market share 0.5%-1% 3%-6% 9%-13% 80%-85%
Unorganized players/Fly by
Business model Pan India players Regional players- Grade A Regional players- Grade B
night operators
 Regional players who are  Regional players who have

 Developers who are using
having strong brand recall in graduated from unorganized
brand equity built in one  Land owners turned
Description their region only. Sell at a to organized in last decade.
region and scaling up Pan- developers
good premium compared to Investing right now to create
India.
even Pan India players brand equity now.
 Good quality at reasonable

 Strong regional brand recall
price points
 Localized knowledge of the
 Execution capability consumer needs  Decent execution track
 Trust with brand  Impeccable execution record  15-20% discount to organized
Key selling point
 Quality of development  Providing an exclusive feel to  Pricing is at 5-10% discount players
the consumers to Grade A players
Examples
Page 25
70% customer advances deposit in escrow account will lead to working capital issues in the industry given high pilferage of cash between projects
earlier
Developer could Consumer Developer has to

shift cash maintain separate
between various escrow for each
projects Developer receives initial down payment project
Customer pays to
extent of demand raised
Developer Bank Account Monitored
Bank verifies
construction
progress
Multiple Projects Project A
Developer had the provision to move cash between Developer has to use money meant only for the
projects; cash was fungible specific project causing working capital crunch.
Pre RERA Cash flow Post RERA Cash flow

Page 26
Given high dependency of developers on customer advances, we expect IRR’s to come down significantly as RERA required customer advances to remain escrow account and
debit is linked to construction progress. This will require high equity contribution from developers
Pre RERA Post RERA
Construction Collection Cumulative Cumulative
Net cash Net cash
Schedule Schedule cash flows cash flows
Outflow Inflow flows to Outflow Inflow flows to
to to
developer developer
developer developer
Year 0 0% 0% (1,000) 0 (1,000) (1000) (1000) 0 (1,000) (1000)

Project assumptions on per
sqft basis:
 Total Selling price: Rs.
Year 1 10% 20% (250) 1,000 750 (250) (250) 550 300 (700) 5,000
 Land cost: Rs.1,000
 Construction cost:
Rs.2,500
Year 2 20% 30% (500) 1,500 1,000 750 (500) 1,075 575 (125) Gross margins: 30%
 Project Completion cycle
of 5 years
 Project sold at the launch
Year 3 20% 25% (500) 1,250 750 1500 (500) 1,188 688 563
Year 4 25% 15% (625) 750 125 1625 (625) 1,125 500 1063
Year 5 25% 10% (625) 500 (125) 1500 (625) 1,063 438 1500
Project
35% - 45% 15% - 25%
IRR

Page 27
While CY17 witnessed subdued launches, market share of organized players has increased sharply in all the markets
Launches share of top 30 players increased to 42% CY17 from 33% in CY16 CY17 witnessed sharp increase in launches share of top 30
developers:
 RERA came into force in May 2016 and most of the states have
Top 30 players market share of total launches adopted the regulation in 2HCY17.
45%
42%
 While it is too early to conclude on the changes adopted by
40% unorganized developers, organized developers have already started
increasing the launches frequency given their projects were already
35% 33% RERA compliant.
32%
31% 30%  Top 30 players by share in overall launches have increased to 42%
30% 28% in CY17 from 33% in CY16.
 Analyzing individual cities also depict the same picture. Barring
25% Chennai where launches by both organized and unorganized
developers have been on halt in last two years, top 30 developers
20% in all other cities have seen significant increase in launch share.
2012 2013 2014 2015 2016 2017
Note: Tier 1 cities comprise 7 top cities i.e. MMR, NCR, Chennai, Bangalore, Kolkata, Hyderabad, Pune by absorption. Source: Spark Capital , Propequity
Barring Chennai where launches by both organized and unorganized developers have been on halt in last two years, top 30 developers in all other cities have seen significant
increase in launch share
Top 30 players market share of total launches
80%
68%
70% 62%
60%
46% 44% 46%
50% 42%
40% 33% 32% 35% 34%
31% 31%
30% 26% 26%
20%
10%
0%
Pune Bengaluru Chennai Hyderabad Kolkata NCR MMR
2016 2017
Note: Tier 1 cities comprise 7 top cities i.e. MMR, NCR, Chennai, Bangalore, Kolkata, Hyderabad, Pune by absorption. Source: Spark Capital , Propequity
Page 28
#3. Commercial Real estate: While Residential segment saw demand falling from cliff, Commercial demand remained quite stable in last couple of
years
Pan India new supply declined to 35mn sq-ft in CY17 from last three year average
Commercial real estate credit growth has been tepid in last 3-4 years
of 40mn sq-ft.
80 Pan India new supply in mn sqft Commercial Real estate credit growth (% y-o-y)
70 67
25.0%
22%
60 55 20.0% 18% 17%
52
15.0%
50 45 10%
41 41 10.0%
38
40 36 34 35 3%
5.0% 5%
30 2%
0.0%
20 -5.0%
-3%
10 -10.0%
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Spark Capital , Propequity Source: Spark Capital
But good absorption rate amid tight supply led to lower vacancy rates Vacancy rates at decadal lows in 2018
All India Occupancy in mn sqft All India Vacancy rate %

35%
50
Despite residential demand 29%
48 30% 27%
46 48 48 decline, commercial
25% 22%
44 absorption is steady
19% 19% 19%
42 43 43 20% 17%
43 15%
40 42 14% 14%
41 15%
38 39
39 10%
36
34 5%
32
30 0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Spark Capital , Propequity Source: Spark Capital , Propequity
Page 29
Analyzing individual regions paints a contrasting picture- Bangalore ,Hyderabad and Pune markets have seen increase in absorption in last three
years
Bangalore and Hyderabad commercial markets have seen the highest absorption compared to other cities
35 31.5 Cumulative absorption in mn-sqft

30 26.6
25
20.7 19.7
18.6
20 16.2
14.3 14.4
15 13.0
11.7 10.6
10 7.3 7.0 6.8 7.8 7.1 6.7
5.2
5
0
Bengaluru Noida Hyderabad Pune Kolkata Navi Mumbai/Thane Mumbai Delhi/Gurgaon Chennai
2012-14 2015-17
Vacancy rates in all the regions have fallen to the lows due to contained supply
50% Vacancy rate % 43%

45%
40% 36%
35% 31%
29% 27% 28%
30% 25%
22% 23% 24%
25% 22%
19% 20%
20%
15% 12%
7% 9%
10% 5% 6%
5%
0%
Hyderabad Chennai Pune Bengaluru Mumbai Kolkata Navi Mumbai/Thane Noida Delhi/Gurgaon
2010 Now
Page 30
Commercial segment demand has been driven by GIC (Global In-house centers) segment under IT/ITes
While slowdown in domestic IT industry is well known, GICs (Global In-house centers) have given a new lease of life to Indian commercial markets
Absorption by Industry %
0% 0% 0% 2% 4%
100% 3% 4% 4%
6% 6% 8% 4% 4%
10% 7%
18% 6% 7% 9%
80% 22% 15% 15% 12%
13% 26% 29% 23% 15%
10%
60% 21% 17% 11%
24% 16% 17% 15% 12% 14%
8% 13% 12%
11% 15% 16%
40%
23%
20%
23% 44% 36% 39% 33% 35% 38% 41% 45%
0%
2009 2010 2011 2012 2013 2014 2015 2016 2017
IT/ITES BFSI Healthcare and Telecom Industrial Consultancy Firms E-Commerce Others
Source: Spark Capital, Propequity
Global In-house captive commercial space absorption offsets the

Commercial space demand in Tier 1 cities is mainly driven by GIC’s and MNC’s slowdown in IT:
 While slowdown in IT industry India led to lower absorption by
Absorption in mn sq.ft Indian companies but this is largely offset GICs in cities like
48 48
50 43 44 43 43 Bangalore, Pune and Hyderabad.
42
39 38
40
33 32  GICs in India now employs more than 500,000 individuals and
29 31 29 30
31 generating approximately $23 billion in revenue.
27 26
30  As per estimates, GIC’s revenues to grow by 10-11% compared to
Indian IT companies growth of 7-8% and total employees
20
strength to double in next five years.
10  Salary levels at these GICS are almost 15-20% higher than Indian
14 14 16 13 12 10 15 14 11 IT companies.
-
2009 2010 2011 2012 2013 2014 2015 2016 2017
 Of top 10 largest lease absorption transactions in India in 2017, 8
Indian Companies MNC's Total
are absorbed by these GIC’s.
Page 31
Salaries paid by these GHC’s are much better than conventional IT
While slowdown in domestic IT industry is well known, GICs (Global house captives) have given a new lease of life to Indian commercial markets
160
Revenue growth of IT/ITES Companies in USD bn 10
140 9
8
120 7
7 61
100 7 55
6 51
80 6 48
6 45
5 41
60 4 36
4 30
4 29
40 3 26 73 80
2 22 23 60 66
1 19 51 56
20 16 40 46
13 29 35
9 13 19 21 22
0 7 9
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Top 6 Indian IT companies MNCs/Captives/Unlisted companies Mid Cap IT companies
While slowdown in domestic IT industry is well known, GICs (Global house

Salaries in GIC’s are 15-20% higher than domestic IT companies
captives) have given a new lease of life to Indian commercial markets
Number of MNCs with GICs Workforce Average Salary Range (Rs. Mn) Indian IT companies GICs
600,000
520,000
1200 1,125
500,000 Entry Level 0.25 to 0.3 0.4 to 0.5
950
1000
400,000 350,000
800 730 Associate 0.5 to 0.7 0.7 to 0.8
300,000
600 200,000 Manager 1.0 to 1.2 1.2 to 1.4
200,000
400
200 100,000 Senior Manager 2.0 to 2.4 2.6 to 2.9
0 0
Top Management 2.8 to 3.2 4.2 to 4.8
2010 2016 2020E 2010 2016 2020E
Page 32
Out of top 10 lease transaction in each cities, majority are from GIC’s establishments in India
While slowdown in domestic IT industry is well known, GICs (Global house captives) have given a new lease of life to Indian commercial markets
Client City Area (mn sq.ft) GIC/Indian Client City Area (mn sq.ft) GIC/Indian
TCS Mumbai 0.25 Indian Pepsi Gurugram 0.16 GIC

Teva Pharma Mumbai 0.13 GIC Google Gurugram 0.14 GIC
CoWorks Mumbai 0.10 GIC Samsung Gurugram 0.10 GIC
Rosneft Mumbai 0.07 GIC Wework Gurugram 0.08 GIC
Ajanta Pharma Ltd. Mumbai 0.02 Indian KPMG Gurugram 0.70 GIC
Siemens Bengaluru 0.60 GIC Mitsui New Delhi 0.06 GIC
Microsoft Bengaluru 0.59 GIC NSDC New Delhi 0.06 GIC
Qualcomm Bengaluru 0.56 GIC WHO New Delhi 0.05 GIC
Lowe's Services Bengaluru 0.49 GIC Cistera New Delhi 0.03 GIC
Anthem Bengaluru 0.48 GIC Chegg India New Delhi 0.03 GIC
Amazon Chennai 0.47 GIC TIAA Global Pune 0.20 GIC
Valeo Chennai 0.20 GIC Barclays TC Pune 0.10 GIC
BNY Mellon Chennai 0.19 GIC HSBC Software Development Pune 0.09 GIC
Wells Fargo Chennai 0.12 GIC Microland Ltd. Pune 0.09 Indian
Renault Nissan Chennai 0.12 GIC HSBC Software Development Pune 0.08 GIC
Amazon Noida 0.15 GIC Deloitte Hyderabad 1.40 GIC
Intel Noida 0.12 GIC Qualcomm Hyderabad 0.20 GIC
Ameriprise Noida 0.12 GIC Microsoft Hyderabad 0.17 GIC
NTT Data Noida 0.10 GIC Redbrick Hyderabad 0.14 Indian
3 Piller Noida 0.06 GIC Service Now Hyderabad 0.14 GIC

Page 33
Private equity investments have also increased in commercial due to steady rentals and rental yield
Private equity investments in commercial has almost doubled in 2017 Major deals executed in last two years
200 Target Buyer Location Value (Rs. Bn) Date

176
150 December,
115 Phoenix Group Altico Capital Multiple cities 6.5
2017
100 83
67
49
50 38 32 December,
L&T Realty Blackstone Mumbai 10.0
10 2017
-
2010 2011 2012 2013 2014 2015 2016 2017
PE Investment in Commercial RE (Rs.bn)

December,
DLF Promoters GIC, Singapore Delhi-NCR 86.0
2017
Rental yields are quite attractive in most of the Tier 1 cities Embassy Group Piramal Multiple Cities 6.0 June, 2017
12.0%
11.1%
11.0% Brookfield Asset December,
9.8% 9.9% Hiranandani Group Mumbai 67.0
10.0% 9.2% 9.2%
Management 2016
9.0% 8.5%
7.9%
8.0%
December,
7.0% Essar Group RMZ Corp, QIA Mumbai 24.0
2016
6.0%
5.0%
Pune Kolkata Hyderabad Chennai NCR MMR Bengaluru
Salarpuria February,
Blackstone Hyderabad 4.5
Gross Commercial Rental Yields Knowledge City 2016
Source: Spark Capital , Propequity Source: Spark Capital
Page 34
#4. Inventory analysis: Inventory level seems high but declining new launches led to receding inventory levels since last two years
While absolute Inventory (includes under construction) came down in last 2 years
New launches have been lower than absorption in last two years
due to lower launches, absorption rate has fallen from cliff in CY17
100 Absorption versus new launches (In thousands) 30% 25%
23%
60 18% While inventory
20% 13% declined in last 1 year,
50 Absorption < New launches
28 absorption levels saw
9 10% 4% 4% higher decline
4
0 0%
-1% 0% -1%
(18) -10% -4%
Absorption Absorption -7%
(50) (34) -9%
> New > New -13%
-20%
launches launches
(100) (98) -30%
(94) -30%
(126) (113)
(130) -40%
(150) 2011 2012 2013 2014 2015 2016 2017
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Inventory y-o-y growth % Absorption y-o-y growth %
If absorption rate increases to average of 2011-17, # of years to absorb current

This lead to optically higher inventory days
inventory (including under construction) will be just 2.6 years
1,000 875
# of years to absorb current inventory at various absorption rate
Put in inventory in 841 866
900 months in data label 805 4.5 4.0
743
800 4.0
700 631 3.3
3.5
600 505 3.0 2.6
500 411 2.2
2.5
400 281 2.0
267 263
300
361 357 357 344 1.5
200 300 311 284
274 1.0
100 196 221 199
0.5
-
-
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Last 1Y Absorption Last 2Y avg Absorption Avg. cycle absorption Peak absorption (2011-
Inventory- All India (In Thousands) Absorption- All India (In Thousands) (2011-17) 17)
Source: Spark Capital , Propequity Source: Spark Capital , Propequity
Page 35
Given last years absorption has been lowest of last 10 years, # of years to absorb inventory seems optically high
MMR and NCR holds 55% of over all Pan India inventory
300 Inventory in thousands

250 37%
200 2%
150
59% 280
42%
100 205
-3% 166
82% 122 1% 105 163
50
76 74
48 38 38 48 47
26
-
Kolkata Pune Hyderabad Chennai Bengaluru MMR NCR
-50
2012 2017 Increase in inventory %
Given last years absorption has been lowest of last 10 years, # of years to absorb current inventory at average of CY
8.0 # of years to absorb current inventory (includes underconstruction) at various absorption rate 6.9
7.0
6.0
5.0 4.4
3.9 4.0
4.0 3.4 3.5
3.1 3.2
2.8 2.9 2.7
3.0 2.4 2.2 2.4
2.0 2.1 2.1
1.8 1.7 1.6
2.0 1.5
1.0
-
Kolkata Pune Hyderabad Chennai Bengaluru MMR NCR
Last 1Y Absorption Avg. cycle absorption (2011-17) Peak absorption in 2011-17
Page 36
1-2 BHK inventory contributes 67% to overall inventory levels as maximum new launches in last two years have been in this unit size
33% of overall inventory lies in 3BHK+ category which is also high ticket size and unaffordable for most of the consumers
Inventory breakup by BHK

Noida/Greater Navi
Bangalore Chennai Hyderabad Pune Kolkata Gurugram Mumbai All India
Noida Mumbai/Thane
1 BHK 8% 14% 4% 34% 13% 6% 9% 23% 51% 25%
2 BHK 41% 45% 33% 51% 41% 30% 41% 44% 39% 42%
3 BHK 42% 36% 49% 13% 38% 44% 41% 26% 9% 27%
>4BHK 8% 5% 14% 2% 8% 21% 9% 7% 1% 6%
Total inventory in
104,656 46,562 37,707 119,260 47,529 31,060 98,089 83,755 192,447
units
MMR and Gurugram has the highest median prices for 3 BHK and above ticket size
Median price in Rs.mn

Noida/Greater Navi
Bangalore Chennai Hyderabad Pune Kolkata Gurugram Mumbai
Noida Mumbai/Thane
1 BHK 2.7 2.7 1.8 2.4 1.1 3.2 3.5 7.6 2.5
2 BHK 4.9 4.3 4.2 4.5 2.8 6.8 4.2 15.1 5.3
3 BHK 8.5 7.7 8.0 9.2 4.8 11.6 6.5 29.2 10.9
>4BHK 24.2 19.6 17.6 32.9 14.3 25.8 12.4 76.6 22.5
Page 37
Deconstructing total inventory into Ready to move in and under construction inventory
Given high proportion of completed inventory in Chennai and NCR, we expect
Only 10% of overall inventory is completed but not sold
lower launches in coming years
Completed inventory as % of total inventory Completed inventory as % of last 2 year average absorption
19% 70% 66%
20%
18%
60%
16%
14% 12% 50%
40%
12% 10% 40%
9% 9% 33% 33% 32%
10% 9% 9% 9% 29%
30% 25%
8%
19%
6% 20%
4%
10%
2%
0% 0%
Chennai Bengaluru All India Hyderabad MMR Pune Kolkata NCR Chennai NCR Bengaluru All India MMR Kolkata Pune Hyderabad

Completed units can at best meet the current demand assuming the entire current inventory gets completed as per schedule. Expect 30-40% of under construction inventory
to not get completed on time due to funding issues of developers. In this scenario, Tier 1 developers will plan their launches now to meet demand starting from 2019
onwards.
Unsold Expected year to deliver Expected completed inventory in thousands Completed inventory as % of total absorption (last 2Y avg)
Ready to
inventory
move 2018 2019 2020 2021 Currently 2018 2019 2020 2021 Currently 2018 2019 2020 2021
breakup
Chennai 19% 28% 22% 23% 8% 9 13 10 11 4 66% 95% 76% 81% 27%
Bengaluru 12% 28% 23% 22% 15% 13 29 24 23 16 33% 75% 61% 59% 41%
Hyderabad 9% 31% 29% 18% 13% 4 12 11 7 5 19% 63% 59% 38% 27%
Pune 9% 27% 28% 21% 16% 11 32 34 25 20 25% 77% 80% 61% 48%
Kolkata 9% 20% 30% 31% 10% 4 10 14 15 5 29% 67% 100% 102% 32%
MMR 9% 17% 21% 22% 32% 25 46 59 60 89 32% 59% 76% 77% 113%
NCR 9% 19% 23% 28% 22% 14 32 38 46 36 40% 90% 105% 129% 102%
All India 10% 22% 24% 23% 22% 80 174 190 187 174 33% 72% 79% 77% 72%
Page 38
While inventory remains high in the system, we expect 20% of this inventory to remain incomplete as developers grapple with working capital
issues
Barring NCR and Chennai, top 30 players in each city holds less than 30% of total inventory with organized players
Share of inventory with top 30 players in each city

70%
62%
60%
50%
41% 39%
40% 36% 34%
32% 33% 31%
30% 24%
20%
10%
0%
Pune Bengaluru Chennai Hyderabad Kolkata New Delhi/Gurugram Noida Navi Mumbai/Thane All India
Almost 20% of the current inventory remains on hold (no construction or selling progresses) due to developers
working capital issues Tier 2-3 developers reel under pressure due to working
capital issues; 20% of current inventory remains on
% of inventory on hold hold
30%  Lower demand and cash crunch led to working capital
27%
25% issues with most of smaller tier 2-3 and unorganized
25% developers.
20% 20%
18% 19% 20%  According to Propequity estimates, almost 20% of the
20%
total unsold inventory is on hold (no construction or
15% selling) due to developers capital issues.
10%  As a result, we expect one-fifth of current unsold
10% inventory to continue to get delayed.
5%  Typically, developers gets 50% of the customer
advances in first 2 years of project development so
0% developers have no onus to complete the project if
Pune Hyderabad MMR All India Bengaluru Kolkata Chennai NCR working capital issues arises post first two years.
Page 39
#5. Current Real estate demand is entirely end user led; Regions marked by higher investor led demand saw highest demand price correction
Investors led demand for new launches have declined sharply over past five years NCR region saw the highest investors participation in last real estate boom
120
End user to Investor proportion in last Real estate cycle
120
100
Real estate demand %
11 100
19
80 32 20 20 20 30 25 30
80 40 45 55
60 60
89 40 80 80 80 75
40 81 70 70 60 55 45
68 20
20 0
Bangalore Chennai Hyderabad Pune Thane Mumbai Navi Gurugram NCR (Ex
- Mumbai Gurugram)
2007 2012 2017
End User Investor End User Investor
Investor led demand in Real estate remains weak; Shift from

Investors generally flock an asset class post 1-2 years of good return; Currently Investors flows are
physical to financials savings exacerbates the slowdown:
skewed towards Equity markets
 Traditionally, Real estate has seen higher investor interest in last
speculative period of 2011-13.
Price Performance CAGR of various asset classes
 Regions like NCR and MMR saw high proportion of investors interest
14% 12% 12% with investor demand driving almost 40% of the overall demand in
12% those respective regions.
10% 9%  Investors behavior in Real estate is same as other asset classes.
7% 7%
8% Demand is sticky only until prices trends up.
6% As a result, we have seen very high launches to cater to this investor
4% 3% led demand in NCR and MMR but with no price appreciation in
1% 1%
2% immediate time period, demand has virtually dried off from this
0% pocket.
Gold RE Sensex FD  At the same time, Equity market have shown good traction in last
2010-13 2014-17
three years leading to flight of capital from physical assets to equities.
 We expect investors demand to remain subdued in immediate term
due to dim outlook for RE prices, lower rental yields and clampdown
on cash transactions prevalent in the sector.10
Page 40
Last couple of years, we have seen higher affinity towards financial savings because of subdued gold and real estate prices
Softening inflation to lead to fall in HH physical savings HH financial savings as % of GDP has increased to 41.5% in FY17 from 31% in FY12
25 75 10 64.5 70
68.9 70 8 58.0 60
20 6 4.6
65
53.9 4 50
60
15 2 40
55
0 41.5
58.5 50 31.1 30
10 -2
45 -4 20
5 40 -6
42.0 10
35 -8
0 35.5 30 -10 0
FY81
FY83
FY85
FY87
FY89
FY91
FY93
FY95
FY97
FY99
FY01
FY03
FY05
FY07
FY09
FY11
FY13
FY15
FY17
FY81
FY83
FY85
FY87
FY89
FY91
FY93
FY95
FY97
FY99
FY01
FY03
FY05
FY07
FY09
FY11
FY13
FY15
FY17
CPI inflation, % HH physical savings (% of GDP)- RHS Real interest rate (%) HH financial savings (% of GDP)- RHS
Physical asset as % of total savings has declined from 67% in FY12 to 57% in 2016 MF flows have been quite strong in last 2-3 years
250
Household Savings Breakup 200
120%
2% 1% 2% 2% 2% 150
100%
100
80%
67% 66% 62% 62% 57% 50
60%
0
40%
-50
20% 31% 33% 36% 36% 41%
-100
Apr/04
Apr/05
Apr/06
Apr/07
Apr/08
Apr/09
Apr/10
Apr/11
Apr/12
Apr/13
Apr/14
Apr/15
Apr/16
Apr/17
0%
Oct/04
Oct/05
Oct/06
Oct/07
Oct/08
Oct/09
Oct/10
Oct/11
Oct/12
Oct/13
Oct/14
Oct/15
Oct/16
Oct/17
2012 2013 2014 2015 2016
Financial Assets Physical Assets Gold and Silver

Net equity flows in MFs (Rs. bn)
Page 41
Expect investors interest to remain low due to subdued pricing environment, clampdown on cash transactions and affinity towards financial
savings
Rental yields are very low to justify any investors interest Government’s clampdown on cash transactions marred the investors interest further
Gross Rental Yield Amendment Major Regulatory Changes Implications
4.5 3.8 4.0  People who book properties

4.0 3.4 3.4 3.6 3.6
3.3
3.5 2.8 2.8 under someone else’s name
2.6 2.7
3.0  A benami transaction, as a for any reason (paying with
2.5 1.9
2.0 Benami transaction where in a property black money, tax benefits etc)
1.5 Transaction Act, is held by or transferred to a will find themselves in trouble.
1.0
0.5 2016 person, but has been provided or This law, therefore indirectly
- paid by another person. prohibits the usage of black
money in real estate
transactions.

 Real estate sector demand was
 On 8th November, 2016 Rs.500 affected the most post
Demonetization,
Investors demand typically remains low in recovery phase; Clampdown on cash and Rs.1,000 notes were stripped demonetization as 40% of the
2016
economy to lead to persistent lower demand off their status as legal tender. transactions used to happen in
cash.
 Historically, real estate in India has seen high cash transactions primarily meant to
park black money as transactions scrutiny was less. According to estimates,
almost 40% of the transactions in real estate used to happen in cash.
 The various regulatory changes that were seen in India since 2016 have a common
focus of reducing this cash transaction volumes in Real estate and make industry  A new section was added to the
more organised and accountable. Income Tax Act which banned  This has really dampened the
Limit on Cash
 We believe all the measures such as “Limit on cash transaction” and “Benami cash transactions of Rs. 0.2mn demand from unorganised
Transactions (
Transaction act” will further decelerate demand from unorganised segment who and more on a single day, segment who formerly used
Income Tax Act),
used to park money in Real estate to evade taxes. towards a single transaction (or real estate as a vehicle to park
2017
 At the same time, rental yields remains abysmally low in most of the Indian cities multiple transactions pertaining the black money.
to really make RE investment worthy. to one event or person)
Page 42
#6. Focus on Product and affordability by developers

Developers focus on End user demand leading to better
More launches in 1-2BHk range than 3BHk+- Show All India trend historically product quality and Affordability
 Given most of the developers were concentrating on
80%
investor led demand and developing luxury and premium
77% segment houses with higher margins, end user demand
70% remained unmet.
60% 56%  In last 3 years, key strategy changes are launches of more
affordable homes i.e. sub 7mn homes which is sweet spot
50%
pricing in Tier 1 cities.
40% 44%  As a result, proportion 1-2BHK launches share has increased
from 60% in 2012 to 77% in CY17.
30%
 In addition to this, Developers are reducing size of same 1-2
23%
20% BHK to make it more affordable for consumers given prices
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 have not declined as anticipated.
1-2 BHK >3 BHK  Typically a 2BHK unit size with SBA area of 1,100-1,200 sqft
is reduced to 800-900 sqft.
Given prices have not declined anywhere in last five years, developers have reduced the sizes of unit to make it more
1-2 BHK launches as % of total launches

100% 93% 91%
83% 87%
81%
80%
63% 63% 66%
60% 61%
60% 50% 49% 50%
40% 44% 41%
38%
40% 30%
20%
0%
Mumbai Hyderabad Pune Chennai Kolkata Bengaluru Navi Mumbai/Thane New Delhi/Gurugram Noida
2013 2017
Page 43
Size of typical 2BHK unit has decreased to increase affordability as prices have not declined materially
Median size of 2BHK is reduced from 1,100-1,200 sqft to 800-900 sqft now to increase affordability…
1,500 Median size in sq-ft of 2 BHK across cities 1,400

1,300
1,300 1250 1,250
1,200 1,200
1,100 1100 1,100
1,100 1,050
1,000 1000 1,000
950
900 900 900
900
800
700
2013 2017
This led to median value of units remaining in Rs.5-7mn range despite increase in property prices since 2013
20 19.0 Median value in Rs. mn of 2 BHK across cities

18.0
15
10 9.0
7.0 6.8 7.5 7.0
6.0 6.5 6.0 6.2 6.5 6.0
5.0 5.7 5.5
4.5 4.8
5
0
2013 2017
Page 44
New launch offerings by organised players under Rs.5mn size have a median size of below 500 sqft
Premium developers are also entering in affordable housing segment given it is the biggest growth driver for the industry
Ventura
Sobha Dream Provident Park Shapoorji Supertech Signature Sikka Karnam Modi Lotus VTP
Xrbia Vangani Venkatadri
Acres Square Pallonji Joyville Basera Solera Greens Homes Bhagyastan
Heights
Organized Smaller players
1 BHK Size 660 365 500 400 145-385 310 590 590 NA 310-330
2 BHK Size 1,100 480 - 600 580 550 260-380 490-550 840 740 1,010-1,040 440-450
3 BHK Size NA 780 - 905 NA NA NA NA NA 1,100 1,340-1,430 NA
1 BHK Price
3.8 – 4.1 2.7 3.4 1.3 1.0 1.3 2.5 1.2 NA NA
(Rs. mn)
2 BHK Price
6.3 – 7.8 3.5 – 4.6 4.5 1.7 1.1-1.6 1.9-2.2 3.5 1.5 2.5-2.6 1.6-1.7
(Rs. mn)
3 BHK Price
NA 5.8 – 6.9 NA NA NA 2.3 3.4-3.6 2.0-2.1
(Rs. mn)
Panathur, Kanakapura Vangani, Sector 107, Sector 143B, Kundanpally, Chowdhariguda, Talegaon
Location Virar, Mumbai Gurugram
Bangalore Road, Bangalore Beyond Thane Gurugram Noida Secunderabad Hyderabad Dabhade, Pune
Developers have significantly reduced the size of unit, which therefore reflects on the selling price, thus creating a façade of “affordability”. Many larger, organized players are
using this as an opportunity to churn out units and monetize their land reserves.
Page 45
#7. Market share of Organised players increased by 400-500bps despite lower launches in 2015-2016
Given prices have not declined in last five years, developers have reduced the sizes of unit to make it more
Top 30 developers continues to gain market share in down-
affordable
cycle:
Top 30 developers market share by total absorption  While demand in CY16-17 was one of the lowest in last 5
years, top 30 players in each region continues to increase
36% Top 30 players in each region increased market
share by almost 400-500bps in last 2 years
market share.
35%  Individual cities also paints the same picture in terms of
34% market share gain. While unorganised players or smaller
33% organised players continues to grapple from lower demand,
33% 32% 35%
32% high funding costs and execution issues, organised players
31% (Tier 1) concentrated more on execution and delivering
31% 30%
projects increasing consumer confidence.
30%
 We observed the same trend in new launches also in
29% CY2017 when top developers have gained significant
28% market share from unorganised developers.
2013 2014 2015 2016 2017
Except Chennai and Noida which have not seen any significant launches in 2016, all other cities have seen market share shift towards top 30 regional developers
Top 30 regional developers market share by total absorption

50%
324bps 950bps
45% 233bps
40% 100bps 250bps
35% 560bps 225bps
30% 250bps
25% 1,330bps
20%
15%
10%
Pune Bengaluru Chennai Hyderabad Kolkata New Delhi/Gurugram Noida Navi Mumbai/Thane All India
2014 2017
Page 46
#8. Developers are in much better shape after learning from their own mistakes of last up-cycle. More focus on cash flows than land banking
Balance Sheet Heavy Model Balance Sheet Lean Model
Affordable
Scale housing
Diversifica
tion Main growth driver, Monetizing
Developers acquiring
Land land at various JDA model Even developers that existing
banking locations without Entry into all have focused only on land
local knowledge verticals- Residential, premium are
Offices, Hotels, Retail All listed developers contemplating this Developers are either
Most of the company etc are shying away from opportunity selling land in form of
listed during 2003-10 outright purchase of plotted plots or selling
were valued on the land due to high cost it outright to monetize
basis of land bank and easy availability
Focus on old purchased land
of JDA land parcel
P&L at
expense of
cash flows Focus on
Townships Focus on cash flow
Market valuations
smaller DM model
decided on the basis of
Luxury projects JDA and lower
pre sales growth than
Developers without apartments preference towards
quality and execution
experience planned Smaller projects Development land banking has led
of pre-sales
huge townships require lower managers for smaller to improving OCF
without adequate Unaffordable projects
working capital and developers and
connectivity to are floated by offering
fast moving in tepid landowners, in
center of the cities amenities built in
demand return for a share of
outskirts of cities
environment the revenue
2008 2014 2018
BUSINESS MODEL EVOLUTION FOR INDIAN DEVELOPERS

Page 47
Cumulative operating cash flows remains positive in last five years despite subdued demand environment
Cumulative operating cash flows have been positive in last five years due to less focus on acquiring land
Listed developers (ex-DLF) OCF in Rs.bn

60 40 37
35 29
40 26
20
0
-20 2
-40 (25) (26) Despite subdued demand, higher focus
(34)
-60 (44) on JDA’s than land banking led to
-80 positive operating cash flows for
-100 developers in last five years
-120 (110)
Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
Balance sheet has also deleveraged despite subdued demand environment as most of the developers monetize old assets by divesting stake or doing plotted developments
Listed developers (ex-DLF) net debt to equity (x) Most of the developers are reducing
debt by monetizing old land or divesting
0.80 stake in commercial arm. Last two years
0.70 net debt increased due to higher
0.60 working capital requirements
0.50
0.40
0.73 0.73
0.30 0.62
0.45 0.50 0.49
0.20 0.43
0.30 0.34
0.24 0.27
0.10
0.00
Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
Page 48
Regional Preference: We prefer Bangalore and Hyderabad markets over other regions
We analyze each city on five parameters and rank as per attractiveness to play current real estate phase
Strong rental market

Threat from Ready to Commercial property
City Demand outlook Total Inventory levels (Potential to increase Overall Rank
move-in inventory absorption
rents every year)
Bangalore 11 22 33 22 11 22
Chennai 66 33 66 55 77 66
Hyderabad 22 11 11 11 22 11
Kolkata 77 55 55 33 66 55
Pune 44 44 44 44 33 33
MMR 33 66 22 77 44 44
NCR 55 77 77 66 55 77
Page 49
Why we like Bangalore market over other cities?
Median Salaries for entry level employees are highest in Bangalore Bangalore also has more than 25% of its populations earning more than Rs. 1mn
0.65 30% 27%

0.6
0.60 0.6 25%
0.55 0.5 19%
0.5 0.5 20%
0.5 16% 15%
0.50 0.5 15% 12%
0.45 11%
10%
0.40
5%
0.35
0.30 0%
Chennai Gurugram Delhi,Noida Hyderabad Mumbai Pune Bangalore Less than Rs. Rs. 75,000 to Rs. 1,50,000 to Rs. 3,00,000 to Rs. 5,00,000 to Above
75,000 Rs.1,50,000 Rs.3,00,000 Rs.5,00,000 Rs.10,00,000 Rs.10,00,000
Fresher Median Salary as of 2014 (Rs. Mn) Distribution of household income in Bangalore
Source: Naurki.com, Statista, Spark Capital
The highest number of educated migrants flock to Bangalore due to the job creation Bangalore showed the highest absorption of commercial space across top 8 cities in
frenzy in Bangalore CY2017, further proving the potential of job creation
Noida
50% 47.4% Delhi/Gurgaon 5%
45% 7% Bengaluru
40% 36.2% 36.6% Navi 27%
35% Mumbai/Thane
29.6% 4%
30%
25%
20% 15.3% Mumbai
15% 17%
10% Kolkata
5% 6%
0%
Chennai
Mumbai Hyderabad Kolkata Chennai Bangalore Pune 7%
9% Hyderabad
Educated Migrant Population as % of Total 17%
Source: CPRI, Spark Capital
Page 50
Bangalore Residential market is concentrated in East side with almost 75% share of total absorption
NORTH-WEST NORTH-EAST
12.7% 32.3%
8.0% 29.3%
3,801 15,394
3,653 8,452
Yelahanka
2010 2016 2010 2016
NORTH-WEST
Yeshwantpur
NORTH-EAST
NORTH-EAST Krishnarajapuram
CENTRAL Whitefield
1.1% IndiraNagar
1.0% MG Road % of Total Absorption
Marathahalli
523 Rajaji Nagar
293 Absorption Units
CBD
Outer Ring Road
2010 2016
CENTRAL Bellandur
SOUTH-WEST
Koramangala
Banashankari
HSR Layout
Sarjapura Road
BTM Layout
SOUTH-WEST SOUTH-EAST SOUTH-EAST
JP Nagar
16.9% Thippasandara 42.9%
15.7% 40.1%
7,504 Electronic City 20,490
4,875 11,570
2010 2016 Kanakapura Road 2010 2016
Page 51
Demand trends in Bangalore are heavily in favor of East Bangalore with slight demand seen in South-West Bangalore in the last few years
Majority of the absorption seen in North-East and South-East Bangalore due to
Total absorption levels in Bangalore have fallen to 2009-2010 levels
higher job creation around Whitefield and Outer Ring Road
Total Absorption (Units Sold) 45% 41%

40% Absorption Trend
51% ↓ 40%
70,000 34%
35% 75% of the demand seen
29% in East Bangalore
60,000 30%
50,000 25%
40,000 20% 17% 16%
30,000 15% 13%
8%
28,843
42,002
50,565
62,119
60,632
56,133
47,712
30,480
20,000 10%
10,000 5% 1% 1%
- 0%
2010 2011 2012 2013 2014 2015 2016 2017 Central NE SE NW SW
Total Absorption 2010 2016-17 Average

All developers have subdued their launches until they see some revival in consumer SW Bangalore saw substantial increase due to better affordability and Metro
sentiment. Many large developers are developing a strong pipeline. development which promises easy access to central and east Bangalore
50% 45% New Launch Trend

New Launches 41% South-West Bangalore
100,000 40% 34% 35% saw higher launches due
82% ↓ to various factors
80,000 30%
19%
60,000 20%
12%
8%
40,000 10% 5%
36,256
59,896
70,051
92,182
78,617
61,252
39,585
16,652
0% 0%
20,000 0%
Central NE SE NW SW
-
2010 2011 2012 2013 2014 2015 2016 2017 2010 2016-17 Average
New Launches
Page 52
Inventory levels, although high, are in the under construction category and are expected to come down in the next few years……
With developers reducing launches and most of inventory under construction, sales Higher inventory levels in East Bangalore has prompted more launched in SW
levels over the next few years are crucial for developers. Bangalore, along with other reasons.
Inventory 17% ↓ 45% 40% Inventory Trend

38%
40%
140,000 127,244 34%
122,125 119,117 35% 30%
120,000 104,140 105,289 30%
100,000 25%
74,077 19%
80,000 20% 17%
54,591
60,000 15% 12%
36,697 9%
40,000 10%
20,000 5% 1% 1%
- 0%
2010 2011 2012 2013 2014 2015 2016 2017 Central NE SE NW SW
Available Supply 2010 2016-17 Average

The median value of 3 BHK properties is around Rs. 8.5 mn which is affordable
83% of the total inventory are in 2-3 BHK properties in Bangalore
considering the higher median salaries in Bangalore
5 BHK
4 BHK 6 BHK
1%
0% Median Apartment Value (Rs. Mn)
8%
1 BHK 130.0
8% 140
120
100
80
60 41.5
3 BHK 2 BHK 40 24.2
42% 41%
20 2.7 4.9 8.5
0
1 BHK 2 BHK 3 BHK 4 BHK 5 BHK 6 BHK
Apartment value (Rs. Mn)
Page 53
Top Developers in Bangalore

GM Infinite
Dwelling, 1.30% Top market share gainers in Bangalore in last three years
Puravankara ,
1.40% Prestige Group,
Salarpuria Sattva , 5.70%
1.40%
Provident Housing, GM Infinite Dwelling 2.40%

Top 10 Developers
1.50%
– Market Share Godrej Properties 2.00%
over last 5 years Salarpuria Sattva 1.20%
Mantri
Developers, 1.60%
Sobha Limited, DS-Max Properties 0.90%
2.80%
Shriram Sobha Limited 0.50%
Properties, 1.80%
DS-Max Brigade Group,
Properties, 1.90% 2.40%
Top market share gainers in Bangalore in last three years

Ozone Group,
Mahaveer Reddy
Bren Corporation 0.60% Structures, 1.30%
(SJR Group), 0.70%
SNN Builders,
0.70%
DLF -0.40%
Next 10 Bhartiya Group,
Developers – 1.20% Shriram Properties -0.70%
Market Share over Skylark Mansions, Brigade Group -1.00%
last 5 years 0.70%
Prabhavathi Builders & Developers -1.00%
Prabhavathi
Sumadhura Builders & Bhartiya Group -1.10%
Constructions, Developers, 0.90%
0.80% SJR Prime Godrej Properties,
Corporation, 0.90%
0.90%
Page 54
Comparative Analysis Between Sobha & Prestige
Page 55
# Business segments
Sobha derives majority of revenues from development business Prestige is one of the market leader in commercial space in Bangalore
 Apartments
 Villas
 IT Parks Residential
 Integrated townships
 Convention Centre
Contracts  Plotted developments
 Multiplex, Warehouses
 Factory Buildings etc
 Office Space
 Built to suit campuses Commercial
 Residential (Apartments, Villas,  SEZs, IT Parks
Real Estate
Development Row houses & Plots)
 Commercial
 Malls
Retail
 Logistics
 Architectural consulting
Services  Facility management
 Resorts
 MEP & structural design
 Serviced Apartments,
Hospital
 Hotels
 Food Courts
 Metal & Glazing
 Interiors & Furnishing, Retail  Sub leasing & fit out services
Manufacturing
 Concrete products  Interior design & execution
 Spring mattress, Pre-cast product Services
 Facilities & property management
 Project & construction mgmt services
Source: Spark Capital Research Source: Company, Spark Capital
Page 56
# Revenue and Profitability contribution: Sobha’s development business profitability contribution is higher than that of Prestige’s
While Sobha’s Development revenues contribute ~65% to overall revenue... Prestige’s Development revenues contribute ~73% to overall revenue
Sobha- Segmental revenue contribution % Prestige Estates - Segmental revenue contribution %

Others
Contracts 1%
PMS
22% 8%
Hospitality
2%
Development
Retail 73%
Manufacturing
4%
12%
Development Office
66% 12%
Source: Spark Capital Research Source: Spark Capital Research
Development segment EBITDA contributes higher at ~73% to overall profitability On the contrary, Prestige share of EBITDA from development is just 45%
Sobha- Segmental EBITDA contribution % Prestige - Segmental EBITDA Contribution %

Hotels Facility
Contracts 3% management
17% 6%
Manufacturing
10%
Offices and Retail Residential

rental 45%
46%
Residential
73%
Page 57
# Geographical Diversification: Sobha has diversified out of Bangalore over the years whereas Prestige is still largely Bangalore focused
Currently Bangalore contributes 52% to overall revenues of Sobha Currently Bangalore contributes 86% to overall revenues of Prestige
Pune
Mysore 1% Chennai
Coimbatore 1% Bangalore
52% Mysore 1%
2% 1%
Mangalore
Chennai 2%
Thrissur 2%
Hyderabad
2%
4%
Cochin
Calicut 6%
3% Bangalore
Cochin 86%
12%
NCR
25%
Prestige is still largely Bangalore focused due to higher number of commercial

Sobha has decreased its order book dependency from Bangalore region
projects
Sobha – Ongoing Projects Prestige – Ongoing Projects

100% 100%
90% 90%
80% 80%
70% 57% 52% 56% 70%
64%
60% 60% 73%
83% 86% 86%
50% 50%
40% 40%
30% 30%
20% 43% 48% 44% 20%
36%
10% 10% 27%
17% 14% 14%
0% 0%
FY13 FY15 FY17 9MFY18 FY13 FY15 FY17 9MFY18
Non-Bangalore Bangalore Non-Bangalore Bangalore
Page 58
# Launches and Area sold: Both Sobha and Prestige has cut down on Residential launches in last two years and focused on delivery
Sobha has seen lower launches compared to its sustained sales run rate of 3.0 msf Prestige has launched only 5msf in last two years together compared to its
every year launches run rate of 7-8 msf every year
Sobha- Area launched (msf) Prestige- Area Launched (msf)

12.0 10.5 18.0 15.7
16.0 14.6
10.0 12.9
14.0
8.0 7.4
6.7 12.0 10.4
10.0 8.3 8.4
6.0 5.0 4.6
4.3 8.0
4.0 3.0 2.5 6.0
4.0 3.0
2.0 2.0
2.0
- -
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E
Sobha has maintained area sold run rate of 3.0msf despite lower launches New Area sold is inline with new launches
4.0 Sobha inc JD share-Area sold (msf) 9.0 Prestige inc JD share- Area Sold (msf)
3.8 7.7
3.8 3.6 8.0 7.1 7.4
3.6
3.6 3.4 7.0
3.4 3.3 3.3 5.4
6.0
5.0
3.2 3.0 5.0 4.0
3.0 3.8
2.8 4.0
2.8
3.0
2.6 1.9
2.4 2.0
2.2 1.0
2.0 -
Page 59
# Inventory: Decline in inventory for both the companies because of focus on completions and lower launches.
Area completed Area completed
Area Completed (msf) - Sobha Area completed (msf)- Prestige

12.0 11.1 18.0 16.6
16.0
10.0 12.7
14.0
7.6 7.6
8.0 6.7 12.0
10.0 8.9
6.0 5.2 5.1 4.9 7.3
4.5 8.0
4.0 6.0 4.7
3.1 3.2
4.0 2.3
2.0
2.0
- -
FY11 FY12 FY13 FY14 FY15 FY16 FY17 9MFY18 FY11 FY12 FY13 FY14 FY15 FY16 FY17 9MFY18
Source: Spark Capital Research
Area completed Area completed
Net Unsold Inventory (msf) - Sobha 14 Net Unsold Inventory (msf) - Prestige
12 12
10.0 12
8.8 10
10
7.7 10
8.0 6.8 8
6.1 8
8
6.0 5.1
4.5 6
4.0
4
2.0 2
0.0 0
FY13 FY14 FY15 FY16 FY17 9MFY18 FY13 FY14 FY15 FY16 FY17 9MFY18
Page 60
Unsold Inventory: Prestige’s 75% unsold inventory is in mid-segment whereas Sobha’s 55% of the inventory is in premium segment
Area sold each year by ticket size Area sold each year by ticket size
120% 1.2
100% 1
9% 13% 12% 10%
18% 21%
25% 26% 26% 25% 32%
80% 35% 0.8
60% 0.6
67% 91% 87% 88% 90%

40% 75% 73% 68% 0.4 82% 79%
63% 64%
20% 0.2
0% 1% 3% 6% 9% 4%
0% 0
FY12 FY13 FY14 FY15 FY16 FY17 FY12 FY13 FY14 FY15 FY16 FY17
Less than Rs. 5 mn Rs. 5 mn to Rs. 15 mn Above Rs. 15 mn Less than Rs. 5 mn Rs. 5 mn to Rs. 15 mn Above Rs. 15 mn
FY17 Inventory by ticket size FY17 Inventory by ticket size
Unsold Stock as of FY17 (Sobha) Unsold stock as of FY17 (Prestige)
Less than Rs. 5

mn Above Rs. 15 mn
7% 25%
Rs. 5 mn to Rs. 15
mn
Above Rs. 15 mn
38%
55%
Rs. 5 mn to Rs. 15
mn
75%
Page 61
Land Bank: Sobha has huge land bank majority of which is bought during its IPO; Prestige has developed majority of the projects under JDA’s
Sobha’s land bank if developed gives a visibility of next 50 years at current area Prestige land bank if developed gives a visibility of next 8-10 years at current area
sold rate sold rate
Total Land in acres 2,483 Total Land in acres 484
Sobha Share of Land in acres 2,395 Prestige Share of Land in acres 284
Total Cost of Land in Rs.mn 24,782 Total Cost of Land in Rs.mn NA
Cost/sq.ft of Land in Rs. 237 Cost/sq.ft of Land in Rs. NA
FSI Cost of Land in Rs. 121 FSI Cost of Land in Rs. NA
Potential developable area in mn-sqft 211 Potential developable area in mn-sqft 42
Land Bank - Sobha Share (Acres) Land Bank - PEPL Share (Acres)
Mysore 17
Gurgaon 15
Goa 57
Pune 73
Coimbatore 67
Bangalore 25
Thrissur 47
Hosur 485
Sarjapur Road - Bangalore 59
Chennai 543
Cochin 475
Bidadi 143
Bangalore 761
Page 62
Revenue growth: Sobha revenues continue to grow in its core residential business whereas Prestige’s residential growth has been subdued
Property Development Revenue and Growth - Sobha Property Development Revenue and Growth - Prestige
20,000 17,758 50% 50,000 140%

43,819
18,000 40% 37% 16,363 40% 45,000 117% 120%
15,243 14,675
16,000 14,112 40,000 34,762 35,425 100%
24% 12,992 30%
14,000 35,000 84% 80%
12,000 10,740 21% 20%
10,314 30,000 60%
8,647 13% 33% 23,867
10,000 10% 25,000 45% 40%
7%
8,000 20,000 17,519 36% 20%
8% 0%
6,000 7% 11,684 13,171
15,000 2% 0%
-4% -10% 8,062
4,000 10,000 6,057 -21% -20%
2,000 -21% -20% 5,000 -40%
-48%
- -30% 0 -60%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E
Property Development Revenue (Rs. Mn) Growth % Property Development Revenue (Rs. Mn) Growth %
Non-Property Development Revenue and Growth - Sobha Non-Property Development Revenue and Growth - Prestige
16,000 14,785 90%
9,000 8,043 50%
7,616 7,616 83% 12,983 80%
8,000 40% 14,000
6,491 43% 6,440 30% 72% 11,491 70%
7,000 12,000 10,331
21% 17% 20% 24% 18% 20% 60%
6,000 10,000
4,533 10% 7,973 50%
5,000 8,000
3,766 0% 6,305 40%
4,000 3,206
2,652 -10% 6,000 4,466
3,000 3,747 41% 30% 30%
-20% -20% 4,000 26%
2,000 -26% 2,183 19% 20%
-30%
2,000 13% 14%
1,000 -37% -40% 11% 10%
- -50% 0 0%
Revenue (Ex. Property Development) (Rs. Mn) Growth %
Revenue (Ex.Property Development) (Rs. Mn) Growth %
Page 63
Profitability: Prestige has lower margins compared to Sobha in its core residential business.
EBITDA Margin - Sobha EBITDA Margin - Prestige
EBITDA Margin % EBITDA Margins %

35% 33% 35%
29% 30% 29%
28% 28% 28%
30% 26% 30%
25% 24%
25% 22% 23% 25% 22% 21%
19% 19% 19% 19%
20% 20%
15% 15%
10% 10%
5% 5%
0% 0%
PAT Margin - Sobha PAT Margin - Prestige
PAT Margin % PAT Margins %

16% 15% 16% 15% 15%
14% 13% 14%
12% 12%
12% 11% 11%
12% 11% 12%
10% 10%
10% 10%
8% 8%
8% 7% 7% 8% 7%
6%
6% 6%
4% 4%
2% 2%
0% 0%
Page 64
Cash flow profile- Sobha’s cash flow profile is better than Prestige’s; Prestige core development business cash flow is quite weak
Total OCF and FCF - Sobha Total OCF and FCF - Prestige
6.0 4.9 10.0 7.7

4.0 3.9 3.9 3.5 4.3 4.7
4.0 2.9 5.0
2.5 2.3
1.1 1.5
2.0 0.8 1.2 1.0
0.8
-
-
-1.3
-5.0 -3.0
-2.0 -0.7 -1.1 -4.8
-5.2 -5.5 -5.5
-2.2 -2.0
-4.0 -10.0 -8.6 -7.8 -8.3
-6.0 -5.1 -15.0 -12.6

FCF (Rs. Bn) OCF (Rs. Bn) FCF in Rs.bn OCF in Rs.bn
Property Development OCF and FCF - Sobha Property Development pre-tax OCF- Prestige
Pre tax development OCF in Rs.bn Development Pre-tax OCF in Rs.bn

8.0 6.5 5.7 3 2.2
6.0 4.9 2 1.1
3.5 4.0 0.9
4.0 2.1 1 0.1
2.0 0
- -1 -0.3 -0.6
-2.0 -0.8 -2
-4.0 -3
-6.0 -4
-8.0 -5 -3.8
-10.0 -6
-12.0 -7 -6.2
-10.9
Page 65
Balance sheet profile: Sobha has a comfortable leverage whereas Prestige’s high leverage is attributed to non-development business
Net Debt to Equity - Sobha Net Debt to Equity - Prestige
Net Debt to Equity (x) - Sobha Net Debt to Equity (x) - Prestige
1.00 1.4
0.86 1.2
0.90 0.78 0.78 0.78 1.1 1.1
1.2
0.80
0.66 1.0 0.9 0.9
0.70 0.59 0.61
0.57 0.7
0.60 0.8 0.7
0.50
0.40 0.6 0.4
0.30 0.4
0.20
0.2
0.10
- -
Net debt to OCF - Sobha Net debt to OCF - Prestige
Net Debt/OCF - Sobha Net Debt/OCF (x) - Prestige

30.0 20.0 18.5 18.3
24.8
25.0
15.0 11.3
20.0 10.9
15.0 10.0 7.0 7.0
10.0 5.2 5.1 5.9
3.0 2.4 3.3 5.0
5.0
- -
-5.0
-5.0 -3.1
-10.0
-8.8
-15.0 -10.0 -7.2
Page 66
Return Metrics Profile: Sobha’s low RoE’s are because of huge land bank whereas Prestige’s low RoE’s are because of low residential segment
margins
Sobha – RoE% Prestige – RoE%
Sobha - RoE % RoE %

12% 16% 15%
11% 10% 11%
10% 10%
14%
10% 12% 12%
12% 11%
8% 7% 10%
6% 10%
6% 8%
6% 8% 6%
6%
4% 4%
4%
2%
2%
0% 0%
Sobha – RoCE% Prestige – RoCE%
Sobha - RoCE % Prestige -RoCE%

12% 12%
10%
10% 10%
10% 9% 9% 10% 9%
8% 8% 8%
8%
8% 8% 7%
6% 6%
6% 6%
5% 5% 4%
4%
4%
2%
2%
0%
0% FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E
Page 67
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
2.3
0.5
4.5
6.5
8.5
10.5
12.5
2.5
14.5
Apr-11 Apr-11
Jul-11 Jul-11
Oct-11 Oct-11
Jan-12 Jan-12
Apr-12 Apr-12
Jul-12 Jul-12
EV/EBITDA - Sobha
Price to Book - Sobha
Oct-12 Oct-12

Jan-13 Jan-13
Apr-13 Apr-13
Jul-13 Jul-13
12MF P/B(x)
Oct-13
Oct-13
12MF EV/EBITDA (x)

Jan-14 Jan-14
Apr-14 Apr-14
Jul-14 Jul-14
Oct-14 Oct-14
Average
Jan-15 Jan-15
Average
Apr-15 Apr-15
Jul-15 Jul-15
Oct-15 Oct-15
Jan-16 +1SD Jan-16
Apr-16 Apr-16
+1SD
Jul-16 Jul-16
Oct-16 Oct-16
Jan-17
-1SD
Jan-17
Apr-17 Apr-17
-1SD
Jul-17 Jul-17
Oct-17 Oct-17
Jan-18 Jan-18
Valuations: Both the companies trades at cyclically peak valuations
1.8
1.6
1.0
1.3
11.4
0.5
2.5
4.5
6.5
8.5
10.5
12.5
14.5
16.5
18.5
0.5
1.0
1.5
2.0
2.5
3.0
Apr-11 Apr-11
Jul-11 Jul-11
Oct-11 Oct-11
Jan-12 Jan-12
Apr-12 Apr-12
Jul-12 Jul-12
EV/EBITDA - Prestige
Source: Company, Spark Capital Oct-12 Oct-12

Price to Book - Prestige
Jan-13 Jan-13
Apr-13 Apr-13
Jul-13 Jul-13
12MF P/B(x)
Oct-13 Oct-13
12MF EV/EBITDA (x)
Jan-14 Jan-14
Apr-14 Apr-14
Jul-14 Jul-14
Oct-14 Oct-14
Average
Jan-15 Jan-15
Average
Apr-15 Apr-15
Jul-15 Jul-15
Oct-15 Oct-15
Jan-16
+1SD
Jan-16
Apr-16
+1SD
Apr-16
Jul-16 Jul-16
Oct-16 Oct-16
Jan-17
-1SD
Jan-17
Apr-17 Apr-17
-1SD
Jul-17 Jul-17
Oct-17 Oct-17
Jan-18 Jan-18
2.4
1.4
1.8
2.2
14.5
Page 68
Company Section
Page 69
SOBHA CMP Target Price Rating
Rs. 546 Rs. 550 ADD
Sales momentum to sustain; Appears fairly valued
We Initiate coverage on Sobha Limited, a leading developer with a major presence in Bangalore market with a ADD rating. The company has a
strong execution track record reflecting in consistent positive operating cash flow performance from its development business. Sobha posted COMPANY INITIATION
strong FY18 volume and pre-sales growth and with healthy launch pipeline in FY19, we expect ~29% EPS CAGR over the next two years. 13 April 2018
Investment thesis: Industry REAL ESTATE
High exposure to steady Bangalore market: Sobha’s core market Bangalore comprise of >50%% of its ongoing projects and 37% of its land bank.
Key Stock Data
Among the top tier cities, Bangalore is relatively a better micro market, in terms of affordability, inventory levels, job profile, and strong
commercial market. Inventory levels are lowest. Hence we expect Sobha’s residential portfolio, especially in Bangalore to post steady growth. Bloomberg SOBHA IN
Strong FY18 volumes and sales; New launch pipeline to drive sales in FY19: Sobha ended FY18 selling 3.6mn sqft, up 21% y-o-y. The absolute Shares o/s 95mn
volumes are back to FY14 levels. However, in value terms sales grew 28% y-o-y highlighting growth coming from premium projects surprisingly.
Market Cap Rs. 52bn
Bangalore continues to dominate volumes, with ~ 72% of total volumes. After a lull in launches from FY16 to 2QFY18, the company launched
~2.5mn sq ft in 2HFY18. Overall, based on the current visibility Sobha has ~14-15mn sqft worth of projects to be sold over the next two to three 52-wk High-Low Rs. 695-345
years, which will keep the sales run rate strong. Two good things about these launches are (1) 34% of the volume is coming up in affordable 3m ADV Rs. 240mn
segment where demand appetite is strong; and (2) ~51% of the volumes are coming in outside its non core Bangalore market. We factor ~10%
Index BSE 500
volume growth CAGR over the next two years from 3.6mn sqft in FY18 to ~4.8mn sqft in FY20E.
Strong track record of generating operating cash flows: Sobha has a strong record of generating positive cash flows from its development Latest shareholding (%)
business versus its peers reporting negative operating cash flow. The company has reported cumulative operating cash flow to the tune of ~Rs. Promoters 70.0
12bn from FY13-FY17 despite weak market. Sobha’s peers in the same timer period have reported negative operating cash flows from their core
Institutions 28.8
development business. This indicates company’s superior execution skills.
Debt reduction appears limited; Land bank monetization remains key for reducing debt levels: Despite strong operating performance over FY18- Public 1.2
FY20E, we expect limited absolute debt reduction given spend on land capex and higher working capital requirements. Net debt is of Rs. 23bn is
expected remain flat by FY20E, with ratios like net debt to equity to trend down to 0.75x from 0.8x and net debt to EBITDA. However, Sobha can Stock performance (%)
cut debt via its land bank monetization. Sobha has ~2500 acres of land bank, majority of which has remained in the books since its IPO in 2006 as
development potential of majority of the land bank appears limited. Sobha’s land book value is ~Rs. 25bn vs its debt of ~Rs. 23bn, hence this has 1m 3m 12m
dragged the company’s return metrics by 600-700 bps. Hence any land monetization will be a key monitorable to watch out for on Sobha.
SOBHA 0% -8% 51%
Earnings growth and return metrics: On the back of strong volumes in FY18, we expect company to continue to post revenue and EPS CAGR of
~15% and 29% over the next two years. Expect RoE’s to expand from 7% in FY18 to ~11% by FY20E. PEPL -1% -11% 34%
Valuations fairly valued: Sobha has traded at an average P/B of ~1.3x over the last seven years, which includes peak upcycle till FY14 and down
cycle till FY18. The stock currently trades at FY20E P/B of ~1.6x, which is around 20% premium to its historical through the cycle average. While
premium is warranted given Sobha’s strong execution track record, robust operational performance, and expansion in RoE, at the current levels RESEARCH ANALYSTS
the stock does offer meaningful upside. Initiate with an ADD rating.
Consolidated Financial Summary GIRISH CHOUDHARY
girish@sparkcapital.in
Year Revenues (Rs. Mn) EBITDA (Rs. Mn) PAT (Rs. Mn) EPS (Rs.) EV/EBITDA P/B
+91 44 4344 0021
FY17 22,291 4,198 1,608 16.7 17.4 2.0
GAURAV NAGORI
FY18E 25,374 4,883 2,002 20.8 15.5 1.9
gaurav@sparkcapital.in
FY19E 29,510 5,989 2,750 28.6 12.7 1.8
+91 44 4344 0072
FY20E 33,767 6,898 3,350 34.8 10.9 1.7

(SPAK <go>)
Sobha | Initiating Coverage | TP of Rs. 550| ADD
Company Background
Corporate Factsheet
• Established in 1995, Sobha Limited is one of India's leading regional real estate developers with focus on South India.
Company Background • Sobha Limited’s main focus is on the residential real estate segment but also has a contractual development segment and
manufacturing segment (used for backward integration with its Interiors, Glazing, Metal Works and Concrete Products Divisions).
Sobha mainly has presence in Bangalore and is one of the market leaders. Sobha also has projects in Chennai, Cochin, Mysore and
Presence
Gurugram.
 Mr. P.N.C. Menon – Founder and Chairman Emeritus
 Mr. Ravi P.N.C. Menon – Chairman
Management depth
 Mr. J.C. Sharma – Vice Chairman and Managing Director
 Mr Subhash Mohan Bhatt – Chief Financial Officer
Revenue contribution Property Development – 66%, Contracts – 22%, Manufacturing – 12%
Average area sold in last 5

3.4 msf sold per year on average between FY14 and FY18
years (mn sq-ft)
• Ongoing Residential Projects aggregating 41.37 msf

Order book (mn sq-ft) • Ongoing Contractual Projects aggregating 7.17 msf
CRISIL – Stable, Long Term – A+, Short Term – A1; ICRA – Stable, Long Term – A+, Short Term – A1; CARE – Stable, Long Term – A,
Credit Rating
Short Term – A2
Corporate Bankers Aditya Birla Finance Limited, HDFC Bank, ICICI Bank, Standard Chartered Bank, Axis Bank, Tata Capital Housing Finance Limited
Auditors M/s. S.R. Batliboi & Associates LLP
Page 71
# While Presales volumes in FY18 surpassed FY14 high levels, Presales value is life time high on high ticket size sales from Cochin and Gurgaon
Presales volumes inched upto 3.6msf , highest in last four years, led by increased traction from Bangalore, Cochin and Gurugram
30.0 4.0
3.8 3.6
3.6 3.5
25.0 3.3 3.3 3.4
3.0 24.2 3.0
20.0 2.8 23.4
22.1 2.5
20.9 20.1
15.0 18.6 2.0
17.0
1.5
10.0
11.3
1.0
5.0
0.5
- -
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Presales value in Rs.bn (Sobha share) Area sold in msf
Sobha has been successful in selling its premium properties in last two years Realisations in its overall core market has increased by 21% due to higher share of
despite subdued markets premium property sale
8,000 60% Area Sold (msf) Realizations inc. JD share
54% 6,534 6,389 6,675
7,000 6,217 50% FY17 FY18 % Change 9MFY17 9MFY18 % Change
5,897 5,946
6,000 5,181 40% Bangalore 2.25 2.60 16% 6,273 7,569 21%
5,000 4,082 30% Gurugram 0.23 0.36 55% 9,110 9,906 9%
4,000 27%
20% Chennai 0.18 0.10 -43% 6,549 5,884 -10%
3,000
14%
2,000
11% 10% Cochin 0.1 0.3 366% 5,034 10,547 110%
7%
5%
1,000 -2% 0% Thrissur 0.1 0.1 -22% 8,099 8,356 3%
-7%
- -10% Calicut 0.0 0.0 67% 7,393 7,769 5%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Coimbatore 0.0 0.1 146% 5,966 5,747 -4%
Realisations/sqft (Sobha share) Growth % Mysore 0.1 0.1 -13% 2,144 2,234 4%
Total 3.0 3.6 21% 6,386 7,853 23%
Source: Spark Capital Research Source: Company, Spark Capital Research
Page 72
# Better Launch pipeline in FY19-20E led by higher in affordable housing offerings and newer projects in non Bangalore territory
Sobha has total launch pipeline of 10msft over next two years Aggressive launch pipeline in Non Bangalore markets
Area launched in msf Tentative New launches Pipeline
8.0 7.4 Total Area Total Area released Tentativ

City Project name/Location
7.0 6.7 (msf) (msf) e Year
6.0
6.0
5.0 Bangalore Dream Acres new phase 5.4 2.0 FY19
5.0 4.6
4.0
4.0 Affordable Housing in north
3.0 1.8 0.5 FY19
Bangalore
3.0 2.5
2.0 Whitefield JDA 0.8 0.8 FY19

1.0
- Indraprastha - Phase II 0.5 0.5 FY19
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Sarjapur (Row houses and
1.7 0.5 FY19
Apartment, Wipro Campus)
Affordable housing launches contributes 30% to overall launches Chennai OMR Project 1.7 0.5 FY19
Hyderabad Ahmedabad Premium Affordable

6% 6% Tambaram Apartment 0.2 0.2 FY19
Pune Cochin Sobha Isle 0.8 0.8 FY19

18%
Coimbatore Plotted Development 0.3 0.3 FY19
66%
Bangalore
49%
Pune Apartments in Baner 1.6 1.6 FY20
Coimbatore
Hyderabad Apartments project 1.5 0.5 FY20
4%
Cochin 34% Affordable housing project in
9% Chennai Ahmedabad 1.6 0.5 FY20
GIFT city
8%
Page 73
#. We expect presales volumes to grow at steady rate of 10-11% over next three years led by aggressive launches and inventory in ongoing projects
Sobha has near term visibility of 4msf from ongoing projects unsold under-
Expect Sobha top touch Presales volumes to increase to 4.8-5msf by FY21E
construction inventory
6.0 21% 25% City Project Name Unsold Area (msf)
5.0
20% Bangalore Dream Acres- current phase 0.5
11% 10% 15% HRC Pristine 0.6
9%
4.0
10%
Arena (2 blocks) 0.6
3.0 5%
4.8 0% Forest Edge 0.1
2.0 3.0 4.0 4.4
3.6
-5% Palm Court 0.2
1.0 -11%
-10% Clovelli 0.2
- -15%
FY17 FY18E FY19E FY20E FY21E Sobha Heritage 0.2
Silicon Valley 0.1
Area sold in msf Growth Y-o-Y %
Sobha City (Last Block Paradiso) 0.1
Chennai Sobha Gardenia 0.2
Revenue recognition from strong FY17-18E presales will lead to growth of 18% Gurgaon Sobha City 0.6
over next three years Cochin Marina One 0.4
35,000 21% 25% Thrissur Villa- Sobha Silver Estate 0.1
21% 18% 29,346 20%
30,000 Coimbatore 0.2
25,347 16% 15%
13%
25,000 21,514 10% Total 4.0
20,000 17,758 5%
14,675 0%
15,000 12,992
-5%
Sobha Presales to grow at a CAGR of 10% over next three years:
10,000 -10%
-15%  Sobha has a total pipeline (launches and unsold inventory from ongoing
5,000
-21% -20% projects) of 14msf which will be sold over next two-three years.
- -25%
FY16 FY17 FY18E FY19E FY20E FY21E
 Given that 30% of new launches will be from affordable housing segment, we
expect 1-1.5msf incremental sales to come from this segment.
Property Development (Rs. Mn) Growth %
 New launches will contribute 60% to overall presales over next three years.
Page 74
#. Steady contractual book provides cash flow visibility over next three years
Order book remains steady over years. Contractual segment has margins of 12-
Sobha has a good track record in its contract division. Completed 45.6msf so far.
15%.
50.0 16% 12.0

10.7
15% 15% 11.0 10.1
14% 9.7
40.0 10.0 9.3
12% 8.8
11% 9.0 8.1
30.0 10% 10% 10% 7.4
8.0 7.2
9% 8%
44.3 45.5 7.0
20.0 42.4
36.9 6% 6.0
33.7
26.4 29.3 4% 4%
24.3 5.0
10.0 3%
2% 4.0
- 0% 3.0
Completed Contractual Area (msf) Growth % Ongoing Contractual Area (msf)
Sobha has decreased its dependency from Infosys. Ongoing projects contribution
Expect steady revenue growth of 5% over next three years
from Infosys declined from 75% in FY13 to 35% now
Infosys Orderbook as % of Total 6,000 40%

29%
30%
90% 5,500 5,719
78% 75% 76% 22% 20%
80% 5,435 5,707
68% 5,000
70% 61% 5,070 10%
60% 4,930 5% 5%
4,500 5% 0%
50% -3% 5,176
36% 35% -10%
40% 4,000 4,162
30% -20%
3,500 -27%
20% -30%
10% 3,000 -40%
0% FY15 FY16 FY17 FY18E FY19E FY20E FY21E
FY11 FY12 FY13 FY14 FY15 FY16 FY17
Contracts Revenue (Rs. Mn) Growth Y-o-Y %
Infosys Orderbook as % of Total
Page 75
# Sobha has one of strongest operating cash flow profile amongst peers
Sobha has generated strong operating cash flows in its core development business Sobha’s cumulative OCF generated is highest compared to peers in last five years
Development business OCF in Rs.bn FY13-17 Cumulative OCF in Rs.bn

6.0 5.4 15
4.4 12
4.2 4.1
4.0 2.9 3.4 10 7
2.0 0.9 5
- -
-2.0 -5
-2.1 -10 -7
-4.0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E -15
-20 -16
Development bsuiness OCF in Rs.bn
Prestige Sobha Oberoi Godrej
OCF and FCF over next 2-3 years
6.0 5.4 5.0

3.9 3.9 3.5 3.7
4.0 2.8
2.4 2.4
1.8
2.0 1.1 1.0
0.1
-
(2.0) (0.8)
(2.2)
(4.0)
(4.5)
(6.0)
FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E
OCF in Rs.bn FCF in Rs.bn
Page 76
#. Land bank remains big overhang on return metrics; Don’t expect debt to come off
Given most of the land cant be monetised in near future, Expect it to remain drag
Sobha’s book value of land bank is almost same as net debt on books
on RoE’s
FY18E (In Rs.bn) Development Potential of 211 msf

Mysore 0.2%
26.0 25.6 Sobha has total land
Gurugram 0.3%
25.5 Pune 1.1% bank of 2,483 acres but
25.0 Coimbato… 1.9% company has visibility of
24.5
Thrissur 2.2% launches on only
Hosur 17.0% ~115acres (5%).
24.0 23.8
Chennai 19.0%
23.5 Cochin 21.6%
23.0 Bangalore 36.7%
22.5 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%
Sobha's land book value Net debt
Development Potential
Given majority of the land will not be monetised in near term, we don’t expect
Adjusting for land bank, Sobha’s operational RoE’s are superior than reported
material decline in net debt to equity
20% 19%
Net Debt to Equity (x) 17% 17%
18%
18%
0.88 0.86 16% 15%
0.86 14% 13%
0.84 12% 12%
0.84 12% 11%
10% 10%
0.82 10%
0.80 0.78 0.78 7%
8% 6%
0.78 6%
6%
0.76 0.75
4%
0.74
2%
0.72
0%
0.70 FY15 FY16 FY17 FY18E FY19E FY20E FY21E
0.68
FY17 FY18E FY19E FY20E FY21E RoE % RoE excluding land bank %
Page 77
NAV Calculation:
Sobha’s NAV calculation Sobha trades at peak price to book led by improving RoE’s
NAV in Per share 12%

Assumptions 2.1
Rs.mn value 1.9
11%
1.8 10%
NAV based valuations; Discount 1.7
GNAV- Residential value 24,074 250 net cash flow over next five 1.5 9%
years only 1.3 8%
1.1 7%
Contract and 0.9 6%
manufacturing business 10,939 114 9x Fy20E EV/EBITDA 5%
0.7
value
0.5 4%
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Oct-11
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Land bank 36,176 376 NAV based valuations
RoE % 12MF P/B(x)
Source: Company, Spark Capital

Refundable deposits 7,091 74 Deposits with JDA partners
Total 78,280 813

Valuations:
 Sobha has traded at an average P/B of ~1.3x over the last seven years, which
includes peak upcycle till FY14 and down cycle till FY18.
Net debt 25,492 255  The stock currently trades at FY20E P/B of ~1.6x, which is around 20% premium
to its historical through the cycle average.
 While premium is warranted given Sobha’s strong execution track record, robust
operational performance, and expansion in RoE, at the current levels the stock
Land cost payable 844 9 does offer meaningful upside. Initiate with an ADD rating.
NAV 52,844 549

Page 78
Financial Summary
Abridged Financial Statements
Rs. mn FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E
Profit & Loss
Revenue 18,645 21,734 24,406 19,432 22,291 25,374 29,510 33,767 38,247 42,261
EBITDA 5,483 6,026 6,173 4,429 4,198 4,883 5,989 6,898 7,826 9,161
Depreciation 594 690 723 597 638 577 591 605 619 633
EBIT 4,944 5,439 5,600 4,175 3,946 4,692 5,823 6,760 7,721 9,094
Other Income 55 103 149 343 386 386 425 467 514 565
Interest expense 1,705 1,734 1,883 1,637 1,497 1,811 1,912 1,954 2,012 2,051
Exceptional items
PBT 3,239 3,704 3,716 2,539 2,449 2,881 3,911 4,807 5,709 7,042
Reported PAT (after minority interest) 2,172 2,351 2,380 1,381 1,608 2,002 2,750 3,350 3,954 4,848
Adj PAT 2,172 2,351 2,380 1,381 1,608 2,002 2,750 3,350 3,954 4,848
EPS (Rs.) 22 24 24 14 17 21 29 35 41 50
Balance Sheet
Net Worth 21,366 22,914 24,318 25,648 26,445 27,744 29,626 31,918 34,623 37,940
Deferred Tax 638 1,010 1,631 2,424 2,684 2,684 2,684 2,684 2,684 2,684
Total debt 13,787 14,044 20,588 21,428 22,219 24,219 24,795 25,295 26,295 26,295
Other liabilities and provisions 8,531 11,376 10,070 27,903 29,887 38,127 44,710 53,455 62,740 69,505
Total Networth and liabilities 44,323 49,343 56,606 77,403 81,236 92,775 101,816 113,352 126,342 136,424
Gross Fixed assets 5,180 5,587 6,107 4,157 4,073 4,173 4,273 4,373 4,473 4,573
Net fixed assets 3,169 3,248 3,072 3,729 3,173 2,696 2,205 1,700 1,181 647
Capital work-in-progress - 412 524 454 799 999 1,299 2,299 3,299 4,299
Goodwill 132 98 79 - - - - - - -
Investments 2 0 0 2,291 1,980 1,980 1,980 1,980 1,980 1,980
Cash and Bank Balances 670 1,055 1,631 1,185 1,468 409 218 703 957 837
Loans & advances and other assets 23,945 23,425 27,047 27,592 28,141 31,494 35,098 38,798 42,662 46,290
Net working capital 16,405 21,106 24,252 42,152 45,675 55,197 61,016 67,873 76,264 82,371
Total assets 44,323 49,343 56,606 77,403 81,236 92,775 101,816 113,352 126,343 136,424
Capital Employed 33,779 36,056 40,932 45,991 47,870 50,314 53,192 55,817 59,066 62,577
Invested Capital (CE - cash - CWIP) 33,144 34,987 39,120 44,093 45,917 48,476 51,730 53,557 55,436 57,880
Net Debt 13,116 12,989 18,956 19,949 20,751 23,811 24,577 24,592 25,338 25,458
Cash Flows
Cash flows from Operations (Pre-tax) 3,609 5,302 -828 5,042 4,380 1,841 4,850 6,855 6,711 8,124
Cash flows from Operations (post-tax) 2,541 3,948 -2,164 3,884 3,539 962 3,688 5,398 4,956 5,929
Capex -877 -1,197 -636 -1,076 -316 -300 -400 -1,100 -1,100 -1,100
Free cashflows 1,664 2,751 -2,800 2,808 3,223 662 3,288 4,298 3,856 4,829
Free cashflows (post interest costs) -303 823 -5,146 322 868 -1,971 527 1,510 1,017 1,976
Cash flows from Investing -1,292 -1,265 -599 -2,451 20 -300 -400 -1,100 -1,100 -1,100
Cash flows from Financing -1,086 -2,456 3,372 -1,327 -3,454 -1,721 -3,479 -3,814 -3,602 -4,949
Total cash & liquid investments 672 1,055 1,632 1,479 1,468 409 219 703 958 837
Page 79
Financial Summary
Growth and Ratios
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E
Key variables (sector specific)
Area sold (mn sq ft) 3.8 3.6 3.3 3.4 3.0 3.6 4.0 4.4 4.8 5.4
Presales value (Sobha share in Rs.mn) 22,146 23,425 20,949 20,119 18,639 24,593 26,597 28,491 31,693 35,908
Growth ratios
Revenue 32% 17% 12% -20% 15% 14% 16% 14% 13% 10%
EBITDA 17% 10% 2% -28% -5% 16% 23% 15% 13% 17%
Adj PAT 5% 8% 1% -42% 16% 25% 37% 22% 18% 23%
Margin ratios
EBITDA 29% 28% 25% 23% 19% 19% 20% 20% 20% 22%
Adj PAT 12% 11% 10% 7% 7% 8% 9% 10% 10% 11%
Performance ratios
Pre-tax OCF/EBITDA 65.8% 88.0% -13.4% 113.8% 104.3% 37.7% 81.0% 99.4% 85.8% 88.7%
OCF/IC (%) 8% 11% -6% 9% 8% 2% 7% 10% 9% 10%
RoE (%) 10% 11% 10% 6% 6% 7% 10% 11% 12% 13%
RoCE(%) 10% 10% 9% 5% 5% 6% 7% 8% 9% 10%
RoCE (Pre-tax) 15% 16% 15% 10% 9% 10% 12% 13% 14% 16%
RoIC (Pre-tax) 15% 15% 14% 9% 8% 10% 11% 13% 14% 16%
Fixed asset turnover (x) 6.3 6.8 7.7 5.7 6.5 8.6 12.0 17.3 26.6 46.2
Total asset turnover (x) 0.5 0.5 0.5 0.3 0.3 0.3 0.3 0.3 0.3 0.3
Financial stability ratios
Net Debt to Equity (x) 0.6 0.6 0.8 0.8 0.8 0.9 0.8 0.8 0.7 0.7
Net Debt to EBITDA (x) 2.4 2.2 3.1 4.5 4.9 4.9 4.1 3.6 3.2 2.8
Interest cover (x) 1 2 (1) 2 2 1 2 3 2 3
Cash conversion days 321 354 363 792 748 794 755 734 728 711
Working capital days 625 558 619 786 719 699 636 575 536 511
Valuation metrics
Fully Diluted Shares (mn) 98 98 98 98 96 96 96 96 96 96
Market cap (Rs.mn) 53,935 53,935 53,935 53,935 52,968 52,968 52,968 52,968 52,968 52,968
P/E (x) 24.8 22.9 22.7 39.1 32.9 26.5 19.3 15.8 13.4 10.9
P/OCF(x) 20.8 13.4 (24.5) 13.6 15.0 55.1 14.4 9.8 10.7 8.9
EV (Rs.mn)(ex-CWIP) 66,083 65,545 71,400 72,462 72,920 75,779 76,245 75,261 75,006 74,127
EV/ EBITDA (x) 12.1 10.9 11.6 16.4 17.4 15.5 12.7 10.9 9.6 8.1
EV/ OCF(x) 26.0 16.6 (33.0) 18.7 20.6 78.8 20.7 13.9 15.1 12.5
FCF Yield 0% 1% -7% 0% 1% -3% 1% 2% 1% 3%
Price to BV (x) 2.5 2.4 2.2 2.1 2.0 1.9 1.8 1.7 1.5 1.4
Dividend pay-out (%) 32% 29% 29% 64% 27% 30% 27% 27% 27% 27%
Dividend yield (%) 1% 1% 1% 2% 1% 1% 1% 2% 2% 2%
Page 80
Crystal Ball Gazing
Sobha has a major presence in Bangalore market and has a strong execution track record reflecting in consistent positive
operating cash flow performance from its development business. Sobha posted strong FY18 volume and pre-sales growth and
with healthy launch pipeline in FY19, we expect ~29% EPS CAGR over the next two years led by increased revenue recognition.
Also, Sobha’s aggressive expansion in mid-segment housing to drive growth going ahead.
Revenue recognition to increase over next three

RoE’s to improve from 7% now to 11% by FY22E Valuations on SoTP basis
years led by launches in FY15-16
FY09-FY11 FY11-FY14 FY14-FY17 FY18-FY22E FY09-11 FY11-FY14 FY14-FY17 FY18-FY22E NAV in Rs.mn Price target
Revenues CAGR -1% 16% 1% 15% RoE (%) 24% 11% 7% 11% 66,569 700
EBITDA CAGR -1% 19% -9% 17% RoCE (%) 14% 9% 6% 8%
EBITDA margin 24% 30% 22% 20%
RoIC (%) 19% 15% 10% 13%
EPS CAGR -7% 9% -11% 25%
Average 1 yr fwd
Total Asset Turnover (x) 0.53 0.43 0.34 0.31
P/B (x) 1.6 1.4 1.2
Total WC days 621.1 650.6 708.0 582.4
EV/EBITDA (x) 8.0 7.7 7.8
Pre-tax OCF/EBITDA (%) -24% 94% 68% 89% Peak 1 yr fwd
Post Tax OCF as a % of IC -17% 12% 4% 9% P/B (x) 1.9 1.7 1.8
Debt/EBITDA 4.2 2.4 4.2 3.6 EV/EBITDA (x) 10.0 9.1 9.0
TOTAL
Entry = Rs. 550@ 1.7x Cumulative Dividends of Based on FY22E SOTP RETURN OF
FY20E BPS Rs.50/share Valuations 45%
Page 81
PRESTIGE ESTATES PROJECTS CMP Target Price Rating
Rs. 300 Rs. 265 SELL
Weak cash flows and valuations offset strong annuity business; Initiate with SELL
We Initiate coverage on Prestige Estates Projects (PEPL), a leading residential and commercial developer with a major presence in Bangalore
market, with a SELL rating. While we like PEPL’s rental portfolio due to major presence in Bangalore market and growing at 15% CAGR over COMPANY INITIATION
next three years, weak core development business cash flow generation remains a drag on return metrics. 13 April 2018
Investment thesis: Industry REAL ESTATE
 Subdued revenue growth over next three years due to five year low presales in FY17-18: PEPL’s presales volumes halved to 3msf in last two Key Stock Data
years compared to 5-6msf run rate seen during FY13-15 owing to subdued demand and very few launches. Overall, PEPL launched only 5msf in
FY17-18 and focused entirely on execution of existing projects leading to inventory decline by almost 30% from peak of FY16. While PEPL has Bloomberg PEPL IN
aggressive launch pipeline of almost 10msf in FY19 which will increase presales from the lows of FY18E, operating cash flows will be largely back Shares o/s 375mn
ended in FY21-22E. Overall, we expect presales to increase to Rs.37bn by 2021E (same levels seen in FY14) aided by new launches and higher Market Cap Rs. 113bn
offerings in mid-segment ticket size in Bangalore. Development segment revenue growth trajectory to remain subdued (2-3% CAGR) in near
term owing to low presales in FY17-18. 52-wk High-Low Rs. 357-218
 Annuity segment to grow at 15% over next three years, aiding in cash flow generation: PEPL has a strong rental portfolio with total leasable 3m ADV Rs. 137mn
area of 10 msf (Prestige share) as of FY18E and majorly based out of Bangalore. We remain positive on Bangalore’s commercial market given Index BSE 500
strong demand from GIC’s amid limited supply leading to vacancy rates falling to five years lows and stable rental outlook. Given, PEPL has
Latest shareholding (%)
acquired Capitaland stake in FY18 and is also adding 3msf of additional office and retail space by FY19E and additional 3msf by FY21E, we expect
rental income to grow by almost 15% CAGR over next three years and contributing almost 70% to overall pre-tax operating cash flows. Promoters 55.9
 Debt reduction to be gradual owing to weak development segment operating cash flow and capex in upcoming Retail and offices: PEPL’s core Institutions 39.2
development business operating cash flows are quite weak despite cumulative presales of ~Rs.150 bn over last five years. Operating cash flows
Public 4.9
from development business remains negative in five out of seven years owing to stretched working capital. This led to net debt to equity
increasing to 1.1x in FY18E from 0.7x in FY13E. Going forward, while we expect development segment cash flows to improve owing to higher
Stock performance (%)
collections from its unsold inventory in matured properties and increasing rental income, free cash flows to remain negative due to capex
incurred on new office spaces starting from FY20-21E. Hence, we don’t expect leverage levels to go down before FY20E. Also, while we
1m 3m 12m
acknowledge the advantages of corporate restructuring leading to monetization of rental portfolios through stake sale, core development
segment cash flows needs to be monitored closely given lack of cash fungibility between segments now. PEPL -1% -11% 34%
 Cyclically peak multiples despite no material increase in RoE’s: Due to subdued presales over last two years, we expect overall EBITDA and PAT SOBHA 0% -8% 51%
growth of 9% and 10% respectively over next three years. PEPL currently trades at FY20E P/B of 2.3x which is almost 30% premium to last 7
years average without any material increase in RoE’s trajectory (FY21E RoE of 10% from 8% now) or reduction in leverage. We value PEPL using
SOTP valuation and arrive at a TP of Rs.265/share. Initiate with SELL rating. RESEARCH ANALYSTS
Consolidated Financial Summary GIRISH CHOUDHARY

girish@sparkcapital.in
Year Revenues (Rs. Mn) EBITDA (Rs. Mn) PAT (Rs. Mn) EPS (Rs.) EV/EBITDA P/B
+91 44 4344 0021
FY17 47,745 9,198 2,699 7.2 16.1 2.5
GAURAV NAGORI
FY18E 50,211 10,587 3,538 9.4 14.1 2.4
gaurav@sparkcapital.in
FY19E 52,133 11,829 4,120 10.9 12.7 2.2 +91 44 4344 0072
FY20E 54,250 12,482 4,149 11.1 11.9 2.1
(SPAK <go>)
Prestige Estates Projects | Initiating Coverage | TP of Rs. 265| SELL
Company Background
Corporate Factsheet
 Established in 1986, Prestige Estates Projects is a leading regional real estate developer with major presence in Bangalore.
Company Background  Prestige has projects in residential, commercial, hospitality and retail, and also offers property management services. In 2017,
Prestige Estates restructured it’s businesses by creating separate wholly-owned verticals.
Prestige mainly has presence in South India, and is one of the market leaders in Bangalore with projects in Chennai, Hyderabad,
Presence
Cochin etc.
 Mr. Irfan Razack – Chairman and Managing Director
 Mr. Rezwan Razack – Joint Managing Director and Executive Director
Management depth
 Mr. Noaman Razack – Whole-time Director
 Mr. Venkat K. Narayan – Chief Executive Director
Revenue contribution Property Development – 73%, Office – 12%, Others – 15%
Average area sold in last 5

5.2 msf sold per year on average between FY13 and FY17
years (mn sq-ft)
Ongoing-
Upcoming-
 Residential - 49.59 msf
 Residential – 30.31 msf
Order book (mn sq-ft)  Commercial – 5.53 msf
 Commercial – 15.70 msf
 Retail – 3.04 msf
 Retail – 1.78 msf
 Hospitality – 2.07
Credit Rating  ICRA- Stable, Long term- A+, Short term- A1+
Corporate Bankers  State Bank of India, HDFC Bank, Kotak Mahindra Bank Limited, Punjab National Bank, Hong Kong and Shanghai Banking Corporation
Auditors  Deloitte Haskins & Sells
Page 83
# Prestige presales in FY17 has been lowest in last 5 years; Residential revenue growth to remain subdued over next three years
Prestige presales and volumes sold are lowest in FY17-18 and almost went down to FY11 levels
50 8.0
7.0
40 6.7
6.0 6.1 6.0
30 4.9 5.0
4.3 4.0
20 3.1 3.0
2.3 2.0
10 1.9
1.0
13.9 21.1 31.2 36.3 43.6 26.3 19.8 15.0
0 -
FY11 FY12 FY13 FY14 FY15 FY16 FY17 9MFY18
New Sales Value (Rs. Bn) New Sales Volume (msf)
PEPL completed almost 24 msf area in last three years Inventory level is down 35% from peak of FY16
14
Area Completed (msf) 12
12
12
20.0 10
16.6 10 10
8
15.0 12.7 8
8
8.9 6
10.0 7.3
4
4.7
5.0 3.1 3.2
2.3 2
- 0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 9MFY18 FY13 FY14 FY15 FY16 FY17 9MFY18
Area Completed (msf) Unsold stock in msf
Source: Spark Capital Source: Spark Capital Research
Page 84
# Launches pipeline is strong but cash flows to remain back-ended. Development segment revenues growth to be remain subdued
Expect launches to improve from hereon. 6msf already launched in Q4FY18 ….which will increase presales over next two years
Area Launched (msf) Pre-Sales Value (Rs. bn)

50
18.0
16.0 40
14.0
30
12.0
10.0 20
8.0
6.0 10
4.0 36.3 43.6 26.3 19.8 22.1 27.9 31.3 35.1
0
2.0 15.7 14.6 8.4 2.0 3.0 8.0 10.0 8.0 2014 2015 2016 2017 2018E 2019E 2020E 2021E
-
2014 2015 2016 2017 2018E 2019E 2020E 2021E
Revenue recognition to be back ended.; Expect development revenues to remain flattish over next three years
50 100%
84%
45
80%
40 43.8
35 60%
38.2
30 34.8 35.4 34.3 34.6
36% 40%
25 33%
20 20%
23.9
10%
15 17.5 2% 1% 0%
-3%
10
-21% -20%
5
0 -40%
2014 2015 2016 2017 2018E 2019E 2020E 2021E
Development segment Revenue (Rs. bn) Growth %
Page 85
# Aggressive new launches and available inventory to drive pre-sales over next two years
Major Ongoing project with inventory left to be sold over next two years New launches pipeline over next two-three years
Ongoing Projects Area in msf PEPL Share Area in msf Economic Area (msf) -
Upcoming Projects City Area (msf)
Interest PEPL Share
Prestige Sunrise Park -Phase I & Phase II 3.3 3.2
Prestige Jindal Property Bengaluru 4.7 37% 1.73
Prestige Lakeside Habitat-Phase I & II 5.6 3.9 Prestige Highline, Chennai
Chennai 3.8 78% 2.96
Prestige Falcon City-Phase I & II 6.5 2.7 (Pallavaram)
Prestige Greenmoor Bengaluru 0.7 25% 0.17
Prestige Song of the South 2.3 1.6
Prestige Hillcrest Ooty 0.1 50% 0.04
Prestige Misty Waters (Phase 2) 0.4 0.2
Prestige Lakeside Habitat Phase III Bengaluru 3.3 69% 2.28
Prestige Lake Ridge 1.0 0.7 Prestige Primerose Hills Bengaluru 2.0 62% 1.25
Prestige Royale Garden -Phase I & II 3.2 2.2 Prestige Park Square Bengaluru 1.1 42% 0.46
Prestige Boulevard 0.3 0.3 Roshanara Property Bengaluru 0.2 100% 0.22
Source: Spark Capital Research Mangaluru Villas Mangaluru 0.1 68% 0.10
Prestige Fontaine Bleau Bengaluru 0.2 60% 0.12
Prestige Dolce Vita Bengaluru 0.2 60% 0.13
Recent deal with HDFC platform will aid in developing affordable housing projects
at minimal outflow Prestige Courtyards Chennai 0.9 70% 0.63
Prestige Lake ridge Bengaluru 1.0 67% 0.68
Details
Prestige Verdant Vistas Mangaluru 0.3 60% 0.17
Buying land to develop Affordable/Mid-
Prestige High Fields Phase II Hyderabad 4.3 68% 2.91
Details segment projects in collaboration with
HDFC platform Prestige Song of the South Bengaluru 2.3 69% 1.57
Prestige Botanique Bengaluru 0.1 55% 0.08
Initial capital Rs.25bn
Prestige Palm Residences Mangaluru 0.3 75% 0.26
Partnership HDFC Capital advisors
Prestige Green Gables Bengaluru 2.0 60% 1.21
Potential revenue Rs.100bn over next three years Prestige Elysian, Bannerghatta Road Bengaluru 1.1 31% 0.33
Ticket size Rs.0.5-0.6mn Prestige Falcon City-Phase II Bengaluru 1.6 36% 0.57
Partnership ratio 75% Total 30.5 18.0
Page 86
# Non development portfolio to grow at a CAGR of 15% over next three years led by increase in rentals and start of properties in FY18-20E
Lease area to increase from 10msf to 16msf by 2021E Upcoming operational properties in Commercial and Retail
25.0 Year of
Ongoing - Office Location Total Area PEPL Share
21.6 Completion
20.0 Cessna Business Park B9-B11 Bengaluru 1.98 1.68 FY18
16.8 16.6 Prestige TMS Square Cochin 0.17 0.1 FY19E
Prestige Falcon Towers Bengaluru 0.49 0.22 FY19E
15.0 12.6 13.0
10.9 Prestige Saleh Ahmed Bengaluru 0.11 0.06 FY19E
9.9 Prestige Technostar Bengaluru 1.6 1.28 FY19E
10.0 8.6
Prestige Central Street Bengaluru 0.18 0.1 FY19E
Prestige Logistics Centre, Malur Bengaluru 0.38 0.38 FY19E
5.0
Ongoing - Retail
Forum Shantiniketan Bengaluru 1.08 0.69 FY19E
-
Prestige Mysuru Central Mysuru 0.11 0.07 FY19E
FY17 FY18 FY19E FY21E
Prestige TMS Square Cochin 0.12 0.07 FY19E
Leasable Area in msf PEPL Share in msf Forum Thomsun Cochin 1.06 0.26 FY19E
Source: Spark Capital Research Prestige Cube Bengaluru 0.09 0.09 FY19
Ongoing - Hospitality
Sheraton Hotel & Convention Center Bengaluru 0.65 0.65 FY18
Non development portfolio to grow at a CAGR of 14-15% over next three years led by Marriott Hotel & Convention Centre Bengaluru 0.93 0.93 FY20E
start of commercial properties and increase in rentals
Upcoming - Office
25 35% Prestige Tech Cloud Bengaluru 4.48 3.85 FY20-FY21E
30% 30% Prestige Tech Park IV Bengaluru 1.55 1.4 FY20-FY21E
20 21.9 Prestige Tech Pacifica Park (ORR) Bengaluru 1.65 1.04 FY20-FY21E
26%
19.7 25%
Mount road Chennai Chennai 0.32 0.14 FY20-FY21E
15 17.8
20% Prestige Strar Tech Bengaluru 1.82 0.93 FY20-FY21E
14.8 20%
13.0 15% Kharadi, Pune Property Pune 1.4 0.93 FY20-FY21E
10 11.5
10.3 11% Gift City (Ahmedabad) Ahmedabad 0.42 0.42 FY20-FY21E
13% 14% 10% 10%
8.0 Cyber Green (Kochi Smart City) Cochin 1.46 1.46 FY20-FY21E
5 11%
5% Prestige Retreat Bengaluru 1.48 1.48 FY20-FY21E
Prestige First World, Omr, Chennai Chennai 1.13 0.54 FY20-FY21E
0 0%
2014 2015 2016 2017 2018E 2019E 2020E 2021E Upcoming - Retail
Prestige Hillside Gateway (Kakanad) Cochin 0.52 0.37 FY20-FY21E
Non-Development segment Revenue (Rs. bn) Growth % Falcon City Forum Mall Bengaluru 1.26 0.45 FY20-FY21E
Page 87
# Prestige’s development business OCF remains weak; Free cash flow profile is negative due to impending capex
Prestige’s development OCF generation is quite weak Free cash flows to remain negative due to impending capex
4.0 1.9
Development Pre-tax OCF in Rs.bn
2.0
4 -
-2.0
2 0.9 -1.3
0.1 1.1 2.2 -4.0
-3.1
0 -6.0
-5.5 -5.5 -5.0
-0.3 -0.6 -8.0
-2
-3.8 -10.0 -8.3
-4 -12.0
-6.2 -14.0 -12.6
-6 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E
-8
FCF in Rs.bn
2011 2012 2013 2014 2015 2016 2017 2018E
Development segment pre-tax OCF contributed only 30% to overall pre tax OCF
12.0
10.0
8.0
7.0 7.8
6.0
5.5
4.0 6.5
5.3
2.0 3.6
2.2 2.8
- 1.0
-0.6
FY17 FY18E FY19E FY20E FY21E
-2.0
Non-Development Pre-tax OCF in Rs.bn Development Pre-tax OCF in Rs.bn
Page 88
# Expect debt levels to remain same largely and RoE’s to be sub 10% till FY21E due to continuing capex phase in Rental assets
Given capex to continue over next two years for upcoming commercial and retail
Residential and commercial contributes 30% to overall debt
properties, expect net debt to equity to remain same
Receivables
Discounting Loans Net Debt to Equity (x)
Rental 20% 1.3
1.2
Securitization Loans 1.2 1.1 1.1 1.1 1.1
31%
1.1
1.0
1.0 0.9 0.9
0.9
0.8
0.7
Hospitality Project Debt 0.6
12% (Resi&Comm)
29% 0.5
Retail Office Space FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E
2% 6%
RoE’s to remain subdued due to lower recognition in development business and

Net debt to OCF will improve led by higher rental income capex incurred in Annuity portfolio over next three years
Net Debt/OCF (x) RoE %

18.3 15%
20.0 16%
14%
15.0 12% 11%
10.9 11.3 10% 10% 10% 10%
10%
10.0 7.0 7.7 8%
5.7 5.4 8% 6%
5.0 6%
4%
- 2%
0%
-5.0
2011 2012 2013 2014 2015 2016 2017 2018E
-10.0 -7.2
RoE %
2014 2015 2016 2017 2018E 2019E 2020E 2021E
Page 89
Valuations: Cyclically peak valuation despite no material increase in RoE’s
Prestige NAV calculation Prestige trades at peak price to book despite no material improvement in RoE’s
Total NAV in Per 3.0 16%

Segment Assumptions
Rs.mn share
14%
2.5
NAV based valuations; Discount net cash 12%
Residential - for sale 49,077 131 2.0
flow over next five years only 10%
NAV based valuations; Discount net cash 1.5 8%

Commercial - lease 58,503 146 flows over next five years and cap rate of 8% 6%
thereafter 1.0
4%
NAV based valuations; Discount net cash
Retail - lease 20,153 50 flows over next five years and cap rate of 8% 0.5 2%
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
thereafter
Hospitality- FY20E 8,559 20 9x FY20E EV/EBITDA

RoE % 12MF P/B(x)
Project management
6,404 17 8x FY20E EV/EBITDA Source: Company, Spark Capital
FY20E
NAV based valuations; Assuming land being Valuations:

Land bank 6,330 17 monetized over seven years once new  Due to subdued presales over last two years, we expect overall EBITDA and PAT
launches gets over
growth of 9% and 10% respectively over next three years.
 PEPL currently trades at FY20E P/B of 2.3x which is almost 30% premium to last
Refundable Deposits
5,671 15 With JDA land owners 7 years average without any material increase in RoE’s trajectory (FY21E RoE of
(net)
10% from 8% now) or reduction in leverage.
 We value PEPL using SOTP valuation and arrive at a TP of Rs.265/share. Initiate
Total GAV (Rs mn) 154,697 413 with SELL rating.
Less: Net Debt - FY20E -

47,828 128
Economic interest
NAV 106,869 265
Page 90
Financial Summary
Abridged Financial Statements
Rs. mn FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E
Profit & Loss
Revenue 19,476 25,492 34,198 55,310 47,745 50,211 52,133 54,250 60,108 66,577
EBITDA 5,791 7,203 9,939 10,662 9,198 10,587 11,829 12,482 13,717 14,821
Depreciation 682 893 1,397 1,274 1,637 1,640 2,084 2,684 3,106 4,007
EBIT 5,745 7,286 9,528 12,219 8,433 9,863 10,706 10,808 11,671 11,927
Other Income 636 975 986 2,831 872 916 961 1,009 1,060 1,113
Interest expense 1,489 2,290 3,214 3,462 3,160 3,512 3,558 3,654 3,714 3,593
Exceptional items
PBT 4,256 4,995 6,314 8,757 5,273 6,350 7,148 7,154 7,957 8,334
Reported PAT (after minority interest) 2,860 3,143 3,324 6,098 2,699 3,538 4,120 4,149 4,737 5,029
Adj PAT 2,860 3,143 3,324 6,098 2,699 3,538 4,120 4,149 4,737 5,029
EPS (Rs.) 8 9 9 16 7 9 11 11 13 13
Balance Sheet - - - (0) - - - - - -
Net Worth 27,423 29,792 38,206 41,999 44,640 47,350 50,506 53,685 57,314 61,167
Deferred Tax 110 63 12 3,130 3,657 3,657 3,657 3,657 3,657 3,657
Total debt 25,389 31,541 40,712 53,740 57,394 57,394 58,894 61,894 60,894 57,894
Other liabilities and provisions 19,759 26,394 37,408 56,693 55,560 59,141 61,866 64,760 71,994 79,495
Total Networth and liabilities 72,681 87,790 1,16,338 1,55,562 1,61,251 1,67,542 1,74,924 1,83,996 1,93,859 2,02,213
Gross Fixed assets - - - 6,911 7,395 11,895 15,895 19,895 27,895 38,895
Net fixed assets 15,807 19,251 25,060 6,250 6,124 8,984 10,900 12,216 17,110 24,102
Capital work-in-progress 9,123 9,955 7,756 9,819 17,952 16,952 19,952 23,952 18,952 10,952
Goodwill 4,490 4,520 5,040 3,069 3,069 3,069 3,069 3,069 3,069 3,069
Investments 1,750 2,887 2,787 32,955 30,581 30,581 30,581 30,581 30,581 30,581
Cash and Bank Balances 4,880 3,395 5,368 4,604 3,864 3,728 1,207 2,109 3,926 5,272
Loans & advances and other assets 15,090 20,790 26,099 29,417 31,915 33,563 34,848 36,263 40,179 44,503
Net working capital 21,542 26,993 44,228 69,448 67,746 70,664 74,366 75,806 80,043 83,734
Total assets 72,681 87,790 1,16,338 1,55,562 1,61,251 1,67,542 1,74,924 1,83,996 1,93,859 2,02,213
Capital Employed 46,551 57,072 70,126 87,329 98,887 1,03,389 1,07,072 1,12,490 1,16,893 1,18,634
Invested Capital (CE - cash - CWIP) 35,056 42,447 55,842 71,858 79,518 82,046 86,152 88,879 92,424 99,083
Net Debt 19,617 27,139 34,257 46,828 53,340 53,666 57,687 59,785 56,968 52,622
Cash Flows
Cash flows from Operations (Pre-tax) 2,457 3,332 (1,789) 6,943 7,302 10,517 10,529 13,531 13,859 15,420
Cash flows from Operations (post-tax) 1,061 1,479 (4,780) 4,284 4,728 7,705 7,501 10,526 10,640 12,115
Capex (5,887) (4,782) (3,971) (9,219) (8,672) (3,500) (7,000) (8,000) (3,000) (3,000)
Free cashflows (4,827) (3,303) (8,750) (4,935) (3,944) 4,205 501 2,526 7,640 9,115
Free cashflows (post interest costs) (5,680) (4,618) (10,977) (5,566) (6,232) 1,608 (2,096) (118) 4,986 6,635
Cash flows from Investing -6,618 -6,933 -4,327 -7,367 -4,926 -3,500 -7,000 -8,000 -3,000 -3,000
Cash flows from Financing 8,227 3,711 11,042 2,251 -797 -4,340 -3,022 -1,625 -5,823 -7,770
Total cash & liquid investments 5,772 4,402 6,455 6,912 4,054 3,728 1,207 2,109 3,926 5,272
Page 91
Financial Summary
Growth and Ratios
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E
Key variables (sector specific)
Area sold in mn sq-ft- Prestige share 6.0 6.1 6.7 4.3 3.1 3.3 4.2 4.7 5.1 5.5
Development revenues in Rs.bn 13.2 17.5 23.9 43.8 34.8 35.4 34.3 34.6 38.2 41.6
Non-Development revenues in Rs.bn 6.3 8.0 10.3 11.5 13.0 14.8 17.8 19.7 21.9 25.0
Growth ratios
Revenue 85.1% 30.9% 34.2% 61.7% -13.7% 5.2% 3.8% 4.1% 10.8% 10.8%
EBITDA 95.2% 24.4% 38.0% 7.3% -13.7% 15.1% 11.7% 5.5% 9.9% 8.0%
Adj PAT 246.2% 9.9% 5.8% 83.5% -55.7% 31.1% 16.4% 0.7% 14.2% 6.2%
Margin ratios
EBITDA 29.7% 28.3% 29.1% 19.3% 19.3% 21.1% 22.7% 23.0% 22.8% 22.3%
Adj PAT 14.7% 12.3% 9.7% 11.0% 5.7% 7.0% 7.9% 7.6% 7.9% 7.6%
Performance ratios
Pre-tax OCF/EBITDA 42.4% 46.3% -18.0% 65.1% 79.4% 99.3% 89.0% 108.4% 101.0% 104.0%
OCF/IC (%) 3% 3% -9% 6% 6% 9% 9% 12% 12% 12%
RoE (%) 12% 11% 10% 15% 6% 8% 10% 10% 10% 10%
RoCE(%) 9% 8% 8% 10% 6% 7% 7% 7% 7% 7%
RoCE (Pre-tax) 15% 16% 17% 19% 10% 11% 11% 11% 11% 11%
RoIC (Pre-tax) 11% 10% 9% 12% 7% 8% 8% 8% 8% 8%
Fixed asset turnover (x) 1.3 1.5 1.5 3.5 7.7 6.6 5.2 4.7 4.1 3.2
Total asset turnover (x) 0.3 0.3 0.3 0.4 0.3 0.3 0.3 0.3 0.3 0.3
Financial stability ratios
Net Debt to Equity (x) 0.7 0.9 0.9 1.1 1.2 1.1 1.1 1.1 1.0 0.9
Net Debt to EBITDA (x) 3.4 3.8 3.4 4.4 5.8 5.1 4.9 4.8 4.2 3.6
OCF to Interest (x): Interest cover 0.7 0.6 (1.5) 1.2 1.5 2.2 2.1 2.9 2.9 3.4
Cash conversion days 404 386 472 458 518 514 521 510 486 459
Working capital days 365 349 394 293 353 343 346 333 306 279
Valuation metrics
Fully Diluted Shares (mn) 350 350 375 375 375 375 375 375 375 375
Market cap (Rs.mn) 1,05,000 1,05,000 1,12,500 1,12,500 1,12,500 1,12,500 1,12,500 1,12,500 1,12,500 1,12,500
P/E (x) 36.7 33.4 33.8 18.4 41.7 31.8 27.3 27.1 23.7 22.4
P/OCF(x) 106.1 76.1 (23.5) 26.3 23.8 14.6 15.0 10.7 10.6 9.3
EV (Rs.mn)(ex-CWIP) 1,22,994 1,29,685 1,39,001 1,49,509 1,47,888 1,49,214 1,50,235 1,48,333 1,50,516 1,54,170
EV/ EBITDA (x) 21.2 18.0 14.0 14.0 16.1 14.1 12.7 11.9 11.0 10.4
EV/ OCF(x) 116.0 87.7 (29.1) 34.9 31.3 19.4 20.0 14.1 14.1 12.7
FCF Yield -5% -4% -8% -4% -4% 1% -1% 0% 3% 4%
Price to BV (x) 3.8 3.5 2.9 2.7 2.5 2.4 2.2 2.1 2.0 1.8
Dividend pay-out (%) 17% 20% 22% 11% 20% 23% 23% 23% 23% 23%
Dividend yield (%) 0.4% 0.5% 0.6% 0.5% 0.4% 0.7% 0.8% 0.8% 0.9% 0.9%
Page 92
Crystal Ball Gazing
Prestige Estates Projects (PEPL) is a leading residential and commercial developer with a major presence in Bangalore market.
While we like PEPL’s rental portfolio due to major presence in Bangalore market and growing at 15% CAGR over next three years,
weak core development business cash flow generation remains a drag on return metrics.
Revenue recognition to start only from FY21E-22E RoE’s to remain flat on impending capex in its rental
Multiples to sustain
due to better pre-sales in FY17-18E portfolio
FY11-FY14 FY14-FY17 FY18-FY22E FY11-FY14 FY14-FY17 FY18-FY22E NAV Price target

Revenues CAGR 18% 23% 6% RoE (%) 9% 10% 10% 142,250 390
EBITDA CAGR 24% 6% 9% RoCE (%) 7% 8% 7%
EBITDA margin 29% 23% 23%
RoIC (%) 9% 9% 8%
EPS CAGR 20% -7% 10%
Average 1 yr fwd
Total Asset Turnover (x) 0.27 0.35 0.31
PB (x) 1.6 1.9
Total WC days 453.7 346.8 328.2
EV/EBITDA (x) 9.0 11.1
Pre-tax OCF/EBITDA (%) 63% 42% 99% Peak 1 yr fwd
Post Tax OCF as a % of IC 5% 1% 11% PB (x) 1.8 2.3
Debt/EBITDA 4.2 4.5 4.6 EV/EBITDA (x) 10.5 13.2
TOTAL
Entry = Rs. 300@ 2.1x Cumulative Dividends of Based on FY22E SOTP RETURN OF
FY20E BPS Rs.10/share Valuations 30%
Page 93
APPENDIX
Page 94
Construction Cost Schedule and Collections schedule
A typical project life cycle is of 4-5 years
Year 1
 Around 10% of construction cost incurred during the project
launch
Year 2
 50%-60% of construction cost incurred

Year 3
 Developer receives roughly 50-55% of sale value
 30% of total construction cost incurred

Year 4
 Developer receives roughly 10% of the sale value
 Developer receives 7%-10% of the sale value Year 5
Page 95
Business Model of Real Estate Companies
Proejct details: Cashflow profile in Rs.mn Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Total area to be sold in sqft 1,000

Construction costs (%) 0% 10% 20% 20% 25% 25%
Collections (%) 0% 20% 30% 25% 15% 10%

Total selling price 6,000 Assume 1msf project @Rs.6,000/sf
Area sold 0% 50% 30% 20% 0% 0%
Total revenue in Rs.mn 6.0 Cumulative
Construction costs (%) 0% 10% 30% 50% 75% 100%

Land cost per sqft 1,500 Typically 30-40% of overall cost
Collections (%) 0% 20% 50% 75% 90% 100%
Construction per sqft 2,500 Construction cost is 60-70% Area sold 0% 50% 80% 100% 100% 100%
Current cash flows in Rs.mn

Total cost (Land+construction) per sqft 4,000
Outflow-Land+construction cost (1.5) (0.3) (0.5) (0.5) (0.6) (0.6)
Margin per sqft 2,000 Gross margins Cumulative project cost completed (1.5) (1.8) (2.3) (2.8) (3.4) (4.0)
Cumulative project cost completed % 38% 44% 56% 69% 84% 100%
Interest cost 15% Cumulative constrution cost
0% 10% 30% 50% 75% 100%
completed %
Total land cost in Rs.mn 1.5
Inflow- Collections 0.0 0.6 1.8 2.1 0.9 0.6

Total construction cost in Rs.mn 2.5
Net cash flows to developer -1.5 0.4 1.3 1.6 0.3 0.0
Total cost in Rs.mn 4.0 Cumulative cash flow to developer -1.5 -1.2 0.2 1.8 2.0 2.0
Gross profit in Rs.mn 2.0

P&L statement in Rs.mn Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Revenue recognition criteria: Revenue recognized 2.7 1.4 0.9 0.9

1) Expenditure incurred on construction and development costs is >25 % of the construction and
development costs AND Cost recognized (1.8) (1.0) (0.6) (0.6)
2) At least 25% of the saleable project area is secured by contracts /agreements with buyers AND
3) At least 10 % of total revenue as per agreement of sale, etc. are realised at reporting date Profit - 0.9 0.5 0.3 0.3
Page 96
Typical Timeline for the approval cycle.

Approval Cycle
Land Conversion 2 – 3 Months
No Approval Issued By Duration Fee
1 Ownership Certificate Revenue Department 15 - 20 days INR 50
2 Building Layout Approval Municipal Corporation 1 month INR 30 per sq.mt of project/plot
Scrutiny Fee : INR 33 per sq.mt (Residential), INR Ownership Certificate Within 1 month
66 per sq.mt (Commercial)
3 Building Permit Building Proposal Office 1-2 months
Development Fee : INR 350 per sq.mt
(Residential), INR 700 per sq.mt (Commercial)
4 NA Approval Revenue Department Around 3 months INR 2-8 per sq.ft Building Layout Approval 1 month
5 NOC from Tree Authority Tree Authority Committee 1-2 months INR 4000 per tree
6 NOC from Storm Water Dept Storm Water and Drain Dept 1 month INR 2 per sq.ft
7 NOC from Sewage Dept Sewage Dept 1 month INR 2 per sq.ft Building Permit 1 – 2 months
8 NOC from Electrical Dept Electrical Dept 1 month
9 NOC from Traffic Dept Traffic Dept 1 month

NOCs from various
10 NOC from Chief Fire Officer Fire Dept 1 month INR 50 per sq.mt Departments 4 – 5 months
11 Environment Clearance Ministry of Environment 3 -12 months Depends on project size
(Sewage,Electricity,Fire)
12 Ancient Monuments Approval Archaeological Survey of India 6 - 8 months
13 NOC from Airport Authority Civil Aviation Dept 4 - 5 months Environmental Clearance 3 to 6 months
14 Commencement Certificate Building Proposal Office 15 - 30 days INR 700 per sq.mt
15 NOC in Coastal Areas Coastal Zone Management 6 - 12 months

Common Facilities
16 Permission for Excavation Collector 15 - 30 days 1 month
Approval
Respective Service Providers of
17 Common Facilities Approval 1 month
water,electricity and telecom
Road Access
18 PWD/NHAI 2 months
Highway/Expressway Occupancy Certificate 2 months
19 Occupancy Certificate Municipal Corporation 2 months
20 Completion Certificate Municipal Corporation 1 month

Permanent Connection Respective Service Providers of
21 1 - 2 months Completion Certificate 1 month
(Electricity,water) water,electricity and telecom
Source: World Bank, Spark Capital Research
Page 97
RERA Timeline
January, 2009 July, 2011 July, 2013 August, 2013 September, 2013 February 2014 April 2015
A law for the regulation It was decided to Real Estate Bill RERA introduced in the The Standing The Standing The Union Cabinet,
of the real estate sector implement a Central approved by the Union Rajya Sabha by the UPA Committee on Urban Committee submitted a presided by the Hon.
was proposed by a Law for the real estate Cabinet Government Development report to the Lok Sabha Prime Minister gave its
National Conference of sector examined the RERA bill and the Rajya Sabha approval to
Ministers of Housing amendments to the bill
and Urban
Development
2009 2010 2011 2012 2013 2014
2017 2016 2015
1st May, 2017 19th April, 2017 1st May, 2016 27th April, 2016 10th March 2016 10th December 2015 3rd July 2015 May 2015
The RERA comes Central Government The Real Estate Notification of the The RERA Bill passed by The Cabinet The select Cabinet The bill was referred
into force notifies pending (Regulatory and RERA Rajya Sabha accepted around 20 examined the bill over to a Standing
sections of the Act in Development) Act commencement in major amendments 17 sittings Committee of 21
15th March 2016
official gazette (RERA). Commenced 2016 to the report members in the
30th July 2015
The RERA Bill was Rajya Sabha
passed by the Lok The Committee
Sabha with the submitted the report to
President's approval the Rajya Sabha
Page 98
Top Market leaders by absorption in each region
Top Developers by cumulative market share (last 5 years) of the top 6 cities
Bangalore Chennai Hyderabad
Prestige Group 5.71% Casagrand Builder 3.89% My Home Constructions 4.14%
Aparna Constructions and

Sobha Limited 2.81% VGN Property Developers 3.19% 4.07%
Estates
Cybercity Builders &

Brigade Group 2.37% Arun Excello Foundations 3.09% 1.80%
Developers
DS-Max Properties 1.92% Amarprakash Group 2.78% Praneeth Group 1.64%
Shriram Properties 1.81% Appaswamy Real Estates 1.85% Rajapushpa Properties 1.31%
Mantri Developers 1.59% Mahindra Lifespaces 1.76% Janapriya 1.26%
Provident Housing 1.54% SSM Builders and Promoters 1.74% Modi Properties 1.17%
Salarpuria Sattva Jain Housing & Constructions Bhavya Constructions 1.03%

1.41% 1.64%
GVR Homes 1.01%

Puravankara 1.38% Akshaya Homes 1.63%
Aditya Construction
0.97%
GM Infinite Dwelling 1.31% Ruby Builders & Promoters 1.59% Company
Source: Spark Capital Research Source: Spark Capital Research Source: Spark Capital Research
Page 99
Top Market leaders by absorption in each region
Top Developers by cumulative market share (last 5 years) of the top 6 cities
MMR Pune NCR
Lodha Group (Thane) 4.69% Kolte Patil Developers 2.34% Amrapali Group (Greater
5.66%
Noida)
Karrm Infrastructure (Thane) 3.00% Paranjape Schemes 1.60% Gaursons India (Greater
3.66%
Noida)
Xrbia Developer (Thane) 1.09% Magarpatta City 1.57% Supertech Limited (Greater
3.01%
Noida)
Indiabulls Real Estate (Navi

0.96% Mantra Properties 1.55% Wave Infratech (Ghaziabad) 1.86%
Mumbai)
Xrbia Developer (Navi

0.80% Xrbia Developer 1.50% Ajnara India (Greater Noida) 1.62%
Mumbai)
G K Developers (G K
Lodha Group (Mumbai) 0.79% 1.33% Mahagun (Greater Noida) 1.47%
Associates)
Mohan Group (Thane) 0.75% Godrej Properties 1.23% Agarwal Associates Group 1.46%
Runwal Group (Mumbai) Kumar Properties Supertech Limited

0.60% 1.17% 1.39%
(Gurugram)
Prateek Buildtech
Panvelkar (Thane) 0.59% Nyati Group 1.04% 1.13%
(Ghaziabad)
Rashmi Housing (Thane) 0.57% City Group (Amanora) 0.96% Jaypee (Noida) 1.10%
Source: Spark Capital Research Source: Spark Capital Research Source: Spark Capital Research
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Real Estate Initiation - Feb 2018

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Real Estate Initiation - Feb 2018

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INITIATING COVERAGE ON REAL ESTATE SECTOR

 Initiating SOBHA: ADD (TP - Rs.550)

April 13, 2018

 GIRISH CHOUDHARY  girish@sparkcapital.in  +91 44 4344 0021

find SPARK RESEARCH on Page 2

DLF 45% 45% 45% 4% 10% 14% 1% 2% 3% NA NA NA NA NA NA

Mcap (Rs. PE(x) P/B(x) EV/EBITDA (x)

Units sold (In thousands)

New Units launched (In thousands)

Inventory months based on last two year average absorption

1,000 875 866 50

All India average price index

Real estate city wise cumulative price performance %

Asian financial crisis led to

Identifying the phase of current cycle- “Falling to worst” or “Onset of recovery”

Per Capita Income  Per Capita Income 

Start of Up-Cycle Consolidation

Year: 2014-2017 Year: 2018-?

Per Capita Income  Per Capita Income 

Total housing demand in India MIG and above,

Source: Census 2011, GoI, Spark Capital

Source: Spark Capital

Total Urban Population in mn Total Urban Households in mn

Source: World Bank, Spark Capital

Source: Economic Survey-2016-17, Spark Capital Source: Census, Spark Capital

Source: Spark Capital

Source: Spark Capital Source: Spark Capital

Naukri job Index Y-o-Y growth %

Source: Spark Capital, Naukri

Comfortable balance sheet position of

Receding supply, Improving inventory

Steady Commercial demand

Organized players increasing markets

Affordability Regulatory support

Source: Spark Capital

One of the biggest driver to affect demand.

Developers are focusing more on 1-2

Source: Spark Capital

Organized sector wage growth, % IT sector wage growth %

Organized sector wage IT sector wage RE Prices

8.5% 2% 22% 31% 36% 39%

Annualised Interest Cost 8.5% 8.5%

Source: Spark Capital Source: Spark Capital

Affordability in Mumbai, Bangalore and Jaipur- Analyzing affordability in last 10 years

Mumbai- Suburbs Bangalore Ahmedabad

2007 2012 2017 2007 2012 2017 2007 2012 2017

Interest rate 10% 11% 9% 10% 11% 9% 10% 11% 9%

Source: Spark Capital

Incentives for Developers Incentives for Buyers

Interest Subsidy 4% 3% EMI post subsidy (Rs.) 24,877 42,916

Max Loan Tenor in years 20 20

Eligible loan amount for subsidy in Rs. 9,00,000 12,00,000

Savings % on EMI 7.80% 4.60%

Source: Spark Capital Source: Spark Capital

“With this partnership, we are poised to grow

Provident brand is attractively placed to capitalise

NCR-based real estate player Supertech on Friday

We expect Rs.3-5mn ticket size units to see strong growth traction

Affordable Housing/Low Cost

Unsold Inventory Low Moderate High

Source: Spark Capital

Given lower profit margins, supply will take time to scale up

Comparative P&L of a typical middle income project and affordable housing

(Rs/sf) Mid-segment Affordable Assumptions