DBRealty AnandRathi 061010

Property Sector Report
4 October 2010
Mumbai Property
The old order changeth, yielding place to new
Overweight Nifty/Sensex: 6143/20445
Anand Rathi Financial Services, its affiliates and subsidiaries, do and seek to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Disclosures and analyst certifications are located in Appendix 1. Anand Rathi Research India Equities
India I Equities
Property Sector Report
4 October 2010
Mumbai Property
The old order changeth, yielding place to new
Mumbai-based developers would continue witnessing high profits over the next 3-5 years given: i) low ready-inventory in the market, ii) high demand, iii) lower land cost vs high margins, iv) low execution due to regulations. Given the citys unique geography and dense population (in slum areas, chawls), acquisitions via the rehabilitation/redevelopment mode will give access to prime land at low cost, with the older construction giving way to large areas for new projects (higher FSI). Although we expect slight correction in the next 3-4 months, we believe inflation-adjusted prices would remain stable in the long term (4-5 years). We have an Overweight stance on the sector. Land limited, area unlimited. Due to its tight geography, Mumbai market has limited land; however, its old constructions viz. slums, chawls, cessed buildings are opening up for redevelopment (higher FSI) via slum rehab schemes (SRS) and urban renewal schemes (URS), thereby freeing up land for organised development. Such projects involve lower (and deferred) acquisition costs, leading to higher profits for developers. Residential demand high. With an estimated 1.2% population CAGR over the next decade, demand would remain strong owing to Mumbai continuing to attract commercial activity and, hence, high immigration, for which +300m sqft of residential space will be required. Although we do not expect a major price correction, we believe prices will soften on account of affordability concerns in the near-term. Inflation-adjusted stable prices over the next few years are likely to lead to volumes, given healthy economic growth. We are positive on central suburbs and Bandra (E) and expect them to outperform vis--vis other micro-markets. Stock ideas. We favour HDIL (on execution & location skills) and Ackruti City (on niche developments). We initiate coverage with Buy on DB Realty, Orbit Corp, Peninsula Land and Sunteck Realty. Risks. i) Economic slowdown ii) Regulatory risks iii) De-coupling of MMR from Mumbai City. BSE Realty vs Sensex
Overweight Nifty/Sensex: 6143/20445
Sector valuation matrix

Company Price Sep'11 Target (`/share) Rating (`/share) M Cap (` bn) PE(x) (FY11e) Sep '11 NAV PBV (x) (FY11e) (`/share)
120 110 100 90 80 70 60 Feb-10 Dec-09 Jun-10 Aug-10 Apr-10 Oct-09 Oct-10 BSE Realty Sensex
Ackruti City DB Realty HDIL Orbit Corp Peninsula Land Sunteck Realty
Buy Buy Buy Buy Buy Buy
510 410 270 123 66 685
872 564 375 181 78 811
37 100 112 13 18 43
13.3 20.4 18.6 11.4 6.9 722
2.1 3 1.2 1.1 1.3 6.8
967 564 419 181 78 957
Source: Company, Anand Rathi Research
Source: Bloomberg
Anand Rathi Financial Services, its affiliates and subsidiaries, do and seek to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Disclosures and analyst certifications are located in Appendix 1. Anand Rathi Research India Equities
4 October 2010
Mumbai Property The old order changeth, yielding place to new
Mumbai Property
The old order changeth, yielding place to new Investment Argument and Valuation ............................................ 3 Land limited, area unlimited ....................................... 3 Residential demand high............................................. 5 Valuation ..................................................................... 6 Risks............................................................................ 7 Recommendations ....................................................................... 8 Land limited, area unlimited ......................................................... 9 Greater Mumbai .......................................................... 9 Avenues for development.......................................... 10 Slum Rehabilitation Schemes ................................... 11 Redevelopment Next best option ........................... 18 Public Private Partnerships (PPP)............................. 22 Mill-land development ............................................... 25 Residential demand high............................................................ 29 Residential................................................................. 29 Commercial property market..................................... 35 Company section........................................................................ 38 Ackruti City......................................................................... 39 DB Realty........................................................................... 49 HDIL................................................................................... 72 Orbit Corp .......................................................................... 82 Peninsula Land ................................................................ 100 Sunteck Realty................................................................. 115
Anand Rathi Research
4 October 2010
Investment Argument and Valuation

Mumbai-based developers would continue witnessing high profits over the next 3-5 years given: i) low ready-inventory in the market, ii) high demand, iii) lower land cost vs high margins, iv) low execution due to regulations. Given the citys unique geography and dense population (in slum areas, chawls), acquisitions via the rehabilitation/redevelopment mode will give access to prime land at low cost, with the older construction giving way to large areas for new projects (higher FSI). Although we expect slight correction in the next 3-4 months, we believe inflation-adjusted prices would remain stable in the long term (4-5 years). We have an Overweight stance on the sector.
Land limited, area unlimited

Based on niche developments (SRS, URS, redevelopment etc) peculiar to Mumbai, high entry barriers and demand superseding supply, we expect Mumbai developers to ride the growth wave over the next few years, given lower land costs (52% projects are SRS). Although we expect prices to remain stable ahead, NAV would depend on sales volume. Rising demand and low current ready-inventory make Mumbai the most sought-after property market Being the most densely populated city in India (over 27,000 people/sqkm) and largely sea-locked, vacant land, especially around the present commercial locations (off the central business district-CBD and new CBD), is difficult to obtain. Various development offerings, most of these peculiar to the city slum rehabilitation scheme (SRS), urban renewal schemes (URS), public private partnerships (PPPs), re-development projects and defunct mill land development not only entail access to prime parcels but also large tracks of land. Given higher-than-normal floor space index (FSI) for such developments, extremely low land costs offer the highest conversion margins for relatively high selling price. This coupled with mounting demand (and low ready inventory) make Mumbai the most valuable property market in India. However, the current prices exceeding 07 peaks in certain micro-markets are likely to see correction in the next few months due to affordability concerns. Although price movement would stabilise in the long term, a major correction is likely only in the case of available ready housing owing to increased pace of execution or economic slowdown. Organised development is estimated at 55-60% of the total development in Mumbai
Fig 1 Development models followed in Mumbai
Avg gross margins (%) FSI Land Cost (% of total Profitable Locations cost) Land availability
Type
Entry barrier
SRS
50-75
3-4 2.5-4 3-4 1.33 1 + 1* 1 + 1*
Redevelopment/MHADA 35-55 PPP Mill land Virgin land Old industrial units 35-55 25-40 20-40 25-40
Across South, SouthCentral Suburbs South-Central Suburbs Suburbs
10-25 25-50 15-50 40-80 60-80 40-70
~8,600 acres High Medium-to~4,500 acres high Gov, Private Medium land converted ~200 acres Low NA NA Low/Medium Low/Medium
Source: Anand Rathi Research *TDR addition
Of the 17 developers in our sample, SRS is the most favoured route in building land bank in Mumbai; virgin land, defunct mills and factory lands are other areas that are being utilised by developers in building land bank.
Anand Rathi Research 3
4 October 2010
The huge scope of and enhanced focus on re-development (private and public colonies) in Mumbai lead to 15% contribution from such projects (which is likely to further increase).
Fig 2 Land acquisition mode of large developers
PPP 9% Virgin land 16% SRS 52% Factory Land/Mill Land 16% Redev 4% URS 3%
Source: Companies
Asset class contribution The national average of residential development is 80% of the total property market; 60-70% of total development for Mumbai-based developers is residential. Given no free land and higher density than other micro-markets in the city, South Mumbai has minimum new supply. The central and western suburbs share ~80% of space, (~55% is in the form of developments and ~25% in the form of transferable development rights (TDR), which acts as a supplement for additional FSI. South-central Mumbai), with its opening up of defunct mill land and redevelopment/URS, contributes ~14% of the supply.
Fig 4 Location spread
Others 1%
Residential remains the most favoured and profitable vertical to be offered by developers
Fig 3 Asset class contribution

Retail 2% TDR 22% Hotel 1%
South Mumbai 1% South Central Mumbai Others (TDR) 14% 23% Central Suburbs 28% Western Suburbs 28%
Resi 53% Comm 21%
Bandra 6%
Source: Companies
Source: Companies
Over the years, SRS (~8,600acres), URS (~1,500 acres), mill land (~200 acres of undeveloped), redevelopment of Maharashtra Housing & Area Development Authority (MHADA), private colonies (+4,500 acres combined) and part lease of port trust land will release large supply in the market. This could eventually lead to price correction, which is, however, dependent on execution scaling up.
4 October 2010
Residential demand high

Residential Mumbai is the most densely populated city in India, with some pockets even more populous than an average Mumbai micro-market (e.g., the Dharavi slum: 13x of average; C Ward in South Mumbai: 2.6x). The natural population growth in Mumbai is less than the rate of immigration into the city (80% of these migrants stay over a decade) over the past five decades. Although MMR still depends on commercial activity in Mumbai, we believe that over the years, given the infrastructure constraints in the City, Mumbai Metropolitan Region (MMR) would become self sufficient. Hence, we believe that Mumbai city population would see slowdown in growth. Even so, demand for quality residences would be much higher than supply, till execution picks up.
(%) Slums Family Size No. of Houses Size of a house (sqft) Area req (non-slum) (m sqft)
There are over 1.1m households (ex slums) in Mumbai
Fig 5 Population growth rate estimates

Year ending People (m) 10-year CAGR
CY 1971 CY 1981 CY 1991 CY 2001 CY 2011e CY 2021e CY 2031e
6.0 8.2 9.9 12.0 14.2 16.0 17.6 3.3% 1.9% 1.9% 1.7% 1.2% 1.0%
50% 50% 59% 59% 55% 50% 45%
6 6 5 5 5 4 4
497,548 686,950 813,923 982,232 1,276,006 1,996,797 2,426,229
550 500 475 450 450 450 450
274 343 387 442 574 899 1,092
Source: Census, Anand Rathi Research
According to our estimates, ~324m sqft of non-slum space in Mumbai would be required by 21 and another 193m sqft by 31. Slums in Mumbai and slum population set to reduce at a relatively high pace (vis--vis past four decades) would release more space for organised development. DB Realty, Ackruti City and HDIL have the largest residential offerings in the city Of the listed developers, Ackruti City, DB Realty and HDIL have the largest offerings of space in Mumbai City. The Mumbai property industry remains fragmented and an equal number of unlisted as well as many small developers crowd the market. According to our assumptions (from our sample of 17 developers), residential space would remain in short supply unless: i) the proportion of planned commercial space reduces, ii) population growth slows morethan-expected and iii) slums decline is lower than expected. Till then, property prices in Mumbai are likely to remain high/stable.
Fig 6 Estimated space addition
Sample as a % of total Total (m sqft) Residential (m sqft)
35 40 50
Source: Anand Rathi Research
891 780 624
466 408 326
Micro-markets In the near term, we expect prices to correct in certain micro-markets, as they are above their 08 peaks already None of Mumbais micro-markets are in the infancy stage. Hecne, the new CBD at BKC near Bandra (E) as well as available land and better infrastructure at the central suburbs of Ghatkopar (E), Vikroli and Bhandup would witness higher price appreciation than other micromarkets in Mumbai.
4 October 2010
We believe central suburbs to outperform western suburbs on pricing in the next decade
Fig 7 Micro-markets to look at

Emerging Maturing Established
Bandra (E) Gharkopar (E) along highway Vikroli (E)

South Central Mumbai Parel Sewri
South Mumbai Bandra (W) Worli
Of the listed developers, HDIL and Ackruti City have 32m sqft and 31m sqft of land projects under construction and planned in the central suburbs respectively. Also, most of these are in the form of low-cost SRS and PPP projects and, hence, are primed for high returns. Commercial Even with absorption of over 3m sqft in the past two quarters, vacancies in Mumbai are as high as 21% Commercial property is still lagging residential as regards price performance, given high oversupply in the vertical. Even with increased leasing in the past 2-3 quarters, vacancy levels are rising, as continuous supply hits the markets. But micro-markets such as BKC, with little new space available in the near future, have already seen rentals picking up for transformation into the new CBD.
Fig 8 Commercial stock and vacancy levels
(msqft) 80
70 60 50 40 30 20 10 0 1QCY08 2QCY08 3QCY08 4QCY08 1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10
(%) 23
21 19 17 15 13 11 9 7
Stock
Source: DTZ, Anand Rathi Research
Vacancy(RHS)
Valuation
Given lumpy earnings in the property sector and no standard accounting policy, it is not meaningful to value all companies on an earnings basis. We believe a project-level DCF-based method is apt for most property developers, with a few companies valued at PE. Also, as each company has various asset classes normal development, SRS, PPP and redevelopment projects.
Fig 9 Valuation (%)
Company Rating FY10-13e EPS Value contribution CAGR from Mumbai Value contribution from ongoing projects FY11e net D/E
Ackruti City DB Realty HDIL Orbit Corp Peninsula Land Sunteck Realty
Buy Buy Buy Buy Buy Buy
78.6 137.1 35.7 28.2 2.7 171.8
68 80 83 85 47 82
41 40 40 20 38 38
84.4 38.9 19.9 54.7 (4.5) 63.7
4 October 2010
For companies focusing on SRS, PPP and re-development, a project commences only after clearing the land for development (e.g., shifting families in SRS projects) Land is available to developers only after the rehab/redevelopment/PPP portion has been constructed. Hence, we have determined development schedules for all such projects, taking into account the required timeframes, given their long gestation period. For residential projects, we have assumed selling prices in accordance with prices ruling in particular micro-markets, depending on the stage of construction. City-centre projects nearing completion and constructed by reputed developers usually command premiums over those that are in the preliminary stage of construction. For commercial and retail properties under the lease model, considering a development schedule depending on brand and location, we have assumed two years or more for 95% threshold occupancy and cap rates of 11-13%, given a developers grading and project location. Some companies (Peninsula Land) having been into development and following an asset-light model warrant a terminal value for the high cash on books and a small land bank. For each property, we have assumed costs as per product offered. This includes construction costs, selling & marketing fees and other costs. For future projects, we have assumed tax rate of 34% for the residential sub-segment and 20% for leased assets for normal projects. Premiums/discounts to the NAV usually arise from factors such as management capability, land-bank quality, marketability of land, new value-accretive land parcels, delay in execution, sales rate and capex planned. For most cases, we have made necessary assumptions in our model for the aforementioned parameters. In certain cases, development models have not yet been cemented and may not be in sync with our assumptions. Also, regulatory risks in Mumbai play a major role. Hence, we have calculated a discount to the NAV for certain companies. We have assumed a standard WACC per company rather than for individual projects.
Fig 10 Accounting policy followed by Mumbai developers
For project completion method of accounting companies, one should look at movement of customer advances
Developer
Accounting policy for revenue recog
Remark
Ackruti City DB Realty HDIL Peninsula Land Sunteck Realty
POCM*: Threshold 25% of total cost POCM: Threshold: 25% of const cost and 30% of total cost Project completion method POCM: no threshold Project completion method
Aggressive Relatively conservative Most conservative Relatively conservative Aggressive Most conservative
Orbit Corporation POCM: Threshold: 25% of free sale const cost
Source: Companies, Anand Rathi Research *POCM percentage of completion method
Risks

Economic slowdown Regulatory risks De-coupling of MMR from Mumbai City and ~1000m sqft of projects from developers
7
4 October 2010
Recommendations
Ackruti City (Buy, Target Price: `872/share) Ackruti City has had a good run in property sales, with over `15bn of stock sold since the upturn in the property market and corporate sales of ~`1bn in 2QFY11. We expect the company to continue its strong sales, with 2.9m sqft in FY11e. New projects add high value, and underconstruction projects would contribute `6bn in FY11e. We reiterate Buy on Ackruti and rollover Mar 11 price target of `831 to `872 in Sep 11. DB Realty (Buy, Target Price: `564/share) We initiate coverage on DB Realty (DBRL) with Buy and Sep11 target price of`564. DBRL is Mumbais biggest real-estate developer in the residential space. The company has the most valuable stock of real estate in Mumbai, owing to its presence in high-value markets and high land utilisation. Robust cash flows from launched stock are likely to aid business growth, without stressing the balance sheet. HDIL (Buy, Target Price: `375/share) HDIL raised `11.57bn via QIP and further strengthened its balance sheet (FY11e net D/E: 0.24x). Given renewed focus on residential properties, we expect it to sell `18bn of stock in FY11 and TDRs worth `12bn. Mumbai International Airport (MIAL) ph-2 will start construction in Oct 10. We reiterate Buy and trim our target price to `375/share in Sep 11 (from `388 in Mar 11). Orbit Corporation (Buy, Target Price: `181/share) We initiate coverage on Orbit Corporation (OCL) with Buy and Sep 11 price target of `181 on the back of proven execution in redevelopment projects and 100% pre-sales in all projects. OCL is a Mumbai-based property redeveloper, with South Mumbai being its key focus market. New large projects (as against current mid-size projects) in micro-markets, ex South Mumbai, are likely to commence and provide strong thrust to cash flows. Peninsula Land (Buy, Target Price: `78/share) We initiate coverage on Peninsula Land (PLL) with Buy and Sep 11 price target of `78 on the back of its asset light model, healthy balance sheet (net cash) and cash of `12.7bn to flow in from projects nearing completion. We believe PLL would use the cash to acquire value-accretive projects. : Sunteck Realty (Buy, Target Price: `811/share) We initiate coverage on Sunteck Realty (SRL) with Buy at Sep 11 price target of `811, based on its high-value BKC residential projects bearing fruit and JDA/JV strategy that mitigates acquisition risks & costs. SRL made a unique foray in the property sector by acquiring residential projects in the commercial BKC. The company is already in the money for its maiden project, which has helped it acquire & expand via prudent JDAs in city-centre properties (mainly Mumbai) and resulted in low debt levels. Execution is the key factor to watch.
4 October 2010
Land limited, area unlimited

Due to its tight geography, Mumbai market has limited land; however, its old constructions viz. slums, chawls, cessed buildings are opening up for redevelopment (higher FSI) via slum rehab schemes (SRS) and urban renewal schemes (URS), thereby freeing up land for organised development. Such projects involve lower (and deferred) acquisition costs, leading to higher profits for developers.
Greater Mumbai
Present statistics Greater Mumbai (Mumbai City) is spread across 437.77sqkm (~108,173 acres) and is made up of a group of seven islands, separated by creeks and channels, which have been filled up reclaimed. The citys geographic spread is linear, stretching from the South (Nariman Point) to the western (Borivili), central (Mulund) and eastern (Mankhurd) suburbs that form Greater Mumbai.
Fig 12 Mumbai city At present
Mumbai, although a combination of seven islands, is linear
Fig 11 Mumbai City Earlier
Source: Wikimapia
Source: Indian Properties
The city is the most densely populated in India, with over 12m residents at present, ~55% of which are slum dwellers. The city being largely sealocked along with its high density renders further horizontal expansion impossible. The government remains the largest owner of land in Mumbai City.
4 October 2010
Avenues for development

Of the 312m sqft (total projects area) of our sample of listed and unlisted developers, ~53% is earmarked for residential development, followed by commercial at 21%. HDIL and DBRL are the largest generators of TDR in Mumbai and contribute 22% to total projects development. The highvalue South and South-Central Mumbai offer a healthy 46m sqft, while the suburbs display an evident concentration of developers with 92m sqft in the central and 86m sqft in the western suburbs.
Fig 13 Project profiles of Mumbai developments Acquisition routes
PPP 9% Virgin land 16% URS 3%
Asset class
Retail 2% TDR 22%
SRS 51%
Hotel 1%
Others 1%
Factory Land/Mill Land 17% Redevelopment 4%

Source: Companies
Residential 53% Commercial 21%
Source: Companies
10
4 October 2010
Slum Rehabilitation Schemes

Slum redevelopment is the most profitable source of land for developers in Mumbai, with average gross margins of the three major players at +55%. Such projects do not require upfront payment for land; the cost of land for rehabilitation projects is usually much lower than the readyreckoner rate and is spread over the rehabilitation tenure. The saleable area per plot for a slum project is much higher than for a normal project. The higher conversion rate in Mumbai results in much higher value of a project vis--vis other metros. The rate varies from a normal FSI cap of 2 to an SRS FSI cap of 4.
Fig 14 Profitability in an SRS vs virgin land project
Case 1: Assuming virgin land Case 2:Assuming SRS
Area (acres) Plot area (sqft) Rehab area (sqft) Free-sale area (sqft) FSI Loading (%) Stake (%) Land cost paid (`m) Rehab cost (`m) Avg Selling Price `/sqft Sale Value (`m) Avg total cost `/sqft Total Costs (`m) Land Acquired/Project acquired Sales Launch/Rehab start Free Sale Const Start Duration (months) Cost of equity (%) Tax Rate (%) IRR (%)
7 0.3 0.6 1.3 40 1.0 8,000 23,200 13,737 16,614 9,837 Oct'10 Jan'11 Apr'11 48 14 34 14
7 0.3 0.9 1.2 40 1.0 2,183 23,200 27,840 3,293 6,134 Oct'10 Jan'11 Oct'13 72 14 34 61
Evolution of SRS SRS is the most favoured route for large Mumbai developers for acquiring prime land parcels in Mumbai. Of the six listed developers in our sample, three are large-scale SRS developers (of which one is a pioneer in the field Ackruti City). Returns in SRS are substantial (with average gross margins of +55% in most projects), given their prime location and higher conversion rate. This has led to the foray of the two largest Indian developers (DLF and Unitech) from the national capital region (NCR) into the Mumbai market, albeit via JVs. The JV route indicates presence of high level of entry barriers and requirement of localised, niche skills. Slum rehabilitation in Mumbai dates back to 1954, with the BMC Act under Section 34A for complete evacuation of slums. This was followed by the Government of India approving a slum-clearance (pilot) plan for slum removal in six cities. The slum improvement programme gathered steam again, in the 1970s, with the first Slum Act being passed in 1971 by the government of Maharashtra, albeit with little movement in the rehab process. In the 1980s, the concept of TDR was introduced. As the World Bank-funded scheme for upgrading slums in 1985, TDR was introduced for slum projects also. In 1991, the state government introduced a slum
11
8% of land area in Mumbai is encroached by slums
19,000 slums till 1990 and 60,000 till 1995 had been rehabilitated due to policies changing since 1954
4 October 2010
rehabilitation development (SRD) scheme, offering FSI of 2.5 and a unit size of 180sqft for slums, at upfront payment of one-third the cost and the remaining over 15 years. It kept the profit ceiling for developers at 25% and was the first time that the 70%-consent concept was introduced. Even so, such regulations led to clearing of only 60,000 slums.
Fig 15 Evolution of SRS
1954 BMC Act Sec 34A 1956 GoI approval for slum clearance plan 1970 Slum improvement programs starts
1985 First world bank funded project commenced
1980 Use of TDR started in Mumbai
1976 First census of slums, I card issued
1991
1995
2008
Slum Rehab Development formed

FSI 2.5 Unit size 180sqft 25% profit ceiling One-third payment by slums
Source: Government of Maharashtra, Anand Rathi Research
SRA formed free houses for slums

Surplus to be given as TDR Carpet area 225sqft 1:0.75 free sale
Some changes in regulations

Rehab area up to 269sqft FSI increase 3-4 25% premium for land
Maharashtra is the only state to give free houses
The current governing body Slum Rehabilitation Authority (SRA) which was formed in 1995, has the authority to grant rights for redevelopment of slums and rehabilitation of slum-dwellers, and acts parallel to the Municipal Corporation. For the first time in India, the concept of free housing was introduced for slums on the electoral role before Jan 1995 and a 75% free sale of the rehabilitation built-up area for the participating private developer. The first project under SRA (SRA/001) was completed by Akruti Nirman (now Ackruti City) in 1997 in Dharavi (the largest slum in Asia). Since 1997, ~150,000 slum rehabilitation units (mostly in tie-ups with private developers) have been constructed and handed over by the government; 210,000 units are under development at present.
Fig 16 Slum rehab stats
8% of Greater Mumbai occupied by slums Over 9m people stay in slums (~55% of the population) 300,000 people migrate to Mumbai annually Average density is six times higher than the density of Mumbai (Mumbai is highest in India) Average home size is less than 100 sqft for slums Average people per family: 6-8 Approx. `200bn of tax / land rehab loss to State exchequer* Maharashtra is the only state that gives free homes to slum dwellers
Source:, Industry, Anand Rathi Research *approximate
Currently, as per SRA, 210,000 rehab units are under construction
Major players
Of the many small and medium-size SRS-focused developers, 10-11 lead the pack in terms of number and type of project. Amongst listed developers, HDIL has the largest development of rehabilitating slumAnand Rathi Research 12
4 October 2010
dwellers encroaching airport land the Mumbai International Airport (MIAL) project. The other large project nearing completion is a DCR 3(11) project executed by DBRL, which has constructed +14,000 rehab units for project-affected people (PAP). Ackruti City has been a pioneer in slum rehab in Mumbai and the only developer to complete large projects as of date (two projects which entailed rehab of +4,000 tenants each). Though slums in Mumbai average 2.5-3.7 acres, there are larger ones such as in Santacruz (Golibar), Wadala (Swami Samarth) and HanumanNagar (Kandivili), across +100 acres. High-density slums are those in Ghatkopar (W), Vikhroli, Worli, Goregaon and Ghatkopar (E), where density is over 743 tenants per hectare.
Fig 17 Large slum rehab developers
Project Remark
Ackruti City DBRL
Pioneer in SRS; 30+ projects under development / planned Large PAP scheme nearing completion, TDR holder, SRS in form of JDAs Currently biggest slum redeveloper in Mumbai, largest TDR holder Numerous small projects Schemes in South-Central Mumbai 20+ SRS projects across Mumbai Undertakes large-scale slum rehab projects Tie-ups with developers across Mumbai, completed Imperial Heights SRS Five to seven projects, Oberoi is a JDA in a Worli slum Projects across suburbs, National Park (Borivili), Worli; TDR holder
52% of the land offering from the top developers arises from SRS
HDIL Kiran Hemani Lokhandwala Infra Omkar RNA SD Corp Sahana Developers Sumer Group
Shivalik Ventures (Unitech JV) Around 10 in various stages, Golibar the largest; first '3K" notified project
Source: Industry, Anand Rathi Research
Slum schemes Numerous slums, numerous rehab schemes In a slum rehab scheme, the government/developer undertakes rehabilitation of slum-dwellers from the horizontally-spread shanties to organised 1-bedroom-hall-kitchen (1-BHK) units of 269sqft carpet area (225sqft till 08), with basic amenities and a corpus of `20,000 for maintenance. These slum rehab schemes fall under the purview of various Development Control Regulations (DCRs), with the most profitable under DCR 33(10), which is an in-situ scheme, where rehabilitation and the free-sale portion are on the same plot.
Milestones for a slum rehab project Annexure 1: Development Agreement, Power of Attorney, Individual & Common Consent, Society Formation, NoObjection Certificate (NOC) from owner of plot Annexure 2: Biometric Survey, Eligibility Check Annexure 3: Financial Capability and Bank Guarantee (20% of cost of rehab) LOI: Given by SRA indication of FSI, permissible FSI, Rehab and Free sale component area finalisation Plans approval: IoA (Intimation of Approval) Clear construction related NOCs Payment premium (40% of the 25% of ready reckoner rate) To get Commencement Certificate for Rehab Pay (60% of the 25% of ready recokner rate) before obtaining commencement certificate for free-sale building
13
4 October 2010
DCR 33(10) in-situ scheme
This is the most-sought-after redevelopment route for SRSs, 80% of which are under DCR 33(10). Here, rehabilitation and free sale happen at the same site. This implies that a developer can exploit prime properties in Mumbai, where there is a slum. This is termed an in-situ scheme. The ratio between the rehab component and the free-sale component is: DCR 33(10) is the most widely used for rehabilitation of slumdwellers; it is the most profitable for developers

1:0.75 for the island city 1:1 for suburbs 1:1.33 for extended suburbs and difficult (e.g., Dharavi) areas
Permissible FSI is 3 for low-density slums and 4 for high-density ones.

Fig 18 DCR 33(10) projects
Major Completed Projects Location Developers Tenants
Imperial Towers MIDC IRIS phase 1

Major under construction Project
Tardeo Andheri Andheri

Location
Shapoorji Pallonji and SD Corp Ackruti City Ackruti City

Developers
~2,600 4,589 2,169

Tenants
Tulsiwadi Oasis NA NA Janu Boye Kandivili Ghatkopar Whadwadi Siddharth Nagar Sramik Ekta Nagar Daulat Nagar In JV with Chouhan Dev
Mahalaxmi Worli Sewri Worli Malad Kandivili Ghatkopar Ghatkopar Chembur Worli Santacruz Santacruz
Ackruti, SP Real Estate, DLF Sahana Developers, Oberoi RNA Omkar Dev Omkar Dev Shivalik Ventures Shivalik Ventures Omkar Dev Omkar Dev Lokhandwala & Kataria HDIL Orbit Corp
4,146 3,260 2,200 2,159 3,700 5,500 5,500 4,500 3,700 1,892 2,000 2,500
Source: Companies, Industry, Anand Rathi Research
DCR 3(11) Project Affected People (PAP) Scheme
DCR 3(11) is economically not viable, unless land is very cheap and TDR sales are at higher realisation
Under this scheme, the owner of a vacant plot can use the land for constructing PAP tenements and is compensated in the form of TDR (both for the land and the construction).
Fig 19 DCR 3(11) Projects
Major completed projects Location Developers Tenants
Tata Nagar
Major under construction Project
Mankhurd
Location
Ackruti City & Hiranandani

Developers
4,199
Tenants
MIAL PAP
Source: Companies, Anand Rathi Research
Across Mumbai Mahul
HDIL DB Realty
~85,000 ~14,000
DCR 33(14) Transit camp tenements for SRS
DCR 33(14) is the least favoured scheme for development
Under this Scheme, higher FSI is permitted to construct transit camp tenements for slum rehabilitation. FSI permitted is:
1. 2. 3.
2.5 for suburbs and extended suburbs 2.99 for difficult areas 2.33 in the island city (applicable only for land belonging to the government and public-sector undertakings in the island city)
14
4 October 2010
The additional FSI can be used to construct transit camp tenements for accommodating slum dwellers on a temporary basis for ten years; in return, the developer gets rent by the Slum Rehabilitation Authority (SRA). After ten years, the tenements can be used by the owner for any purpose. HDILs SRS-2 at BKC is partly under the DCR 33(14).
Fig 20 DCR 33(14) projects
Location Total Additional FSI FSI for SRA tenements FSI for free sale
Suburbs and Extended suburbs Difficult areas Island city (applicable only on lands belonging to the government and public sector undertakings in the island city)
Source: SRA
1.5 1.7 1.0
0.8 0.7 0.6
0.8 1.0 0.4
3K projects The 3K scheme is for large and difficult slums that have not moved despite smaller societies being formed by local developers for piece-meal development. Such schemes are directly cleared by the chief minister, post which a developer becomes the master planner for the whole area.
Fig 21 Major 3K projects
Other large listed developers are also looking at 3K projects
Project
Location
Area (acres) Families Status
Developer
Golibar Swami Samarth Hanumannagar
Santacruz Sion, Wadala Kandivili
140 106 100
25,730 Rehab ongoing Shivalik Ventures 30,750 Planning 10,000 Planning Ackruti City consortium K Hemani Group
Source: SRA, Anand Rathi Research
The Golibar (SantaCruz) slum rehabilitation project of ~137 acres is one of the largest SRSs in Mumbai. Shivalik Ventures (a Unitech JV) is developing the project and has successfully raised ~`17bn through private equity investment and build-to-suit deals (this would be received in phases), as well as shifted +3,500 families from the site. 800 slum rehab homes have already been built and handed over to families.
Fig 22 Golibar project
Started CY 2003
Area (acres) Number of slum societies Free-sale area (m sqft) Number of families
137* 158 18 26,570 2.8 Phase 1 Phase 2 40 9,000 3.4 1m sqft US$175m 1m sqft at US$180m 97 17,000 6.4 870 5,079
Till now, more than 3,500 families have been vacated from Golibar, the most for a single site vacation
FSI Area (acres) Slum units Rehabilitation area (m sqft) Current status Rehabilitated families Letters of Intent (LoI) Lehman Investment Build-to-suit sale
The Sion-Wadala project allotted to a consortium led by Ackruti City is one of the larger projects in the central suburbs. The project has +75 slum societies and was awarded to Ackruti in Nov 09; the company is in the planning stage.
4 October 2010
Fig 23 Sion-Wadala 3K project

Awarded in Area (acres) No. of slum societies No of families FSI Rehab area (m sqft) Free sale area (m sqft) Estimated duration (years) LoI Development stage Funding arrangement Ackruti's stake (%)
4QCY09 106 +75 30,750 4 12.4 11.3 16 2 societies 1 Free sale building launched (Vedant) Rest under planning Equity (Ackruti) - Debt (GMO) 50
MIAL project Major urban-infra project under DCR 33(10) and 3(11) MIAL is the largest slum-rehabilitation project as of date and involves shifting of ~85,000 families from encroached sites on / around the airport land. The project is classified as an infrastructure development project and is being developed under the combination of DCR 33(10) and DCR 3(11).
Fig 24 MIAL: snapshot
Total airport land Families to clear Slum societies Rehabilitation time-frame After rehabilitation of 28,000 families HDIL area for development TDR that would be generated Land required for rehab* FSI for the project
Source: Company, *Anand Rathi Research
276 acres 85,000 33 4-5 years HDIL gets 65 acres 10m sq. ft. 45m sq. ft. ~160 acres 4
Phase-1 almost complete; phase-2 to commence soon
Securing the contract for the airport rehabilitation project in Oct 07, HDIL started work on phase-1 in May 08, construction of which is likely to be completed by Jan-Feb 11. Subsequently, 18,000-20,000 families would be shifted in Mar-Jun 11. Most of the land for the subsequent phases has been tied up, with advances already paid for most land parcels. Construction of phase-2 is expected to commence by Oct 10.
Fig 25 Clearance of the airport land (per phase)
Priority 1 2 2.A 3 Total
Airport land recovery (acres) Societies to be rehabilitated

Source: SRA
104 10
28 9
103 10
41 4
276 33
HDIL is entitled to the TDR generated from the airport project. It is also entitled to 65.2 acres near the airport for commercial use, once it completes shifting of 28,000 families.
16
4 October 2010
Fig 26 Rehabilitation in phases 1 & 2

Phase Locations Area (acres) Tenants
Kurla W Phase 1 Kurla E Bhandup Mulund Phase 2 Andhri E Mahul Eastern suburbs*
Source: Company, * Anand Rathi Research
38 4 5 6 5 8 ~25
18,000 2,000 2,500 4,000 3,000 5,000 10,000
TDR Customarily, TDR is obtained when a land owner surrenders land to the government or local authority for public purposes such as construction of gardens and roads. An equivalent right to land is given on paper, which can be sold in the open market. Developers who wish to increase the saleable area, from the basic FSI of 1 to an allowable 2, purchase such TDRs. The MIAL project also falls under DCR 3(11) of the SRA Scheme, where a company has to acquire plots and shift slum-dwellers from encroachedupon land on/around the airport land to the new plot. For this, it obtains TDR for the land as well as for the construction.
Fig 27 TDR-generating process
Developer
Land eg 100 sq. ft

Co nv e
Rehab construction eg. 500 x 1.5*

yed
ing ild bu A ted o SR c tru d t ns d e Co h an
to S
RA
Sum Rehab Authority (SRA)
TDR (1097.5 sq. ft.) Land TDR: in proportion to the land conveyed. eg 100 sq. ft. X 1 = 100 sq. ft Construction TDR: 33% incentive to the rehab construction done. eg 500 X 1.5 X 1.33 = 997.5 sq. ft.
Developer
Source: Anand Rathi Research; *loading assumption
The land TDR is equivalent to the land handed over to the SRA; the construction TDR is 1.33x the rehabilitation construction, 33% of which is the incentive to the developer.
17
4 October 2010
Fig 28 Milestones for release of TDR (%)

Plinth completion Past the mid-level slab RCC work complete Masonry work complete Internal plaster complete External plaster complete Plumbing Occupation certificate Defect liability
Source: SRA
18 14 12 14 10 7 12 11 2
Slum rehab New regulations
Although they are a profitable business with high entry barriers, most SRS projects are skewed towards South Mumbai locations as well as few locations in the western and central suburbs. Slums in northern Mumbai are not viable for private developers as, although the rehab cost is the same (and increasing), the free-sale prices are relatively much lower. Hence, developers do not generate high profits. The government is considering ways to render such schemes viable. Many projects in South Mumbai (or seaward) are not allowed for development owing to proximity to the sea and destruction of natural habitat. The government, under the CRZ Act of 1991, allows only half the permissible area for CRZ-2 and no development if classified as CRZ-1. In a recent development, the government proposed to allow, with some caveats, SRS in CRZ-2 locations. This bill, if passed, would clear ~165 acres of slums in South Mumbai alone. Amendment in the Maharashtra Regional and Town Planning (MRTP) Act The government intends to increase the FSI in suburbs to 1.33 (currently at 1), keeping the total developable area capped at 2 FSI. Post this, there will be slowdown in TDR demand and, hence, prices of the additional FSI (0.33) sold by the government will be lower than the ongoing TDR prices.
Redevelopment Next best option

Redevelopment is usually undertaken for old buildings/chawls (other than slums) that are either dilapidated or where FSI is under-utilised (usually old buildings). Here, too, a developer gets FSI of 2.5-4, as per type of development. Urban Renewal Schemes (URS) Big potential in South-central Mumbai URS for cluster development targets any scheme in the island city with a minimum area of 4,000sq metre. Under this scheme, no new tenancy, after Jun 1996, would be considered.
Fig 29 Urban Renewal Scheme cleared till date (LoI got)
Project Location Developer Status
Pimpalwadi Bhendi Bazaar Turf Estate
Girgaon C Ward Mahalaxmi
Shreepati Group Saifee Burhani Trust DB Realty
Rehab underway Planning Development commenced
Source: GoM, Anand Rathi Research
18
4 October 2010
DCR 33(9)
Cluster redevelopment considers only those buildings erected before Sep 1960 (or after Sep 1969 with tenancy till Jun 1996) and with minimum area of 4,000sq metres. Such buildings are classified by the government authorities (MHADA or BMC) as unfit for living. Applicability of this regulation is so wide that even structures of mixed characteristics are included in the scheme that may include slums on the total plot area.
Important know-how for DCR 33(9) 70% consent if private developer (nothing if developed by MHADA) FSI for development: 4 Incentive FSI: 4,000-8,000 square metres, then FSI would be 55% 8,001-12,000 square metres, then FSI would be 65% 12,001-16,000 square metres, then FSI would be 70% 16,001-20,000 square metres, then FSI would be 75% +20,000 square metres, then FSI would be 80% Characteristics: Given the density and size of the projects, the projects under DCR 33(9) will be long gestation, depending on how big the cluster and its demographics
Source: GoM
The island city comprises ~16,759 acres, of which ~30% could come under cluster development. One of the largest components is residential chawls, constructed for mill workers in the last century, and for immigrant blue-collar workers in other industrial units.
Fig 30 Proposed projects under cluster development
Project Location Developer Status
Midtown NSR Block Tulsiwadi Orchid Heights Orchid Views Orchid Enclave II Orchid Central Orchid Splendor Orchid Skyz Orchid Enclave III Orchid West View Orchid Apartments Abhudaya Nagar MC Project
Source: Companies
Lalbaug Napean Sea Road Tardeo Jacob Circle Mumbai Central Mumbai Central Mumbai Central Byculla Byculla Bacchuwadi Malad Mankhurd Parel Mumbai Central
Orbit Corp Orbit Corp Ackruti City, DLF DB Realty DB Realty DB Realty DB Realty DB Realty DB Realty DB Realty DB Realty DB Realty DB Realty DB Realty
Acquisition ongoing Acquisition ongoing Rehab on; part slum part URS Construction commenced Rehab process commenced Planning Planning Planning Planning Planning Approval stage Planning Acquisition ongoing Acquisition ongoing
19
4 October 2010
Redevelopment of dilapidated buildings Cessed and dilapidated buildings occupy +225 acres in prime locations of the island city. The last authorised records state 19,642 old & dilapidated buildings in Mumbai.
Fig 31 Details about cessed buildings (as per category)
Category Year of construction No of buildings
A B C Total
Source: MHADA
Before 1940 Between 1940 and 1950 Between 1951 and 1969
16,502 1,489 1,651 19,642
Mumbai-based developers focus on acquiring redevelopment projects. This provides developers access to prime locations in Mumbai at reasonable costs. Successfully buying-out owners of existing properties promises higher margins to developers.
DCR 33(6)
Under this provision, reconstruction, in whole or in part, of a building that existed on or after 10 Jun 1977 and which has ceased to exist as consequence of an accidental fire, natural collapse or demolition for having been declared unsafe by or under a lawful order of the Corporation or the Bombay Housing and Area Development Board, shall be allowed. FSI of the new building will not exceed that of the original building. This rule applies only to projects located within 500 metres of the coast (CRZ zone)
Positive changes are likely after passing of the new CRZ Bill.
DCR 33(7)
This provision is applicable for reconstruction/redevelopment of a cessed building of A category in the Island City that attracts the provisions of the MHADA Act, 1976 FSI shall be 2.5 on the gross plot area or the FSI required for rehabilitation of existing tenants plus incentive FSI as specified under Appendix III to the DCR, whichever is higher This rule applies to all projects within the Island City of Mumbai DCR 33 (7) allows incentives in the form of additional FSI of 50-70% (of rehab area) for the redevelopment of buildings in cessed Category A-buildings depending on the number of plots. Incentive FSI allowed for one plot is 50%, 2-5 plots is 60%, and +5 plots is 70%.
MHADA schemes Under modified DCR 33(5) MHADA had been created with the objective of constructing residential buildings under various housing schemes for different sections of society. There are ~104 MHADA colonies across Mumbai, covering ~3,680 acres. Of these, 56 are +50 years old. Further, more than 70% of these colonies were built for the economically weaker section (EWS) and low-income group (LIG) categories where tenement sizes are small. The Maharashtra government, in its Housing Policy 07, highlighted the need for redevelopment of old MHADA colonies that would enable better accommodation for present occupants and create additional housing stock.
4 October 2010
Fig 32 MHADA colonies Location spread

South central mumbai 3.0%
South Mumbai 0.1%
Western suburbs 58.5%
Central suburbs 29.3%
Bandra 9.1%
Source: MHADA
In Dec 08, the government of Maharashtra modified DCR 33(5) to allow higher FSI for redevelopment of existing MHADA colonies. Key features of the DCR are:

The DCR permits up to 2.5 FSI on gross plot area for redevelopment of existing MHADA colonies Incentive FSI that can be availed of against the FSI required for rehab is:
I. II.
In the island city, 50% incentive FSI for area up to 4,000sq metres and 60% for area over 4,000sq metres In the suburbs, 60% incentive FSI for area up to 4,000sq metres and 75% for area over 4,000sq metres
If the difference between the FSI required for rehab + incentive FSI is less than 2.5, the balance FSI would be shared between MHADA and the developer in the ratio of 2:1 For additional built-up FSI over & above the FSI permissible as per DCR 32, MHADA would charge premium at a rate decided by the government
Area (m sqft)
Fig 33 MHADA colonies being developed

Colony Location Developer Status
Siddharth Nagar Pantnagar MIG Colony 1 Jade Gardens Sparkle Oriana

Source: MHADA
Goregaon Ghatkopar Bandra (E) Bandra (E) Bandra (E) Bandra (E)
4.5 0.5 1.1 0.8 0.9 0.6
HDIL HDIL DB Realty Happy Homes Kalpataru Properties Rustomjee
Rehab and Free sale Started Rehab 50% complete; free to be relaunched Rehab, Free sale to start in 2HFY11e Rehab, Free sale nearing completion Rehab on. Free sale to launch in 2HFY11e Rehab, Free sale under construction
21
4 October 2010
BDD chawls Prime properties (potential redevelopment) The chawls are housing schemes that were developed by the Bombay Development Department (BDD), set up in 1920, to tackle the problem of political unrest in Mumbai by providing housing for the citys population. ~10m sqft could be made available for development in South-Central Mumbai after clearing such schemes Each chawl room covers 160sqft; the chawls were constructed between 1921 and 1925 and house ~67,000 occupants. Given that the chawls were constructed over 80 years ago and that the FSI on the plots has been under-utilised, the government plans to undertake their redevelopment. At present, residents are demanding an area of ~550sqft in the redevlopment.
Fig 34 BDD chawls for development
Location No. of chawls Acres Area Rehab area No. of occupied (m (m sqft) tenants sqft) Free sale carpet (m sqft) Free sale saleable area* (m sqft)
Worli Naigaum Lower Parel Sewri Total

Source: MHADA
121 42 32 12 207
59.8 13.5 13.9 5.7 92.9
9,680 3,344 2,560 960 16,544
1.5 0.5 0.4 0.2 2.6
5.3 1.8 1.4 0.5 9.1
5.1 0.5 1.0 0.5 7.1
7.1 0.7 1.4 0.7 9.9
*40% loading assumption for free-sale building
The State Housing Department has proposed that MHADA prepare a master plan for redevelopment of BDD chawls. Redevelopment is proposed to be carried out by private developers through a competitive bidding process. Under the urban renewal/cluster redevelopment scheme, i.e., DCR 33(9), developers who win a project to redevelop these chawls are likely to get FSI of 4. Given such development, a likely saleable area of 10m sqft would be added over the years for ~9m sqft of redevelopment area.
Public Private Partnerships (PPP)

To resolve the issue of shortage of land for residential use in Mumbai, the Maharashtra government is exploring the PPP model to take up new projects. PPP projects leverage on the private sectors expertise in technology, management, quality, efficiency and financing, while government agencies look at policy, planning, regulation and governance and facilitating economic growth and development. The PPP model allows the government to overcome resource crunches and increase housing supply. Land, incentive FSI and policy grants are elements controlled by government authorities.
Fig 35 PPP projects improve margins, reduce land cost
Earlier Project Saleable area (m sqft) Land cost (`/sqft) Now Saleable PPP area (m sqft) area (m sqft) Land cost (`/sqft)
AKCL 1 AKCL 2
Source: Company
0.4 0.5
623 1,169
0.2 0.2
0.9 0.9
457 862
To promote the PPP model for creating affordable housing, the Maharashtra government introduced DCR 33(23A & 24A) that deals with rental housing projects, and formulated schemes to develop affordable homes on private land in partnership with MHADA.
22
4 October 2010
Fig 36 PPP projects improve margins, reduce land cost
Residential project planned on virgin land
Converted into rental housing scheme (PPP)
Residential + PPP project Higher FSI (3), Sellable area up with no TDR requirement, cost per sqft down
Key schemes under PPP

Rental housing projects DCR 33(23A) and DCR 33(24A)
Rental housing schemes are proposed more in MMR than Mumbai city
The DCR was formulated to facilitate Maharashtra governments objective of providing affordable homes to the poor on a rental basis.

MMRDA is the project-implementing agency for all rental housing projects undertaken in MMR In case of construction of rental houses on unencumbered land by the land-owner or any other agency approved by the MMRDA, the FSI would be 3. However, an FSI of 4 could also be availed in this case, subject to the following conditions: i) FSI of 1 would be used for rental housing projects on a minimum 25% of the total area. The land owner has to hand over the rental units and appurtenant land to MMRDA free of cost; ii) FSI of 3 would be used by the land owner to construct housing units on a maximum of 75% of the total land area and sold in the open market to subsidise the rental-housing component FSI of 4 can be availed-of to construct rental houses on unencumbered land by MMRDA on land vested with them. Of the 4 FSI, 25% would be allowed for commercial use and open-market sale Rental units would have a carpet area of 160sqft each FSI of up to 2.5 can be availed under these schemes. Extra FSI would be shared between MHADA and the developer Minimum land area required for such a project would be 5,000sq metres. The scheme is limited to the municipal limits of Greater Mumbai and Thane 60% of the 2.5 FSI would be used to construct affordable housing in the EWS/LIG/MIG categories. Of the additional FSI of 1.5 over the present permissible 1 FSI, 0.75 would have to be given to MHADA in built-up form, for which MHADA would pay cost of construction based on the DSR (District Schedule of Rate). The developer can use the remaining 0.75 FSI for affordable housing The total FSI that a developer would get is 1.75 and MHADA would not charge any premium for this additional FSI
Affordable housing in a JV with MHADA
Under the Rajiv Awas Yojna (RAY) GoI gives `50,000 per unit for development
23
4 October 2010
DCR 33(24) Parking schemes; the new FSI multiplier
DCR 33(24) was introduced to solve inadequate public parking in the city
Besides housing, the government has adopted the PPP approach to improve urban infrastructure. It introduced DCR 33(24), which offers incentive FSI to develop multi-storeyed parking lots on privately-owned land.
The incentive FSI given would be over & above the permissible FSI under any other provision of the DCR; also, the FSI would be allowed for use on the same plot, in conformity with the DCR The minimum area of a plot that could be considered under this DCR is 1,000sq metres in the island city and 2,000sq metres in the suburbs and extended suburbs
Fig 37 Parking schemes proposed by developers in South-Central Mumbai

Project Name Area (acres) Developable area (m sqft) Saleable area (m sqft)
Orchid Heights Turf View Corporate Park Hill Park West View Orchid Crown Orchid Views -Shantinagar Orchid Enclave 2 Skyz - Unity Enclave 3 Orchid Splendor - Jubliee Central DLF IBREL Lodha World One
Source: Companies
4.8 5.8 6.2 20.0 5.4 6.1 7.1 7.8 3.5 6.4 2.2 1.5 17.0 7.8 10.5
0.2 0.3 0.3 0.9 0.2 0.3 0.3 0.3 0.2 0.3 0.1 0.1 0.7 0.3 0.5
1.2 2.2 1.2 2.1 1.3 1.8 1.4 0.6 0.6 0.7 0.4 0.3 4.2 3.4 2.0
Of 35+ proposals for parking lots, 15 have been cleared
The Municipal Corporation of Greater Mumbai (MCGM) has been empowered to grant permission to develop parking lots and additional FSI, depending on location,. Incentive FSI available is: i) If the location is within 500 metres of railway stations, state transport bus depots, metro stations, jetties, existing government and semigovernment and corporation offices, tourist places, important places of worship that do not have adequate public parking facilities, such locations would be given 50% additional FSI, subject to a maximum FSI of 4 for the island city and 3 for the suburbs & extended suburbs; ii) For other areas in the city, incentive FSI would be 40% of the existing FSI, subject to a maximum of 3.5 for independent buildings and 3 for composite buildings in the island city, and 3 for independent buildings and 2.5 for composite buildings in the suburbs & extended suburbs The minimum number of vehicles that have to be accommodated in a parking lot is 50, with minimum parking space of 700sq metres The landowner or developer or society concerned would not be permitted to operate the public parking
24
4 October 2010
Mill-land development
Prime properties not cheap anymore
Defunct textile mills
The textile mill lands were given to owners on long-term (perpetual) lease by government for industrial use
Mumbai has ~598 acres of textile mill-land (0.5% of the total area), which is lying unused. Of this, 300 acres are from 25 mills belonging to National Textile mills (NTC) while the remaining are private mills in the same locations. On closure of the mills and transformation of South-central Mumbai, from a labour-class area to an upmarket residential and alternative commercial property, space is available in the form of large tracts of the defunct mills.
Fig 38 Value from mill lands We prefer a JDA model vs outright purchase
Case 1: Assuming JDA Case 2: Assuming Outright Development
Area (acres) Developable area (m sqft) Free-sale area (m sqft) Stake (%) Land cost paid (`m) Average selling price (`/sqft) Sale value (`m) Average construction cost (`/sqft) Total costs (`m) Land acquired Sales launch Construction start IRR
6.1 2.8 1.8 50.0 1,846.0 22,000.0 19,748.3 3,407.8 6,118.0 Sep '09 Oct '09 Jan '10 78%
6.1 2.8 1.8 100.0 10,980.0 22,000.0 39,496.7 9,524.1 17,098.7 Sep '09 Oct '09 Jan '10 25%
Most mill-land transactions till now have been outright purchases (from private parties or in government auctions). Acquisition prices have risen ~13x in the past eight years and average selling prices around 3x.
25
4 October 2010
Fig 39 Mill land Statstics

Date of Acq / sale Mill Location Developer Area (Acres) Acq Cost (`m) Acq Cost (`m / acre) Acquisition Type Status
2003 NA NA NA FY03
Matulya Mills Shri Ram Mills Phoenix Mills Simplex Mills
Lower Parel Lower Parel Lower Parel Byculla Prabhadevi Sewri Parel Byculla Lower Parel Lower Parel Lower Parel Chinchpokli Lower Parel Shivaji Park Lower Parel Lower Parel Prabhadevi Dadar Mahalaxmi Prabhadevi Worli Worli
Ashford Group Shri Ram Urban Phoenix Mills
5.3 13.0 19
NA 0 0 NA JDA 1,300.0 530.0 390.0 980.0 2,000.0 2,760.0 7,020.0 1,800.0 4,410.0 4,210.0 NA NA 3,690.0 1,292.0 828.0 1,840.0 4,740.0 15,050.0
NA 0 0 NA NA 128.7 55.8 32.5 75.4 190.5 250.9 412.9 240.0 565.4 877.1 NA NA 705.5 234.9 243.5 301.6 1,983.3 1,798.1 JDA Out-right Out-right JDA JV Out-right Out-right Out-right Out-right Out-right Out-right Merger Merger Out-right JDA JDA JDA Out-right Out-right Not sold Not sold
Developed Under Construction 90% developed & operational Under Construction Developed Developed Developed Developed Planned Under Construction Under Construction Planned Under Construction Under Construction Under Construction Peninsula business park Under Construction Planned Planned Planned Under Construction Auctioned lately Auctioned lately
Great Eastern Spinning Mills Parel
Mahindra GESCO 5.0 Godrej Properties 9.0 Seth Builders Dosti Builders Peninsula Land Lodha Group IBREL Jawala (DLF) Lodha Group IBREL Kohinoor Group Peninsula Land Peninsula Land Ackruti City Future Group Future Group DB Realty IBREL IBREL 10.1 9.5 12.0 10.5 11.0 17.0 7.5 7.8 4.8 8 6.4 5.2 5.5 3.4 6.1 2.4 8.4
Q1, 2003 Standard Mills Q3, 2004 China Mills Q2, 2004 Swan Mills Q3, 2004 Khatau Mills Q1, 2005 Srinivas Cotton Mills Mar-05 Jun-05 Jun-05 Jul-05 Jul-05 2006 Sep-07 Jupiter Mills Mumbai Textile Mills Apollo Mills Elphiston Mills Kohinoor Mills Morarjee Mills Hindustan Mills Gold Mohur Mill Apollo Mills Sep-09 Jul-10 Jul-10 Crown Mills Poddar Mills Bharat Mills
Marathon Group 13.0
Q2, 2006 Dawn Mills
Source: Industry
Also, with less than half the mill-land in South-central Mumbai developed and development likely to soon begin on the remaining (at higher FSI e.g. parking schemes), we believe pricing in the South-central market will not see a considerable rise given the variety of launches, despite good demand. Also, the redevelopment potential of +0.2m people residing in the South-central region is likely to churn out more space.
DCR 58 For mill-land development
DCR 58 was tabled in 1991 to develop mills. Major space distribution was: Acquisition prices have gone up 13 times as against 3 times of selling price

1/3rd to the BMC 1/3rd to MHADA, for public housing The rest to be used by the owners for commercial purposes
Most private developers did not abide by these regulations and, after a long-drawn-out case, amendments were made in 01, to the DCR 58 Now, only open land is allotted for distribution, with the constructed portion remaining with mill-land owners.
26
4 October 2010
Fig 40 Usage of mill land Original DCR (58) 1991
Modified DCR (58) Amended in 2001

Other Amenities 8% MHADA 6%
MHADA 30%
Mill owner 37%
Other Amenities 33%
Mill owner 86%
Source: Government of Maharashtra
Industrial units After textile mills, several other large & medium-scale industries were established in the post-independence era. Development plans made provision for them, earmarking industrial zones for manufacturing, trade and logistics. Following a similar pattern as mills, industrial plots in the city are being converted into commercial zones, with industrial units being shifted to farther locations. Such factory land transactions across Mumbai have increased in the past decade.
Fig 41 Factory land transactions in the past decade
Period Buyer Area Seller Area (acres) Price (` m) ` m /acre
The Oberoi Dec '99 Sep '05 Group The Neptune Apr 05 Group May 05 NA Sep 05 Dec 05 FY06 Jun '06 FY08 FY08 FY08 FY08 FY08 Jan '09 Feb '05 Oct '05 FY08 Feb '10 Jun '10
Source: Industry
Goregaon (E) Bhandup Mulund Mulund Mulund Worli Bhandup Bhandup LBS, Mulund Thane Bhandup Kurla Ghatkopar Andheri (W) Andheri (E) Borivili Juhu Andheri (E)
Novartis GKW Land Wellcome - Glaxo GSK Schrader Duncan GSK The National Industrial Corp Ceat Bombay Oxygen Eveready industries Kilburn Engg Premier Hindustan Composite Excel Industries Fantasy Land
83.9 22.0 19.0 18.8 7.0 4.0 5.4 7.0 10.0 15.0 8.3 53.0 18.0 7.0 24.5 1.7
1,068 1,010 2,500 2,210 520 1,500 120 1,300 2,000 1,150 1,247 19,000 5,710 317 1,060 476 5,910 8,750
13 46 132 118 74 375 22 186 200 77 150 359 317 46 43 289 422 486
Oberoi Kalpataru The Oberoi Group Ackruti Ashford HDIL HDIL HDIL HDIL Wadhwa The Oberoi Group The Oberoi Group Sunteck Sheth Sheth
GTC Borosil
14.0 18.0
27
4 October 2010
Buoyant land deals Across regions, Mumbai has been in the forefront of land acquisitions and auctions. Rising prices in auctions and in land acquisitions last year indicate the robustness of the property market as well as the strong balance sheets of developers. More than `153bn in land deals has announced/transacted, much higher than the national average. In fact, of the listed developers, other than a few acquisitions in Bangalore, Mumbai and the MMR are the only markets with such land acquisitions/JDAs.
28
4 October 2010
Residential demand high

With an estimated 1.2% population CAGR over the next decade, demand would remain strong owing to Mumbai continuing to attract commercial activity and, hence, high immigration, for which +300m sqft of residential space will be required. Although we do not exect a major price correction, we believe prices will soften on account of affordability concerns in the near-term. Inflation-adjusted stable prices over the next few years are likely to lead to volumes, given healthy economic growth. We are positive on central suburbs and Bandra (E) and expect them to outperform vis--vis other micro-markets.
Residential
Prices in most suburbs crossed affordable levels in 07/08, then dropped and rose in the past two years. They are now within an affordable range Population The increasing population and resultant demand for quality housing (depending on price) would be the deciding factors for the amount of absorption of space. In the past three decades, population growth rate has varied. Also, as Mumbai is a hub for commercial activity, migration plays an important role in gauging residential demand from such migrant population. MMR (ex Mumbai) has grown faster than Mumbai, but economic activity is still largely dependent on Mumbai city.
Fig 42 Population growth in Greater Mumbai
(m) 14 12 10 8 3.0% 6 4 2 0 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2.0% 1.0% 0.0% 6.0% 5.0% 4.0%
People
Source: Census
CAGR
Natural growth in population
Natural growth in population factors in fertility rate, balance of birth and death rates as well as annexation of new areas. While the fertility rate is slipping, death rate is decreasing even faster. Owing to limited land and deteriorating infrastructure, we estimate population CAGR of 1.2% over the next decade, and at a decreasing rate ahead.
Migration contributing to population growth
Since 1961, migrants have been a major contributor (as high as 64%) to Mumbais population in 1961; it was down to 43% in 01, albeit having doubled over the past four decades, in absolute terms. Most migrants to Mumbai have been residing in the city for over a decade. Given the present annual inflow of ~300,000 people (and assuming it will reduce), 4.3-5.1m people are estimated to immigrate into the city by 31 and reside for more than a decade.
4 October 2010
Estimated population
According to various government and independent estimates, the population of Greater Mumbai is expected at 15-21m by 31. According to our estimate, it would be ~17.5m (with a slowing growth rate) by 31 versus 13m in 06 and 14.1m in 21. The depletion is mainly owing to lack of infrastructure and decoupling of MMR from Mumbai city.
Fig 43 Estimated population growth in the next two decades
(m) 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 CY2011e CY2021e CY2031e
1999 2000 2001
(%) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 CY1971 CY1981 CY1991 CY2001
Population
10 years CAGR
Per capita Along with per capita, household income too is an important indicator for buying, in which Mumbai leads In FY07, Mumbais per-capita income was ~`65,361, more than twice that of Indias average `29,382; we estimate it at ~`82,500 in 11 as against `57,500 in 01. Further, the citys annual household income is expected to grow 10% till 16 and Mumbai would continue to have the highest household income among metro cities in the foreseeable future.
Fig 44 Increase in Mumbais per capita income
(`) 60,000 50,000 40,000 30,000 20,000 10,000 0 1991 1992 1993 1994 1995 1996 1997 1998
Source: Census 2001
Post rising above affordable levels in 07/08 and subsequent price drop as well as increase over the past two years, prices in most suburbs are still in an affordable range
Given such high demand and the lack of matching supply, Mumbai is the most expensive property market in India. Capital values of property in both suburbs and the island city are much higher than those in other metropols. Property prices in Mumbai grew rapidly, from 04 to 07, and outpaced income growth in the city, resulting in declining affordability. The average cost of a house in Mumbai, as a multiple of average annual income, was 5.1 in 07, up from 4.3 in 04; it fell to 4.5 in the 08-09 slowdown. With the bounce-back in property prices, the multiple has now moved up to 4.7. Ideally, to ensure affordability, property prices should not exceed 5x annual income.
30
4 October 2010
Fig 45 Affordability in Mumbai

(`Lac) 40 35 30 25 20 22.0 15 10 5 0 1995 1996 1997 1998 (`Lac) 8.0 7.0 6.0 5.0 4.0 15.6 11.1 8.3 6.6 5.9 5.3 5.1 4.7 4.3 4.6 5.0 5.1 5.0 4.5 4.8 Dec-09 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 3.0 2.0 1.0 0.0
Property value
Source: HDFC
Annual income (RHS)
Affordability
Even with the huge demand for quality homes in Mumbai, affordability along with economic growth is one of the main volume drivers for residential absorption ahead. Also, rental housing is an important avenue along with SRS to accommodate 50% of the population (considering 40% still living in slums by 31). Density Micro-markets may see increased supply/de-congestion Surrounded on three sides by sea, and its ever-growing population is the key factor behind Mumbais high density There has been a four-fold rise in density in the past four decades. Dividing Mumbai city into three parts, the Island City (comprising South and South-central Mumbai till Mahim-Sion) has population density of +48,000/sqkm. In the past decade, however, the density has not moved much, except for slum population growth and minimum new organised development. Major increase in density has been in the western and southern suburbs, stemming from population increase and migration. Also, MMR (ex Mumbai) is supported and complementary to commercial activity in Mumbai. Hence, its population has increased tremendously, and is now more than that of Mumbai.
Fig 46 Population density in Mumbai city
(per sqkm) 60,000 50,000 40,000 30,000 20,000 10,000 -
1951
1961
1971
1981
1991
Island City
Source: Census 2001
Western Suburbs
Central Suburbs
2001
31
4 October 2010
Micro-markets to watch While looking to expand land banks in Mumbai, over & above project viability, developers generally look at density spread, commercial activity concentration, land available in micro-market, targeted conversion margins, gestation period etc.
Fig 47 Mumbai micro-markets to watch
Stages Markets Price Trends Remarks
Infancy
Emerging
Vikroli, Bhandup Ghatkopar (E) near highway Bandra (E), Santacruz (E) South Central Mumbai Sewri, Parel Western Suburbs Chembur
Industrial locations moving further away, affordable Mumbai development Larges tracks of land available, better infra than other locations in the city No space offering ex MHADA colonies (East); closet to new CBD, Airport Huge scope for Redevelopment, URS, Mill and MHADA Land to be developed - expediting execution can result in volumes and rationalisation in prices Closet non developed locations in old and new CBD, proximity to state highways Infrastructure growth minimal post metros, highest density amongst suburbs Space Constraints Space to offer only in form of Redevelopment; majority already living in organised manner, higher density places vs Mumbai City
Maturing
Established South Mumbai Worli

Given its proximity to the new CBD, Bandra (E) would see price rises in the next few years
We believe price appreciation in Vikroli, Ghatkopar (E) and Bhandup would be high versus other micro-markets of Mumbai, with the movement of industrial units from Vikroli and Bhandup to farther locations, thereby freeing cheap land. Further, we expect Bandra (E) to witness high price appreciation as: i) the only developments in BKC (super-luxury) are selling at twice the current offerings in the region; and ii) development of BKC as the new CBD and limited land availability in the form of MHADA colonies and slum pockets would see outperformance.
Fig 48 Price movements in the central suburbs and Bandra
(`/sqft) 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2005 2006 2007 2008 2009 2010 Bhandup
Bandra (East)
Source: Industry
Vikhroli
Ghatkopar (East)
We do not expect prices to rise substantially
South-Central Mumbai. Although many projects are being launched in South-central Mumbai, most are in the form of ambitious (+65 stories) skyscrapers aimed at the higher-income segment. Execution of such projects is not proven yet; developers seem to have over optimistic timeframes for completion of such projects. Also, with the opening-up of mill-lands, movement of third generations (larger families) from South Mumbai and location advantage from both CBDs (South and central Mumbai), South-central Mumbai has and would continue to be a demanddriven location, owing to proximity to offices. Hence, we believe absorption would be strong in the region, at maintained price points.
32
4 October 2010
Fig 49 Price movements in South-Central Mumbai

(`/sqft) 25,000 20,000 15,000 10,000 5,000 0 2005 2006 2007 2008 2009 2010 Sewri
Avg selling price `/sqft
Mumbai Central
Source: Industry
Lower Parel
Recent examples of sales, after the market moved up, are the Orbit Terraces project at Lower Parel, Orchid Heights near Jacobs Circle and IBREL Sky Suites at Lower Parel, where bookings have been healthy at lower prices. Orbit Terraces (0.225m sqft) and Raheja Vivaria (0.86m sqft) would be the only Grade-A residential projects to be completed in the next two years. Overall, the already launched projects (in phases) and planned launches stand at ~27m sqft, with additional supply expected from large URS projects, MHADA redevelopment and BDD chawls. Hence, pricing in the area would be driven by execution of such projects, with better execution or more projects reaching completion at the same time, leading to price rationalisation (i.e., higher correction in prices).
Fig 50 Price assumptions for South-Central Mumbai projects
Developer Project Name Location Area (m sqft)
DB Realty DB Realty DB Realty DB Realty DB Realty DB Realty DB Realty DB Realty DB Realty Orbit Corporation Orbit Corporation Orbit Corporation Indiabulls Indiabulls Indiabulls Ackruti City Ackruti City Ackruti City Ackruti City Ackruti City
Orchid Crown Orchid Views Turf View Orchid Heights Enclave 2 Skyz Unity Enclave 3 Splendor-Jubilee mills Central Orbit Terraces Orbit Grand Orbit Eternia Sky Sky Suites Forest Princess Turf View Emperor Towers Haji Gani Opera House
Lower parel Mumbai central Mahalaxmi Jacob circle Mumbai Central Byculla Mumbai central Byculla Mumbai central Lower parel Lower parel Lower parel Lower parel Lower parel Lower parel Worli Lower parel Tardeo Lower parel Hughes Road
1.70 1.40 2.23 1.23 0.60 0.60 0.70 0.40 0.30 0.28 0.08 0.03 1.10 1.10 1.10 0.15 0.04 1.91 0.02 0.16
24,725 16,993 35,315 23,400 20,929 20,075 21,746 21,271 21,273 17,483 15,428 14,702 19,000 20,000 19,500 20,195 20,372 26,761 16,034 25,832
33
4 October 2010
The western suburbs have seen a major price increase (in the past few years) for larger high-quality developments, and infrastructure. Though lately, given the higher rate of population, increase in the western suburbs as well the extension towards MMR (Vasai and Virar), infrastructure is taking a hit. Strengths include good schools, entertainment, medical facilities and offices near major residential markets. We believe that pricing in the western suburbs would grow selectively, though overall pricing (real price rise) would largely sustain over the next five years.
Fig 51 Price movements in western suburbs
(`/sqft) 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 2005 2006 2007 2008 2009 2010 2010
Andheri (West)
Source: Industry
Andheri (East)
Goregaon
Borivali
South Mumbai comprises the considerably densely populated C Ward and the green & most expensive belt of Mumbai (Malabar Hill, Napean Sea Road, Walkeshwar). No vacant land can be found here, with most pieces falling under CRZ norms (non-development and partdevelopment), no development zones (NDZs) and port lands (to be kept development-free). The only URS scheme cleared till now is that of Bhendi Bazaar near Kalbadevi, which is yet to commence construction, Redevelopment projects in these locations offer smaller areas (number of units) for sale, given the application of DCR 33(6) and DCR 33(7). Major listed and unlisted development concentration is in the high-value Napean Sea Road and Altamount Road locations, where most projects have been pre-sold. Also, the proportion of those purchasing two apartments in new developments is also higher here.
Fig 52 Price movements in South Mumbai
(`/sqft) 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 2005 2006 2007 2008 2009
Napeansea Road
Source: Industry
34
4 October 2010
Although developers are planning larger projects in south Mumbai (in terms of total saleable area), we believe execution would be the key challenge in converting redevelopment projects. Also, even if execution improves, prices will not increase from current peaks as this location is among the most expensive globally.
Commercial property market

Trailing 12 months, of the seven key metros, Mumbai has absorbed 23% of the total space, second only to Bangalore Mumbai, the commercial capital of India, is home to the countrys banks and financial institutions that have their headquarters in the city. Apart from being a banking & finance hub, the city has several IT/ITES companies and, given high literacy levels and availability of intellectual talent, Mumbai is a key centre for BPO functions of several MNCs.
Fig 53 Rental movements in Mumbai
(`/sqft/month) 600
500 400 300 200 100 2005 2006 2007 2008 2009 2010 2011e 2012e 2013e
Source: DTZ
IBREL Towers at Lower Parel are 3.4m sqft (initially ~4.5) vs 4.9m sqft in entire Nariman Point
Till recently, Mumbais CBD was Nariman Point (19 Grade-A developments of 4.9m sqft), Fort and Ballard Estate in South Mumbai. However, in the past decade, demand for office space has moved northwards, to locations such as Lower Parel, BKC, Andheri-Kurla, Malad and Powai. This mainly owing to availability of modern workplaces, large areas at lower prices and proximity to residential locations.
Fig 54 Stock and vacancy movement
(msqft) 70 65 60 55 50 45 40 35 30 25 20 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 (%) 23 21 19 17 15 13 11 9 7
Stock
Source: DTZ
Vacancy (RHS)
35
4 October 2010
Between 03 and 07, supply of office space in Mumbai ranged at 3-5m sqft, with absorption at 1.5-4m sqft. In 08, supply and absorption jumped almost twofold, following widespread economic growth and healthy expansion in hiring. However, during the 09 economic slowdown, absorption of office space in Mumbai fell to 5.5m sqft from the peak of ~8.5m sqft in 08. Given falling demand, several commercial projects were put on hold and some were even converted to residential projects.
Fig 55 Supply vs absorption
(msqft) 6.0 5.0 4.0 3.0 2.5 2.0 1.0 0.0 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10
Q1CY10
(%) 4.5 4.0 3.5 3.0
2.0 1.5 1.0
Supply
Source: DTZ
Absorption (RHS)
In spite of developers slowing down commercial projects, supply of office space touched an all-time high of ~17m sqft in 09 compared with ~15m sqft in 08. Greater supply but lower absorption resulted in increased vacancies and declining rentals. With recovery in the economy, absorption of office space has picked up over 2HCY10. However, supply continues to exceed absorption; hence, average vacancy levels in the city are as high as 18-21%. Even though overall vacancy levels are high, rentals in certain micro markets (Lower Parel and BKC) have risen yoy, since they are fast becoming preferred alternatives to Nariman Point and Fort, especially for companies operating in the BFSI segment. Ahead, Lower Parel and BKC will emerge as the new CBDs of Mumbai. Nariman Point and Fort are saturated and have very little potential for further office development. As offices in these locations look to expand, they are likely to move to BKC and Lower Parel that offer modern formats of commercial spaces with large floor plates and better amenities. We, therefore, expect absorption levels to be robust in these micro-markets.
Fig 56 New CBD and off-CBD movements over a year
Q2CY09 Q3CY09 Q4CY09 Q2CY10
Off CBD Take-up (sqft) Availability (sqft) Availability ratio (%) New supply (sqft) New CBD Take-up (sqft) Availability (sqft) Availability ratio (%) New supply (sqft)
Source: DTZ
204,000 641,108 13 34,000
60,500 809,490 15 465,000
125,500 1,182,173 18 1,130,000
465,000 1,146,313 17 72,900
430,000 1,137,200 17 96,000
212,561 648,120 11 413,000
84,646 876,590 13 851,000
38,866 820,771 12 96,762
103,200 802,454 12 -
382,000 796,999 11 420,000
36
4 October 2010
Other micro-markets such as Malad, Andheri-Kurla and Powai largely cater to IT/ITES companies and BPO/back-office operations. Absorption levels in these areas would be driven by prospects in the software sector and offshoring by MNCs. We expect absorption levels to improve, following healthy economic growth and more hiring. However, we expect overall rentals to be stable in the next 6-12 months, till absorption picks pace and vacancies ease. Of the listed companies, most of the larger ones have planned commercial spaces (ex IBREL, PLL projects nearing completion). Of the planned projects, the largest commercial plans are of HDIL (16.8m sqft) with most around the existing airport, and DBRL (~7m sqft) with most planned at Bandra (E). But both these commercial space plans are long term, with not much construction to be seen in the next 12 months. The high-value residential market in Mumbai has seen a slew of launches in the past year. Most projects launched in the past 12 months have recorded healthy sales across micro-markets in Mumbai.
37
4 October 2010
Company section
38
Property
India I Equities
Update
Change in Estimates ; Target ; Reco
4 October 2010
Ackruti City
Riding high on niche developments; maintain Buy
Ackruti City has had a good run in property sales, with over `15bn of stock sold since the upturn in the property market and corporate sales of ~`1bn in 2QFY11. We expect the company to continue its strong sales, with 2.9m sqft in FY11e. New projects add high value, and under-construction projects would contribute `6bn in FY11e. We reiterate Buy on Ackruti and rollover Mar 11 price target of `831 to `872 in Sep 11.
Sales momentum strong. In the past six quarters, Ackruti launched 4.3m sqft and sold 2.9m sqft for `15bn; of this, 28% has been received. The company recently did corporate sales, in two of its projects at Andheri (E), worth +`1.5bn. It has aggressive plans of launching another 6m sqft of projects in 2HFY11 in Mumbai suburbs and Gujarat. We expect Ackruti to sell 2.9m sqft in FY11 for `13.5bn. New project wins; project approvals and execution. Two projects Bandra (E) government colony redevelopment, for which Ackruti has got the LoA; and Hindustan Mills project at Prabhadevi, for which it has got environmental clearance would contribute 16% and 10% respectively to the stock value and `55.6bn in gross cashflows in the next 5-6 years. Pace of execution has increased and is likely to lead to construction-linked inflow of ~`6bn in FY11e. But, we believe debt would rise to `15.7bn, mainly for premium payments. Valuation and risks. Our DCF-based valuation of the stock gives
Rating: BUY Target Price: `872 Share Price: `510
Key data
52-week high/low Sensex/Nifty 3-m average volume Market cap Shares outstanding Free float Promoters Foreign Institutions Domestic Institutions Public
AKCL IN/ ACKR.BO `586.4/438 20445/6143 US$1.3m `37bn/US$832m 72.7m 17.5% 82.5% 5.0% 1.8% 10.7%
Sep 11 NAV of `967. We raise our target price to `872/share in Sep 11, which is at 10% discount to NAV. At CMP, the stock trades at a 68% discount to NAV. Risks: Market slowdown.
Relative price performance
FY09 FY10 FY11e FY12e FY13e
Key financials
Year end 31 Mar
Sales (` m) Net Profit (` m) EPS (`) Growth (%) PE (x) P BV (x) RoE (%) RoCE (%) Dividend Yield (%) Net Gearing (%)
4,348 2,647 36.4 (12) 14.0 3.3 28.3 21.7 0.2 100.5
5,796 1,649 22.7 (38) 22.5 2.5 13.1 15.4 1.0 80.1
11,050 2,792 38.4 69 13.3 2.1 17.3 19.1 0.2 84.4
16,192 4,693 64.5 68 7.9 1.7 23.7 23.9 0.2 61.0
27,557 9,391 129.1 100 4.0 1.2 35.1 34.2 0.2 22.3
Source: Bloomberg
130 120 110 100 90 80 Ackruti city Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Sensex
Anand Rathi Financial Services Limited does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Disclosures and analyst certifications are located in Appendix 1 Anand Rathi Research India Equities
4 October 2010
Ackruti City Riding high on niche developments; maintain Buy
Quick Glance Financials and Valuations

Fig 1 Income statement (`m)
Year end 31 Mar FY09 FY10 FY11e FY12e FY13e
Fig 4 PE Band
11,050 91 4,024 5,957 53.9 1,945 114 200 1,394 2,705 64.8 2,792 38.39 39.95 1.00 16,192 47 6,124 8,449 52.2 2,026 150 200 2,201 4,272 57.9 4,693 64.52 66.58 1.00 27,557 70 11,064 13,600 49.4 1,688 180 3,989 7,743 9,391 129.11 131.59 1.00
2,500 2,000 30x 1,500 24x 1,000 500 0 Sep-07 Dec-07 Sep-08 Dec-08 Sep-09 Dec-09 Sep-10 Jun-07 Jun-08 Jun-09 Mar-08 Mar-09 Mar-10 Jun-10 18x 12x 6x
Net sales Sales growth (%) - Op. expenses EBITDA EBITDA margins (%) - Interest - Depreciation + Other income - Tax PAT PAT growth (%) Consolidated PAT FDEPS (`/share) CEPS (`/share) DPS (`/share)
4,348 (2) (258) 4,095 94.2 1,402 57 200 232 2,603 (13.1) 2,647 36.39 37.20 1.00
5,796 33 1,314 3,825 66.0 1,680 71 385 817 1,641 (37.0) 1,649 22.67 24.37 5.00
Ackruti City
Source: Bloomberg, Anand Rathi Research
Fig 2 Balance sheet (`m)

Fig 5 Price-to-Book Band

727 14,060 14,787 13,055 (50) 1 27,793 2,400 3,563 19,644 1,216 27,793 72.7 80% 727 16,760 17,488 15,755 (50) 1 33,194 3,360 3,563 25,282 988 33,194 72.7 84% 727 21,362 22,089 14,255 (50) 1 36,295 3,863 3,563 28,077 792 36,295 72.7 61% 727 30,661 31,388 10,755 (50) 1 42,095 4,400 3,563 30,389 3,742 42,095 72.7 22%
2,600 9x Ackruti City 2,100 7x 1,600 5x 1,100
Share capital Reserves & surplus Shareholders fund Debt Def Tax Liab (net) Minority interests Capital employed Fixed assets Investments Working capital Cash Capital deployed No. of shares (m) Net Debt/Equity (%)
667 9,798 10,465 10,569 (104) 2 20,932 982 3,025 15,135 110 20,932 72.7 100%
3x 600 1x 100 Sep-07 Sep-08 Jun-07 Dec-07 Sep-09 Mar-08 Jun-08 Dec-08 Sep-10 Mar-09 Jun-09 Dec-09 Mar-10 Jun-10
Fig 3 Cash flow statement (`m)

Fig 6 Ackruti City vs BSE Realty

2,792 114 2,906 5,638 (2,732) 105 (2,837) 91 0 2,700 (228) 1,216 988 4,693 150 4,843 2,795 2,048 653 1,395 91 (0) (1,500) (196) 988 792 9,391 180 9,571 2,312 7,260 718 6,542 91 0 (3,500) 2,950 792 3,742
120 115 110 105 100 95 90 85 80 75 70 Aug-09 Sep-09 Feb-10 Nov-09 Dec-09 Mar-10 Oct-09 Jan-10 Apr-10 May-10 Jun-10 Realty Index Aug-10 Sep-10 Jul-10 Ackruti City
Consolidated PAT + Depreciation Cash profit - Incr/(Decr) in WC Operating cash flow - Capex Free cash flow - Dividend + Equity raised + Debt raised - Investments - Misc. items Net cash flow + Opening cash Closing cash
2,647 (53) 2,594 2,683 (89) 1,515 (1,605) 84 (78) 2,277 747 56 (293) 403 110
1,649 125 1,774 4,510 (2,736) 835 (3,571) 425 3,098 2,486 538 (56) 1,107 110 1,216
40
4 October 2010
Investment Argument & Valuation

Ackruti City has had a good run in property sales, with over `15bn of stock sold since the upturn in the property market and corporate sales of ~`1bn in 2QFY11. We expect the company to continue its strong sales, with 2.9m sqft in FY11e. New projects add high value, and under-construction projects would contribute `6bn in FY11e. We reiterate Buy on Ackruti and rollover Mar 11 price target of `831 to `872 in Sep 11. Rehab projects complete; free-sale component of the projects to be launched Strong sales momentum Focus on residential development and niche projects across Mumbai, Thane and Pune has helped Ackruti sell stock worth `15bn over the past six quarters. It has seen mixed contribution from the commercial and residential segments, each contributing 50% to the sales value. Additionally, the company recently concluded block sales at both its Andheri (E) projects, for ~`1.5bn.
Fig 7 Strong sales Banking on residential expertise
Project Asset Class Location Area (m sqft) (%) Sold Sale Value (`m)
Solaris Gold Chambers Asmeeta Sunmist Greenwood Countrywood Shikhar Vendant Jewel Gardenia
Source: Company
Commercial Commercial Commercial Indus Park Residential Residential Residential Residential Residential Residential Residential
Andheri (E) BKC Pune Bhiwandi Andheri (E) Mira Road Pune Andheri (E) Sion Andheri (W) Thane
0.71 0.06 0.02 0.98 0.21 0.72 0.53 0.81 0.12 0.12 0.76
30.9 100.0 31.4 80.1 26.0 81.4 96.6 24.0 27.7 59.7 81.3
5,183 1,710 48 514 637 2,647 1,183 216 152 681 2,076
Large PPP projects to be launched in sub-urban city centres
The company also plans another +6m sqft projects across Mumbai, Gujarat and Pune in 2HFY11e. The largest chunk of city-centre launches will be from its PPP launches at Ghatkopar (E) and Chembur (~1m sqft), the high-value Hindustan Mills project and the Gujarat State Road Transport Corporation (GSRTC) project, along with subsequent phased launches of its affordable housing projects. New project wins; project approvals and execution The company is continuing its city-centre acquisition with a high-value PPP project, to part re-develop the Government Colony project at Bandra along with some PPP additions in Gujarat and Bangalore. Total initial premium outgo for these projects is `4.9bn of premium fees, license & tenancy payments and land costs. Also, its high-value project at Prabhadevi has received all the crucial environmental clearances; further, concession agreements for the GSRTC PPP projects have been signed. Given an increased concentration on execution with ~`2.9bn of construction expenditure in FY11e, Ackruti is expected to receive `6bn in FY11e. But, debt is likely to rise to `15.7bn, primarily on account of land, FSI and premium payments, in our view.
41
4 October 2010
Valuation We value Ackruti City on a DCF-based NAV to arrive at Sep 11 NAV of `967. Our target price of `872 per share is at 10% discount to the NAV; we await clarity on the notified SEZ projects, as well as development schedule and land utilisation of certain projects.
Fig 8 Valuation
NAV Sep '11 `m ` / share (%) contribution
SRS PPP Normal Projects SEZs Townships Investments at Cost Acquisitions Debt Cash NAV
23,866 22,888 13,958 20,663 4,174 870 (1,300) (15,755) 988
328 315 192 284 57 12 (18) (217) 14 967
33 32 16 14 5
We have assumed a development schedule for SRS and PPP projects as land is accrued only post developing the rehab/redevelopment area For the companys township land, we have taken a premium over its acquisition value as township projects do not provide any visibility in the near term We have assumed WACC of 14%, cost of equity at 17% and cost of debt at 15.5% Execution schedule. In our NAV computation, we have attempted to build a buffer for any delay in execution. Still, if tighter liquidity conditions, demand slowdown and various other macro-economic factors further delay execution, the NAV is likely to be impacted SRS projects are long-gestation and politically sensitive. Government policies could affect prospects Managing joint ventures. Issues with JV partners could hamper/delay execution and, hence, affect the NAV
Risk
42
4 October 2010
Sales momentum strong

In the past six quarters, Ackruti launched 4.3m sqft and sold 2.9m sqft for `15bn; of this, 28% has been received. The company recently did corporate sales, in two of its projects at Andheri (E), worth +`1.5bn. It has aggressive plans of launching another 6m sqft of projects in 2HFY11 in Mumbai suburbs and Gujarat. We expect Ackruti to sell 2.9m sqft in FY11 for `13.5bn. Launches picked up; sales buoyant too Ackruti has sold over 2,400 residential units in the past six quarters Ackruti has witnessed a continuous spate of project launches in the past six quarters. The launches were a mixed bag of mid-income (Just Perfect Homes) projects in 1HCY10 and city-centre projects in 2HCY10. 1QFY11 too has seen three project launches/soft-launches. Gearing for big 2HFY11 Ackruti plans to launch ~6m sqft of projects across Mumbai, Gujarat, Thane and Pune in 2HFY11. The projects offer a mix of South Mumbai and Central Mumbai locations as well as mixed-used projects in Gujarat. Most city-centre project launches are PPP-based. The company also plans continuing its phased release of mid-income housing projects.
Fig 9 2HFY11e/1HFY12e launches
Project Residential Location Type Launch Area (m sqft)
IVIL Phase I Ruby Swastik Mazgaon Ackruti Sea Breeze Jade Gardens Gardenia Phase 2 Lakewoods Country woods Hindustan Mills
Commercial
Ghatkopar Andheri(W) Chembur Mazgaon Opera House Peddar Road Mira Road Thane Pune Prabhadevi Mulund Ahmedabad Surat
PPP PPP PPP Redevelopment Virgin land Virgin land Mid-income (virgin land) Factory land Mid-income (virgin land) Mill land SEZ PPP PPP
0.7 0.3 0.4 0.2 0.2 0.0 0.5 0.5 1.0 0.6 1.6 0.3 0.4
Mumbai SEZ Phase I GSRTC GSRTC
Source: Company, Anand Rathi Research.
We expect Ackruti to sell 2.97m sqft of stock in FY11e worth `18bn (Ackrutis share: `14.3bn) from 14 under-construction projects and eight new launches across asset types and verticals.
43
4 October 2010
New project wins; approvals and execution

Two projects Bandra (E) government colony redevelopment, for which Ackruti has got the LoA; and Hindustan Mills project at Prabhadevi, for which it has got environmental clearance would contribute 16% & 10% respectively to the stock value and `55.6bn in gross cashflows in the next 5-6 years. Pace of execution has increased and is likely to lead to construction-linked inflow of ~`6bn in FY11e. But, we believe debt would rise to `15.7bn, mainly for premium payments.
New acquisition Bandra PPP Project

Bandra (E) government colony project During 1QFY11, Ackruti obtained a Letter of Approval (LoA) for part redevelopment of a government colony at Bandra. This is part of a larger project of 93.6 acres, to be re-developed by a consortium of three developers Ackruti, DB Realty and the Kakade Group.
Fig 10 Bandra (E) project snapshot
Total area (acres) Three developers For Ackruti PPP construction (m sqft) Free sale (acres) Development type Ackruti's stake (%) Our assumptions Development time Average cost (`/sqft) Average sale price (`/sqft) Project NPV (ex debt) (` bn)
The new Bandra (E) government colony project would add `13.7 to the companys NAV
93.68 DB Realty, Ackruti City, Sanjay Kakade 1.4 6 Mixed-use (commercial and residential) 100 6 years (Including rehabilitation) 8,100 24,750 13.7
The Hindustan Mills project would contribute `8.3bn to the NAV
Hindustan Mills projects Ackrutis Hindustan Mills project obtained the crucial environmental clearance of Coastal Regulation Zone (CRZ) 2. Development would be for mixed use a hotel, commercial space and serviced residential area. Also, according to the new Development Control Regulations (DCR) for hotels, the project would be permitted higher FSI (at a premium) than the prevailing 1.33x. Investment on construction envisaged by the company in this project is up to `11bn, of which 80% would be in the form of debt.
Fig 11 Hindustan Mills project Snapshot
Area (acre) Saleable area (m sqft) Ackruti's stake (%) Development Launch Our assumptions Development period (years) Average selling price (`/sqft) Average cost (`/sqft) Project NPV (` bn)
5.3 2.3 48 Hotel, commercial, serviced residential 2HFY11 (estimated) 7 23,400 4,900 8.3
44
4 October 2010
With the necessary approvals in place, we expect the company to launch the project in 2HFY11. GSRTC projects Ackruti recently secured approvals for redeveloping bus terminals in Gujarat; the approval had earlier been delayed. The company has paid the requisite amount for concession agreements for the projects. It acquired two additional projects in Ahmedabad and Baroda and raised its stake from 74% to 100% in the projects.
Fig 12 GSRTC projects
Location Saleable area (m sqft) Development period (years) Average SP (`/sqft) Average cost (`/sqft)
Ahmedabad Baroda Surat 1 Surat 2 Mehsana

1.4 0.4 2.0 0.5 1.2
4.0 3.0 5.0 3.0 4.0
5,477 4,635 4,316 4,214 3,742
2,380 2,080 2,188 2,261 2,092
Ackruti has already signed the concession agreements in the two GSTRC projects and we expect it to commence work on the projects in FY11.
45
4 October 2010
Financials
Fig13 Income statement (`m)
Revenue - Op. expenses - Employee Costs - Other Administrative EBITDA - Interest - Depreciation + Other income - Tax PAT + Minority Interests + Share of profit from Associates Consolidated PAT Dividend FDEPS (` / share) CEPS (` / share) DPS (` / share) BV (` / share) Shares outstanding Growth Rates (%) Revenue EBIDTA Net PAT Diluted EPS FY10-13e Revenue CAGR FY10-13e EBITDA CAGR FY10-13e EPS CAGR Margins EBITDA EBIT Net Profit Current Tax Rate (%) Effective Tax Rate (%)
4,348 (258) 149 362 4,095 1,402 57 200 232 2,603 3 92 2,647 84 36.4 37.2 1.0 156.9 66.7 (2.3) 8.0 (11.6) (11.6)
5,796 1,314 141 517 3,825 1,680 71 385 817 1,641 0 36 1,649 425 22.7 24.4 5.0 203.3 72.7 33.3 (6.6) (37.7) (37.7)
11,050 4,024 295 774 5,957 1,945 114 200 1,394 2,705 (66) 153 2,792 91 38.4 39.9 1.0 240.4 72.7 90.6 55.8 69.3 69.3
16,192 6,124 486 1,133 8,449 2,026 150 200 2,201 4,272 (177) 597 4,693 91 64.5 66.6 1.0 303.7 72.7 46.5 41.8 68.1 68.1
27,557 11,064 827 2,067 13,600 1,688 180 3,989 7,743 (458) 2,106 9,391 91 129.1 131.6 1.0 431.5 72.7 70.2 61.0 100.1 100.1 68.1% 52.6% 78.6%
94.2 (543.9) 38.4 55.3 5.7
66.0 127.8 50.7 74.4 21.3
53.9 48.3 38.5 25.9 23.4
52.2 33.1 30.9 17.6 26.0
49.4 15.3 21.8 29.3
46
4 October 2010

Sources of Funds Share capital Reserves & surplus Shareholders fund Debt Deferred Tax Liab (net) Minority interests Capital employed Application of Funds Gross Fixed Assets Less: Depreciation Net Fixed Assets Capital Work in Progress Investments Goodwill Current Assets Inventories Debtors Loans and Advances Current Liab and Provisions Net Current Assets Working Capital Cash Capital deployed No. of shares (m) Net Debt/Equity (%)
667 9,741 10,408 10,569 (104) 2 20,875 760 110 650 331 3,025 6,106 4,517 6,153 741 2,383 15,244 15,135 110 19,251 66.7 100.5
727 14,060 14,787 13,055 (50) 1 27,793 1,574 162 1,411 989 3,563 7,903 3,208 11,216 479 3,160 20,861 19,644 1,216 26,824 72.7 80.1
727 16,760 17,488 15,755 (50) 1 33,194 2,563 290 2,273 1,088 3,563 12,842 3,354 10,094 526 1,534 26,270 25,282 988 33,194 72.7 84.4
727 21,362 22,089 14,255 (50) 1 36,295 3,106 440 2,666 1,196 3,563 15,718 5,521 10,851 632 4,644 28,869 28,077 792 36,295 72.7 61.0
727 30,661 31,388 10,755 (50) 1 42,095 3,705 621 3,084 1,316 3,563 19,273 3,884 11,936 821 5,525 34,131 30,389 3,742 42,095 72.7 22.3

Consolidated PAT + Depreciation + Deferred Tax + Other non cash Cash profit - Incr/(Decr) in WC Operating cash flow - Capex Free cash flow - Dividend + Equity raised + Debt raised - Investments - Misc. items Net cash flow + Opening cash Closing cash
2,647 57 (110) 2,594 2,683 (89) (108) 19 84 (78) 2,277 747 56 1,331 403 1,734 2,647
1,649 71 53 1,774 4,510 (2,736) 1,490 (4,226) 425 3,098 2,486 538 (56) 452 110 562 1,649
2,792 114 2,906 5,638 (2,732) 1,074 (3,806) 91 0 2,700 (1,197) 1,216 19 2,792
4,693 150 4,843 2,795 2,048 653 1,395 91 (0) (1,500) (196) 988 792 4,693
9,391 180 9,571 2,312 7,260 718 6,542 91 0 (3,500) 2,950 792 3,742 9,391
47
4 October 2010
Fig 16 Ratio @ `510

Valuations PE PBV M Cap / Sales EV / Sales EV / EBITDA Dividend Dividend yield (%) Dividend payout (%) Leverage Net Debt / Equity Int Coverage Return Ratios ROE (%) ROCE (%)
14.0 3.3 7.8 9.5 10.1 0.2 2.6 1.0 3 28.3 21.7
22.5 2.5 6.4 7.8 11.9 1.0 22.2 0.8 2 13.1 15.4
13.3 2.1 3.4 4.4 8.1 0.2 2.7 0.8 3 17.3 19.1
7.9 1.7 2.3 2.9 5.6 0.2 1.7 0.6 4 23.7 23.9
4.0 1.2 1.3 1.5 3.0 0.2 0.9 0.2 8 35.1 34.2
48
Property
India I Equities
Initiating Coverage
4 October 2010
DB Realty
High-value, high-volume play; initiate with Buy
We initiate coverage on DB Realty (DBRL) with Buy and Sep11 target price of `564. DBRL is Mumbais biggest real-estate developer in the residential space. The company has the most valuable stock of real estate in Mumbai, owing to its presence in high-value markets and high land utilisation. Robust cash flows from launched stock are likely to aid business growth, without stressing the balance sheet. Biggest and most-valuable residential real estate stock in Mumbai. DBRL owns saleable residential space of 33.4m sqft, ahead of Ackruti (32.4m sqft) and HDIL (27.1m sqft est.). More significantly, ~50% of the total space held by DBRL is in South-Central Mumbai and Bandra East, which is currently valued +`15,000/sqft. Extensive alliances, high land utilisation. DBRL has numerous alliances in the form of both JDAs with land owners, and JVs with Grade-A developers. This strategy results in larger projects, higher efficiency and lower risk. Furthermore, ~65% of our NAV is contributed by PPP, URS and SRS projects, which allow for high land utilisation (~2.8x), thereby boosting margins and profitability. Robust cash flows to fund ambitious business growth. DBRL has net-cash of `3.8bn, as of Mar 10. With project cash inflow of ~`141bn and construction outgo of `69bn over the next three years, the announced `62bn acquisition pipeline will keep the balance sheet light (FY12e net D/E of 0.2x). This may fuel project acquisitions (not factored in our estimates), leading to greater upside. Valuation and risks. Our Sep 11 target price of `564 is the same as our Sep11 NAV. We believe DBRL is attractively valued at FY12e P/BV of 2.2x, as regards strong earnings growth and high RoE (>40%). Downside risks are slowdown in property market and looming oversupply.
Rating: Buy Target Price: `564 Share Price: `410
Key data
DBRL IN/DBRL.BO `540/355 20445/6143 US$3.7m `100bn/US$2248m 243.3m 36.0% 64.0% 8.0% 2.7% 25.3%
Key financials

4,644 1,417 5.8 (752.0) NA NA 18.7 12.9 142.8 9,512 2,520 10.4 77.9 39.6 3.5 14.1 15.1 16.7 16,127 4,898 20.1 94.4 20.4 3.0 16.4 20.2 38.9 40,459 14,172 58.3 189.3 7.0 2.2 34.8 43.7 0.2 23.3 79,043 33,606 138.2 137.1 3.0 1.3 57.1 75.6 13.8
Source: Bloomberg
Sales (`m) Net Profit (`m) EPS (`) Growth (%) PE (x) P BV (x) RoE (%) RoCE (%) Dividend Yield (%) Net Gearing (%)
130 120 110 100 90 80 70 Feb-10 Mar-10 May-10 Jun-10 Aug-10 Sep-10 Apr-10 Jul-10 D B Realty Sensex
4 October 2010
DB Realty High-value, high-volume play; initiate with Buy

Fig 4 Land bank spread

16,127 69.5 7,374 8,172 50.7 571 88 2,104 5,409 99.5 4,898 20.1 20.5 40,459 150.9 15,829 23,254 57.5 852 89 7,587 14,727 172.3 14,172 58.3 58.6 1.0 79,043 95.4 18,563 57,871 73.2 748 108 19,385 37,631 155.5 33,606 138.2 138.6 1.0
4,644 NA 2,064 2,258 48.6 747 74 68 67 1,438 NA 1,417 5.8 6.1 -
9,512 104.8 5,470 3,655 38.4 726 96 291 413 2,712 88.5 2,520 10.4 10.7 -
Pune 16%
MMR 18%
Mumbai 66%

Fig 5 Land bank spread (Mumbai)

2,433 28,054 30,486 5,948 745 37,180 219 8,941 27,157 860 37,180 243 16.7 2,433 32,952 35,384 13,748 745 49,878 180 4,941 38,916 5,838 49,878 243 38.9 2,433 46,839 49,271 11,503 745 61,520 186 1,941 47,055 12,335 61,520 243 23.3 2,433 80,160 82,593 11,410 745 94,748 172 1,941 71,887 20,746 94,748 243 13.8
Share capital Reserves & surplus Shareholders fund Debt Deferred Tax Liab (net) Minority interests Capital employed Fixed assets Investments Working capital Cash Capital deployed No. of shares (m) Net Debt/Equity (%)
91 8,023 8,114 12,357 4 553 21,028 223 2 20,028 769 21,028 9 142.8
South Central Mumbai 14% Central Suburbs 1% Others (TDR) 40% Bandra 15%
Western Suburbs 30%

Fig 6 DB Realty vs BSE Realty

4,898 88 4,986 11,759 (6,773) 49 (6,822) 7,800 (4,000) (0) 4,978 860 5,838 14,172 89 14,260 8,139 6,121 95 6,026 285 (2,245) (3,000) 6,497 5,838 12,335 33,606 108 33,714 24,832 8,882 94 8,788 285 (93) 8,411 12,335 20,746
130 120 Realty Index 110 100 90 80 70 Aug-10 May-10 Sep-10 Mar-10 Feb-10 Jun-10 Apr-10 Jul-10 D B Realty
Consolidated PAT +Non Cash Items Cash profit - Incr/(Decr) in WC Operating cash flow -Capex Free cash flow -Dividend + Equity raised + Debt raised -Investments -Misc. items Net cash flow +Opening cash Closing cash
1,417 77 1,494 9,131 (7,637) 150 (7,787) (585) 6,327 (1,783) 5 (268) 1,037 769
2,520 90 2,609 7,130 (4,520) 91 (4,611) 19,853 (6,409) 8,938 (5) 92 769 860
Source: Bloomberg
50
4 October 2010

We initiate coverage on DB Realty (DBRL) with Buy and Sep11 target price of `564. DBRL is Mumbais biggest real-estate developer in the residential space. The company has the most valuable stock of real estate in Mumbai, owing to its presence in high-value markets and high land utilisation. Robust cash flows from launched stock are likely to aid business growth, without stressing the balance sheet. Biggest and most-valuable residential real estate stock in Mumbai Of DBRLs total projects, 64% are for residential purpose. With 65m sqft residential properties of which 33m sqft is in Mumbai City and 17.9m sqft in MMR (ex Mumbai), DBRL has the largest value offering in the high-conversion (higher margin) Mumbai City.
Fig 7 Mumbai City DBRL vs peers (msqft)
Company Name Residential Commercial TDR Retail Hotel Others
DBRL HDIL Ackruti City Sunteck Realty Oberoi Lodha Kalpataru
33.4 27.1 32.4 10.6 11.6 7.2 5.0
6.8 16.5 3.6 3.1 3.8 3.2 0.4
27.7 41.2 0.0 0.0 0.0 0.0 0.0
0.1 0.8 1.1 0.0 0.1 0.0 0.0
0.0 0.3 0.8 0.0 2.8 0.0 0.0
0.0 0.0 7.6 0.0 1.6 0.0 0.0
Around 70% of DBRLs land is from slum rehab schemes (SRS), urban renewal schemes (URS) and public private partnership (PPP) projects that not only entail lower cost but also deferred payment vis--vis typical land acquisitions. One-third of the remaining 30% is in the form of virgin/millland projects which are in JDAs/JVs with land-owners and developers. This has resulted in high-value saleable area cost of only `623/sqft on purchase of land, and `1,310/sqft, after PPP handover cost. Pre-sales of over `58bn in the past three years provide a healthy receivables book of `35bn in cash receivables, which would cover construction expenses of ongoing projects. Market value of unsold stock from launched projects at current prices stands at `89bn, which provides thrust for further acquisitions.
Fig 8 Pre-sale value largely covers construction expenditure
Project Est sale value (`m) Total est costs (`m) Avg selling pate Value of unsold (`/sqft) stock (`m) DBRL's value of unsold stock (`m)
Woods Suburbia Ozone Crown Heights Turf View Mahul Project Orchid Hills TDR Total
6,938 3,548 8,275 13,361 9,827 5,115 10,268 1,535 58,867
3,748 5,070 5,027 6,118 5,662 11,059 8,226 4,208 49,120
9,233 7,991 3,925 24,725 21,344 35,315 2,519 2,175
3,469 2,041 1,372 33,292 14,666 71,255 9,520 12,399 148,015
2,775 1,020 864 16,646 7,333 47,527 9,425 4,092 89,683
51
4 October 2010
Extensive alliances, high land utilisation DBRL is the only developer in Mumbai that has tie-ups not only with land owners but also with most Grade-A developers DBRLs strong ties with land owners as well as JVs with most Grade-A developers reduce cost-outgo and mitigate location & execution risks. JDAs and JVs contribute 40% to its NAV. PPP, URS and SRS projects add 66% to the NAV, ensuring per-sqft utilisation of 2.8, translating into FY12e RoE of 43%.
Fig 10 Contribution to Sep 11 NAV
Old Factories / Mill Land 4% PPP 34% Old Factories / Mill Land 6%
Fig 9 Type of projects
PPP 27%
SRS 10%
SRS 32%
URS 21%
Virgin 28%
Redev 5%
URS 4%
Virgin 12%
Redev 17%
New acquisitions Post the IPO in 4QFY10, the company announced fresh acquisitions of 36m sqft in 1QFY11, of which projects secured entail 19m sqft saleable area (DBRLs share: 12.2m sqft). Total outgo for land, tenancy rights and construction cost of governments portion is estimated at `62bn (`23bn payable in FY11e). We believe, given the strong pre-sales as of date, better execution capability and high cash on books, such acquisitions will not stretch the balance sheet over the next two years. Financials Given a low base and with only four of the 12 launched projects under revenue recognition, we expect 98% revenue CAGR over FY10-13e. Also, we estimate EBITDA margin to improve to 61% (versus 51% at present), considering higher realisations from projects. Valuation We have used the DCF-based method for DBRL to arrive at Sep 11 NAV of `564.
Fig 11 Valuation
NAV Sep11 `m `/ share % Contribution
Ongoing projects Forthcoming projects Upcoming projects Hospitality Stake Cash Debt NAV
56,977 64,975 22,522 698 5,838 (13,748)
234 267 93 3 24 (57) 564
39 45 15 1
52
4 October 2010
We have assumed a development schedule for most of DBRLs properties, given SRS, PPP, URS and redevelopment projects and as land only accrues when the rehabilitation is undertaken/complete. Most new developments under construction/planned by DBRL are highrise buildings (+65 floors); such development is new to Mumbai. We have assumed development schedule of 5-6 years, 40% higher than company estimates (as the company follows a construction-linked payment plan). Given low base and new launches, we have expanded the construction expenditure, from `10.4bn in FY11e to a peak `37.5bn in FY13e, on account of more projects coming under execution than in the current portfolio. DBRLs cost of equity at 16.6% and cost of debt at 14.5% translates into WACC of 13.8%. Risks
Joint venture risk. 71% of the project land is in form of joint ventures. Any difference in opinion or clash of interests going forward amongst/with the partners can hamper project prospects and, hence, the cash flow. Concentration risk. DBRL is a Mumbai-based developer, who also has presence in Mumbai Metropolitan Region (MMR). Demand slowdown and oversupply can lead to lower-than-estimated sales and, hence, affect our NAV. Execution risk. Although we have factored-in the required gestation period for various asset classes, overrun to our timeline can affect the NAV. Contingent liability. DBRL has contingent liability of `15bn, of which `6.2bn is towards DB Hospitality and `8.53bn towards Tiger Trustees Private. DBRLs key management holds a significant stake in Tiger Trustees. Etisalat DB Telecom India Pvt operates as a subsidiary of Tiger Trustees Pvt.
53
4 October 2010
Biggest value offering in Mumbai City

DBRL owns saleable residential space of 33.4m sqft, ahead of Ackruti (32.4m sqft) and HDIL (27.1m sqft est.). More significantly, ~50% of the total space held by DBRL is in South-Central Mumbai and Bandra East, which is currently valued +`15,000/sqft. Largest offering in Mumbai City DBRL has a total developable area of 68m sqft in Mumbai city. It has 9.3m sqft in South central Mumbai and 5m sqft in Bandra DBRL has total developable area of 68m sqft in Mumbai City, of which its share is 46.5m sqft. Around 50% of this is for residential purpose and is spread across all micro-markets of Mumbai. Hence, DBRL boasts of the largest residential offering in the city, where conversion value is the highest among all major metros. Of its total project offering in Mumbai, 9.3m sqft is from the even more lucrative South-Central Mumbai market and 5m sqft from residential development in Bandra, which is set to grow into a leading luxury residential hub, given its proximity to the new central business district (CBD) of Mumbai.
Fig 12 Mumbai project offering*

Location Spread
South Central Mumbai 14% Central Suburbs 16%
TDR 40.7%
Asset class
Retail 0.2%
Western Suburbs 55%
Resi 49.1%
Bandra 15%
Comm 10.0%
Source: Company; * as of date
DBRL offers a variety of projects in each location vis--vis peers in Mumbai. The projects include high-income luxury and super luxury residences in South-Central Mumbai and the western suburbs. It also boasts of projects that fall within the highest value bracket in the country.
Fig 13 Area and value contribution *
Area
Pune 16%
Value
Pune 3.5% Others 0.5%
MMR - Ex Mumbai 15.6%
MMR 18% Mumbai 66%
Mumbai City 80.4%
Source: Company, Anand Rathi Research; * as of date
54
4 October 2010
Along with Mumbai and some land parcels in Pune, the company has large land tracks in the MMR. These contribute a healthy 15% to the NAV. Such parcels are virgin land projects (albeit, some are in the green zone), one of which is launched and already 80% sold, and the remaining two are estimated to be launched over the next 24 months.
Fig 14 Land bank DBRL vs Mumbai peers (m sqft)
Company Name South Mumbai South Central Mumbai Central Suburbs Bandra Western Suburbs
DBRL HDIL Ackruti City Sunteck Realty Oberoi Lodha Kalpataru

Source: Company, * including TDR
0.0 0.1 0.2 0.0 0.0 0.6 0.0
9.3 0.1 4.9 3.6 2.1 7.4 0.5
11.1* 65.2* 31.4 6.1 3.2 1.7 3.1
10.0 2.4 2.8 1.5 0.0 0.0 0.3
37.6* 18.3 6.2 2.5 14.6 0.7 1.4
Strong pre-sales DBRL has a strong receivables order book with healthy presales over the past six quarters, given uptick in the Mumbai property market in Mumbai. Future launches are also spread across the city, mitigating locationconcentration risk.
Fig 15 Sales volume assumption
(msqft) 2.5
2.0 1.5 1.0 0.5 FY11e FY12e FY13e FY14e FY09 FY10
South Central Mumbai

Western Suburbs
Bandra
Pune
Price correction in Mumbai With Mumbai developers having hiked prices in the past 18 months by ~35% across micro-markets, current prices in most locations are above their 08 peaks. Sales in Mumbai have witnessed slowdown in the past three months owing to the already escalated prices as well as the seasonal effect. Based on this, we expect some softness in pricing in DBRLs projects too, especially in South Central Mumbai; although in this micro market there is non availability of ready stock at present, with launches in the past one year and expected large-project launches in the next two quarters, pricing would be slightly impacted. However, we believe a major correction in the micro market will happen only during FY15-17e if most of the under-construction projects reach completion simultaneously, or earlier in case of an economic slowdown.
55
4 October 2010
Fig 16 Average selling price in Mumbai over the past few years (`/sqft)
(`/sqft) 20,000
17,000 14,000 11,000 8,000 5,000 2,000 2005 2006 2007 2008 2009 2010
% Sold Current base selling price `/sqft
Goregaon Lower Parel
Borivali Bandra (East)
Mumbai Central Ghatkopar (East)
Source: Industry, Anand Rathi Research
The company has witnessed a mixed bag of sales in South-Central Mumbai, with one of its three projects continuing to perform well owing to lower prices vis--vis the companys closest competitor.
Fig 17 DBRL projects South-Central Mumbai vs peers
Developer Project Name Area (m sqft) Status
DB Realty DLF
Orchid Crown DLF
1.70 4.20 0.08 0.03 2.00 1.10 1.10 1.10 2.23
Construction on, Launched for sales 25 Expected launch in 3/4Q11 NA Construction on, Launched for sales 46 Construction on, Launched for sales 75 Construction on Construction on Construction to commence Construction to commence 100 100* 100* ~10* Construction on, Launched for sales ~15*
27,500 NA 22,500 18,500 NA 26,000 19,000 20,000 19,500 45,000 23,400
Orbit Corporation Orbit Terraces 0.28 Orbit Corporation Orbit Grand Orbit Corporation Orbit Eternia Lodha Indiabulls Indiabulls Indiabulls DB Realty DB Realty World One Sky Sky Suites Forest Turf View
Construction on, Launched for sales 10 Construction on, Launched for sales 44
Orchid Heights 1.23
Source: *Estimated. Anand Rathi Research
DBRL has proven execution, with ongoing construction at a 55-storey tower, which is likely to be completed (the structure is already complete) in 4.5 years
Although the South-Central micro-market has a number of planned projects, most launched/planned-for-launched residential supply includes towers of 65 floors and more, the execution of which is not yet proven. We reiterate that demand for under-construction residences will remain buoyant, given paucity of ready Grade-A residential space in South-Central Mumbai and only two quality developments to be completed in the next 18 months. However, prices are not likely to substantially increase over the next few years. but, strong pre-sales provide execution comfort Given a strong order book and value of sold properties largely funding construction expenses, the launched projects not only provide execution comfort but also funding for new projects given higher margins. Over 50% of the launched projects in the western suburbs and 23% in South Central Mumbai have been sold.
56
4 October 2010
Fig 18 Strong pre-sales

Project Area (m sqft) (%) Sold Sale value (`m) Total est costs (`m) Value of DBRL's value of unsold stock unsold stock (`m) (`m)
Woods Suburbia Ozone Crown Heights Turf View Orchid Hills
1.2 1.0 2.5 1.8 1.2 2.2 6.7
68% 74% 86% 25% 44% 9% 57% 15%
6,938 3,548 8,275 13,361 9,827 5,115 10,268 1,535
3,748 5,070 5,027 6,119 5,662 11,059 8,226 4,208
3,757 2,094 1,748 33,662 14,430 66,585 10,582 12,542
3,005 1,047 1,101 16,831 7,215 44,412 10,477 4,139
Mahul Project 8.8
New launches well-spread across micro markets DBRL plans to launch ~7 residential projects over the next 12 months. These include next phases of the already launched projects as well as new projects across central and western Mumbai, MMR, Bandra and Pune. In certain PPP and URS projects, the rehab/PPP work has already commenced.
Fig 19 Estimated launches in the next 12 months; present status
Project name Area (m sqft) Type Avg selling Launch price (`/sqft) period Duration Current status
Orchid Centre Orchid Garden Orchid West View Orchid Town Orchid Views MIG Colony 1
0.9 2.4 1.3 10.0 1.4 1.0
Residential Residential Residential Residential Residential Residential Residential
5,870 35,300 4,215 8,446 3,007 16,993 20,894
Sep '10 Jun '10 Aug '11 Nov '10 Sep '10 Apr '11 Jan '11
42 60 42 42 72 54 42
PPP work started Planning Approval Approval Approval Rehab started Soft launch done
Turf View C&D Tower 1.1
57
4 October 2010
Extensive alliances, high land utilisation

DBRL has numerous alliances in the form of both JDAs with land owners, and JVs with Grade-A developers. This strategy results in larger projects, higher efficiency and lower risk. Furthermore, ~65% of our NAV comes from PPP, URS and SRS projects; these projects allow for high land utilisation (~2.8x), thereby boosting margins and profitability.
Strong ties
Tie-ups with non-developers DBRL has strong tie ups with landowners as well as developers that help reduce costs and lower risks Most developers in Mumbai follow a JV/JDA approach. Given the high land value and most prime developable land in the form of SRS, redevelopment projects, defunct mills and other closed industrial units at city centres, such an approach complements developers appetites for lower costs. Hence, the proportion of JV/JDA development in Mumbai is much higher than that in rest of India; DBRL, too, follows the same strategy.
Fig 20 Project type *

JDA 6%
Fig 21 NAV contribution*

JDA 10%
Own 58%
JV 36%
Own 60%
JV 30%
Tie-ups Developers DBRL is the only developer in Mumbai that, along with JDAs, not only has tie-ups with landowners but also with most large developers in the city. Such ventures are in the form of joint ventures and partnerships and reduce the cost outgo for a sole developer as well as mitigate location risk, help in acquisition of larger projects and improve efficiency owing to combined synergies.
58
4 October 2010
Fig 22 Tie-ups: Developers

Project name Type Status Developer Partner Developer Profile
Hills Center Town Skyz Suburbia Sangam City
SRS PPP PPP Redev SRS Virgin
Redevelopment on PPP work on To start in FY11e Approval Phase Free sale on Land Acquired
Sumer Group Mukund Lohia Man Infra JP Group Oberoi and AB Group Ackruti, S Kakade AB Group Shreepati Group Man Infra
Mill land, SRS & Normal projects - Unlisted Land aggregator, Developer - Pune Man Infra - contractors Suburban Developer Tier A developers in Mumbai and Pune resp
Lokhandwala Group Presence across suburbs, vertical in Mumbai
New Projects acquired / under acquisition
Bandra Gov Colony Mahal Pictures Abhudya Nagar Prem Nagar
PPP Open land, PPP, SRS Redevelopment SRS
Planning stage Planning stage Under Acquisition Under Acquisition
SRS, PPP Developers in Mumbai Tier A - Pune developer Tier A - Pune developer Major South Mumbai Player Contractor
Six of DBRLs ten projects on its books were acquired pre-IPO; of the rest, two have been recently won/acquired and two are in the acquisition process. Three of the acquired projects are already under construction, where rehabilitation and free sales are ongoing; two of the acquired are likely to be launched in FY11e. These projects contribute `54bn to the NAV.
Fig 23 Status and value contribution
Project Status Value contribution `bn
Hills Center Town Skyz Suburbia Sangam City

New Projects acquired / under acquisition
Redevelopment ongoing PPP work ongoing To start in FY11e Approval Phase Free sale ongoing Land Acquired Planning stage Planning stage
3.1 0.4 2.3 1.7 0.9 2.4 39.1 3.6
Bandra Gov Colony Mahal Pictures

Per-sqft utilisation
Land utilisation Although DBRL was formed in Feb 07 with 11 projects initially, its promoter group has a rich development background of over 15m sqft across regions and asset classes. DBRLs average land utilisation is high of the 796 acres acquired/allotted/approved for allotment, developable area is 132m sqft. This leads to per-sqft utilisation of as high as ~2.8sqft for developable area and ~2.6sqft for saleable area. Greater utilisation is possible from SRS, redevelopment and PPP projects as also from virgin-land projects (that are converted to PPP and SRS projects by the company). Of the 28 projects on its books, only four are typical development projects that do not entail higher-than-normal FSI. The rest derive higher saleable area from a government scheme. For the new projects acquired after the IPO (Bandra Government Colony, MIG Colony 1-Bandra E and Mahal Pictures) the per-sqft utilisation is as high as 6.6sqft for developable area and 4.2sqft for saleable area (including the
On an average, DBRLs overall per sqft land utilisation is 2.8 and 3.5 for projects in Mumbai
59
4 October 2010
loading component). In the Government Colony, Bandra (E) project, the company expects a higher FSI, once the project comes under MMRDA.
Fig 24 DBRL projects Higher per-sqft utility
Plot Area
Old Factories / Mill Land 2%
Sellable Area
Old Factories / Mill Land 4% SRS 32%
SRS 14%
URS 2% Redev 2%
PPP 27%
PPP 45%
Virgin 35%
Virgin 28%
URS 4% Redev 5%
Developable Area
PPP 24%
Old Factories / Mill Land 4% SRS 29%
Virgin 29%
Source: Company
URS 6% Redev 8%
60
4 October 2010
Urban renewal schemes (URS) DBRL is one of the first to commence projects under the modified DCR 33(9) Regulations for dilapidated buildings in the island city that allows cluster development. Such development has been allowed for: i) a plot of at least 4,000 square metres, ii) 75% of the structure built prior to 1969 and iii) 70% of consenting tenants/owners. DBRL is developing the Turf View project under this scheme, which is one of the first URS projects in the city.
Fig 25 Projects under URS 33(9) sanctioned till now
Developer Project Location
DB Realty Shreepati Saifee Burhani Trust

Turf Estate Pimpalwadi Bhendi Bazaar
Mahalaxmi Girgaum Kalbadevi
On the lines of Turf View, DBRL is planning other projects under the modified DCR 33(9) Regulations.
Fig 26 Projects proposed under URS: DCR 33(9) Regulations
Project Location Saleable area (m sqft)
Orchid Heights Orchid Views Orchid Enclave II Orchid Central Orchid Splendor Orchid Skyz Orchid Enclave III Orchid West View Orchid Apartments Post IPO Abhudaya Nagar (under acquisition) MC Project (under acquisition)
Source: Company
Jacob Circle Mumbai Central Mumbai Central Mumbai Central Byculla Byculla Bacchuwadi Malad Mankhurd Parel Mumbai Central
1.2 1.4 0.6 0.3 0.4 0.6 0.6 1.3 0.8 0.4 0.6
PPP schemes Under-development and proposed PPP projects display management strength. The company has five PPP projects in Mumbai and Pune for developing virgin land, further to which it has tied up with landowners.
Fig 27 PPP projects under execution
Project Location Scheme Status
Hill Park Centre Town Gov Colony
Goregaon Pune Pune (Pimpri) Bandra (E)
Police Car Park Police Station Rental Housing Gov Colony Redev Police Housing
JDA with land owner, work to commence shortly JDA with land owner, PPP Work commenced to be launched in the next 3-4 months LoA received Land acquired recently
Mahal Pictures JVLR
PPP projects display management strength and better land utilisation ability
Certain land parcels (Orchid Center, Pune; Hill Park, Goregaon) have been converted into PPP schemes. Also, project such as the Mahal Pictures have been converted into PPP schemes via adding government utilities on the land, and hence leading to higher FSI. HDIL and Ackruti City are DBRLs peers in Mumbai that boast of completed or ongoing PPP schemes.
61
4 October 2010
Slum rehabilitation and redevelopment schemes SRS is the most favoured development by large Mumbai-based developers, given access to prime city-centre properties, lower land acquisition costs (lower than the government ready-reckoner rate) and high entry barriers. Under DCR 3(11), DBRL has been able to put to use land in Mahul (Chembur) for slum development (e.g., it has completed one of the largest rehab tenement homes (+14,000) in the past three years on low-value land).
Fig 28 SRS projects under development (m sqft)
Project Location Area (acres) Saleable area (m sqft) Type Value (`m)
Orchid Hills Orchid Hills Mahul Nagar Ascot Center 2 DB Tower DB Tower Apartments Apartments
Chandivili Chandivili Mahul Sahar BKC BKC Mankhurd Mankhurd
32 36 4 4 12
1.5 6.7 8.8 0.4 0.9 0.2 0.8 1.4
Residential TDR TDR Commercial Residential Commercial Residential TDR
1,504 1,670 2,014 2,153 19 1,956 466 (22)
Public car-park schemes But none of the public car parks have completed yet DBRL has utilised virgin as well as redevelopment project land to build and handover public car parks for obtaining higher FSI. Seventy-seven acres would be used for a proposed car-park scheme, which entails 9.3m sqft of built-up area along with 2.6m sqft of rehab development. This would result in saleable area of 13.9m sqft for the company.
Fig 29 Projects where public parking scheme is being implemented
Project Name Area (acres) Rehab area (m sqft) MHADA area (m sqft) Car park area (m sqft) Saleable area (m sqft)
Heights Turf View Corporate Park Hill Park West View Crown Views - Shantinagar Enclave 2 Skyz - Unity Enclave 3 Splendor - Jubilee Central Total
4.8 5.8 6.2 20.0 5.4 6.1 7.1 7.8 3.5 6.4 2.2 1.5 76.7
0.2 0.1 0.2 0.4 0.4 0.4 0.1 0.4 0.1 2.3
0.02 0.19 0.03 0.02 0.01 0.27
0.7 0.3 0.3 3.9 0.3 1.3 0.7 0.3 0.3 0.8 0.2 0.2 9.3
1.2 2.2 1.2 2.1 1.3 1.8 1.4 0.6 0.6 0.7 0.4 0.3 13.9
62
4 October 2010
Robust cash flows to fund ambitious business growth

DBRL has net-cash of `3.8bn, as of Mar 10. With project cash inflow of ~`141bn and construction outgo of `69bn over the next three years, the announced `62bn acquisition pipeline will keep the balance sheet light (FY12e net D/E of 0.2x). This may fuel project acquisitions (not factored in our estimates), leading to greater upside.
Fresh acquisitions
Projects across Mumbai The new acquisitions are spread across Mumbai and give DBRLs projects long-term visibility During 1QFY11, the company announced acquisition of six projects with saleable area of 36.6m sqft (DBRLs share: 23.4m sqft) for an initial land/tenancy cost of `62bn. It plans to fund the projects through internal accruals, private equity and debt. It has a significant amount of cash on its books in addition to the cash flowing in from the pre-sales and construction-linked money. Besides the six projects, the company also plans a 105-acre buyout in the suburb of Thane.
Fig 30 New projects
Project Location Total saleable DBRL's area (m sqft) share Status
Govt. Colony MIG Colony 1 Mahal Pictures Mahal Pictures Prem Nagar Abhudayanagar Mumbai Central Thane land
Source: Company
Bandra (E) Bandra (E) JVLR JVLR Goregaon Parel Mumbai Central Thane
8.0 1.0 6.2 4.5 6.0 4.6 6.2 15.0
100% 100% 40% 40% 51% 60% 85% 100%
LOA received, `8bn premium by Oct10 Cost paid Stake acquired, PPP Proposed Stake acquired, SRS consent in progress Private land acq in progress, consent in progress Part approval got; acquisition in progress Land acquisition in progress Acquisition in progress
We have considered three of the six announced projects for valuation, given the LOA received/project acquired
Of the six projects, the company has acquired three, which we have factored in our valuation. DBRL has acquired ~40% stake in Mahal Pictures Land, although it has yet to obtain clarity regarding slum rehabilitation for the land. Given the size of the slum rehab project (>15,000 tenements) and non-clarity about the project stage, we estimate a longer gestation period.
Fig 31 New projects considered for valuation
Project Vertical Total SA (m sqft) Status
Bandra Government Colony MIG Colony Mahal Pictures Mahal Pictures TDR
Mixed Use Residential Residential TDR
7.9 1.0 6.3 4.5
LOA Received Cost paid Stake acquired, PPP Proposed Stake acquired, SRS consent in progress
The government Colony project is the single, most valuable project for DBRL, contributing `39bn to its NAV
Government Colony project Bandra (E)
Along with two other developers, DBRL has secured a letter of agreement (LoA) to redevelop 107 acres of the government colony at Bandra (E). The project is at a prime location, in proximity to BKC and the Western Expressway. The company plans 8m sqft of residential and commercial development, after it has handed over the redeveloped 3.8m sqft to the government.
63
4 October 2010
Fig 32 Government Colony Project Bandra (E)

Total Area (acres) DBRL's Share (acres) For DBRL Rehab (m sqft) Freesale Residential (m sqft) Freesale - Commercial (m sqft) Upfront payment (`m) MMRDA Premium (`m) Other Costs (`m) Duration (years)
Anand Rathi Research Assumptions
107.0 57.0 3.8 3.0 5.0 8.0 21.9 9.6 7.0
Build and Sale model Build and Lease model
Duration (yrs) Avg Selling price (`/sqft) Avg lease Rate (`/sqft) Avg Total Cost (`/sqft) Residential Sales Span Commercial Leasing Span
9.0 24,378 Residential 245 Commercial 9,784 FY12-FY16 7 years, starting from FY16
We expect DBRL to sell the residential part of the project within five years, commencing Oct 11 and lease commercial space in phases starting Oct 16. The company will get higher FSI only after the project comes under the MMRDA (like the BKC). For the higher FSI, the company would have to pay a premium of up to `21.9bn to MMRDA.
Fig 33 Bandra project and MIG Colony 1
BKC Project of SRL Government Colony Tata Colony MIG Colony
Source: Google; Anand Rathi Research
MIG Colony 1 Pre-sales already commenced
DBRL acquired the MIG Colony 1 redevelopment project from L&T and Bombay Dyeing for ~`245m. The project entails redevelopment of 176 units across five acres. DBRL would obtain saleable area of ~1m sqft. It has agreed to pay a corpus of `1.3bn to the society, along with advance rent of `0.5bn. The project would contribute `7.4bn to the NAV.
Mahal Pictures
Mahal Pictures is a 58-acre land parcel on the Jogeshwari Vikhroli Link Road (JVLR), Mumbai. ~15,000 tenements have encroached on 42 acres of land; the remaining is vacant. DBRL paid `1.5bn to acquire 40% stake in the project. It plans constructing (and then handing over) a police housing colony on the vacant land in order to secure higher FSI. Given the size of the slum rehab project (still in the initial stage of approval), we expect the project to have a longer gestation period.
64
4 October 2010
Projects in acquisition stage
Besides the aforementioned projects, DBRL expects completing land acquisition for three other projects in the next 12-15 months. The projects are in Parel, Mumbai Central and Goregaon (Mumbai), with potential saleable area of 16.6m sqft. Of this, DBRLs share would be 11.1m sqft. Since all three projects are still in the acquisition stage and are SRS and URS that entail a longer gestation period, we have not included them in our valuation. Given their location and scale, we expect significant value addition from the projects, once they are on books and construction commences.
Balance sheet to support expansion plans

DBRLs project acquisition pipeline for the next 2-3 years is the highest of all listed/unlisted peers in India DBRL would have to pay `50.9bn towards the first three acquisitions; we have factored this in our valuation. Also, for other expansions, an initial outgo of `11bn would be required for land acquisition and tenancy rights; this excludes rehabilitation construction costs for such projects. Further, management has guided for acquisition in Thane on an outright basis, which could cost +`8bn, in our view.
Fig 34 New projects estimated acquisition cost (`bn)
Project Location Acquisition Cost (`bn)
Bandra Government Colony MIG Colony Mahal Pictures Prem Nagar Mumbai Central Abhudaya Nagar
Source: Company
43.0 4.3 3.8 2.0 9.0 NA
Even after acquiring Mahal Pictures and MIG Colony-1, DBRLs balance sheet is healthy, given the ~`8.5bn of cash and cash equivalents. We believe that with the planned acquisitions and premium to be paid for MHADA projects, the company would have to pay `12-17bn each year till FY14e (staggered, as against its initial plan to pay `30bn at one time for land acquisition this year). This excludes rehabilitation and miscellaneous expenditure.
Fig 35 Cash outgo for announced acquisitions (`m)
Project location FY11e FY12e FY13e FY14e
Bandra Gov Colony* MIG 1 - Bandra (E) Mahal Pictures Abhudhaya Nagar Prem Nagar* Mumbai Central* Total
8,590 1,491 1,500 1,200 4,500 17,281
8,590 1,491 800 3,600 14,481
12,885 1,278 900 15,063
12,885 -
12,885
Source: Company, Anand Rathi Research, * ARG estimates
The company has healthy pre-sales, with 43% of launched projects already sold and ~40% of the value (`23bn) received from current sales. This implies a healthy `35.6bn of cash from sold projects as of date. Further, the company would raise funds from the unsold area of ongoing projects, new project launches and pre-sales from fresh acquisitions.
65
4 October 2010
Fig 36 Cash inflow from old & new (planned) launches vs total cash outflow (`m)
(`m) 100,000
90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 FY11e FY12e FY13e
Cash Inflow
Cash outflow
Besides the aforementioned sales, DBRL plans private equity investment for the Bandra Government Colony project for a ~20% divestment at ~`12bn valuing it at `60bn. If the private equity deal is successful, the company would not require funding the acquisition through incremental debt, which is factored in our model. Any further acquisition (such as the Thane acquisition as per company guidance) could result in rise in debt in the short term, as the cash inflow from projects would be staggered over the coming years and depends on the sale of unsold stock. Any delay in sales (because of a slowdown in the industry), slow sales from the company (aiming for higher prices) or further increase in construction costs could lead to debt rising.
Fig 37 Sales volume assumption (m sqft)
(m sqft) 2.5 2.0 1.5 1.0 0.5 0.0 FY11e FY12e FY13e FY14e Pune
South Central Mumbai

Bandra
Western Suburbs
66
4 October 2010
Financials
We expect 98.4% revenue CAGR over FY10-13e, given the low base and project additions ahead. Also, we expect EBITDA margin to improve, considering higher realisations in projects. Revenue recognition DBRL follows a percentage-completion method for revenue recognition. Revenue is recognised in its books on 20% of estimated construction and 30% of estimated costs. At present, only four of the seven properties offered for sale fall under revenue recognition. We expect two from the recently launched properties and another two from forthcoming launches to add to revenue recognition in FY12.
Fig 38 Revenue recognition
(`m) 80,000 70,000 60,000
Only four of the seven launched properties are seeing revenue recognition. Sales of `34bn in the un-recognised properties have already been achieved
50,000 40,000 30,000 20,000 10,000 0 FY09 FY10 FY11e FY12e FY13e
We estimate many new projects to start contributing to FY12e revenues.

Fig 39 Projects contributing to revenue recognition
(` m) FY11e FY12e
Ozone Woods Suburbia Mahul TDR Sales Heights Turf Center Crown Town P1 MIG Colony 1 Total
3,421 2,689 2,397 7,620 16,127
3,106 2,075 1,062 3,288 12,426 7,958 478 8,833 969 8,975 49,169
Debt
Given the IPO proceeds and strong pre-sales from ongoing projects and forthcoming launches, cash from projects would be high. Some debt would remain on books on account of the continuous acquisition of properties. We expect lower debt if sales cross our estimates and/or if management obtains private equity investment for certain projects.
67
4 October 2010
Fig 40 Net debt level to remain low

(`m) 15,000
13,000 11,000 9,000 7,000 5,000 3,000 FY11e FY12e FY13e FY09 FY10
(%) 160
140 120 100 80 60 40 20 0
Gross debt
Net D/E
68
4 October 2010

Year end 31 Mar FY09 FY10e FY11e FY12e FY13e
Revenue - Op. expenses - Employee Costs - Other Administrative EBITDA - Interest - Depreciation + Other income - Tax PAT + Minority Interests + Share of profit from Associates Consolidated PAT Dividend FDEPS (` / share) CEPS (` / share) DPS (` / share) BV (` / share) Shares outstanding Growth Rates Revenue (%) EBITDA (%) Net PAT (%) Diluted EPS (%) FY10-13e Revenue CAGR(%) FY10-13e EBITDA CAGR (%) FY10-13e EPS CAGR (%) Margins EBITDA (%) EBIT (%) Net Profit (%)
4,644 2,064 36 286 2,258 747 74 68 67 1,438 22 0 1,417 5.8 6.1 33.4 9.1 (1,869.5) (752.0) (752.0)
9,512 5,470 53 334 3,655 726 96 291 413 2,712 192 (0) 2,520 10.4 10.7 125.3 243.3 104.8 61.9 77.9 77.9
16,127 7,374 97 484 8,172 571 88 2,104 5,409 511 4,898 20.1 20.5 145.5 243.3 69.5 123.6 99.3 99.3
40,459 15,829 162 1,214 23,254 852 89 7,587 14,727 555 14,172 285 58.3 58.6 1.0 202.5 243.3 204.9 268.8 272.7 272.7
79,043 18,563 237 2,371 57,871 748 108 19,385 37,631 4,024 33,606 285 138.2 138.6 1.0 339.5 243.3 51.0 60.3 53.3 53.3 98.4 136.4 125.0 65.0 64.9 38.6
48.6 47.0 30.5
38.4 37.4 26.5
50.7 50.1 31.1
61.3 61.1 38.1

Sources of Funds Share capital Reserves & surplus Shareholders fund Debt Minority interests Capital employed Application of Funds Gross Fixed Assets Less: Depreciation Net Fixed Assets Capital Work in Progress Investments Current Assets Inventories Debtors Loans and Advances Current Liab and Provisions Net Current Assets Working Capital Cash Capital deployed No. of shares (m) Net Debt/Equity (%)
91 8,023 7,282 12,357 553 21,028 301 92 208 15 2 10,578 426 12,442 3,418 20,797 20,028 769 21,028 9.1 159.1
2,433 28,054 8,114 5,948 745 37,180 310 129 181 37 8,941 13,195 3,058 18,554 7,649 28,018 27,157 860 37,180 243.3 62.7
2,433 32,952 30,486 13,748 745 49,878 397 217 180 4,941 25,489 2,798 23,458 12,829 44,755 38,916 5,838 49,878 243.3 25.9
2,433 46,839 35,384 11,503 745 61,520 492 306 186 1,941 39,086 6,650 24,673 23,353 59,390 47,055 12,335 61,520 243.3 (2.3)
2,433 80,160 49,271 11,410 745 94,748 586 414 172 1,941 60,599 7,523 24,012 20,246 92,633 71,887 20,746 94,748 243.3 (18.9)
69
4 October 2010

Consolidated PAT + Non cash exp Cash profit - Incr/(Decr) in WC Operating cash flow - Capex Free cash flow - Dividend + Equity raised + Debt raised + Minority interests - Investments - Misc. items Net cash flow + Opening cash Closing cash
1,417 77 1,494 9,131 (7,637) 150 (7,787) (585) 6,327 (1) (1,783) 5 (268) 1,037 769
2,520 90 2,609 7,130 (4,520) 91 (4,611) 19,853 (6,409) 192 8,938 (5) 92 769 860
4,898 88 4,986 11,759 (6,773) 49 (6,822) 7,800 (4,000) (0) 4,978 860 5,838
14,172 89 14,260 8,139 6,121 95 6,026 285 (2,245) (3,000) 6,497 5,838 12,335
33,606 108 33,714 24,832 8,882 94 8,788 285 (93) 8,411 12,335 20,746
Fig 44 Ratio @ `410

Valuations PE PBV M Cap/Sales EV/Sales EV/EBITDA Dividend Dividend yield (%) Dividend payout(%) Leverage Net Debt / Equity Int Coverage Return Ratios ROE (%) ROCE (%)
NA NA NA NA NA 159.1 1.8 18.7 12.9
39.6 3.5 11.3 10.8 28.2 62.7 1.9 14.1 15.1
20.4 3.0 6.6 6.8 13.5 25.9 2.5 16.4 20.2
7.0 2.2 2.6 2.6 4.5 0.2 1.7 (2.3) 2.2 34.8 43.7
3.0 1.3 1.4 1.2 1.7
(18.9) 2.2 57.1 75.6
70
4 October 2010
Company Background & Management

Formed in FY07, DB Realty was jointly promoted by Vinod Goenka and Shahid Balwa, with eleven projects as equity. A real-estate development company that focuses on commercial, retail, residential and other projects (mass housing and cluster redevelopment, in & around Mumbai). As of 30 Jun 10, DBRL has 10 ongoing projects, with saleable area of ~18.61m sqft; nine forthcoming projects with saleable area of ~20.17m sqft; and six upcoming projects aggregating ~22.11m sqft of saleable area. Also, its promoters and promoter group companies collectively developed ~15.9m sqft of real-estate, including 15.26m sqft residential, 0.37m sqft commercial and retail, and 0.27m sqft of hospitality developable area as of 30 Jun 10.
Fig 45 Completed projects
Name Location Type Area (m sqft)
DBRLs promoters have developed ~15.9m sqft of real estate projects
Kandivali Project Yashodham Gokuldham Upper Govind Nagar Srishti Orchid Apartment Orchid Tower Wing A' Orchid Tower Wing B' Orchid City Centre Mall Shagun Arcade DB Mall Milan Mall Le Royal Meridien Aldeia De Goa Le Meridien
Source: Company
Kandivali (W) Goregaon (E) Goregaon (E) Malad (E) Mira Road Mumbai Central Mumbai Central Mumbai Central Tardeo Goregaon (E) Juhu Vile Parle Andheri (E) Goa Ahmedabad
Residential, commercial Residential, commercial Residential, commercial Residential Residential, commercial Residential Residential Residential Retail Retail Retail Retail Hospitality Residential Hospitality
3.70 1.20 3.00 0.40 1.80 0.10 0.10 0.03 0.20 0.10 0.10 0.10 0.20 3.50 0.10
Key Management Managing Director Vinod Goenka, a Mumbai University commerce graduate, has over 21 years of experience in construction. He overlooks project management and is involved in formulating strategy in developing residential townships and commercial complexes. Managing Director Shahid Balwa has more than a decades experience in hospitality and construction. He has undertaken the development of Le Royal Meridian, Mumbai.
71
Property
India I Equities
Update
Change in Estimates ; Target ; Reco
4 October 2010
HDIL
Increased focus on Residential; reiterate Buy
HDIL raised `11.57bn via QIP and further strengthened its balance sheet (FY11e net D/E: 0.24x). Given renewed focus on residential properties, we expect it to sell `18bn of stock in FY11 and TDRs worth `12bn. Mumbai International Airport (MIAL) ph-2 will start construction in Oct 10. We reiterate Buy and trim our target price to `375/share in Sep 11 (from `388 in Mar 11).
MIAL project. Shifting of families would start post Oct 10 and likely be complete by Mar 11. HDIL paid `3.2bn (of the pending `6bn) for the MIAL project in 1QFY11 for land in the eastern suburbs. Phase-2 construction is likely to begin at Mulund in 2HFY11, followed by Mahul, Andheri and others. Amendment in the MRTP Act is likely to hit TDR volumes and pricing. Residential push. Suburban projects and reasonable pricing buoyed volume sales in the past 18 months. All project launches are 40-95% sold, with `12bn cash expected in FY11e. HDIL would witness residential sales of `18bn and TDR sales of ~`12bn in FY11e. Fund-raising complete. What next? HDIL raised `34.7bn since May 09, including `11.5bn via QIP recently. Post-issue, FY11e net D/E stands at 0.24x and is likely to aid land acquisitions ahead. Valuation and risks. We rollover our DCF-based NAV to Sep 11 NAV and raise it to `419; we trim our target price to `375 in Sep 11, which is at 10% discount to our NAV. The stock trades at 39% discount to our target price. Risks: Regulatory risk.
Key data
HDIL IN/HDIL.BO `411/202 20445/6143 US$34.9m `112bn/US$2518m 415m 57.7% 42.3% 28.2% 1.0% 28.6%
Key financials

17,284 7,866 16.3 (52.0) 16.5 1.7 16.8 10.1 92.0 15,021 5,666 13.8 (15.5) 19.6 1.4 10.0 7.3 47.0 18,132 6,040 14.6 5.6 18.6 1.2 7.5 6.8 19.9 26,218 8,524 20.5 41.1 13.1 1.1 9.0 9.4 13.4 35,163 14,169 34.1 66.2 7.9 1.0 13.3 14.4 (8.1)
Source: Bloomberg
130 120 110 100 90 80 70 60 Nov-09 Jan-10 Sep-09
Sensex
HDIL Mar-10 May-10 Jul-10 Sep-10
4 October 2010
HDIL Increased focus on Residential; reiterate Buy

Fig 4 PE Band
18,132 20.7 8,634 8,229 45.4 722 76 414 1,804 6,040 5.6 6,040 14.6 14.7 26,218 44.6 12,429 12,216 46.6 1,238 109 497 2,841 8,524 41.1 8,524 20.5 20.8 35,163 34.1 13,276 19,778 56.2 1,112 273 500 4,723 14,169 66.2 14,169 34.1 34.8 1,600 1,400 1,200 1,000 800 600 400 200 0 Oct-07 Oct-08 Jan-08 Jan-09 Oct-09 Jan-10 Jul-07 Jul-08 Jul-09 Apr-08 Apr-09 Apr-10 Apr-10 Jul-10 10x 2,000 8x 1,500 6x 1,000 HDIL 4x 2x 32x 24x 16x 8x HDIL 40x
17,284 (27.4) 8,358 7,797 45.1 582 25 540 943 6,772 (52.0) 7,866 16.3 19.0 -
15,021 (13.1) 6,186 7,893 52.5 462 724 345 1,330 5,722 (15.5) 5,666 13.8 15.4 -


3,588 66,840 70,429 41,017 63 0 111,509 4,638 2,429 96,513 7,918 111,509 358.8 47.0 4,150 86,796 90,946 36,017 63 0 127,026 5,050 2,429 101,608 17,939 127,026 415.0 19.9 4,150 95,320 99,470 30,017 63 0 129,550 6,323 2,429 104,098 16,700 129,550 415.0 13.4 4,150 109,489 113,639 27,017 63 0 140,719 14,050 2,429 88,027 36,213 140,719 415.0 (8.1)
2,500
Share capital Reserves & surplus Shareholders fund Debt Minority interests Capital employed Fixed assets Investments Working capital Cash Capital deployed No. of shares (m) Net Debt/Equity (%) W C turn (days)
2,755 41,463 44,218 41,433 30 0 85,682 1,228 2,491 81,202 755 85,682 275.5 92.0
500 0 Oct-07 Jul-07 Jan-08 Oct-08 Apr-08 Jul-08 Jan-09 Oct-09 Apr-09 Jul-09 Jan-10

Fig 6 HDIL vs BSE Realty

6,040 88 6,129 5,095 1,033 489 544 14,477 (5,000) 10,021 7,918 17,939 8,524 109 8,633 2,490 6,143 1,382 4,761 (6,000) (1,239) 17,939 16,700 14,169 273 14,443 (16,071) 30,513 8,000 22,514 0 (3,000) 19,514 16,700 36,213
150 140 HDIL 130 120 110 100 90 80 70 Aug-10 Aug-09 Sep-09 Nov-09 Dec-09 May-10 Sep-10 Feb-10 Mar-10 Oct-09 Jan-10 Apr-10 Jun-10 Jul-10 Realty Index
Consolidated PAT + Depreciation Cash profit - Incr/(Decr) in WC Operating cash flow - Capex Free cash flow - Dividend + Equity raised + Debt raised - Investments - Misc. items Net cash flow + Opening cash Closing cash
7,866 5,666 635 690 8,501 6,355 19,775 15,311 (11,274) (8,956) 566 4,134 (11,840) (13,090) (63) 20,545 10,306 (416) 576 (62) (24) (2,750) 7,163 3,505 755 755 7,918
Source: Bloomberg
Jul-10
73
4 October 2010

HDIL raised `11.57bn via QIP and further strengthened its balance sheet (FY11e net D/E: 0.24x). Given renewed focus on residential properties, we expect it to sell `18bn of stock in FY11 in addition to TDRs worth `12bn. Mumbai International Airport (MIAL) phase-2 will commence construction in Oct 10. We reiterate Buy and trim our target price to `375/share in Sep 11adjusting for QIP. HDIL will be launching phase-2 of MIAL in Oct 10 at Mulund and Andheri sites
MIAL project
HDIL paid `3.2bn (of the pending `6bn) towards the land cost consideration for the MIAL project. The recent QIP would help expedite the remaining payment. The company plans to commence phase-2 of the project in Oct 10 at Mulund (Bombay Oxygen Corporation-BOC). Shifting of families (phase-1) is likely to commence post Oct 10 and reach completion by Mar 11. Likely amendment to raise suburban FSI to 1.33 from 1 in the MRTP Act during the winter session of the State Assembly, could affect TDR volumes and prices in the short term. The local government has already opened the FSI premium window to buy such FSI.
Residential push
We expect HDIL to increase its residential launches in the next 18 months. The company plans acquiring 8-10m sqft of projects across the suburbs. We believe its sustained focus on execution and reasonable pricing (as in previous launches) would help HDIL increase its proportion of residential launches vis--vis TDR sales.
Fig 7 Residential sales to increase
Type FY11e FY12e FY13e
Residential (m sqft) TDR (m sqft) FSI (m sqft) Total (m sqft) Value (`m)
2.4 5.2 4.0 11.5 30,215
5.1 5.5 4.0 14.6 51,519
7.1 6.5 4.8 18.3 62,506
Fund-raising complete. What next?

In the past 15 months, HDIL raised `34.7bn in equity. It has proposed another 26m of warrants to promoters that, once allotted, could raise another `7.1bn. With FY11e net D/E reducing to 0.24x (from 0.4x initially), we believe the cash-rich balance along with debt repayment and working capital needs would expedite the rental housing project as well as a few land acquisitions.
Valuation
We value the stock on DCF-based NAV to arrive at Sep 11 NAV of `415. We introduce 10% discount to the NAV, for clarity required on the offerings at its MIAL free-sale commercial property, project update at Bandra (E) SRS-1 and a few Mumbai City and MMR projects vs our estimates.
74
4 October 2010
Fig 8 Our Sep 11 NAV

NAV - Sep'11 TDR/FSI Residential Commercial Rental Housing Residual Hotel Debt Cash NAV
Source: Anand Rathi Research (`m) (`/share) Contribution
31,890 66,444 75,119 6,716 10,772 821 (36,017) 117,938
77 160 181 16 26 2 (87) 43 419
17% 35% 39% 4% 6% 0%
MIAL project. We have assumed 80% TDR to be sold in the market, with the remaining for in-house utilisation. Also, we have assumed construction and lease of 10m sqft in the proximity of the airport. Residential projects. We have accounted for residential projects on land used for the airport projects across various suburbs (ex Mahul). We have taken the same premium to the cost paid for land in other cities and MMR, given the little development visibility at present. We have accounted for WACC at 14%, cost of equity at 17% and cost of debt at 12.5%.
Risks Government regulations. 17% of value of NAV is contributed by TDR sales. Although we have factored in the potential impact of regulatory changes, a more-than-estimated impact could alter our NAV. Slum rehab schemes are long-gestation projects and politically sensitive. Changing government policies could affect prospects. Project concentration. 55% of the NAV arises from the MIAL project. Any delay or changes in the format or unfavourable government regulations could impact the NAV.
75
4 October 2010
MIAL project update

Shifting of families would start post Oct 10 and likely be complete by Mar 11. HDIL paid `3.2bn (of the pending `6bn) for the MIAL project in 1QFY11 for land in the eastern suburbs. Phase-2 construction is likely to begin at Mulund in 2HFY11, followed by Mahul, Andheri and others in. Amendment in the MRTP Act is likely to hit TDR volumes and pricing.
Phase-1 Near completion

According to management, the shifting of families has been delayed for six months, mainly owing to water connection-approval delay by government agencies. Given a normal monsoon till date, the company expects approvals in the next two months and, consequently, to complete the shifting this year. The company has announced 3,000-3,500 unit additions at the Kurla (W) site in rehab units, which would generate a further 1m sqft of TDRs beginning 2QFY11; additional rehab space would be developed at the cost of the 1.5m sqft of commercial space planned earlier.
Fig 9 Phase-1 Area/plan changes
Category Area (m sqft) Remark
TDR Free sale
1.2
From 38 acres of land, and 20,000 families Launched in Mar '09 Launched in Jun '10 Planned launch in FY11/12 Construction commenced in FY10 Change of plans from free sale commercial to rehabilitation
Premier - Residential 1.0 Exotica - Residential Phase 3 Residential Commercial New TDR 0.7 0.8 2.0 1.0
Our interactions with the SRA head and his address at our India Property Conference on 7 Sep 10 indicate the shifting of 9,000 families to commence after the festive season in Oct 10 and to be complete by Mar 11. Commencement of phase-2 Phase-2 is expected to commence by Oct 10 at BOC, Mulund. The company is likely to simultaneously launch residential projects at the site. Current plans also entail rehabilitation of ~25,000 families in phase-2.
Fig 10 MIAL Phase-2 estimates
Project Site Location Est units Est rehab area Est saleable area (m sqft) (m sqft) TDR (m sqft)
BOC factory Mahul Land Mumbai suburbs
Mulund Mahul NA
4,000 3,000 7,000 10,000
1.6 1.8 2.8 4
1.6 0.8 0 1.5
2.5 1.8 4.1 6
Popular Car Bazaar Andheri (E)
TDR sales The likely amendment by the government of Maharashtra of the MRTP Act during the winter session of the State Assembly would have a shortterm impact on TDR pricing and volumes. We reiterate that TDR prices are largely dependent on construction activity and FSI premium in respective micro-markets.
76
4 October 2010
Fig 11 TDR Volume and price assumptions

FY10 FY11e FY12e
TDR sales (m sqft) Avg selling price (`/sqft) Total sales (` m )

6.5 2,150 13,975
5.2 2,500 12,950
5.5 2,500 13,793
77
4 October 2010
Residential push
Suburban projects and reasonable pricing helped volume sales over the past 18 months. All project launches are 40-95% sold, with `12bn cash expected in FY11. HDIL would witness residential sales of `18bn and TDR sales of ~`12bn in FY11.
Changes after foray Business-to-customer (B2C) domain HDIL has a sales order book of `40bn as of 1QFY11 (vs nil as of 4QFY09), which would help de-risk the TDR/FSI sales-driven nature of the business. The cashflows (`12bn) from sold residential projects would match our FY11e TDR revenues.
Fig 12 Residential projects Update
Project Name Location Area (m sqft) Launch period (%) sold
Premier Galaxy Metropolis Majestic Residency Park Harmony Meadows Exotica
Kurla (W) Kurla (E) Andheri (W) Bhandup Virar (W) Oshiwara Goregaon Kurla (W)
0.90 0.48 0.65 1.30 1.25 0.11 1.50 0.75
Mar'09 Apr'09 Mar'09 Oct'09 Jan'10 May'10 June'10 June'10
100% 90% 95% 45% 90% 100% 40% 60%
Further, the company is establishing a healthy pipeline for project launches in FY12 in addition to continuing acquisitions in the past few quarters. It has acquired slum rehabilitation projects in Santacruz (W) and near the BKC. It is planning another 8-10m sqft of projects across the eastern and western suburbs in the next 12 months.
Fig 13 Forthcoming launches (ex MMR)
Project Location Area (m sqft) Est launch rate (`/sqft) Est launch period Asset Class Type of projects
Pant Nagar Ekta Nagar Premier Phase 3 Daulat Nagar
Ghatkopar (e) Mandeville Kurla (W) Santacruz (W)
0.5 2.5 1.5 0.8 1.2
7,500 7,500 6,500 12,000
FY11 Residential Redevelopment FY11 Residential Redevelopment FY12 Residential FY12 Residential MIAL SRS SRS
5,500 FY11/12 Residential Redevelopment
Meadows Phase 2 Goregaon
78
4 October 2010

Revenue - Op. expenses - Employee Costs - Other Administrative EBITDA - Interest - Depreciation + Other income - Tax PAT + Minority Interests + Share of profit from Associates Consolidated PAT Dividend FDEPS (` / share) CEPS (` / share) DPS (` / share) BV (` / share) Shares outstanding Growth Rates Revenue (%) EBITDA (%) Net PAT (%) Diluted EPS (%) FY10-13e Revenue CAGR(%) FY10-13e EBITDA CAGR (%) FY10-13e EPS CAGR (%) Margins EBITDA (%) EBIT (%) Net Profit (%)
17,284 8,358 221 908 7,797 582 25 540 943 6,787 0 7,866 16.3 19.0 106.5 275.5 (27.4) (49.9) (51.9) (52.0)
15,021 6,186 285 658 7,893 462 724 345 1,330 5,722 0 5,666 13.8 15.4 169.7 358.8 (13.1) 1.2 (15.5) (15.5)
18,132 8,634 272 997 8,229 722 76 414 1,804 6,040 6,040 14.6 14.7 219.1 415.0 20.7 4.3 5.6 5.6
26,218 12,429 524 1,049 12,216 1,238 109 497 2,841 8,524 8,524 20.5 20.8 239.7 415.0 44.6 48.4 41.1 41.1
35,163 13,276 703 1,407 19,778 1,112 273 500 4,723 14,169 14,169 34.1 34.8 273.8 415.0 34.1 61.9 66.2 66.2 32.8 35.8 35.7
45.1 45.0 45.5
52.5 47.7 37.7
45.4 45.0 33.3
46.6 46.2 32.5
56.2 55.5 40.3
79
4 October 2010

2,755 41,463 44,218 41,433 24 0 85,682 654 56 598 152 2,491 478 69,128 1,669 17,077 6,693 81,957 81,202 755 85,682 275.5 92.0
3,588 66,840 70,429 41,017 51 0 111,509 1,937 107 1,830 217 2,429 2,591 87,567 2,030 15,649 8,761 104,431 96,513 7,918 111,509 358.8 47.0
4,150 86,796 90,946 36,017 63 0 127,026 2,426 183 2,243 217 2,429 2,591 97,679 3,626 20,266 19,991 119,547 101,608 17,939 127,026 415.0 19.9
4,150 95,320 99,470 30,017 63 0 129,550 3,808 292 3,516 217 2,429 2,591 102,438 2,622 30,062 31,052 120,798 104,098 16,700 129,550 415.0 13.4
4,150 109,489 113,639 27,017 63 0 140,719 11,807 565 11,242 217 2,429 2,591 85,527 2,813 44,696 45,037 124,241 88,027 36,213 140,719 415.0 (8.1)

7,866 41 9 585 8,501 19,775 (11,274) 566 (11,840) (63) 10,306 576 (24) (2,750) 3,505 755
5,666 724 27 (62) 6,355 15,311 (8,956) 4,134 (13,090) 20,545 (416) (62) 0 7,163 755 7,918
6,040 76 12 6,129 5,095 1,033 489 544 14,477 (5,000) 0 10,021 7,918 17,939
8,524 109 8,633 2,490 6,143 1,382 4,761 (6,000) (1,239) 17,939 16,700
14,169 273 14,443 (16,071) 30,513 8,000 22,514 0 (3,000) 19,514 16,700 36,213
80
4 October 2010
Fig 17 Ratio @ `270

Valuations PE PBV M Cap/Sales EV / Sales EV / EBITDA Dividend Dividend yield (%) Dividend payout (%) Leverage Net Debt / Equity Int Coverage Return Ratios ROE (%) ROCE (%)
16.5 1.7 4.3 6.5 14.4 92 13 16.8 10.1
19.6 1.4 6.5 8.5 16.2 47 16 10.0 7.3
18.6 1.2 6.2 7.0 15.5 20 11 7.5 6.8
13.1 1.1 4.3 4.7 10.1 13 10 9.0 9.4
7.9 1.0 3.2 2.9 5.1 (8) 18 13.3 14.4
81
Property
India I Equities
Initiating Coverage
4 October 2010
Orbit Corporation
Proven execution, proficient redeveloper; initiate with Buy
We initiate coverage on Orbit Corporation (OCL) with Buy and Sep 11 price target of `181 on the back of proven execution in redevelopment projects and 100% pre-sales in all projects. OCL is a Mumbai-based property redeveloper, with South Mumbai being its key focus market. New large projects (as against current mid-size projects) in micro-markets, ex South Mumbai, are likely to commence and provide strong thrust to cash flows.
Low-volume, high-value to continue. The lucrative South-Mumbai market contributes 11% of future offerings that translate into a healthy `12bn or 44% of the NAV. Based on OCLs track record of 100% pre-sales of all the stock much before completion and no visibility on major supply in South Mumbai, we believe continued focus on the micro-market is a key value driver. New ventures are profitable. OCLs three differentiated projects across Mandwah, Santacruz and Lalbaug not only mitigate location risk, but also open a relatively higher volume market for the company, at lower costs. We estimate that the projects would contribute 41% to the NAV. Healthy revenue growth ahead. We estimate revenue CAGR of 27% over FY10-13e on the back of new volume-based projects as against the current value-based product offering only. PAT is likely to double to `1.9bn by FY13. Valuation. Our price target of `181/share for OCL is on par with its Sep 11 NAV. The stock trades at 1.1x FY11e P/BV.
Key data
ORB IN/ORB.BO `178/109 20445/6143 US$4.1m `13bn/US$292m 108m 56.5% 43.5% 18.5% 2.8% 35.2%
Key financials

2,835 355 3.1 (84.9) 39.5 0.8 6.7 11.4 122.9 4,871 955 8.3 167.5 14.8 0.8 13.6 12.4 2.0 101.2 5,783 1,213 10.8 29.3 11.4 1.1 11.7 13.3 1.6 54.7 8,033 1,692 15.7 45.5 7.8 0.8 11.7 14.7 1.6 29.6 10,041 1,895 17.6 12.1 7.0 0.6 9.4 12.5 1.6 8.5
200 180 160 140 120 100 80 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10
Source: Bloomberg
Orbit
Sensex
4 October 2010
Orbit Corporation Proven execution, proficient redeveloper; initiate with Buy

Fig 4 PE Band
5,783 18.7 2,605 2,570 44 706 0 50 633 1,228 27 1,213 10.78 11.11 2.00 8,033 38.9 3,961 3,349 42 630 0 50 921 1,787 40 1,692 15.68 15.39 2.00 10,041 25.0 5,674 3,584 36 524 0 50 1,032 2,004 12 1,895 17.58 17.28 2.00
1,200 1,000 800 600 Orbit 400 200 0 Jan-08 Jun-08 Nov-08 Apr-09 Aug-07 Sep-09 Feb-10 Mar-07
2,835 (59.8) 1,144 1,329 47 793 0 43 188 355 (85) 355 3.12 3.43 -
4,871 71.8 2,465 1,893 39 908 0 65 36 950 169 955 8.34 8.78 2.46
15x 10x 7x 4x Jul-10 2.5x 2x 1.5x 1x


550 7,839 8,489 9,072 512 4 18,076 303 74 17,214 485 18,076 55 101.2 1,140 11,450 12,591 7,736 512 20,839 266 74 19,648 850 20,839 114 54.7 1,140 16,697 17,838 6,615 512 24,965 334 74 23,220 1,336 24,965 114 29.6 1,140 23,573 24,714 6,814 512 32,040 329 74 26,916 4,721 32,040 114 8.5
600 500 400 300 200 100 0 Jan-08 Jun-08 Apr-09 Nov-08 Aug-07 Sep-09 Feb-10 Mar-07 Jul-10 Orbit
363 5,091 5,455 6,713 506 0 12,674 229 1 12,436 9 12,674 36 122.9

Fig 6 Orbit Corporation vs BSE Realty

1,213 53 1,266 2,434 (1,168) 16 (1,184) 267 3,157 (1,336) 366 485 850 1,692 62 1,754 3,573 (1,819) 129 (1,948) 267 3,821 (1,121) 486 850 1,336 1,895 74 1,969 3,696 (1,726) 69 (1,795) 267 5,247 199 3,384 1,336 4,721
210 190 170 150 130 110 90 70 Aug-10 Aug-09 Sep-09 Nov-09 Dec-09 May-10 Sep-10 Feb-10 Mar-10 Oct-09 Jan-10 Apr-10 Jun-10 Jul-10 Realty Index Orbit Corp
Consolidated PAT + Non Cash Items Cash profit - Incr/(Decr) in WC Operating cash flow - Capex Free cash flow - Dividend + Equity raised + Debt raised - Investments - Misc. items Net cash flow + Opening cash Closing cash
355 541 896 4,102 (3,206) 142 (3,349) (61) 1,411 (101) (63) (1,832) 1,841 9
955 52 1,006 4,778 (3,772) 120 (3,892) 159 2,238 2,359 74 476 9 485
Source: Bloomberg
83
4 October 2010

We initiate coverage on Orbit Corporation (OCL) with Buy and Sep 11 price target of `181 on the back of proven execution in redevelopment projects and 100% pre-sales in all projects. OCL is a Mumbai-based property redeveloper, with South Mumbai being its key focus market. New large projects (as against current mid-size projects) in micro-markets, ex South Mumbai, are likely to commence and provide strong thrust to cash flows.
Low volume-high value to continue

Napean Sea Road is the most important market for OCL and contributes 44% to its NAV OCL focuses on re-development of cessed buildings in the South Mumbai market, especially developing them into super-luxury residences in the Napean Sea Road region. Shortage of fresh supplies in the region would, we believe, keep prices stable in the `45,000-55,000/sqft range. Fresh supply of residences in South Mumbai is not more than 30 units, of which not all are offered for sale. Napean Sea Road projects contribute 11% of future offerings and translate into a healthy `12bn or 44% of the NAV. With OCLs record of 100% pre-sales much before completion and no major supply in South Mumbai (up to Mahalaxmi), we believe the companys continued focus on the micro-market would be a key value-driver.
Fig 7 Napean Sea Road projects
Project name Area (sqft) % Sold Launch period Avg selling price (`/sqft) Remarks
Villa Orb Orbit Arya Orbit Haven Villa Orb - Annex Ocean Parque Magnum New Project (Kilachand house)
64,167 80,872 45,000 45,000 34,000 300,000 550,000
100 100 100 100 14 NA NA
FY06 FY08 FY09 FY11 FY11 FY12 FY13
40,862 36,799 42,222 45,333 58,905 52,866 52,016
100% pre sold, almost complete 100% pre sold, almost complete 100% pre sold, almost complete Launched for sale in FY10, 100% pre sold Launched for sale in FY11, Acquisition complete To be launched in FY12 To be launched in FY13
New ventures
South-Central Mumbai properties contribute 25% to the NAV. Although under-construction properties in the micro-market are 59% sold, with completion slated in FY12/13. For projects smaller than peers, oversupply would not affect the selling price of OCLs projects as they would achieve completion much before peers. Mandwah, Lalbaug and Santacruz would be key volume contributors to OCLs sales OCLs overdue launch of its Mandwah project would take place in 2HFY11, with phase 1 of the 0.95m sqft planned to be launched. Also, as the first phase of the Santacruz SRS is complete (+600 tenant families of ~2,500 shifted) and 17 of the 23 planned buildings from the Lalbaug cluster development have been acquired, we expect larger projects in Mumbai and MMR (given Orbits size) to be launched in the next 3-6 quarters. These projects not only mitigate the risk of a micro-market concentration for OCL, but also open the larger volume market versus its current offering profile (medium-size projects).
84
4 October 2010
Fig 8 Volume sold

Sales (sqft) 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 FY11e FY12e FY13e
Fig 9 Sales value

Sales (`m) 5,000 4,000 3,000 2,000 1,000 0 FY11e FY12e FY13e Santacruz
% contribution
Lalbaug
Mandwah
Santacruz
Lalbaug
Mandwah
Lalbaug and Santacruz (both in Mumbai City) would contribute 80% and 36% respectively to sales volume and value received over FY12-13. Combined contribution of the three projects (Mandwah, Lalbaug and Santacruz) to the NAV would be `11bn or 41%. Business: Consumption-driven vs asset build-up OCL has been successful in preselling all its properties prior to completion OCL follows a factory-like model for its real-estate business. Unlike most other Mumbai-based developers, it focuses on continuous sales as against waiting for a price-rise once cost-breakeven has been achieved. This has helped it achieve 100% pre-sales in all projects as of date as well as in properties under construction. It has pre-sold eight of its 11 ongoing projects and its order book stands at ~`7bn at present. Healthy revenue growth ahead We estimate 27% revenue CAGR over FY10-13e backed by new volumebased projects as against the current value-based offerings. Net profit is likely to double by FY13e, to `1.9bn. Valuation Our Sep 11 target price of `181 for OCL is on par with its NAV. In calculating the NAV, we have used the development schedule of OCLs project portfolio. Given a continuous delivery process and concurrent construction (as the company follows a manufacturing model for sales), we believe the stock should trade at 14x FY11e EPS, which translates into an earnings-based target price of `151/share (March11).
Fig 10 Valuation
NAV Sep11 `m `/ share
Ongoing Projects Forthcoming Projects Upcoming Projects Remaining Projects Cash Debt NAV
3,277 10,435 12,666 513 850 (7,736)
30 95 115 4 7 (70) 181
12 39 47 2
85
4 October 2010
Napean Sea Road projects We have assumed an acquisition time of three years (till FY13) for the two Napean Sea Road projects and a 7-8-year sales and delivery cycle for the entire 0.95m sqft planned in the area. Lalbaug, Santacruz and Mandwah We have taken 5-7 years for phased development of the three projects, with phased acquisition of Lalbaug and Santacruz by FY13. We have used WACC of 13%, derived from cost of equity of 16.7% and cost of debt of 14.5%. Key risks Acquisition risk. OCL acquires tenancy rights of cessed buildings. Delay in acquisition of Napean Sea Road properties would be a risk as these projects are a major contributor to the companys NAV. Although we have considered some gestation period for such properties, longer-than-assumed acquisition and launch time could negatively affect the NAV. Delay in execution. OCL is developing large projects in Mumbai, at SantaCruz, Mandwah and Lalbagh. Any delay in executing these projects would cut into profitability. Long gestation period. Any delay in obtaining consent from tenants and landlords for re-development could impact profitability. Concentration risk. OCL derives 83% of its value from projects in the island city of Mumbai. A fall in demand for residential development in this region is a risk to the NAV.
86
4 October 2010
Low volume, high value to continue

The lucrative South-Mumbai market contributes 11% of future offerings that translate into a healthy `12bn or 44% of the NAV. Based on OCLs track record of 100% pre-sales of all the stock much before completion and no visibility on major supply in South Mumbai, we believe continued focus on the micro-market is a key value driver.
Napean Sea Road projects

Focus on the island city OCL commenced development in South Mumbai with Shivam, its first redevelopment project. Since then, it has successfully pre-sold five projects at Napean Sea Road, completed one and would hand over another in FY11. This indicates its focus market (Napean Sea Road) as well as its core competency (redevelopment). All new acquisitions started in FY10-11 (in the preliminary and advanced stages at present) are in the Napean Sea Road belt. Proven execution and relatively quick project turnaround, as against peers, in this micro-market are key reasons for OCL acquiring further projects in the area. Such projects, in acquisition mode and where substantial capital has already been deployed would contribute `12bn or 44% of the NAV. The higher conversion rate of such premium properties and OCLs ability to pre-sell the complete project provides the company with funds to acquire cessed properties. We believe that although acquisition costs can rise with improvement in the market, the companys quicker project-conversion cycle acts in its favour.
Fig 11 OCL Project cycle
Continuing focus on the Napean Sea Road market is the major value driver for OCL
Acquisition of property
Presales
Construction Commencement
2
High margin
4
High margin
Year
Part reinvestment in new properties

South Mumbai Low on new supply; high on demand Scarcity of free land in the island city has always kept demand for premium residential projects strong, albeit at a price. In the past few years, although properties have been pre-sold when offered, they have witnessed resistance during substantial price increases. Also, projects quoting prices much higher than the present average of `45,000-55,000/sqft are difficult to sell.
87
4 October 2010
Fig 12 Status of OCL vs. peers in South Mumbai

Developer name Project name No. of units Avg selling price (`/ sqft)
Satellite Anchor Realty Rohan Lifespaces Orbit Corp Orbit Corp Orbit Corp Orbit Corp Orbit Corp Mittal Bharat Shah
Lotus Villas Sagar Deep Altimo Orbit Haven Orbit Arya Villa Orb Villa Orb Annexe Ocean Parque Grandeur NA
26 NA 30 10 14 7 9 8 7 Not for sale
70,000 NA 67,000 42,222 36,799 40,862 45,333 55,000 75,000 Not for sale
At present, OCL has one property for sale at Napean Sea Road and another at Gamdevi. Around 30 new units are available in the South Mumbai market, although a few are not for sale. We believe that lack of fresh supply would keep demand in the Napean Sea Road area healthy. Rise in number of HNIs According to the World Wealth Report, number of Indians with investible resources of +US$1m in 09 was estimated at 126,700; this is expected to rise on account of the improving financial markets and strong economic recovery led by domestic demand and rising income levels. Mumbai being the financial capital of the country is home to most HNIs.
Fig 13 Increase in HNIs in India
140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 2005 2006 2007 2008 2009
No.of HNI's in India

Source: World Wealth report
25% of buyers who have bought property in South Mumbai from OCL have bought two properties
Most of OCLs clients are HNIs or industrialists. Rising income levels and a further increase in the HNI population would raise demand for premium housing in Mumbai. Re-development The big opportunity South Mumbai, especially south of Mahalaxmi, has no free/vacant land. Most buildings in South Mumbai are old and dilapidated. Cessed and dilapidated buildings occupy over 225 acres in prime locations.
88
4 October 2010
Fig 14 Cessed buildings in Mumbai (as per category)

Category Year of construction No of buildings
A B C Total
Source: MHADA
Before 1940 Between 1940 and 1950 Between 1951and 1969
16,502 1,489 1,651 19,642
Fresh acquisitions Shift to large-size from smaller-size previously Besides its ongoing projects, OCL is in talks with various parties for acquiring two properties with combined developable area of 0.85m sqft in the Napean Sea Road region. It has already invested ~`3bn for both properties. Further, it is in the advanced stage of discussions for a privateequity investment in one of the projects.
Fig 15 Sales assumptions of projects (as per phase) in South Mumbai (sqft)
Project name FY11e FY12e FY13e FY14e
OCL New planned development of 0.95m sqft is ~3x the area developed and under construction in South Mumbai
Orbit Magnum Kilachand House Ocean Parque Laburnum

45,000 13,600 25,000 17,000 20,000
82,500 34,375 3,400 5,000
105,000 55,000
New project at Napean Sea Road to be launched in FY12
Although South Mumbai has been a low-supply market, we estimate development and sale period of 7-8 years for the two projects at Napean Sea Road, considering absorption, execution ability and competition from peers. We expect OCL to launch the first of its planned projects in FY12.
Fig 16 Location of OCLs projects in South Mumbai
Source: Company
89
4 October 2010
New ventures are profitable

OCLs three differentiated projects across Mandwah, Santacruz and Lalbaug not only mitigate location risk, but also open a relatively higher volume market for the company, at lower costs. We estimate that the projects would contribute 41% to the NAV.
Mandwah
OCLs super-luxury-villa project at Mandwah near Alibaug is finally nearing launch. The project would be spread over ~196 acres. The company had issued CCDs to Rodere Holdings in FY08 that are due for conversion in Mar 11. In 4QFY10, it sought investment up to `1.65bn from IL&FS in the form of CCDs and equity in the project. IL&FS has invested `250m in the project till date, in a combination of CCDs (`230m) and equity (`170m). As per OCL, the conversion of Rodere Holdings CCDs in Mar 11 would be capped at 14% dilution and those of IL&FS in Mar 10 at 21%, leading to total dilution cap of 65% in the subsidiary, Orbit HighCity, through which the project would be developed.
Fig 17 Mandwah project Details and NAV contribution
Project name Total area (m sqft) Avg selling rice (`/sqft) Avg cost price (`/sqft) NAV (`m)
For the purpose of valuation, we have considered 35% dilution 14% from Rodere Holdings and 21% from the IL&FS deal
Mandwah 1 Mandwah 2 Mandwah 3

0.9 1.2 1.3
7,320 7,860 8,908
3,442 4,041 3,995
1,469 1,135 1,511
OCL plans to launch phase-1 of the project during 2HFY11 where it would develop ~150 super luxury villas. Along with potentially new clients, it is targeting its present clientele for the project, marketing it as a second home project. We have assumed a three-phased development schedule for the Mandwah project, to be completed by FY17. The project would contribute `4bn to the NAV.
Fig 18 Mandwah Map and actual picture
Mumbai
Mandwah
Source: Company
90
4 October 2010
Santacruz SRS project

The 17-acre slum rehab project of ~2,500 families in upmarket Santacruz (W) is being developed under DCR 33(10) of the SRA Regulation OCL has undertaken a slum re-development project (in which it has 45% stake) at Santacruz in a joint venture with Chauhan Developers. There are ~2,500 families to be rehabilitated. Phase-1 of the rehabilitation is ongoing, with rehab for nine (of the 17) buildings in progress. Nearly 600 tenants have already been shifted to the newly-built rehab units. The project is largely residential, with some portion as commercial, to be developed in a phased manner. The Santacruz SRS project would contribute 11% to the NAV.
Fig 19 Santacruz project Details and NAV contribution
Project name Total area (m sqft) Avg selling price (`/sqft) Avg cost price (`/sqft) NAV (`m)
Santacruz SRA R1 Santacruz SRA R2 Santacruz SRA Re

0.5 0.5 0.2
13,820 15,305 22,021
5,502 5,647 6,322
1,266 1,127 519
Lalbaug cluster development

OCL plans undertaking a cluster development scheme under DCR 33(9) at Lalbaug. The scheme is applicable to redevelopment projects in the island city, with minimum area of 4,000sq metres. Cluster redevelopment is applicable to buildings constructed before Sep 1969 with structural defects and those dangerous to inhabitants as certified by MHADA or the BMC. Seventeen of the 23 buildings planned under the project have already been acquired/paid for. Tenancy costs are estimated at `1.2bn; of this, more than 50% has been paid. OCL plans to launch the project by 4QFY11/1QFY12.
Fig 20 Lalbaug project details & NAV contribution
Project Name Total Area (m sqft) Avg Selling Price (`/sqft) Avg Cost Price (`/sqft) NAV (`m)
Midtown R1 Midtown R2 Midtown R3 Midtown R4

0.2 0.2 0.2 0.3
15,599 16,056 17,785 17,662
5,785 5,904 6,118 6,183
1,199 1,021 935 743
For the Lalbaug development, we have assumed a four-step development over seven years. We believe OCL would increase pace of execution in the next 4-7 years. Since the three projects cover 5.5m sqft (each over 1m sqft), compared with the average ~45,000 sqft developed at Napean Sea Road (NSR) and Lower Parel till date, OCL would need to hasten development as the target clientele for its Mumbai suburbs/central Mumbai projects would be different from the Napean Sea Road projects it has constructed.
91
4 October 2010
Fig 21 Sales
(Sqft) 700,000
600,000 500,000 400,000 300,000 200,000 100,000 0 FY11e FY12e FY13e
Fig 22 Construction capex

(`m) 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 FY11e FY12e FY13e Santacruz
Lalbaug
Mandwah
Santacruz
Lalbaug
Mandwah
A lower-than-estimated turnaround time for the projects would result in value addition. OCLs first mass project (other than its value-based ones) is the Andheri (E) development of Residency Park. This was launched in 3QFY10, with over 55% sold.
92
4 October 2010
Business model: Consumption driven vs asset build-up

OCL follows a factory-like (manufacturing) model for its real-estate business. Unlike most other Mumbai-based developers, it focuses on continuous sales instead of waiting for a price rise once cost breakeven has been achieved. This has helped it achieve pre-sales in all of its past and under-construction properties. Of its current launched portfolio, 75% has already been sold, with receivables of `10bn. This also provides revenue visibility of `7bn. We expect revenue CAGR of 27% over FY10-13e on the back of fresh sales.
Focus on pre-sales
Unlike most developers in Mumbai, who slow down sales once cost breakeven is achieved and retain some property on completing a project, OCL focuses on continuous sales, even at lower-than-market rates. Its older projects, at Napean Sea Road, and its ongoing projects, at Lower Parel, reflect a high percentage of sales, leading to reduced risk.
Fig 23 List of projects where OCL managed 100% pre-sales
Project Name Location Area (m sqft) Remarks
Villa Orb
Napean Sea Road Nana Chownk BKC Lower Parel BKC Napean Sea Road Napean Sea Road Napean Sea Road
0.06 0.08 0.09 0.03 0.3 0.08 0.04 0.05
100% pre sold, nearing completion 100% pre sold, nearing completion Built-to-suit commercial,100% pre-sold 100% pre sold, nearing completion Built-to-suit commercial,100% pre-sold 100% pre sold, nearing completion 100% pre sold, nearing completion Launched for sale in FY10, 100% pre sold
OCL has been able to pre-sell most of its ongoing projects
Orbit Heights Orbit Plaza Orbit Eternia Orbit WTC Orbit Arya Orbit Haven Villa Orb - Annex
Such high pre-sales have been achieved through 10-15% discount to prices of other projects in the vicinity. Also, even when construction is in the advanced stage, OCL offers lower prices than other developers, for projects still at the pre-launch/pre-construction stage.
Fig 24 Price comparisons of two key markets of OCL
Developer Project name Area (m sqft) Status Selling prices (`/sqft)
DB Realty DLF
Orchid Crown 1.7 DLF 4.2 0.08 0.03 2 1.1 1.1 1.1
Construction commenced Likely launch by 3Q/4QFY11 Construction commenced Construction commenced Construction commenced Construction commenced Construction commenced Construction commenced Launched for sale
27,500 NA 23,500 18,500 NA 26,000 19,000 19,500 20,500
Orbit Corporation Orbit Terraces 0.28 Orbit Corporation Orbit Grand Orbit Corporation Orbit Eternia Lodha Indiabulls Indiabulls Indiabulls
Source: Industry
World One Sky Sky Suites Forest
Also, OCLs offerings are much smaller than peers. This, too, helps in quicker sales and completion.
93
4 October 2010
BTS commercial projects

Though a residential developer, in the past, OCL has undertaken commercial development of two built-to-suit (BTS) projects Orbit Plaza for jewellery major and Orbit WTC for the corporate headquarters of a steel company. Here, too, it displayed pre-sale skills both properties were sold during/just after the land was acquired. Further, post the slowdown and some difficulty in selling the commercial property at Lower Parel (Mumbai), the company converted it into a residential property (Orbit Terraces), which commands similar rates (if not higher) as commercial properties, given oversupply of commercial properties in that particular micro-market. We believe OCL would be opportunistic in commercial-property development. OCL has another property in BKC that is in the acquisition stage.
94
4 October 2010
Financials
We estimate EPS CAGR of 28% over FY10-13e for OCL on the back of contribution from larger projects. However, we expect EBITDA to fall to 36% in FY13e from 44% in FY11e owing to rise in acquisition cost being more than the increase in selling price. Revenue OCL follows the percentage-completion method for accounting revenue from real estate. It recognises revenues only when 25% of the free-sale construction cost is reached. Of the new launches last year, we expect Residency Park, Villa Orb Annex and Orbit Grand to start contributing to revenue in FY11e along with the land sale at cost of Residency Park 2 (erstwhile Rajesh Dyeing Mills). We believe the Mandwah project and two new projects to be launched in FY11 Ocean Parque and Laburnum would start contributing only FY12e onwards. Revenues are expected to see CAGR of 27% over FY1013e. EBIDTA margin would decline to 36% in FY13e
Fig 25 Revenue and EBITDA margins
(`m) 12,000 10,000 8,000 6,000 41 4,000 2,000 0 FY09 FY10 FY11e FY12e FY13e 39 37 35 (%) 49 47 45 43
Revenue
EBIDTA Margins (RHS)
We expect EBITDA margin to fall to 36% in FY13e as acquisition costs would rise more than expected. Share capital changes Share capital will change on the back of 1:1 bonus given by the company during FY11. We also expect outstanding warrants to be converted by the promoters during the year. We expect the outstanding warrants to increase to 4mn due to the issue of bonus shares (assumed that the capital being invested by the promoters via warrants will remain the same).
95
4 October 2010
Fig 26 Change in share capital

Share capital as of 31 Mar 10 (`m) Face value (`) Increase in share capital due to Bonus issue during the year (1:1) - (`m) Outstanding warrants as of 31 Mar 10 (m) Warrants outstanding due to bonus issue (m) Increase in share capital on account of warrant conversion (`m) Total share capital at the end of FY11 (`m)
Source: Company
549.8 10 549.8 2 4 40 1,139.6

Revenue - Op. expenses - Employee Costs - Other Administrative EBITDA - Interest - Depreciation + Other income - Tax PAT + Minority Interests + Share of profit from Associates Consolidated PAT Dividend FDEPS (`/share) CEPS (`/share) DPS (`/share) BV (`/share) Shares outstanding Growth Rates Revenue (%) EBITDA (%) Net PAT (%) Diluted EPS (%) FY10-13e Revenue CAGR(%) FY10-13e EBITDA CAGR (%) FY10-13e EPS CAGR (%) Margins EBITDA (%) EBIT (%) Net Profit (%)
2,835 1,144 76 286 1,329 793 35 43 188 355 355 3.1 3.4 150.4 36.3 (59.8) (61.6) (84.9) (84.9)
4,871 2,465 91 423 1,893 908 46 65 36 967 (4) 955 159 8.3 8.8 2.5 154.4 55.0 71.8 42.4 168.8 167.5
5,783 2,605 116 492 2,570 706 53 50 633 1,228 16 1,213 267 10.8 11.1 2.0 110.5 114.0 18.7 35.8 27.0 29.3
8,033 3,961 120 602 3,349 630 62 50 921 1,787 95 1,692 267 15.7 15.4 2.0 156.5 114.0 38.9 30.3 39.6 45.5
10,041 5,674 131 653 3,584 524 74 50 1,032 2,004 109 1,895 267 17.6 17.3 2.0 216.9 114.0 25.0 7.0 12.0 12.1 27.3 23.7 28.2
46.9 45.6 12.5
38.9 37.9 19.6
44.4 43.5 21.0
41.7 40.9 21.1
35.7 35.0 18.9
96
4 October 2010

363 5,091 5,455 6,713 506 0 12,674 292 64 229 1 5,894 2,622 5,968 2,048 12,444 12,436 9 12,674 36.3 122.9
550 7,839 8,489 9,072 512 4 18,076 386 110 276 27 74 5,484 4,630 9,590 2,490 17,699 17,214 485 18,076 55.0 101.2
1,140 11,450 12,591 7,736 512 20,839 429 163 266 74 6,994 3,847 10,421 1,614 20,498 19,648 850 20,839 114.0 54.7
1,140 16,697 17,838 6,615 512 24,965 558 224 334 74 8,112 4,940 12,524 2,356 24,557 23,220 1,336 24,965 114.0 29.6
1,140 23,573 24,714 6,814 512 32,040 627 299 329 74 10,117 5,183 14,705 3,089 31,637 26,916 4,721 32,040 114.0 8.5

355 35 506 896 4,102 (3,206) 142 (3,349) (61) 1,411 (101) (63) (1,832) 1,841 9
955 46 6 1,006 4,778 (3,772) 120 (3,892) 159 2,238 2,359 74 476 9 485
1,213 53 1,266 2,434 (1,168) 16 (1,184) 267 3,157 (1,336) 366 485 850
1,692 62 1,754 3,573 (1,819) 129 (1,948) 267 3,821 (1,121) 486 850 1,336
1,895 74 1,969 3,696 (1,726) 69 (1,795) 267 5,247 199 3,384 1,336 4,721
97
4 October 2010
Fig 30 Ratio @ `123

Valuations PE PBV M Cap/Sales EV/Sales EV/EBITDA Dividend Dividend yield (%) Dividend payout (%) Leverage Net Debt/Equity Int Coverage Return Ratios ROE (%) ROCE (%)
39.5 0.8 1.6 3.9 8.4 122.9 1.6 6.7 11.4
14.8 0.8 1.4 3.1 8.1 2.0 16.6 101.1 2.0 13.6 12.4
11.4 1.1 2.4 3.6 8.1 1.6 22.0 54.7 3.6 11.7 13.3
7.8 0.8 1.7 2.4 5.7 1.6 15.8 29.6 5.2 11.7 14.7
7.0 0.6 1.4 1.6 4.5 1.6 14.1 8.5 6.7 9.4 12.5
98
4 October 2010

A Mumbai-based real-estate developer focussed only on the island city, OCL is part of the Orbit Group founded by Ravi Kiran Agarwal in 1973. Focus on redevelopment in the island city OCL is executing several premium housing projects in the island city of Mumbai. It plans constructing and developing a gated township across 110 acres at Mandwah, near Alibaug. Since its inception in 1989, the company has completed three projects. OCL has ~8.25m sqft of saleable area to be developed through 26 ongoing and planned projects. It plans to restrict its area of operations to the island city of Mumbai, with a few projects being developed at Santacruz, Andheri and Mandwah. Further, it plans to focus mainly on the re-development business, which provides access to prime locations in Mumbai.
Fig 31 Land spread (m sqft)
OCL is a Mumbai-based developer with focus on developing residential projects in the island city
South Mumbai 14%
Mandwah 42%
South central Mumbai 18%
BKC 5%
Mumbai Western 21%
Key Management Executive Chairman Mr Ravi Kiran Agarwal has over 21 years of experience in executing various kinds of real-estate projects. He is the founder of the Orbit Group that started as a steel-trading company. He was part of Jindal Steel and played a key role in establishing the latters countrywide sales and retail network. Managing Director & CEO Pujit Agarwal is an MBA from Harvard Business School, US. Also, he is the spokesperson for the Property Redevelopment Association and member of the Strategic Task Force for The Housing & Citizens Action Group. Head Finance and Strategies, Mr Ram Yadav, has over 10 years of experience in the steel, construction and real-estate industries.
99
Property
India I Equities
Initiating Coverage
4 October 2010
Peninsula Land
Strong war-chest for acquisitions; initiate with Buy
We initiate coverage on Peninsula Land (PLL) with Buy and Sep 11 price target of `78 on the back of its asset light model, healthy balance sheet (net cash) and cash of `12.7bn to flow in from projects nearing completion. We believe PLL would use the cash to acquire value-accretive projects.
Premium Mumbai projects to fructify. PLL is set to complete its presold projects (including the commercial Peninsula Business Park-PBP at Lower Parel) and realise ~`6.4bn within a year. Further, it would realise `6.3bn of gross cash flows from the remaining PBP (49% unsold), which is nearing completion. Changed strategy for non-Mumbai properties to boost volumes. PLL has started construction at its non-Mumbai residential projects (yet to be launched for sale from 2HFY11). We believe visibility in new markets via commencement of construction before launch of sales would not only ease entry but also contribute to healthy volumes (`4.3bn of gross cash flow over FY11-14e). Healthy balance sheet. PLL is a net-cash company and plans spending ~`20bn in the next 18 months for land acquisition. Its cash-heavy balance sheet along with assured cash flows provides a strong war-chest for property acquisitions. We believe PLL is a strong bet on value-added utilisation of cash, which contributes at least 14% to the NAV. Valuation. We value current projects on DCF-based NAV and also introduce terminal value to arrive at our Sep 11 NAV of `78. At CMP, the stock trades at a 1.3x FY11e P/BV.
Key data
PENL IN/PENL.BO `100/`59 20445/6143 US$0.4m `18bn/US$405m 279.2m 46.3% 53.7% 20.2% 4.9% 21.2%
Key financials

5,656 1,471 5.8 11.6 11.3 1.7 16.4 11.0 1.4 18.5 7,786 2,495 10.3 76.1 6.4 1.5 24.9 21.0 2.3 (14.6) 5,083 2,689 9.6 (6.5) 6.9 1.3 20.1 16.0 2.3 (4.5) 7,922 3,142 11.2 16.9 5.9 1.1 20.4 20.2 2.3 (17.2) 8,141 2,475 8.9 (21.2) 7.5 1.0 14.2 16.4 2.3 (17.5)
Source: Bloomberg
140 130 120 110 100 90 80 Peninsula Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Sensex
4 October 2010
Peninsula Land Strong war-chest for acquisitions; initiate with Buy

Fig 4 PE Band
5,083 (34.7) 1,435 2,936 58 78 44 465 590 2,689 8% 2,689 9.62 9.78 1.50 7,922 55.9 2,928 3,885 49 75 69 394 992 3,142 17% 3,142 11.24 11.49 1.50 8,141 2.8 3,644 3,357 41 109 94 381 1,061 2,475 -21% 2,475 8.85 9.19 1.50
250 200 150 PENL 100 8x 50 0 Sep-07 Dec-07 Sep-08 Dec-08 Sep-09 Dec-09 Sep-10 5x 250 4x 200 3x 150 PENL 100 50 0 Sep-09 Sep-08 Sep-07 Dec-07 Dec-08 Dec-09 Sep-10 Mar-10 Mar-09 Mar-08 Jun-08 Jun-09 Jun-10 2x 1x Jun-08 Jun-09 Mar-08 Mar-09 Mar-10 Jun-10 4x 12x 20x 16x
Net sales Sales growth (%) - Op. expenses EBITDA EBITDA margins (%) - Interest - Depreciation + Other income - Tax PAT PAT growth (%) Consolidated PAT FDEPS (`share) CEPS (`share) DPS (`share)
5,656 58.3 3,411 1,478 26 (427) 40 90 324 1,472 12% 1,471 5.84 5.54 0.90
7,786 37.7 3,434 3,311 43 (36) 42 83 514 2,480 68% 2,495 10.28 8.69 1.50


559 11,993 12,552 4,671 83 32 17,338 1,428 705 8,703 6,502 17,338 279 (14.6) 559 13,691 14,250 4,671 83 32 19,036 1,389 705 11,629 5,313 19,036 279 (4.5) 559 16,043 16,602 2,249 83 32 18,965 3,091 705 10,061 5,108 18,965 279 (17.2) 559 17,627 18,186 2,745 83 32 21,046 3,004 705 11,416 5,921 21,046 279 (17.5)
300
559 9,986 10,545 3,432 192 30 14,199 1,587 1,424 9,253 1,478 14,199 279 18.5

Fig 6 Peninsula Land vs Realty index

2,689 44 2,733 2,925 (193) 6 (199) 490 (500) (1,189) 6,502 5,313 3,142 69 3,211 (1,567) 4,778 1,770 3,008 490 (300) (2,422) (205) 5,313 5,108 2,475 94 2,569 1,355 1,214 7 1,206 490 (400) 497 812 5,108 5,921
140 130 120 110 100 90 80 70 60 Aug-10 Aug-09 Sep-09 Nov-09 Dec-09 May-10 Sep-10 Feb-10 Mar-10 Oct-09 Jan-10 Apr-10 Jun-10 Jul-10 Realty Index Peninsula
Consolidated PAT + on Cash Items Cash profit - Incr/(Decr) in WC Operating cash flow - Capex Free cash flow - Dividend + Equity raised + Debt raised - Investments - Misc. items Net cash flow + Opening cash Closing cash
1,471 77 1,548 2,563 (1,015) 295 (1,309) 294 (0) 723 (1,174) (160) 454 1,023 1,478
2,495 (68) 2,428 (550) 2,978 (118) 3,095 488 (0) 1,239 (720) (457) 5,025 1,478 6,502
Source: Bloomberg
101
4 October 2010

We initiate coverage on Peninsula Land (PLL) with Buy and Sep 11 price target of `78 on the back of its asset light model, healthy balance sheet (net cash) and cash of `12.7bn to flow in from projects nearing completion. We believe PLL would use the cash to acquire value-accretive projects. Premium Mumbai properties to be main revenue contributor PLLs four premier properties (two commercial, two residential) continue to substantially contribute to the companys NAV. We estimate gross cash of `12.7bn to come in from these properties by FY13.
Fig 7 Old properties contributing major portion of cash
Project Name Type Sale/lease Project Completion Gross Cash (`m)
Over the next 18 months, `12.7bn in cash would come in from the four Mumbai properties
Ashok Towers Ashok Gardens Peninsula Business Park (Alok sale) Peninsula Business Park Peninsula Business Park Peninsula Techno Park
Source: Company
Residential Residential Commercial Commercial Commercial Commercial
Sale Sale Sale Sale Lease Sale
Jan 11 Mar 11 Sep 11 Sep 11 Sep 11 Mar 11
800 340 3,650 6,358 0 1,600
Peninsula Business Park
Peninsula Business Park (PBP) is the largest contributor to PLLs NAV. Part (51%) of it was sold in FY08 to Alok Realtors (PBP-1) and the remaining (49%) has recently been offered for sale/lease (PBP-2). We have calculated revenue from PBP-2 based on part sale part lease method. We estimate `6.3bn (gross) in cash from sales and ~`600m from the leased portion. The 0.62m sqft of unsold area in PBP-2 contributes 34% to PLLs NAV.
Fig 8 Peninsula Business Park Statistics and contribution
Land (acres) Acquisition Cost (`m) Est total Development Cost (`m) Est total cost to be spent (`m) Area Pre-sold (m sqft) Value of Area sold (`m) Area for Sale / Lease (m sqft) Value of unsold portion at 23,000(`/sqft) Duration for current sales/lease (years)
7 1,400 6,882 2,500 0.64 11,000 0.62 12,354 3
Construction of non-Mumbai properties commences Strategy to launch non-Mumbai projects post construction visibility will augur well for the company; we estimate sales of ~`6bn in the next two years PLL has 12.6m sqft (PLLs share: 11.9m sqft) land available for construction, across Mumbai, Pune, Hyderabad, Nashik, Lonavala and Goa (excluding the Goa SEZ). The company commenced construction at its residential projects in Nashik and Goa and plans to start construction at Pune in 2HFY11. Its business strategy for residential projects, of launching sales on commencing construction, is prudent and bodes well for achieving healthy sales in prospective market forays. We estimate sales of ~`6bn in these properties in the next two years.
102
4 October 2010
Healthy balance sheet PLL has set an aggressive target of `20bn for acquiring property in the next 4-6 quarters The healthy balance sheet (`6.5bn in cash in FY10) and expected cash from the sale of ongoing projects would raise a war chest for further acquisitions. In 1HFY11, PLL acquired three properties one each in Mumbai, Hyderabad and Lonavala for ~`1.5bn (PLLs share). Its aggressive bidding in the recently-concluded NTC Mill land auctions, where it was the third-highest bidder for Bharat Textile Mills, Worli, displays its aggressive land-acquisition intentions. Further, excluding the term loan on its commercial property at Lower Parel (PBP), the companys lower debt along with its cash-rich books heightens its ability to raise debt when required. We believe this would result in PLL acquiring valueaccruing properties in the next 2-4 quarters.
Fig 9 Net cash balance sheet to sustain
(`m) 5,000 4,000 3,000 2,000 1,000 (1,000) (2,000) (3,000) (4,000) FY11e FY12e FY13e Debt
`m `/share
Net debt
Valuation We have used a DCF-based NAV approach for the under-construction and planned properties already on PLLs books. We have introduced a terminal value for PLL, given the high amount of cash on its books and its property-acquisition spree. A DCF-based NAV of `68 and terminal value of `10 together contribute to our Sep 11 price target of `78. Peninsula Business Park is a major contributor to our NAV
Fig 10 Valuation
NAV Sep11 % Contribution
Sold Properties Peninsula Business Park New properties Others Terminal Value Cash Debt NAV
830 7,143 7,908 2,433 2,892 5,313 (4,671)
3 26 28 9 10 19 (17) 78
4 34 38 12 12
Sold properties (ex PBP). Cash from its JDA properties (Kurla and Parel) and its residential property at Parel contribute gross cash inflow of ~`2bn. Peninsula Business Park. PBP has total developable area of 1.26m sqft, of which 51% is pre-sold (`4.75bn receivables). We assume that the remaining area would be offered for sale and lease, marketing for which has commenced. The company estimates `2.5bn for construction expenses
4 October 2010
towards completion of the project. Non-Mumbai residential projects. We have assumed a development schedule for 12.6m sqft of the non-Mumbai projects.
Fig 11 NAV* contribution per vertical
Terminal Value 14%
NAV* contribution per region

Terminal Value 14% Lonavla 2% Hyderabad 10% Mumbai City 46%
Commercial 31%
Residential 55%
Goa 7% Nasik 9%
Pune 12%
Source: Anand Rathi Research; * as of date
WACC. We have assumed WACC of 14.5% for the projects, for which land has already been acquired, and 17.5% for calculating the terminal value. Terminal value. We introduce terminal value of `10/share, given its asset-light model and cash-rich balance sheet. We believe the company would acquire value-accruing land/projects, utilising the cash on its balance sheet. Risks Execution. PLL has been dogged by delays in past projects. Substantial delay in future projects and more-than-estimated gestation period would be negative for our NAV. Commercial leasing/sale. Delay in expected sales and execution of commercial properties in Mumbai can change the NAV. New territory. PLL is yet to complete any project ex Mumbai. Longerthan-assumed project execution and non-acceptance of PLL brand in new markets will be a risk. Terminal value. Our terminal value is based on the assumption that PLL would acquire value-accretive land. Any deviation from our assumption can affect the NAV.
104
4 October 2010
Premium Mumbai projects to fructify

PLL is set to complete its pre-sold projects (including the commercial Peninsula Business Park-PBP at Lower Parel) and realise ~`6.4bn within a year. Further, it would realise `6.3bn of gross cash flows from the remaining PBP (49% unsold), which is nearing completion
Cash from sale of Mumbai properties

Four of the premium residential and commercial properties under construction would be completed by Sep 11. Post delay, work is now underway for PLLs commercial properties. As regards its two residential properties, PLL is in the process of handing over one; the other is in the completion stage.
Fig 12 Projects: Status
Project Type Area (m sqft) (%) Sold Type Remark
Four ongoing projects in Mumbai will generate ~`12.7bn of cash over the next three years
Peninsula TechnoPark Ashok Towers Ashok Gardens
Commercial Residential Residential
0.88 1.08 0.84 1.26
100 100 96 51
JDA PLL JDA PLL
Peninsula Business Park Commercial

22% revenue share Three towers handover done, one in delivery stage Completion by Oct 10, 22% revenue share 80% complete
PBP at Lower Parel is ~80% complete, and the Peninsula TechnoPark (PTP) at Kurla is likely to be completed within the next two quarters. PBP1 and PTP have been fully sold and PLL would receive ~`6.4bn from the two projects. The company estimates ~`2.5bn in construction expenses for the Lower Parel PBP project.
Fig 13 Cash from existing sales As per project
Project Sale value receivable* (`m) Total expenditure left (`m) Remark
PTP Ashok Towers Ashok Gardens PBP-1

Source: Company, *Approximate
1,650 800 340 4,750
Minimal 2,500
Revenue share only OC for one tower left Revenue share only `2.5bn of amount to be spent
Ability to monetise
PLL sells most of its projects in advance. It sold 51% of PBP to Alok Realtors in 08 for `11bn. It also sold ~0.55m sqft of its PTP project to the Essar Group for `8.75bn. Such sales afford it a cushion against future uncertainties.
PBP to give further push

Having already sold 51% of the PBP project, PLL will complete sales/lease of the remaining 49% (PBP-2) on completing construction by Sep 11. We estimate 25% sales in FY11, bringing in `1.2bn cash in FY11. PLL acquired land for PBP at a `1.4bn. It sold 51% to Alok Realtors for `11bn. Eighty percent of the work has been completed at the property and marketing for sale/lease of the remaining area has already begun. PLL plans to lease or sell the remaining 49% (i.e., 0.61m sqft). It has already commenced a soft launch.
4 October 2010
Fig 14 Peninsula Business Park Various sale/lease scenarios

Scenario 1 Scenario 2 Scenario 3
Area for sale (%) Area for lease (%) Avg Selling Price (`/sqft ) Avg Leasing Rate (`/sqft) Sale value to be received (`m ) Lease value to be received @ 97% occupancy (`m) Value of leased property @ 11% cap rate (`m)
100 0 20,000 175 12,354 -
50 50 20,000 175 6,177 596 6,347
0 100 20,000 175 1,191 12,694
Leased assets; Goa property

PLL owns a 0.13m sqft building in Parel, leased to the IT Department at an annual rent of `160m (post revision of rental charges, this would increase to `210m). Further, the company has some small units in retail properties it developed, at Bayside Mall (Haji Ali) and Peninsula Corporate Park (Lower Parel). PLL had been allotted ~200 acres in Verna, Goa. It has spent ~`1bn on the land, including `0.6bn to purchase the property. The biotech SEZ has been facing issues with the local government. PLL is in talks with the Goa government for refund of its land and the related investment.
The leased assets and Goa land value would contribute 11% to the NAV
106
4 October 2010
Changed strategy for non-Mumbai properties to boost volumes

PLL has started construction at its non-Mumbai residential projects (yet to be launched for sale from 2HFY11). We believe visibility in new markets via commencement of construction before launch of sales would not only ease entry but also contribute to healthy volumes (`4.3bn of gross cash flow over FY11-14e).
Launches in new cities

Focus on residential segment PLL plans launching group housing projects at Nashik, Pune and Hyderabad. Land in Pune and Hyderabad, initially acquired for commercial use, has been converted to residential usage.
Fig 15 FY11 launch plans
Project Location Vertical Area (m sqft) Launch period Remark
Nashik group housing Nashik Ashok Rio Visto Goa Pune township ph-1 Pune Ram Mansion
Residential Residential Residential
0.67 0.33 2.14 0.03
2HFY11e 2HFY11e
Construction commenced Construction commenced
Mumbai Residential
4QFY11e/ FY12e Construction to commence in 2HFY11e 2HFY11e Tenants acquired
Source: Company Anand Rathi Research
PLL also plans to launch the recently acquired redevelopment project at Napean Sea Road by the end of the current financial year. Execution commences, sales to follow In contrast to its strategy (of commencing construction only after presales) for projects in Mumbai, construction has already commenced on PLLs projects at Nashik and Goa. The company plans to commence construction at Pune in 2HFY11, make considerable progress on this front and then launch property for sale. Every region being a new market for the company, such a strategy would bode well for healthy sales, in our view. After FY11, excluding fresh acquisitions, PLL has land in Hyderabad and Nashik. We have assumed phase-2 of the Pune project to commence only after significant progress in phase-1. Given their suburban nature, the aforementioned are likely to be mid-income residential projects.
Fig 16 Launch plans FY12 & beyond
Project Location Vertical Area (m sqft) Launch period Remark
Strategy to launch construction first, and then sales in a new market can prove beneficial for the company
Lonavala Residential Hyderabad Township Pune Township ph-2 Nashik Township Mhendipatnam
Lonavala Hyderabad Pune Nashik Hyderabad
Residential Residential Residential Residential Residential
0.3 3.8 2.1 2.2 1.0
FY12e FY13e FY13e FY13e FY13e
Land paid for Converted from commercial to residential Post Launch and sales of ph-1 Land fully paid Land fully paid
We expect PLL to generate `6.7bn of gross cash over FY12-14e from the above mentioned projects. Project launches in cities, ex Mumbai, contribute 37% to the our NAV.
107
4 October 2010
Healthy balance sheet

PLL is a net-cash company and plans spending ~`20bn in the next 18 months for land acquisition. Its cash-heavy balance sheet along with assured cash flows provides a strong war-chest for property acquisitions. We believe PLL is a strong bet on value-added utilisation of cash, which contributes at least 14% to the NAV. Balance sheet One of the strongest among peers PLLs cash stood at `6.5bn in FY10. Recoverables from pre-sold commercial and residential properties as well as from fresh sales of the nearly-completed commercial properties would further strengthen the companys balance sheet.
Fig 17 Balance sheet PLL strongest among peers (`m)
Company Equity Mar '10 debt Cash Net D/E (%)
PLL Ackruti City HDIL
12,552 14,786 70,428 30,486 8,489 6,018
4,671 13,055 41,017 5,948 9,072 3,966
6,502 1,216 7,918 860* 485 344
(14.6) 80.1 47.0 16.7 101.2 60.2
PLL has acquired three properties, all in JVs
DBRL Orbit Corp Sunteck Realty
Source: companies, Anand Rathi Research; * high liquid investments
Further, lower leverage would help raise debt required for further acquisitions. ICRA recently assigned PLLs short-term debt an A1 rating (this is the highest credit rating assigned by ICRA). Strong appetite for land acquisitions In 1QFY11, PLL acquired a `1.1-bn redevelopment project in the highvalue Napean Sea Road area at Mumbai. It plans to develop ~30,000sqft of this (area likely to go up). PLL acquired two properties in current quarter i) It acquired a 0.3m sqft property at Lonavala for ~`0.3bn. The project would be in a JV with Peninsula Realty Fund; ii) It acquired 1m sqft at Mehdipatnam in Hyderabad; the project would be in a JV with GSG Builders. PLLs share for the cost of land is ~`0.3bn. Land acquisition cost for both properties has been fully paid. PLLs aggressive land acquisition plans are also reflected in its bid for the recently-concluded NTC Mills land auctions in South-Central Mumbai. Its bid, at `14.1bn, was the third-highest for the keenly-contested Bharat Textile Mills. The company is actively pursuing land deals in Bangalore, the MMR, Pune and Hyderabad, besides Mumbai Also, the company is in talks for acquiring properties in Mumbai, MMR, Bangalore and Hyderabad. Most properties under consideration are citycentred and likely to be value-accretive. Given its large cash balance and healthy cash flows from pre-sold and impending launches, the company is exploring opportunities to acquire prime projects in Mumbai and other metropols, to deploy cash profitably and, hence, witness high returns.
108
4 October 2010
A differentiated JDA model Profitable for PLL PLL received revenue share without incurring any construction costs in the project PLL formed a unique JDA (unlike the usual, where developers incur total construction costs), where it received revenue share without incurring any construction costs. Having entered into a JDA with Swan Mills for developing some properties for the latter, PLL developed the PTP and Ashok Gardens projects, where it has 22% revenue-sharing arrangement. While the construction expense would be borne by Swan Mills, PLL is responsible for project management and sales. It expects receiving `1.65bn from the sale of PTP. Ashok Gardens has 50,000sqft of residential property. PLL would receive its share once Swan Mills obtains cash from the sale.
109
4 October 2010
Financials
We expect PLL to remain a net-cash company (unless major land acquisitions happen) going forward. We estimate a healthy RoE of 20.1% in FY11 from ongoing projects. Revenue PLL follows the percentage-completion method in accounting for revenue from real estate. It starts recognising revenues once construction of a project has commenced and an agreement signed for property sale as against peers who follow a pre-decided threshold limit approach for revenue recognition. Net profit margins during the year should significantly improve on account of contribution from the PTP and Ashok Gardens projects. Both are in a JDA with Swan Mills, which would bear the entire cost of construction. The projects would contribute ~`2bn to PLLs revenue in the next 12 months.
Fig 18 Revenue recognised
(`m) 8500 7500 6500 5500 4500 3500 2500 1500 500 FY11e FY12e FY13e FY10
Current assets
We expect inventory to rise during FY11 due to addition of three nonMumbai projects and PBP-2 that would be launched for sale/lease this fiscal. We expect PLL to have ~`5.1bn in cash at end-FY11. Debtors would decrease during the year on account of cash received from existing projects, which are almost complete.
110
4 October 2010

Revenue - Op. expenses - Employee Costs - Other Administrative EBITDA - Interest - Depreciation + Other income - Tax PAT + Minority Interests + Share of profit from Associates Consolidated PAT Dividend FDEPS (` / share) CEPS (` / share) DPS (` / share) BV (` / share) Shares outstanding Growth Rates Revenue (%) EBITDA (%) Net PAT (%) Diluted EPS (%) FY10-13e Revenue CAGR (%) FY10-13e EBITDA CAGR (%) FY10-13e EPS CAGR (%) Margins EBITDA (%) EBIT (%) Net Profit (%)
5,656 3,411 402 364 1,478 (427) 40 90 324 1,632 1 (0) 1,471 294 5.8 5.5 0.9 37.7 279.5 58.3 (2.0) 11.6 11.6
7,786 3,434 525 516 3,311 (36) 42 83 514 2,874 2 17 2,495 488 10.3 8.7 1.5 44.9 279.5 37.7 124.0 76.1 76.1
5,083 1,435 356 356 2,936 78 44 465 590 2,689 2,689 490 9.6 9.8 1.5 51.0 279.5 (34.7) (11.3) (6.5) (6.5)
7,922 2,928 555 555 3,885 75 69 394 992 3,142 3,142 490 11.2 11.5 1.5 59.4 279.5 55.9 32.3 16.9 16.9
8,141 3,644 570 570 3,357 109 94 381 1,061 2,475 2,475 490 8.9 9.2 1.5 65.1 279.5 2.8 (13.6) (21.2) (21.2) 1.5 2.0 2.7
26.1 25.4 26.0
42.5 42.0 32.0
57.8 56.9 52.9
49.0 48.2 39.7
41.2 40.1 30.4
111
4 October 2010

Sources of Funds Share capital Reserves & surplus Shareholders fund Debt Deferred Tax Liab (net) Minority interests Capital employed Application of Funds Gross Fixed Assets Less: Depreciation Net Fixed Assets Capital Work in Progress Investments Current Assets Inventories Debtors Loans and Advances Current Liab and Provisions Net Current Assets Working Capital Cash Capital deployed No. of shares (m) Net Debt/Equity (%)
559 9,986 10,545 3,432 192 30 14,199 1,608 93 1,515 72 1,424 5,873 1,952 2,617 1,241 10,731 9,253 1,478 14,199 279.5 18.5
559 11,993 12,552 4,671 83 32 17,338 1,576 149 1,427 0 705 5,571 2,460 1,767 1,627 15,205 8,703 6,502 17,338 279.5 (14.6)
559 13,691 14,250 4,671 83 32 19,036 1,582 193 1,389 705 9,725 1,289 1,767 1,684 16,942 11,629 5,313 19,036 279.5 (4.5)
559 16,043 16,602 2,249 83 32 18,965 3,353 262 3,091 705 7,047 2,019 2,237 1,773 15,170 10,061 5,108 18,965 279.5 (17.2)
559 17,627 18,186 2,745 83 32 21,046 3,360 356 3,004 705 6,646 3,181 2,942 1,884 17,337 11,416 5,921 21,046 279.5 (17.5)

1,471 40 37 1,548 2,563 (1,015) 295 (1,309) 294 (0) 723 (1,174) (160) 454 1,023 1,478
2,495 42 (109) 2,428 (550) 2,978 (118) 3,095 488 (0) 1,239 (720) (457) 5,025 1,478 6,502
2,689 44 2,733 2,925 (193) 6 (199) 490 (500) (1,189) 6,502 5,313
3,142 69 3,211 (1,567) 4,778 1,770 3,008 490 (300) (2,422) (205) 5,313 5,108
2,475 94 2,569 1,355 1,214 7 1,206 490 (400) 497 812 5,108 5,921
112
4 October 2010
Fig 22 Ratio @ `66

Valuations P/E P / BV M Cap / Sales EV / Sales EV / EBITDA Dividend Dividend yield (%) Dividend payout (%) Leverage Net Debt / Equity Int Coverage Return Ratios ROE (%) ROCE (%)
11.3 1.7 3.3 3.4 12.8 1.4 15.4 19 (3) 16.4 11.0
6.4 1.5 2.4 2.0 4.8 2.3 14.6 (15) (91) 24.9 21.0
6.9 1.3 3.6 3.4 5.8 2.3 15.6 (5) 37 20.1 16.0
5.9 1.1 2.3 1.9 3.8 2.3 13.3 (17) 51 20.4 20.2
7.5 1.0 2.3 1.8 4.3 2.3 16.9 (17) 30 14.2 16.4
113
4 October 2010

PLL, a Mumbai-based developer, was formed with the merger of Piramal Holdings and Morarjee Realties. It was one of the first realestate companies to venture into mill-land development. It developed the first retail mall in Mumbai Crossroads.
Background
PLL is part of the Ashok Piramal Group, engaged in textiles and engineering and which made a foray into real estate development in 1997. It was one of the first to develop textile mill lands in Mumbai. In 1999, it developed Mumbais first mall, Crossroads, followed by Peninsula Corporate Park, a world-class office complex at Lower Parel and CR2, a multi-storey car park & retail mall at Nariman Point, Mumbai. During 03-04, the company entered into a JDA with Swan Mills for Ashok Gardens at Sewri and PTP at Kurla. In 07-08, it ventured outside Mumbai and acquired land in Pune, Nashik and Hyderabad. Having built Crossroads at Tardeo, the first retail mall in Mumbai (launched in 1999), and operating it for eight years, PLL sold the mall to the Future Group in FY07 for ~`3.5bn. This indicates its ability to monetise its properties at an appropriate time.
Fig 23 Peninsula Land - Major brands
Brand Segment Achievements
Residential Office
Retail
Residential projects in Central Mumbai are largely pre-sold. Amongst the earliest to develop private textile mill land into Mumbais most preferred office destination. Credible clients with strong pedigree First Indian developer to develop an International style modern shopping mall Crossroads in Mumbai. First Indian developer of an integrated shopping mall CR2 at Nariman Point, Mumbai.
Source: Company
Management
Group Chairperson Urvi Piramal has over 22 years of experience in managing diversified businesses across various sectors. She holds a Science degree and has attended Harvard Business Schools advanced management programme. Executive Vice Chairman Rajeev Piramal holds a BBA from Cleveland, Ohio, USA and has experience of over five years in the real-estate sector. He is a business strategist, spanning construction in the residential, commercial and retail segments.
114
Property
India I Equities
Initiating Coverage
4 October 2010
Sunteck Realty
Smart foray, prudent tie-ups; initiate with Buy
We initiate coverage on Sunteck Realty (SRL) with Buy at Sep 11 price target of `811, based on its high-value BKC residential projects bearing fruit and JDA/JV strategy that mitigates acquisition risks & costs. SRL made a unique foray in the property sector by acquiring residential projects in the commercial BKC. The company is already in the money for its maiden project, which has helped it acquire & expand via prudent JDAs in city-centre properties (mainly Mumbai) and resulted in low debt levels. Execution is the key factor to watch.
BKC residential Unique foray. SRLs strategy of bidding for residential properties in the commercial BKC is bearing fruit. We estimate that with `9.6bn investment (deferred) for 1.5m sqft of residential space, SRL is likely to see gross cash flow of +`42bn from the project. It has already sold stock worth `9bn in its three BKC residential projects as of date. Prudent partnerships (ex BKC). SRLs JV with the Ajay Piramal Group contributes 37% to its NAV, mitigates land-acquisition risks and offers a mix of locations. Given its city-centre properties, land acquisition cost of only `127/sqft would buoy success of its asset-light, high-conversion strategy. Acquisition in place, low debt; execution key. 80% of SRLs projects are city-centred, with 66% being residential. All-inclusive land acquisition cost in Mumbai is `1,100/sqft. The small size of projects aids faster turnaround and generates more cash (`13bn in FY12e). SRL would be a net-cash company FY12e onwards, till it largely retains its JDA approach. Valuation and risks. Our price target of `811 is at 15% discount to Sep 11 NAV of `957. At CMP, the stock trades at 40% discount to our NAV and 18% discount to our target price. Risks: Delay in execution; weakness in property market.
FY09 FY10 FY11e FY12e FY13e
Key data
SRIN IN/SUNT.BO `714/480 20445/6143 US$1.2m `43bn/US$967m 63m 34.7% 65.3% 5.6% 0.0% 29.1%
Key financials
Year end 31 Mar

206 168 2.9 NA 239.1 21.2 17.8 5.7 60.7 284 62 1.0 (64.0) 664.3 6.8 1.6 1.5 0.03 60.2 279 57 0.9 (8.0) 722.0 6.8 0.9 1.1 0.04 63.7 21,342 9,474 177.8 18,643.3 3.9 2.7 99.8 107.8 0.15 (67.4) 20,741 6,046 159.1 (10.5) 4.3 1.9 52.2 64.3 0.15 (100.3)
Source: Bloomberg
150 140 130 120 110 100 90 80 70
Sunteck
Sensex
Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10
4 October 2010
Sunteck Realty Smart foray, prudent tie-ups; initiate with Buy

Fig 4 Land bank spread

279 (1.7) 56 126 45.0 50 14 13 17 57 (8.0) 57 0.9 1.2 0.3 21,342 7,548.0 4,733 15,329 71.8 46 17 4,580 10,686 18,643.3 9,474 177.8 157.9 1.0 20,741 (2.8) 6,509 13,714 66.1 39 19 4,097 9,560 (10.5) 6,046 159.1 100.9 1.0
Source: Company
206 34 103 50.0 0 14 111 28 172 #DIV/0! 168 2.9 3.0 -
284 37.9 67 113 39.8 5 12 24 58 62 (64.0) 62 1.0 1.2 0.2
Oman Nagpur 0.3% 4.5% MMR 16.8%
Others 1.8%
Mumbai 47.1%
Jaipur 29.5%

Fig 5 Land acquisition mode (Mumbai)

120 5,898 6,018 3,966 2 358 10,343 1,229 473 8,297 344 10,343 12.0 60.2 120 5,919 6,040 3,994 2 358 10,394 1,269 473 8,507 145 10,394 12.0 63.7 120 15,253 15,373 3,010 2 358 18,743 1,285 473 3,608 13,377 18,743 12.0 (67.4) 120 21,158 21,278 2,919 2 358 24,557 1,304 473 (1,486) 24,266 24,557 12.0 (100.3)
Factory Land/Mill Land 54%
114 1,824 1,938 1,185 1 49 3,174 90 1,808 1,270 8 3,174 11.4 60.7
Redev 1%
SRS 21%
Virgin land 24%
Source: Company

Fig 6 Sunteck Realty vs BSE Realty

57 14 71 210 (138) 54 (192) 35 0 28 (0) (199) 344 145 9,474 17 9,491 (4,899) 14,390 33 14,358 141 (984) 13,233 145 13,377 6,046 19 6,064 (5,094) 11,158 38 11,120 141 (91) 10,889 13,377 24,266
150 140 130 120 110 100 90 80 70 60 Aug-10 Aug-09 Sep-09 Nov-09 Dec-09 May-10 Sep-10 Feb-10 Mar-10 Oct-09 Jan-10 Apr-10 Jun-10 Jul-10 Realty Index Sunteck
Consolidated PAT + Non Cash Items Cash profit - Incr/(Decr) in WC Operating cash flow - Capex Free cash flow - Dividend + Equity raised + Debt raised - Investments - Misc. items Net cash flow + Opening cash Closing cash
168 15 184 1,270 (1,086) 104 (1,189) 1,819 1,185 1,808 0 (1,800) 1,807 8
62 (1,322) (1,260) 7,027 (8,288) 1,151 (9,439) 26 4,352 2,781 (1,334) (0) 336 8 344
Source: Bloomberg
116
4 October 2010

We initiate coverage on Sunteck Realty (SRL) with Buy at Sep 11 target price of `811, which is at 15% discount to our NAV. We like the company for its high-value BKC residential projects bearing fruit and JDA/JV strategy that mitigates acquisition risks & costs. SRL made a unique foray in the property sector by acquiring residential projects in the commercial BKC. The company is already in the money for its maiden project, which has helped it acquire & expand via prudent JDAs in city-centre properties (mainly Mumbai) and resulted in low debt levels. Execution is the key factor going forward BKC residential Unique foray SRLs strategy of bidding for residential properties in the commercial BKC is bearing fruit. We estimate that with `9.6bn investment (deferred) for 1.5m sqft of residential space, SRL is likely to see gross cash flow of +`42bn, contributing 33% or `20.8bn to its NAV. It has already sold stock worth `9bn in its three BKC residential projects Signature Island, Signia Pearl and Signia Isles as of date. We believe that BKC, the new central business district (CBD), with launch of the diamond bourse and lack of residential supply would witness heightened demand.
Residential space of 1.5m sqft would see gross cash of +`42bn and gross margin of over 70%
Fig 7 BKC properties

Area (1.5m sqft) breakdown
Signia Pearl 26%
Total costs* (`15bn) breakdown

Signia Pearl 32%
Signature Island 36%
Signia Isles - I 26%
NAV contribution*
Signia Pearl 19%
117
4 October 2010
Prudent partnerships (ex BKC) The PSRPL JV not only bears 50% cost and mitigates location risk, but also adds value through a corporate tie-up with aim to secure more projects SRL entered into a JV Piramal Sunteck Realty Pvt (PSRPL) with APG in 08 to develop the closed-down units of Piramal Healthcare. Along with Estella Batteries in Sion, the Mulund and Thane units were the first to be earmarked for development. The India REIT Fund, owned by APG, was the first investor in SRLs project at BKC. The Fund came on board during the land acquisition stage. SRLs partnership with APG not only provides project visibility, but also reduces acquisition cost, as half the cost of any venture would be borne by APG. More importantly, a corporate tieup, given successful implementation, would help the JV secure more defunct mills and private-land parcels held by industrialists, for joint development.
Fig 8 PSRPL projects: Area vs value

Area
Leased properties 1% SRL 19%
NAV*
Leased Properties 3% SRL 28%
PSRPL 80%
PSRPL 69%
Acquisition in place, low debt; execution key SRL uses different methodologies to add to its existing land bank, 84% of which has been acquired through the JDA approach. Eighty percent of its projects are in the city centre, with 66% being residential. SRL has projects across Mumbai in areas such as BKC, Goregaon, Borivali, Ghatkopar and Mulund; this wide location mix reduces risks, in terms of margin/costs. The average land acquisition cost in Mumbai (including FSI) is `1,100/sqft. Also, the small size aids quicker turnaround. We estimate the company growing from its low base and becoming a net-cash company in FY12e (assuming that its land acquisition largely through JDAs are not trough auctions), given the key land parcels have already been acquired and fully paid.
118
4 October 2010
Valuation We have used a DCF-based approach to arrive at Sep 11 NAV of `957. Our target price of `811 is at 15% discount to the NAV.
Fig 9 Net asset value
Sep 11 Value (`m) NAV/share (`) % contribution to NAV
SSPL (an SRL subsidiary) PSRPL SRL Leased Properties Debt Cash NAV
20,847 23,689 17,664 1,901 (3,994) 145
331 376 281 30 (63) 2 957
33 37 28 3
We have assumed a development schedule for all projects (total land bank of ~29m sqft) under consideration. Given low base of construction activity, we raise expenditure to `16bn in FY14e from `3.1bn in FY11e on execution of more projects ahead.
(`m) 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 FY11e FY12e FY13e FY14e 1.20 6.16 (msqft) 9 8 6.55 7 6 5 4 3 2 1 0
Fig 10 Execution scale-up over the next few years

8.28
Total Construction cost

Total project launches (RHS)
We assume 17% cost of equity, 15% cost of debt, and 14% WACC. The 15% discount primarily stems from risk of regulatory approvals for the FY11 and FY12 launches and minimum payment in JDA projects as execution has yet to commence. SRL focuses on luxury/super-luxury residential development only. The first impact of tapered demand or slowdown in the industry is felt by high-end products. This is a risk to our NAV. Execution assurance. SRL has yet to prove its execution ability. Although we have built an appropriate execution schedule, given SRLs low base, lower-than-expected execution could trim our NAV. Risks to JDA model. 92% of projects are modelled on JDA and JV methods. Any difference of opinion among the partners could affect project prospects and, hence, cash flow. PSRPL JV. 81% of projects and 70% of value arise from the PSRPL portfolio. Any risk to such a JV significantly affects SRLs value.
119
Risks
4 October 2010
BKC residential Unique foray

SRLs strategy of bidding for residential properties in the commercial BKC is bearing fruit. We estimate that with `9.6bn investment (deferred) for 1.5m sqft of residential space, SRL is likely to see gross cash flow of +`42bn. It has already sold stock worth `9bn in its three BKC residential projects as of date A bold call Sunteck secured 60% stake for `70m of the `1.4-bn land payment Also, given certain new regulations, the saleable area is likely to increase in residential projects SRL took a contra-call in CY06 and bid for residential properties in the commercial-dominated BKC, when others were focussing on acquiring commercial space in the new, planned CBD of Mumbai. Also, the company won two plots adjacent to the present Signature Island plot at BKC. The three plots are the only residential properties that have been auctioned at BKC and form part of the prestigious G block, with higher FSI, Grade A commercial developments, convention centres, an international school, a hotel and the soon-to-be launched diamond exchange. The only other residential property (less than 0.2m sqft), which is under development in the G block of BKC, is the Tata colony, albeit in the initial stages of rehab construction.
Fig 11 BKC properties Projects statistics
Project Area (m sqft) SRL stake Land cost (`m) (%) Paid Premium cost (`m) Paid
Signature Island Signia Isles - I Signia Pearl

0.7 0.4 0.4
88% 50% 50%
1,438 2,480 2,480
100 53 48
1,379 918 916
26% 20% 0%
Acquisition mode Minimum capital employed for high returns
Average acquisition rate of saleable area is `6,371/sqft
SRLs approach in bidding for its first residential property in a commercialdominated place (BKC) was innovative. With capital of `0.7bn, the company bid for property worth `1.4bn and partnered with India REIT for the remainder. The signed deal included an upside of 15% if cash flows exceeded `3bn of PBT. This implied average selling price of `18,000/sqft for the entire project. The company has already achieved average selling price of `32,000 as on date, with sales of ~33%.
Fig12 Signature Island: Acquisition mode
Total Land cost `1.4bn
SRL Investment `70m SRL 87.5% If 9 Project PBT > `3bn 9 PCM of Revenue
India REIT `630m
Signature Island
Repayment within 4 months 9 Cash from initial few bookings
Debt `700m
120
4 October 2010
In the lead
In the past four years, with expanding commercial activity and acceptance of BKC as a new CBD, many developers have started focusing on new residential development around the areas. Bandra (E) has developed as a prospective destination for most Grade-A developers in Mumbai, who are undertaking redevelopment projects for high-end residential complexes. Not many have broken ground yet for free sale construction, and those launched are in the preliminary construction stage. The total planned residential supply coming up at Bandra (E) stands at +9m sqft.
Fig 13 Bandra (E) Proposed residential projects
Developer Name Project name Location Remarks
Sunteck Realty Sunteck Realty Sunteck Realty DB Realty Kalpataru Constructions Suhyog Rustomjee Kalpataru Constructions Ackruti city DB Realty Ackruti city Sanjay Kakade
Signature Island Signia Isles - I Signia Pearl MIG 1 Sparkle Jade Gardens Oriana MIG 5 Sunstone Bandra government colony Bandra government colony Bandra government colony
BKC G Block BKC G Block BKC G Block Bandra (E) Bandra (E) Bandra (E) Bandra (E) Bandra (E) Bandra (E) Bandra (E) Bandra (E) Bandra (E)
Construction commenced Construction commenced Soft launched Soft launched Rehab commenced Free sale nearing completion Free sale and rehab commenced NA Rehab underway, Launched for sale LOA received LOA received LOA received
Fig 14 BKC projects and other important projects
BKC projects of SRL
Government Colony Tata Colony
BKC
MIG Colony
Source: Wikimapia; Anand Rathi Research
Heavy cash flow
SRL has sold ~33% of the stock offered for sale in the residential BKC projects. As it targets higher realisations (with aim to match the sales rate at NCPA, Nariman Point), we have assumed a sales period of four years hereon for its three residential projects (at BKC) on offer. We estimate that SRL would selectively sell Signature Islands and might keep some stock even after completing construction (in order to realise higher value) and pre-sell most of Signia Isle and Signia Pearl launched in 4QFY10 and 1QFY11 respectively.
121
4 October 2010
Fig 15 BKC projects Status and future assumptions

Till Mar '10 FY11e FY12e FY13e FY14e
Sales (m sqft) Sale value (`m) Sales value received (`m) Total cash outflow (`m)
0.3 8,618 1,658 4,958
0.4 13,169 5,569 4,815
0.5 18,559 21,552 3,004
0.2 9,369 17,021 1,802
0.1 8,052 11,968 378
Based on more launches in Bandra (E) from tier-1 developers with proven execution capacity, we believe SRL would expedite sales at its flagship properties.
122
4 October 2010
Prudent partnerships (ex BKC)

SRLs JV with the Ajay Piramal Group contributes 37% to its NAV, mitigates land-acquisition risks and offers a mix of locations. Given its city-centre properties, land acquisition cost of only `127/sqft would buoy success of its asset-light, high-conversion strategy. PSPRL offers access to land SRLs JV with APG establishes a healthy brand for leverage in joint development of properties with other industrial houses SRLs first venture with APG involved investment by APGs India REIT fund in the companys Signature Island project at BKC. SRL and APG then entered into a JV in 08 to develop industrial land held by the Group. Estella Batteries (ex Piramal) in Sion followed by non-functional industrial units at a prime location in Mulund and a suburb of Thane.
Fig 16 - JV with Ajay Piramal Group (PSRPL)

Location Spread 9 9 9 9 South Central Mumbai Mulund Japiur Thane and others
PSRPL JV
AP Group Properties
50%
9 9 9 9 South Central Mumbai Mulund Thane Future factory Lands
50%
APG
Corporate Brand Tie-Ups 9 Defunct mills / Industrial units 9 Eg. Sion, Dadar and Mahalaxmi
SRL
Cost Halved 9 Pay only 50% of costs
SRLs partnership with APG not only provides higher project visibility, but also halves its acquisition and development costs, as it is a 50-50 JV. More importantly, its JV with APG, a well established corporate house, gives leverage for acquisition of properties held by other industrial houses in Mumbai. Excluding APG properties, the JV has tied up (JDAs/JVs) with other industrial mill land owners across Mumbai city centres at Dadar, Mahalaxmi and Sion as well as a huge piece of open land at the prime Bani Park, Jaipur.
123
4 October 2010
Prime projects in kitty PSRPL follows SRLs asset-light model strategy of acquiring projects across as well as outside Mumbais micro-markets. The cost of acquiring development rights for projects across PSRPLs 23.5m sqft is a mere `647/sqft, including BKC land parcels (`127/sqft excluding BKC parcels). Most of PSRPLs projects are in JDAs or JVs, whose low acquisition costs place them in a better position than Mumbai peers holding city-centre projects.
Fig 17 SRLs asset-light model for PSRPL (ex BKC projects)
Land bank spread
Oman 0.4% MMR 22.2% Nagpur 6.0%
MMR 20%
NAV* contribution
Oman 1% Nagpur 1%
Jaipur 24%
Jaipur 38.9%
Mulund 12%
South Central Mumbai 23.6%
Mulund 8.8%
South Central Mumbai 42%
Average land cost

(`/sqft)
2,500 2,000 1,500 1,000 500 24 0 Jaipur Mulund Nagpur MMR South Central Mumbai Oman 54 70 71 359 2,289
Source: Company, Anand Rathi Research; *as of date
124
4 October 2010
Development pipeline
Eighty percent of PSRPL projects are at city centres, with three already launched; SRL plans to launch another two in 2HFY11.
Fig 18 PSRPL projects Details
City Location Area (m sqft) PSRPL stake Avg selling price Avg cost rice (`/sqft) (`/sqft) Value (`m) Est. launch period Current status
Jaipur MMR Mumbai Mumbai MMR Nagpur Oman Mumbai Mumbai Mumbai
Bani Park Thane Mulund Mulund Airoli Sadar Bazar Madinal Al Ilam South Central Mumbai South Central Mumbai Sion
8.6 4.8 .98 .97 .14 .17 .08 2.2 1.4 1.6
100% 100% 50% 100% 100% 100% 50% 100% 100% 33%
8,180 7,102 9,630 9,867 6,149 6,587 10,350 22,679 23,943 17,115
2,355 2,805 2,477 2,666 4,227 2,153 5,387 3,408 3,415 3,565
5,725 4,630 876 2,031 178 298 140 4,926 3,155 1,729
FY11e launch FY12e launch FY12e launch FY13e launch Launched Launched Soft launched FY12e launch FY14e launch FY14e launch
Site Demarcation Planning stage Approval stage Approval stage Construction commenced Construction commenced Nearing completion Planning stage Planning stage Planning stage
PSRPL has added many non-APG land parcels since the formation of its JV with SRL.
125
4 October 2010
Acquisition in place, low debt; execution key

Eighty percent of SRLs projects are city-centred, with 66% being residential. All-inclusive land acquisition cost in Mumbai is `1,100/sqft. The small size of projects aids faster turnaround and generates more cash (`13bn in FY12e). SRL would be a net-cash company FY12e onwards, till it retains its JDA approach Maximising benefit SRL has used the JDA approach for most projects (84%); more importantly, these are on virgin land, un-encroached and less problematic for development, with or without the necessary land-use changes. Most industrial land parcels were tied up in 09, with PSRPL holding the notable ones.
Fig 19 Land acquisition mode of land
Mode of acquisition
Outright 8% Auction 6%
Type of land
SRS & Redeve 10% Mill Land 9%
JV 2%
Virgin land 51% Old Factories 30%
JDA 84%
Source: Company
84% of SRLs properties are in JDA with total outgo of `5.85bn from SRL
Total acquisition cost for 29.1m sqft of land stood at `12.01bn. Acquisition of global FSI and TDR for SRLs projects in Mumbai and the Mumbai Metropolitan Region (MMR) would entail additional cost of `6.18bn.
Fig 20 Land acquisition continues in tough times too
(`m) 6000 5000 4000 15.0 3000 10.0 19.50 (msqft) 25.0 20.0
SRL has been aggressively acquiring properties, albeit selectively
2000 6.70 1000 0 1.10 2006 2.20 2007 1.00 2008 2009 2010 5.0 0.0
Land acquisition cost

Source: Company
Land payments during the year
Area (RHS)
126
4 October 2010
SRL acquired most of its projects in CY09/FY10, benefiting from low rates and adding land in the PSRPL portfolio. Also, in CY08, SRL was one of the few developers to bid for auctioned properties (especially at BKC). It plans acquiring 2-3 properties in Mumbai post the Goregaon acquisition in 1QFY11. Properties owned by SRL Although most land acquisitions have happened in the PSRPL portfolio, SRL (ex PSRPL) has acquired 5.5m sqft (91% of which is in Mumbai) at `475/sqft; of this, 90% is already either in the execution stage or likely to commence execution in FY11.
Fig 21 SRL land acquisition (ex PSRPL) 5.5m sqft
Project Location SRIN Stake Project Type Launch Value period (`bn) Current Status
Sunteck Samruddha Hubli Sunteck Grandeur Sunteck Kanaka Signia High Sunteck Classic Signia City1 Signia Poonam Signia Gardens Signia Star Signia Star Andheri Goa Borivali Andheri
26% 100% 50% 100% 50%
Commercial FY09 393 Commercial FY10 574 Commercial FY10 209 Residential FY11 1,548 Commercial FY11 443 Residential FY11e 6,340 Residential FY12e 368 Residential FY12e 1,213 Residential FY13e 2,035 Commercial FY14e 4,539
Construction Commenced Construction Commenced Construction Commenced Launched for sale Construction Commenced Acq in 1Q11, launch in 3/4QFY11e Planning stage Planning stage SRA LOI got SRA LOI got
Goregoan (W) 100% Andheri Vile Parle Ghatkopar Ghatkopar 100% 100% 84% 84%
Evenly spread portfolio across Mumbai SRL has 13.7m sqft of saleable area in Mumbai. Nearly 45% of its projects under this area constitute three (one each) in the central suburbs of Ghatkopar, Sion and Mulund. The Mumbai projects have been acquired at `556/sqft, SRLs share being `2.5bn (`1.9bn payable in FY11).
Fig 22 Mumbai Projects: Location spread vs asset class spread
Location Vertical
Western 29% Central 45%
Commercial 21%
South-central 26%
Residential 79%
Source: Company
Majority of the offerings in the market are smaller-sizes units. SRL has 488 units overall, of which it has already sold 117. The company has launched ten projects and will be launching another two in FY11e, in our view. Overall Mumbai projects contribute `52.5bn or 82% to SRLs NAV.
127
4 October 2010
Fig 23 Mumbai: Launch schedule and value contribution

Project Location Project SRL stake Type Launch period Value (`bn) Launch price (`/sqft) Avg price (`/sqft)
Signia High Sunteck Classic Signia Skystar 1 Signia Gardens Signia Poonam Signia Skystar 2 Signia Star - Resi
Borivali E Andheri E Goregoan W Vile Parle Andheri E Goregoan W Ghatkopar E
100% 50% 100% 100% 100% 100% 84% 84%
Residential Commercial Residential Residential Residential Residential Residential Commercial
FY11 FY11 FY11e FY12e FY12e FY12e FY13e FY14e
1,548 443 3,327 1,214 368 3,013 2,035 4,539
10,000 13,500 9,500 13,500 11,500 10,000 7,500 11,500
10,864 14,185 10,360 14,786 11,788 11,098 8,607 15,215
Signia Star - Comm Ghatkopar E

Jaipur: Bani Park PSRPL has signed a JDA for an 82-acre, city-centre development at Bani Park, Jaipur, the land/deposit outgo for which would be `210m; SRL would realise `6.1bn. As Bani Park is one of Jaipurs prime localities, the 8.5m sqft residential and commercial development would add ~10% to SRLs NAV. We estimate Bani Park to be a major volume contributor to cash flows once launched.
Fig 24 Bani Park
Project name Location Area (m sqft) Type Start date End date Avg selling price (`/sqft)
Signia City Bani Resi P1 Signia City Bani Resi P2 Signia City Bani Resi P3 Signia City Bani Resi P4
Bani Park Bani Park Bani Park Bani Park
1.1 1.1 1.1 1.0 1.1 1.1 1.1 1.0
Residential Residential Residential Residential
FY12e FY13e FY15e FY16e
FY14e FY16e FY18e FY19e FY16e FY17e FY18e FY20e
5,793 6,128 7,605 7,720 8,344 8,917 10,095 10,835
Signia City Bani Comm P1 Bani Park Signia City Bani Comm P2 Bani Park Signia City Bani Comm P3 Bani Park Signia City Bani Comm P4 Bani Park
Commercial FY13e Commercial FY14e Commercial FY15e Commercial FY17e
128
4 October 2010
Financials
SRLs project-completion method results in lumpy revenue, which is set to spike up in FY12e with completion of its flagship Signature Island project at BKC. Also, advances would rise on high cash inflows from pre-sales of projects and new launches.
Revenue recognition
Project completion SRL follows the project-completion method for revenue recognition (as against the percentage-completion method followed by most peers). According to this method, revenue is recognised only when all risks and rewards of a property are transferred to the buyer on completing a project. Revenue would grow manifold in FY12 and FY13, primarily from the high-value residential BKC projects. We have assumed that other developments already under construction and to be completed by FY13 would add to the companys revenue. EBITDA margin would be staggered, given the nature of properties being recognised. It is likely to be higher in FY12 owing to higher margin in the Signature Island project and would decline in FY13 due to the higher acquisition cost of Signia Isles and Signia Pearl. However, average realisation of these two projects would be similar to that of Signature Islands.
Fig 25 Revenue recognised from major projects (`m)
Project Name FY11e FY12e FY13e
Rent Existing projects Signature Island Signia Isles - I Signia Pearl Oman Villas Signia Oceans Signia Skys Nagpur Sunteck Grandeur Sunteck Samruddha Sunteck Kanaka
279 -
334 18,944 418 1,038 607 -
376 3,530 14,471 843 1,122 399
Customer advances; cash built up
Since SRL follows the project-completion method of accounting, advances from the customer would build up on the balance sheet (depending on forthcoming launches and cash realisation from pre-sales as of date) till completion and handover of a project. With continuing project launches through FY11, we expect customer advances to shoot up to `15.5bn and `24.2bn in FY12e and FY13e respectively.
129
4 October 2010
Fig 26 Customer advances vs net debt

(`m) 30,000
20,000 10,000 (10,000) (20,000) (30,000) FY11e FY12e FY13e
Customer Advances
Net Debt

Revenue - Op. expenses - Employee Costs - Other Administrative EBITDA - Interest - Depreciation + Other income - Tax PAT + Minority Interests + Share of profit from Associates Consolidated PAT Dividend FDEPS (`/share) CEPS (`/share) DPS (`/share) BV (`/share) Shares outstanding Growth Rates Revenue (%) EBITDA (%) Net PAT (%) Diluted EPS (%) FY10-13e Revenue CAGR(%) FY10-13e EBITDA CAGR (%) FY10-13e EPS CAGR (%) Margins EBITDA (%) EBIT (%) Net Profit (%)
206 34 9 61 103 0 14 111 28 172 4 0 168 2.9 3.0 32.3 11.4 -
284 67 15 89 113 5 12 24 58 62 62 26 1.0 1.2 0.2 100.1 12.0 37.9 9.7 (64.0) (64.0)
279 56 28 70 126 50 14 13 17 57 57 35 0.9 1.2 0.3 100.5 12.0 (1.7) 11.2 (8.0) (8.0)
21,342 4,733 427 854 15,329 46 17 4,580 10,686 1,212 9,474 141 177.8 157.9 1.0 255.8 12.0 7,548.0 12,106.9 18,643.3 18,643.3
20,741 6,509 311 207 13,714 39 19 4,097 9,560 3,514 6,046 141 159.1 100.9 1.0 354.1 12.0 (2.8) (10.5) (10.5) (10.5) 318.0 360.2 171.8 66.1 66.0 29.1
50.0 43.2 81.7
39.8 35.7 21.8
45.0 39.8 20.4
71.8 71.7 44.4
130
4 October 2010

114 1,824 1,938 1,185 1 49 3,174 144 62 81 8 1,808 2,723 24 693 2,171 1,277 1,270 8 3,174 11.4 60.7
120 5,898 6,018 3,966 2 358 10,343 179 73 106 473 1,123 8,864 80 4,025 4,673 8,641 8,297 344 10,343 12.0 60.2
120 5,919 6,040 3,994 2 358 10,394 233 88 146 473 1,123 16,040 80 3,941 11,555 8,651 8,507 145 10,394 12.0 63.7
120 15,253 15,373 3,010 2 358 18,743 266 105 161 473 1,123 17,912 80 4,026 18,411 16,985 3,608 13,377 18,743 12.0 (67.4)
120 21,158 21,278 2,919 2 358 24,557 304 123 181 473 1,123 21,467 80 4,085 27,119 22,780 (1,486) 24,266 24,557 12.0 (100.3)

Consolidated PAT +Depreciation +Deferred Tax +Other non cash Cash profit - Incr/(Decr) in WC Operating cash flow -Capex Free cash flow -Dividend + Equity raised + Debt raised -Investments -Misc. items Net cash flow +Opening cash Closing cash
168 14 1 0 184 1,270 (1,086) 104 (1,189) 1,770 1,185 1,808 0 (1,800) 1,807 8
62 12 0 (1,334) (1,260) 7,027 (8,288) 1,151 (9,439) 26 4,044 2,781 (1,334) (0) 336 8 344
57 14 71 210 (138) 54 (192) 35 0 28 (0) (199) 344 145
9,474 17 9,491 (4,899) 14,390 33 14,358 141 (984) 13,233 145 13,377
6,046 19 6,064 (5,094) 11,158 38 11,120 141 (91) 10,889 13,377 24,266
131
4 October 2010
Fig 30 Ratio @ `685

Valuations PE PBV M Cap / Sales EV/Sales EV/EBITDA Dividend Dividend yield (%) Dividend payout (%) Leverage Net Debt / Equity Int Coverage Return Ratios ROE (%) ROCE (%)
239.1 21.2 189.6 186.5 373.3 61 283 17.8 5.7
664.3 6.8 144.9 156.0 392.5 0.0 36.0 60 21 1.6 1.5
722.0 6.8 147.5 159.6 354.7 0.0 52.7 64 2 0.9 1.1
3.9 2.7 1.9 1.4 2.0 0.1 1.1 (67) 336 99.8 107.8
4.3 1.9 2.0 0.9 1.4 0.1 1.3 (100) 355 52.2 64.3
132
4 October 2010

Company Background
Commencing real estate operations in 00, SRL now has five leasable commercial properties of 219,350sqft. It has a 50-50 JV PSRPL with the Ajay Piramal Group. Kotak Real Estate Fund is a 9.53% stakeholder in SRL. Of its projects under development (with ~28.6m sqft of saleable area), 12.6m sqft is SRLs share. The company has 18.1m sqft in Mumbai, of which 75% is residential. SRL has significant operations in select areas in Mumbai. It focuses on developing, designing and managing high-end and premium residential and commercial office properties in Mumbai. It is developing projects in Andheri, BKC, Vile Parle, Mulund, Ghatkopar, Thane and Sion. It is selectively expanding to other regions in India, and has recently commenced projects at Nagpur (Maharashtra) and Panjim (Goa); also, it has development plans in Jaipur (Rajasthan). Key management personnel Chairman & Managing Director Kamal Khetan, a first-generation entrepreneur, is founder and managing director of the Sunteck Group. On completing his BE (Electronics & Communications) from MIT-Manipal in 1990, he joined his family business and gained experience in various fields such as construction, finance and services. President (Operations) Jignesh Sanghavi is a qualified civil engineer and a post-graduate in Business Administration (MBA) and Construction Management (MCM). He is Head - Projects with SRL and also overlooks the companys entire construction activities. Prior to joining SRL, he was with Relcon Infraprojects Pvt, a company engaged in executing infrastructure projects. President (Finance) Darshan Gangolli has over 13 years of experience in real estate and infrastructure development and private equity investment with IL&FS, Kotak Realty Fund, AIG and Actis. He has successfully led investment commitments of over US$14bn and holds a Masters in Business Management from The Asian Institute of Management, Manila, and a Bachelors in Mechanical Engineering from The University of Pune. He was a Hubert Humphrey (Fullbright Fellow) with Michigan State University.
133
Appendix 1
Analyst Certification The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. Anand Rathi Ratings Definitions Analysts ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described in the Ratings Table below. Ratings Guide Large Caps (>US$1bn) Mid/Small Caps (<US$1bn) Buy >20% >30% Hold 5-20% 10-30% Sell <5% <10%
Anand Rathi Research Ratings Distribution (as of 20 July 10) Buy Anand Rathi Research stock coverage (114) 66% % who are investment banking clients 8%
Hold 14% 0%
Sell 20% 0%
Other Disclosures This report has been issued by Anand Rathi Financial Services Limited (ARFSL), which is regulated by SEBI. The information herein was obtained from various sources; we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities ("related investments"). ARFSL and its affiliates may trade for their own accounts as market maker / jobber and/or arbitrageur in any securities of this issuer(s) or in related investments, and may be on the opposite side of public orders. ARFSL, its affiliates, directors, officers, and employees may have a long or short position in any securities of this issuer(s) or in related investments. ARFSL or its affiliates may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this report. This research report is prepared for private circulation. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Past performance is not necessarily a guide to future performance. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. This document is intended only for professional investors as defined under the relevant laws of Hong Kong and is not intended for the public in Hong Kong. The contents of this document have not been reviewed by any regulatory authority in Hong Kong. No action has been taken in Hong Kong to permit the distribution of this document. This document is distributed on a confidential basis. This document may not be reproduced in any form or transmitted to any person other than the person to whom it is addressed. If this report is made available in Hong Kong by, or on behalf of, Anand Rathi Financial Services (HK) Limited., it is attributable to Anand Rathi Financial Services (HK) Limited., Unit 1211, Bank of America Tower, 12 Harcourt Road, Central, Hong Kong. Anand Rathi Financial Services (HK) Limited. is regulated by the Hong Kong Securities and Futures Commission. Anand Rathi Financial Services Limited and Anand Rathi Share & Stock Brokers Limited are members of The Stock Exchange, Mumbai, and the National Stock Exchange of India. 2010 Anand Rathi Financial Services Limited. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Anand Rathi Financial Services Limited. Additional information on recommended securities/instruments is available on request.

DBRealty AnandRathi 061010

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

DBRealty AnandRathi 061010

Uploaded by

Copyright:

Available Formats

Property Sector Report

Overweight Nifty/Sensex: 6143/20445

Property Sector Report

Overweight Nifty/Sensex: 6143/20445

Sector valuation matrix

Buy Buy Buy Buy Buy Buy

510 410 270 123 66 685

872 564 375 181 78 811

13.3 20.4 18.6 11.4 6.9 722

2.1 3 1.2 1.1 1.3 6.8

967 564 419 181 78 957

Source: Company, Anand Rathi Research

Mumbai Property The old order changeth, yielding place to new

Anand Rathi Research

Mumbai Property The old order changeth, yielding place to new

Investment Argument and Valuation

Land limited, area unlimited

3-4 2.5-4 3-4 1.33 1 + 1* 1 + 1*

Across South, SouthCentral Suburbs South-Central Suburbs Suburbs

10-25 25-50 15-50 40-80 60-80 40-70

Source: Anand Rathi Research *TDR addition

Mumbai Property The old order changeth, yielding place to new

Fig 3 Asset class contribution

Resi 53% Comm 21%

Anand Rathi Research

Mumbai Property The old order changeth, yielding place to new

Residential demand high

There are over 1.1m households (ex slums) in Mumbai

Fig 5 Population growth rate estimates

CY 1971 CY 1981 CY 1991 CY 2001 CY 2011e CY 2021e CY 2031e

50% 50% 59% 59% 55% 50% 45%

497,548 686,950 813,923 982,232 1,276,006 1,996,797 2,426,229

550 500 475 450 450 450 450

274 343 387 442 574 899 1,092

Source: Census, Anand Rathi Research

891 780 624

466 408 326

Anand Rathi Research

Mumbai Property The old order changeth, yielding place to new

Fig 7 Micro-markets to look at

Bandra (E) Gharkopar (E) along highway Vikroli (E)

South Central Mumbai Parel Sewri

South Mumbai Bandra (W) Worli

Buy Buy Buy Buy Buy Buy

78.6 137.1 35.7 28.2 2.7 171.8

84.4 38.9 19.9 54.7 (4.5) 63.7

Source: Anand Rathi Research

Anand Rathi Research

Mumbai Property The old order changeth, yielding place to new

Fig 10 Accounting policy followed by Mumbai developers

Accounting policy for revenue recog

Ackruti City DB Realty HDIL Peninsula Land Sunteck Realty

Orbit Corporation POCM: Threshold: 25% of free sale const cost

Source: Companies, Anand Rathi Research *POCM percentage of completion method

Anand Rathi Research

Mumbai Property The old order changeth, yielding place to new

Anand Rathi Research

Mumbai Property The old order changeth, yielding place to new

Land limited, area unlimited

Mumbai, although a combination of seven islands, is linear

Fig 11 Mumbai City Earlier

Source: Indian Properties