Listed company details

Real estate
Research by Edelweiss Post Q2, FY 13-14
1. Brigade Enterprises
Attractive valuations, robust pipeline
Company Description
Established real estate developer in South India
Focus on development of residential, commercial, retail, and hospitality projects
Since inception, its business is concentrated within Bengaluru and nearby areas such as Mysore
Inhouse, fully integrated property development team comprising engineers and architects who oversee the
development of properties from inception to completion.
Follows a mix of outright purchase of land parcels and of JDA with land owner as its project acquisition strategy,
while its product mix consists of premium residential apartments, mixed use developments and affordable homes
Investment Theme
Quality South India developer with focus on Bengaluru
Brigade is a South India based developer with over 20msf of area developed primarily in Bengaluru along with other
cities like Hyderabad, Mysore, Chennai, and Kochi. The developer has a land bank of ~400 acres, ~70% of which is
in Bengaluru.
Attractive rental assets
Brigade has a ~2msf of strong operational rental portfolio, primarily in Bengaluru. Orion mall and the WTC
commercial building are its key landmark projects. Improved leasing visibility in quality rental assets is a key positive
for the company.
1. Brigade Enterprises
Attractive valuations, robust pipeline
Key Risks
Slower-than-expected recovery in commercial leasing
A major part of Brigades valuation emanates from Gateway and Metropolis commercial/retail assets. As the
commercial/retail space in Bengaluru is still encountering oversupply problem, leasing activity may be slower than
expected.
Visibility of cash flow dependent on success of large residential launches in FY13-15
With Brigades flagship Gateway/Metropolis projects in Bengaluru complete in FY12, the company has launched
~4msf of residential projects across Bengaluru, Chennai and Hyderabad in FY13 and plans to further launch ~7msf
(BRGD share ~5msf) of projects in FY14. The successful launch and sales of these projects are key to BRGDs cash
flows.
2. DLF
On track
Company Description
DLF, incorporated in 1963, is one of the largest real estate development companies in India
Focus on residential, retail and commercial construction activities
Promoted by Mr. K. P. Singh who has four decades of experience in the Indian real estate industry
DLF went public in 2007 with the issue of ~175mn shares at INR 525/share
Investment Theme
Prima Donna of Indian Real Estate
One of the oldest and largest real estate developers in the country
Boasts a land bank of 320 msf and above 50 msf of ongoing projects
Has a strong rental portfolio generating ~INR 16 bn of annualised cash flows
The company has an established presence across property development verticals, with a balanced project portfolio.
Focused operations on plots/ luxury and best-in-class third party execution to strengthen operations
Reported improved cash flows and a reduction in debt backed by asset sales
Key Risks
Delay in launches due to lack of approvals/adverse macro environment
Any delay in launch due to approvals/adverse macro-environment will result in continued pressure on operating cash
flows
Inability to monetise non-core assets and deleverage will keep balance sheet stressed
* Definition of 'Deleverage'
A company's attempt to decrease its financial leverage. The best way for a company to delever is to immediately pay off any
existing debt on its balance sheet. If it is unable to do this, the company will be in significant risk of defaulting.
2. DLF
On track
3. Jaypee Infratech
Value play
Company Description
Jaypee Infratech (JPIN, 71.8% owned by Jaiprakash Associates, JPA) comprises a single project the Yamuna
Expressway.
This project was awarded to JPA vide a concession agreement in February 2003 with the Yamuna Expressway
Authority (YED)
The concession was awarded through a competitive bidding process
JPA was awarded the concession in January 2003, based on its proposed 36-year concession period - the shortest
period proposed by any bidder.
Receive a total of 6,175 acres of land across five different sites at the governments cost of acquisition, plus, annual
lease rental of INR 100/hectare (INR 41/acre)
Investment Theme
Large low-cost land bank, backed by strong brand equity
JPIN has constructed the Yamuna Expressway project, a six-lane 165 km road connecting Noida to Agra, which has
become operational in Q1FY13. As compensation for constructing YE, JPIN has rights to collect toll for 36 years on
YE and holds development rights on 6,175 acres of land (saleable area of 530 msf, of which, ~311 msf is located in
the NCR), across five contiguous land parcels along YE, acquired at a low cost of INR 32- 40/sf
Investment Theme
Flexible product/pricing strategy maximises cash flows
Unlike most developers who follow an inflexible pricing policy at the cost of volumes, JPIN has adopted a flexible
pricing model that maximizes volumes and cash flows. With unit sizes
varying from 535-4,300 sf and ticket sizes in the range of INR 1.8-7.8 mn, the company has been able to achieve
cumulative sales volumes of ~43.2 msf worth INR 147.8 bn as of FY12.
3. Jaypee Infratech
Value play
Key Risks
Large supply in Noida
Noida faces a risk of oversupply in the coming future
Competing NH-2 expressway may lead to lower toll revenues
YE faces competition from the existing highway NH-2, which is currently toll free. While plans are afoot to make it a
six-lane road, post which it will be tolled, reluctance of commuters to use YE could impair its profitability
4. Mahindra Lifespace Developers
Promising projects in pipeline
Company Description
The real estate and infrastructure development arm of the $15.9 billion Mumbai based multinational Mahindra Group,
is a leader in sustainable urban development, through the creation of residential developments and integrated cities
across eight Indian cities - Mumbai, Pune, Nagpur, Gurgaon, Faridabad, Jaipur, Chennai and
Hyderabad.
The Companys residential & commercial development footprint includes over 7.5 million sq.ft. of completed projects
and close to 10 million sq.ft. of ongoing and forthcoming projects.
Investment Theme
MLIFEs business is divided into standalone real estate and integrated development. The former focuses on
residential and commercial development in tier I and II cities, leveraging on the Mahindra brand.
MLIFEs integrated development business focuses on building destinations. This is implemented by developing
SEZs, industrial parks, etc., through multi-format developments such as land and built to suit (BTS) structures. It is
currently developing two industrial parks / SEZsMWC Chennai and MWC Jaipur. The two SEZs (MWC Chennai
and MWC Jaipur) are operational.
4. Mahindra Lifespace Developers
Promising projects in pipeline
Key Risks
SEZ tax laws
The current tax code allows significant tax benefits to companies operating out of SEZs and developers of SEZs. The
central government is overhauling direct lax laws in India. While we do not expect materially adverse developments
on this front, any such development can impair the attractiveness of SEZs for companies and / or business viability
and their valuations.
Land acquisition a risk
MLIFE does not maintain a large land bank for its developmental needs. Instead, it acquires land and develops it
within a relatively short duration of time. Inability to sustainably replenish land bank can negatively impact its
standalone real estate business .
5. Sobha Developers
Strong Operations
Company Description
One of the leading real estate development and construction companies in India.
Focus on residential and contractual projects.
Backward integrated business model, with all operations from conceptualisation to execution done in house.
Investment Rationale
Formidable track record in real estate business
One of the prominent real estate development and construction companies in India,
Primarily focused on residential projects.
Has completed over 300 projects across over 50msf in its real estate and contractual portfolio.
Sufficient land reserves to service growth
Total land reserve of ~2,630 acres across nine cities, with potential saleable area of ~ 220msf.
The land bank was acquired for a total cost of INR20bn, of which only INR1.4bn remains unpaid as on December
2012. This works out to a low average acquisition cost of INR182psf.
Currently, over 70% of its land bank is situated in Bengaluru, Chennai, and Kochi; with the balance spread across
Pune, Calicut, Thirssur, Hosur and Coimbatore.
Key Risks
Land acquisitions leading to sharp surge in debt level
Acquisition of new land parcels to maintain the current sales momentum and expansion into newer cities could result
in strained cash flows/ increase in debt levels.
Slower absorption in Bengaluru, its key market
While the management has stated that its target is to reduce dependence on the Bengaluru market, the city still
accounts for ~60% of Sobhas total ongoing projects and 34% of the total land bank.
While sales in Bengaluru have been robust, they have softened in Q3FY13 led by rise in prices. Additionally, a
slowdown in the IT sector could also impact volumes in Bengaluru.
A sharp decline in volumes/ realisations in the city could impact Sobhas valuations significantly..
5. Sobha Developers
Strong Operations
Company Description
Mumbai based real estate developer incorporated in 1988 as Kingston Properties
Focused on development of premium residential projects.
Has also diversified into development of commercial, retail, hospitality and social infrastructure in the Mumbai
Metropolitan Region (MMR).
The promoters and promoter group have collectively developed 35 projects covering over 5 msf of saleable
area.
Completed projects include landmark projects such as Oberoi Springs and Oberoi Sky Heights in Andheri
(West); and Oberoi Woods, Oberoi Mall, and The Westin Hotel in Goregaon (East).
Investment Theme
Quality Mumbaibased real estate player
Focused on the Mumbai property market, with over 90% of its land bank originating from the city and its suburbs,
admeasuring ~20.3msf across 24 projects.
OBER differentiates itself on multiple fronts with a strong track record of execution, asset light low-cost land bank
of 7-8 years and a debt-free balance sheet backed by strong management.
6. Oberoi Realty
Prime projects in pipeline
Investment Theme
Competitive pricing to help sustain volumes
Even with a fall in prices in Mumbai, OBERs strong brand backed by its execution will enable it to cash in on the
pent-up demand.
Net cash position insulates against rising interest rate cycle
With net cash of ~INR 10bn as of March 2013, with no debt on books, OBER has insulated itself from the rising
interest rate cycle to a large extent and is ideally positioned to augment its land bank in the event of a correction in
land prices.
Key Risks
Impact of regulatory changes on saleable area
Regulations for additional FSI under car parking scheme have changed, which may impact the companys
saleable area
Inefficient redeployment of cash flows
Although OBER has a debt-free balance sheet with net cash of ~INR 13bn as of March 2012, the companys
inability to augment its land bank or purchase of high-cost land could cause concern
6. Oberoi Realty