Sector Update | June 2015
Real Estate
Bangalore realty: Gloomier than past, but still better off
Shift in product-mix underway; retain Buy on Sobha and Prestige
Our recent interactions with key developers and property consultants in Bangalore provide
us with the following operational insights:
High premium product-mix had created market imbalance – now undergoing
corrective strategy, which augurs well for future recovery. Commercial outlook strong.
Sobha re-emphasized 2x scale-up guidance over next 4 years from current weakness.
Affordable products and improvement in non-Bangalore markets key drivers.
Sobha: Financial & Valuations (INR b)
Prestige is evaluating new avenues for the next round of growth viz. home market
Y/E Mar
2015 2016E 2017E
consolidation, acquisitions and new market expansion.
Net Sales
EBITDA
Adj PAT
EPS (INR)
EPS Gr. %)
24.4
6.2
2.4
24.3
1.3
26.6
7.0
2.6
26.2
7.8
30.7
8.5
3.3
33.6
28.3
Bangalore Realty Market: Fortune lies in the middle of the pyramid
BV/Sh.(INR) 248.0 266.0 291.3
RoE (%)
10.1 10.2 12.0
RoCE (%)
13.3 13.2 14.8
Payout (%)
28.8 26.7 20.8
Valuation
P/E (x)
15.3 14.2 11.0
P/BV (x)
1.5
1.4
1.3
EV/EBITDA(x)
8.9
8.0
6.5
Div. Yield (%)
1.9
1.9
1.9
High ticket size a pain point. Shift in product positioning toward mid-income
category in progress. Rate cut is believed to augment eligibility of customer.
Significant increase in ready unsold inventory a risk to marketability due to
frequent changes in design, innovation.
The commercial segment dynamics are thriving with low supply visibility; 1-
1.5pp yield contraction done, rental uptick underway
Sobha: Scale-up guidance re-emphasized
MD, Mr J C Sharma, re-stated conviction for achieving medium-term guidance of
7msf annual presales despite current weakness. The guidance assumes ~1msf
each from Kerala, NCR and Tamil Nadu, and 2.5-3.5msf from Bangalore.
Construction remains steady despite current weakness in absorption, and will
aid accumulated cash flow benefits in future when demand recovers.
Affordable products remain near-term success factor, replication of similar
product likely. Precast technology is likely to augment scalability.
PEPL: Financial & Valuations (INR b)
Y/E Mar
Net Sales
EBITDA
Adj PAT
EPS (INR)
EPS Gr. (%)
2015 2016E 2017E
34.2
9.9
3.3
3.3
-1.3
39.2
11.5
4.4
4.4
31.6
46.4
13.9
5.6
5.6
28.3
Prestige Estates Projects (PEPL): New avenues for next leg of growth
BV/Sh (INR) 101.9 111.8 125.0
RoE (%)
8.7 10.4 12.0
RoCE (%)
13.2 12.9 14.5
Payout (%)
19.8 15.2 11.7
Valuation
P/E (x)
28.9 21.9 17.1
P/BV (x)
2.5
2.3
2.0
EV/EBITDA(x) 13.0 11.7
9.9
Div. Yield (%)
0.6
0.6
0.6
Evaluating operational scale-up plan over the next 3-4 years via consolidation,
acquisitions and expansion in newer markets (Mumbai, Pune).
Targets INR80b-100b annual presale by the next 3-4 years (v/s INR50b in FY15)
on the back of launches and delivery of 12-15msf and 15-20msf respectively.
Annual leasing scale-up of 1.5-2msf to 3-4msf and exit rentals of INR8.5b-9b by
the next 3-4 years (v/s the current INR3.9b).
Dynamics still better off; retain Buy on Sobha and Prestige
Though Bangalore’s housing demand growth is in a lean phase, it is still better
than other real estate markets; thus, it remains our preferred market.
We retain our Buy rating on both Sobha and PEPL. Recent correction offers good
entry to play on operational normalization for Sobha (target price INR480),
while replication of past success would be the key to PEPL’s re-rating (target
price INR320).
Sandipan Pal
(Sandipan.Pal@MotilalOswal.com); +91 22 3982 5436
Anchit Agarwal
(Anchit.Agarwal@MotilalOswal.com); +91 22 3010 2397
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

Real Estate
Fortune lies in the middle of the pyramid
Shift in product positioning underway; commercial dynamics thriving
We interacted with a few property consultants in Bangalore market to understand their
market assessment and outlook. Key insights:
High ticket size a pain point. Shift in product position toward mid-income category
underway. Rate cut is believed to augment eligibility of customer.
Significant increase in ready unsold inventory a risk to marketability due to frequent
changes in design, innovation.
Commercial dynamics are thriving with low supply visibility; 1-1.5pp yield contraction
done, rental uptick underway
High ticket size emerges as a pain point
Demand in upper-end of
the pyramid has either lost
appetite or is adversely
poised due to oversupply
Rapid shift in housing projects toward premium-end proposition (ticket size
INR15m-20m) over the past 2-3 years has impacted absorption growth.
Demand in upper-end of the pyramid (ultra luxury segment—>INR20m) has
either lost appetite or is adversely poised due to oversupply (premium category
of INR10-20m).
Owing to the above factors, volume CY14 growth in Bangalore was flat, and it
continues to be muted. Instances of stressed smaller developers resorting to
last-mile funding are visible.
Desired shift in product position underway
Considerable demand in the INR4m-10m category is visible with the advent of
prominent players such as Sobha (Dream Acres) in the segment.
Though some locational demand-supply imbalance is present in the mid-income
segment, new launches are gradually restoring the equilibrium.
Kicking in of interest rate cut cycle is believed to be a key trigger to boost home
loan affordability and would increases the eligibility pool of customer base.
Frequent shift in product
designs and architectural
innovations put completed
unsold inventory at high risk
High ready unsold inventory: Valuable assets in hand or cause of concern?
Completed unsold inventory is often a function of developers’ phased-out
presales strategy to attain better margins or combat cost inflation.
However, in many cases, frequent shift in product designs and architectural
innovations put unsold inventory at high risk due to expected customer
preference toward new constructions.
Trends indicate that 20% unsold inventory at the time of possession is ideal and
inability to sell the same over the next six months puts the balance inventory at
risk due to perennial impairment of inventory failing to generate stream of cash
flows.
Vacancy in Outer Ring Road
(ORR), Whitefield, etc.
stands at 5-6% with no
considerable ready assets
foreseen in the next 12-18
months
Commercial dynamics thriving; 1-1.5pp yield contraction done
The commercial vertical is witnessing a reverse trend, with demand outpacing
supply in key regions. Vacancy in Outer Ring Road (ORR), Whitefield, etc. stands
at 5-6% with no considerable ready assets foreseen in the next 12-18 months.
Cap rates have already contracted 1-1.5pp over the past 12-15 months to 9-
9.5%. Now, fresh rentals have started rising in key markets viz. ORR (INR55-
60/sf/month v/s INR45-50/sf/month YoY). Amzaon in Bagmane (GTP) at
2
June 2015

Real Estate
INR58/sf/month, while Flipkart recently signed in ORR at INR55/sf/month with
Embassy group
E-commerce industry is significantly compensating for IT (hiring decline);
although it may not be an immediate driver for housing demand.
PE interest on full swing
Bangalore city has been a preferred bet amongst private equity (PE) players for
quite some time now, and the interest level remains upbeat.
Bangalore has witnessed an influx of over INR13b in PE funding since Oct-14,
with Blackstone, Brookfield, GIC, etc. being the most active investors.
Exhibit 1: Bangalore market seen growth moderation sales in Exhibit 2: Rise in realizations (INR/sf) indicates a shift toward
CY13-14 (annual)
premium products in the interim, but it is again coming down
Sales Volumes (msf)
Sales Value (INR b)
5,000
289
219
125
70
23
36
39
55
51
57
145
85
17
3,000
2,000
236
4,000
Source: Liases Foras, MOSL
Source: Liases Foras, MOSL
Exhibit 3: Bangalore residential inventory has risen, but
mostly in the premium category (months)
Unsold inventory (years)
across segment
1.4
1.0
1.2
2.0
1.7
Exhibit 4: Prestige (PEPL) outperformed peers in presales
(annual) on the back of wide product diversification (INR b)
Sobha
PEPL
Purva
Brigade
43.7
36.3
31.1
22.2
14.9
7.9
23.4
16.0
13.4
21.0
14.2
14.3
Value
Homes
Budget
Homes
MIH
Premium
Luxury
FY13
FY14
FY15
Source: MOSL, Company
Source: Industry, MOSL
June 2015
3

Real Estate
Exhibit 5: Bangalore commercial supply v/s demand trend—
demand steady and strong with E-Commerce segment new
driver(msf)
Bangalore Supply
4.2
3.0
1.8
1.7
0.7
1.6
1.0
2.3
0.7
0.7 0.6
2.9 2.6
2.9
2.3
2.3
2.8
2.4
0.6
2.6
1.1
Bangalore Demand
Exhibit 6: Bangalore has the lowest commercial vacancy rates
(%) ~ augurs likelihood of rental uptick
40%
NCR
Chennai
Mumbai
India
Bangalore
3.6
4.0 3.8
4
3.2
33%
25%
18%
10%
Source: DTZ, MOSL
Source: DTZ, MOSL
Exhibit 7: Recent PE Deals in the Bangalore realty market
Entry Date Investor
15-May Piramal Fund
Management
15-Apr
Piramal
15-Jan
Motilal Oswal Real
Estate
15-Jan
Essel financial
Advisors and
Managers
14-Dec
Piramal Enterprises
14-Dec
14-Nov
14-Nov
PremjiInvest
Investee
Ozone Group
Asset
Ozone Urbania Township
City
Bangalore
Micro Market
Devanahalli
Electronic City
OMR
Kanakpura/JP Nagar
Deal Size (INR)
5,750
750
670
550
Shriram Properties Shriram Summit
Bangalore
Shriram Properties Shriram Greenfield - Mid Income Bangalore
Residential Project
Unicon Shelters
3 Residential Projects - Foland, Bangalore
White Leaf, Lake Reaf
KMB Estates
Residential cum commercial in
Bangalore, Srjapur
Windmills of Your Mind
Bangalore
Bangalore
Sarjapur Road
Whitefield
NA
Ashok Nagar (Van
Gogh's Garden)
600
700
1,000
2,000
Total Environment
Building Systems
Piramal Fund
Skylark
Peninsula Brookfield Total Environment
Investment
Building Systems
Managers
Amplus Capital
HDFC Investment
Trust & Superior
Investment Pvt ltd
(Singapore Based)
Jain Heights
Sterling urban
2 Projects in Bangalore
Bangalore
Construction and Refinancing of Bangalore
debt for Van Gogh's Garden
(Bangalore) and Songs from the
Wood (Pune)
Residential Project
Bangalore
Residential Project IN Whitefield, Bangalore
Bangalore has a total 147 units of
3 & 4 BHK
14-Nov
14-Oct
Yeshwantpur
Whitefield
368
600
Source: Industry, MOSL
June 2015
4

Real Estate
Sobha Developers: Scale-up guidance re-emphasized
Takeaways from interaction with Mr J C Sharma, MD
IT moderating as a key housing demand driver; new drivers in place.
Medium-term guidance of 7msf annual presales intact (despite current weakness),
assumes significant contribution from non-home markets.
Affordable products remain near-term success factor, replication of similar product
likely. Precast technology is likely to augment scalability.
The recent correction offers good entry to play on operational normalization. Buy with
a target price of INR480.
IT may no longer be main demand driver, but offsetting avenues in place
Overall housing demand
contribution from IT sector
would come down to 25%
v/s 33% now
Rising prominence of automation strategy across companies may lead to
moderation in IT sector hiring. The overall housing demand contribution from IT
sector would come down to 25% v/s 33% now (and 45-50% 3-4 years back).
However, parallel growth in other industries (including E Commerce is) is likely
to compensate the slowdown in IT hiring.
Macro would gradually improve real estate opportunity. Companies with strong
product quality and focus on right positioning would remain the preferred
brand.
Medium term ambitious guidance re-emphasized
Guidance assumes ~1msf
each from non-Bangalore
markets
The management reiterated annual presales target of 7msf by FY19 v/s 3.3msf
in FY15 (2x scale-up in the next 3-4years), despite it being ambitious on the back
of current weakness.
The above guidance assumes better macro support with targets of (a) ~1msf
each from non-Bangalore markets viz. Kerala (Thrissur, Cochin), NCR (Gurgaon),
Tamil Nadu (Chennai, Coimbatore) and others (Pune, Mysore) v/s 0.1-0.3msf as
on FY15, and (b) 2.5-3.5msf of run-rate in Bangalore (v/s 2.4msf in FY15).
No major foray into commercial segment till presales volume reaches 5-6msf.
Construction remains steady despite current weakness in absorption, and will
aid accumulated cash flow benefits in future when the demand recovers.
Product such as Dream Acres likely in future, precast a strong focus area
Recent foray into mid-ticket products (Dream Acres project; ~8msf in Bangalore)
has been received well and should contribute meaningfully to operational scale-
up from FY16 onwards.
Realized the need of strategic shift from overexposure in the premium segment
products to lower ticket products; it targets to launch such products in
Bangalore (Hoskote Nagondanahalli), Chennai (Shreeperumpudur) and Kochi
from FY17 onwards.
Strong focus is on enriching the learning curve in precast technology, which is
the key to aid huge scale for faster project turnaround.
June 2015
5

Real Estate
Valuation favorable post the recent correction
The stock corrected ~10% QTD in 1QFY16 (~20% from the quarterly peak),
factoring in renewed weakness in macro trends. Operational normalcy (as
revived in 4QFY15) seems sustainable on the back of new product (Dream Acre).
Sobha trades at 11x FY17E EPS, 1.3x FY17E BV and EV of ~9.3x FY17E cash
EBITDA. The recent corrections have made the stock attractive for operational
recovery play. Maintain Buy with a target price of INR480 (15% discount to SoTP
of INR550, implied 11x FY17E Cash EBITDA).
Exhibit 9: Bangalore dependence at peak now, needs gradual
reversal for 7msf of target (%)
Bangalore
100%
75%
50%
72 69 69 66 62 62 66 64 66 67 68 68 70 67 79 80
NCR
Chennai
Kerala
Others
Exhibit 8: New affordable products to end the weakness of
the past 2 years and drive presales FY16-17
Presales(INR b)
5,891
5,152
3,887
3,000
6.2
FY10
10.8
FY11
17.0
FY12
22.2
FY13
23.4
FY14
20.9
25.0
30.1
Realization (INR/sf)
6,540 6,389 6,411 6,607
25%
0%
FY15E FY16E FY17E
Source: MOSL, Company
Source: MOSL, Company
Exhibit 10: FY15 started seeing higher mix of lower-ticket
products, augurs well for Sobha’s future absorption
19%
17%
22%
33%
33%
25%
14%
2%
FY14
6%
FY15
Source: MOSL, Company
INR10-20m
INR5-10m
<INR5m
>INR30m
INR20-30m
Exhibit 11: IT contribution reducing as a % of total presales
volume
IT/ITES
Non-IT Professional
Business
Others
29%
43 39 36 37 38 37 40 37 40 38 41 36 34
33 31 32 33
Source: MOSL, Company
Exhibit 12: Sobha NAV Calculation
NAV Calculation FY17
Real Estate
Ongoing projects
FY14/1HFY15 launhes
Land bank
Contractual Business
Gross Asset Value (GAV)
Less: Net debt
Net Asset Value (NAV)
(INR m)
65,335
11,467
23,889
29,979
7,031
72,367
18,516
53,850
NAV/Share
666
117
244
306
72
738
189
550
Source: MOSL
June 2015
6

Real Estate
Exhibit 13: Cash flows should show recovery and accumulated benefits going ahead
INR b
Collections
RE
Contract
Construction outflow
RE
Contract
Approvals
Capex and others
Gross Cash flow
Tax Paid
OCF
Core OCF
Interest
FCFE
Dividend
Net CF
FCF
Core cash EBITDA
FY12
18.3
11.8
3.2
10.8
7.4
3.4
2.3
0.1
5.1
0.5
4.6
1.3
2.2
0.7
0.6
0.2
2.9
1.8
FY13
21.2
16.1
4.1
12.4
8.9
3.5
3
0.9
5
0.9
4.1
3.1
2.1
-0.5
0.6
-1
1.6
4
FY14
26.9
19.5
7.4
16.9
10.8
6.1
3.4
1
5.6
1
4.6
4.6
2
0.9
0.8
0.1
2.8
5.6
FY15
25.8
18.4
7.4
19.2
13
6.2
3.3
1.3
2.1
0.8
1.2
1.2
2.4
-5
0.8
-5.8
-2.6
2.2
FY16E
31.6
22.9
8.6
22.4
14.9
7.5
3.8
1.1
4.3
1
3.3
3.3
2.7
-0.3
0.8
-1.1
2.5
4.5
FY17E
35.7
26.6
9
24.2
16.3
7.8
3.9
1.7
6
1.3
4.6
4.6
3
0.8
0.8
0
3.8
5.9
Source: MOSL
June 2015
7

Real Estate
Financials and valuations – Sobha Developers
Income Statement
Y/E March
Net Sales
Change (%)
Construction expenses
Office and site establish. exps
EBITDA
% of Net Sales
Depreciation
Interest
Other Income
PBT
Tax
Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Loans
Deffered Tax Liability
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Other Current Assets
Current Liab. & Prov.
Creditors
Other Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
2010
11,299
16.0
2011
13,945
23.4
2012
14,079
1.0
2013
18,645
32.4
9,558
1,969
5,483
29.4
594
1,705
55
3,239
1,068
33.0
2,172
2,172
5.5
2014
21,734
16.6
8,840
2,684
6,025
27.7
690
1,734
103
3,704
1,368
36.9
2,350
2,350
8.2
2015
24,406
12.3
12,100
2,594
6,174
25.3
723
1,883
149
3,717
1,277
34.4
2,381
2,381
1.3
(INR Million)
2016E
2017E
26,604
30,652
9.0
15.2
14,177
2,926
7,029
26.4
792
2,518
200
3,919
1,293
33.0
2,567
2,567
7.8
15,523
3,494
8,545
27.9
874
2,868
200
5,003
1,651
33.0
3,293
3,292
28.3
1,530
2,637
23.3
323
693
39
1,658
275
16.6
1,341
1,341
24.5
1,532
3,600
25.8
278
860
51
2,514
669
26.6
1,813
1,813
35.1
1,694
4,665
33.1
388
1,165
65
3,177
1,076
33.9
2,060
2,060
13.6
2010
981
16,057
17,038
14,740
-52
31,727
2,942
1,513
1,429
632
27
36,459
11,101
4,430
826
20,102
2011
981
17,527
18,508
12,416
-74
31,174
3,164
1,791
1,373
647
37
36,816
10,685
4,310
230
21,592
2012
981
19,017
19,998
12,031
330
32,714
5,018
2,179
2,840
13
0
39,519
16,759
3,904
587
18,268
2013
981
20,386
21,367
13,536
638
35,643
5,895
2,773
3,122
13
2
45,295
19,018
6,935
670
18,672
2014
981
21,933
22,914
13,786
1,010
37,798
6,915
3,463
3,453
207
0
51,338
24,273
6,454
1,055
19,556
2015E
981
23,337
24,318
20,147
1,631
46,244
7,415
4,186
2,996
600
0
58,687
27,284
7,206
1,631
22,566
(INR Million)
2016E
2017E
981
981
25,100
27,590
26,081
28,570
23,647
24,147
1,631
1,631
51,566
54,614
8,564
4,978
3,586
560
0
68,941
32,723
7,449
4,027
24,742
9,713
4,978
4,735
1,495
0
75,406
36,169
7,050
4,599
27,587
10,695
5,984
4,166
545
25,764
27,852
7,699
6,757
4,715
942
29,118
31,174
9,658
8,272
5,712
1,386
29,861
32,714
12,955
11,518
5,818
1,437
32,340
35,643
17,298
15,832
5,818
1,466
34,040
37,798
16,118
14,620
7,078
1,498
42,569
46,244
21,601
19,953
9,311
1,648
47,340
51,566
27,101
25,288
11,035
1,813
48,305
54,614
June 2015
8

Real Estate
Financials and valuations – Sobha Developers
Ratios
Y/E March
Basic (INR)
Adjusted EPS
Growth (%)
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios
Debtors (Days)
Creditors. (Days)
Leverage Ratio
Debt/Equity (x)
Cash Flow Statement
Y/E March
PBT before Extraordinary Items
Add : Depreciation
Interest
Less : Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
(Inc)/Dec in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from Investments
(Inc)/Dec in Networth
(Inc)/Dec in Debt
Less : Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
2010
13.7
-7.5
17.0
173.7
2.5
18.3
2011
18.5
35.1
21.3
188.7
3.0
16.2
2012
21.0
13.6
25.0
203.9
5.0
23.8
2013
22.2
5.5
28.2
217.9
7.0
31.6
2014
24.0
8.2
31.0
233.7
7.0
29.2
2015
24.3
1.3
31.7
248.0
7.0
28.8
2016E
26.2
7.8
34.3
266.0
7.0
26.7
2017E
33.6
28.3
42.5
291.3
7.0
20.8
18.7
14.7
9.8
2.9
1.9
1.7
17.3
13.4
8.9
2.5
1.8
1.7
17.0
13.1
9.6
2.4
1.7
1.7
15.8
12.1
8.6
2.3
1.6
1.7
12.3
9.7
7.0
2.0
1.4
1.7
9.6
7.5
10.2
10.7
10.7
13.6
10.5
14.5
10.6
14.8
10.1
13.3
10.2
13.2
12.0
14.8
65
70
65
70
65
70
65
70
65
70
65
70
65
70
65
70
0.9
0.7
0.6
0.6
0.6
0.8
0.9
0.8
2010
1,658
323
693
275
-1,179
1,221
-137
1,084
0
-137
5,089
-4,581
693
287
-473
611
214
826
2011
2,514
278
860
669
217
3,200
-236
2,963
-10
-246
-21
-2,324
860
344
-3,549
-596
826
230
2012
3,177
388
1,165
1,076
-387
3,267
-1,221
2,046
37
-1,184
407
-385
1,165
574
-1,717
356
230
586
2013
3,239
594
1,705
1,068
-2,396
2,074
-877
1,198
-2
-878
308
1,505
1,705
803
-695
83
587
669
2014
3,704
690
1,734
1,368
-1,315
3,445
-1,215
2,230
2
-1,213
372
250
1,734
803
-1,915
385
670
1,054
2015
3,717
723
1,883
1,277
-7,953
-2,907
-659
-3,566
0
-659
447
6,361
1,883
803
4,122
576
1,055
1,630
(INR Million)
2016E
2017E
3,919
5,003
792
874
2,518
2,868
1,293
1,651
-2,375
-393
3,561
6,701
-1,343
2,218
0
-1,343
0
3,500
2,518
803
179
2,397
1,631
4,027
-2,958
3,743
0
-2,958
0
500
2,868
803
-3,171
572
4,027
4,599
June 2015
9

Real Estate
Prestige: Strategical evaluation underway
Replication of past success is the key
Targets 60-100% operational scale-up across businesses over the next 3-4 years via
consolidation, acquisitions and expansion. Strong focus on growth would keep gearing
>+0.75x over medium term.
Management’s ahead-of-the-cycle strategy and business prowess benefited in the
past; replication of the same would be the key amidst various challenges.
We value PEPL at INR320/share. Maintain Buy.
Four-pronged strategy to boost next growth avenue
Prestige Estate (PEPL) shared its four-pronged strategy to drive the next leg of
growth amidst challenges of (a) high base effect and (b) moderation in Bangalore
housing demand growth. They strategy comprises: (a)
Consolidation at home:
New
micro location entry in Bangalore to drive housing market share ~20% over next 3-4
years v/s ~15% now; (b)
Build-Acquire:
Buying out partners’/peers’ stakes in select
assets to drive inorganic expansion; (c)
Selective expansion
in newer markets like
Pune and Mumbai at cautious pace (limited initial capital outlay of INR2b) to combat
any future risk of home market saturation; (d)
Better process management:
Implementation of SAP to establish better control on growing scale.
Mid-teen annual growth in Dev Co, 2x scale-up in rentals in 3-4years
Targets INR57.5b-60b total annual presales in FY16 (marginally above est.) and
INR80b-100b by the next 3-4 years (v/s INR50b in FY15) on the back of launches
and delivery of 12-15msf and 15-20msf respectively.
Annual leasing scale-up of 1.5-2msf to 3-4msf gradually as currently no major
completed assets are under offer. Exit rentals of INR4.5b-5b in FY16 (v/s est. of
INR4.4b) and INR8.5b-9b by the next 3-4 years (v/s the current INR3.9b).
In ongoing assets (~INR3b rental), ~80% of leasing risk is mitigated and ~70%
bank funding tie-ups is in place. PEPL’s completed annuity assets earn 17-18%
yields. The company would be open to evaluate redeployment opportunity
(REIT, etc.) for select assets that would be reaching peak yields with limited
further upside.
Valuation: Replication of past success amidst market challenges is the key
The commercial market in Bangalore offers strong dynamics with sign of rental
re-rating, which would benefit the upcoming supply of the company (PEPL has
25-26% market share in new leasing).
In development business, replicating the past success would be crucial as foray
into new geographies would throw new challenges and incremental home
market penetration would be tougher here on.
Nonetheless, PEPL seems well prepared with strong launch pipeline (at the
beginning of FY16) and well thought out plan to combat challenges.
We value PEPL at INR320/share (NAV based with implied FY17E EV/cash EBITDA
of 12x). The stock trades at 17x FY17E EPS, 2x FY17E BV (RoE of 14.5%), and at
an EV of 10x FY17E cash EBITDA. Maintain
Buy.
June 2015
10

Real Estate
Exhibit 14: Presales trend and PEPL’s estimated market share
in Bangalore
Exhibit 15: PEPL annual presales growth (INR b)
Presales (msf)
Market share (%) RHS
10
12
56
36
14
22
44
80
8
5
9
1.9
FY11
4.9
FY12
6.0
FY13
6.1
FY14
6.7
FY15
FY11
FY12
FY14
FY15
FY17E FY19 Target
Source: MOSL, Company
Source: MOSL, Company
Exhibit 16: Cash collections run-rate expected to continue
growth (INR b)
60.9
42.7
Exhibit 17: Future assets offer visibility of INR5b+ additional
rentals
Annualized rentals (INR b)
Area under operations (msf)
8.3
9.3
8.5-9
14
32.3
13.5
19.7
24.8
37.4
7.3
4.0
1.9
4.4
2.3
FY13
5.5
3.1
FY14
4.0
FY15
5.0
6.5-7
FY12
FY13
FY14
FY15
FY16E
FY17E
FY19
Target
FY12
FY16E
FY17E
FY19
Target
Source: MOSL, Company
Source: MOSL, Company
Exhibit 18: PEPL gearing trends (rise to aid operations scale
up)
Net debt (INR b)
Net debt/EBITDA (x) RHS
5.4
3.0
3.1
3.5
11.3
0.5
FY11
15.9
0.8
FY12
17.9
0.8
FY13
25.2
0.9
FY14
Exhibit 19: NAV Calculation
net DER (x) RHS
Particulars
Residential
Commercial-sale
Commercial-lease
Retail
3.2
3.2
2.8
Hotel
31.6
36.8
Project Management
39.4
Land bank (360 acres)
Gross Asset Value
0.9
0.9
0.9
Less: Debt
FY15
FY16E FY17E
Less: Other Op Exp
Less:Tax
Source: MOSL, Company
Add: Land advances
Net Asset Value
INR m
NAV/share
79,391
212
9,780
26
61,555
164
28,647
76
9,930
26
2,268
6
4,656
12
196,226
523
29,038
77
8,271
22
47,326
126
8,000
21
119,591
320
Source: MOSL, Company
June 2015
11

Real Estate
Exhibit 20: PEPL Operating Metrics
INR b
Total collections
Qtrly run-rate
Commercial (Lease)
Retail
Total Annuity
Hotel
PMS
Others
Total cash inflow
Construction cost
Qtrly run-rate
Annuity capex
Qtrly run-rate
Hotel Capex
Operating cost
Tax expense
Land Payment
Stake buy back
QIP
FCF
Interest and Dividend
Net surplus
Increase in net debt
Cash EBITDA
Core FCFE
FY12
13.5
3.4
1.5
0.4
1.6
0.4
0.4
0.3
16.3
7.1
1.8
4.2
1.1
0.7
1.6
1
2
1.5
-1.8
2.5
-4.3
4.6
2.4
-1.2
FY13
19.7
4.9
1.7
0.4
2.2
0.4
0.4
0.6
23.3
10.7
2.7
4.9
1.2
1
2.2
1.1
4.2
1.6
3.5
1.2
3.2
-2
2
3.9
-0.4
FY14
24.8
6.2
2.1
0.6
2.7
0.4
1
1
29.8
16.5
4.1
5
1.3
1
3.9
1.8
5
FY15
32.3
8.1
2.1
0.8
3.3
0.8
3.3
1
40.7
28.4
7.1
3.5
0.9
0.9
2.8
2.6
7.7
1.8
6.1
-0.9
6.1
-7
6.4
4.1
-4.6
FY16E
37.4
9.4
3.2
1.2
4.4
0.9
3.3
1
47
27.7
6.9
4.3
1.1
1.2
4.7
2.5
4
2
0.6
5.9
-5.3
5.1
8.2
-0.3
FY17E
42.7
10.7
4
1.8
5.8
1.3
3.3
1
54.1
30.2
7.5
4.6
1.1
1
5.2
3.3
4
2
3.9
6.3
-2.4
2.6
12.2
2.6
FY18E
48.1
12
4.8
2.5
7.3
2
3.3
1
61.7
31.6
7.9
5
1.3
1
5.9
3.7
10
3
1.5
6.8
-5.3
5
17.2
6.7
Source: MOSL
-3.3
4.4
-7.7
7.4
2.5
-3.7
June 2015
12

Real Estate
Financials and valuations – PEPL
Income Statement
Y/E March
Net Sales
Change (%)
Construction expenses
Staff Cost
Selling & Adm. exp
EBITDA
% of Net Sales
Depreciation
Interest
Other Income
PBT
Tax
Rate (%)
Reported PAT
EO Income (net of exp)
Adjusted PAT
Change (%)
2010
10,244
14.1
7,033
490
485
2,236
21.8
491
783
616
1,579
283
17.9
1,296
179
1,475
90.8
2011
15,431
50.6
10,479
548
666
3,739
24.2
606
1,234
682
2,581
914
35.4
1,667
43
1,710
15.9
2012
10,523
-31.8
5,965
894
697
2,966
28.2
605
1,193
342
1,510
626
41.5
884
-58
826
-51.7
2013
19,476
85.1
11,518
1,444
723
5,791
29.7
682
1,489
636
4,256
1,314
30.9
2,941
-82
2,860
246.2
2014
25,492
30.9
15,215
1,610
1,464
7,203
28.3
893
2,290
975
4,995
1,750
35.0
3,245
-102
3,143
9.9
2015
34,198
34.2
20,265
2,290
1,704
9,939
29.1
1,397
3,214
986
6,314
2,647
41.9
3,668
-344
3,324
5.8
2016E
39,170
14.5
23,360
2,519
1,841
11,450
29.2
1,562
3,620
1,000
7,268
2,544
35.0
4,724
-350
4,374
31.6
(INR Million)
2017E
46,412
18.5
27,582
2,771
2,181
13,877
29.9
1,782
3,890
1,200
9,404
3,291
35.0
6,113
-500
5,613
28.3
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Loans
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Current Liab. & Prov.
Sundry creditors
Provisions
Net Current Assets
Application of Funds
2010
2,625
5,013
7,638
16,015
26,374
11,307
2,065
9,242
2,054
23,194
12,506
3,627
1,729
5,332
10,821
10,206
615
12,374
26,374
2011
3,750
17,862
21,612
15,203
39,055
13,163
2,971
10,192
2,936
35,291
14,743
9,346
3,781
7,422
13,042
9,210
3,833
22,249
39,055
2012
3,281
18,229
21,510
18,829
43,007
17,427
3,565
13,862
5,216
36,965
16,133
8,490
2,013
10,329
16,257
13,745
2,511
20,708
43,007
2013
3,500
23,923
27,423
25,467
55,509
20,058
4,251
15,807
9,123
46,426
18,048
8,010
4,880
15,488
21,976
20,432
1,544
24,450
55,509
2014
3,500
26,292
29,792
30,685
63,467
24,393
5,143
19,251
9,955
56,805
26,463
7,258
3,395
19,689
29,887
28,089
1,798
26,918
63,467
2015E
3,750
34,456
38,206
38,528
80,709
26,401
6,540
19,862
12,955
82,905
43,985
8,840
5,368
24,712
42,828
40,481
2,347
40,078
80,709
2016E
3,750
38,172
41,922
41,922
87,819
30,401
8,102
22,299
14,955
92,101
49,705
9,401
3,617
29,378
49,351
47,004
2,347
42,750
87,819
(INR Million)
2017E
3,750
43,126
46,876
44,533
95,384
34,401
9,884
24,517
16,455
102,317
55,980
11,139
3,639
31,560
55,720
53,373
2,347
46,597
95,384
June 2015
13

Real Estate
Financials and valuations – PEPL
Ratios
Y/E March
Basic (INR)
Adjusted EPS
Growth (%)
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Leverage Ratio
Debt/Equity (x)
2010
3.9
90.8
6.8
29.1
0.0
0.0
2011
4.6
15.9
6.1
58
1.2
30.8
2012
2.2
-51.7
4.5
66
1.2
55.8
2013
7.6
246.2
10.4
78
1.2
17.2
2014
9.0
17.7
11.8
85
1.5
19.5
2015
8.9
-1.3
13.5
102
1.5
19.8
2016E
11.7
31.6
16.8
112
1.5
15.0
2017E
15.0
28.3
125
1.5
11.7
28.5
21.7
16.2
4.6
3.0
0.6
28.9
19.0
13.0
3.8
2.5
0.6
21.9
15.3
11.7
3.4
2.3
0.6
17.1
12.2
9.9
2.9
2.0
0.6
19.3
10.3
7.9
11.7
3.8
6.6
10.4
11.7
10.5
12.2
8.7
13.2
10.4
12.9
12.0
14.5
1.9
0.5
0.8
0.8
0.9
0.9
0.9
0.9
Cash Flow Statement
Y/E March
PBT before EO Items
Add : Depreciation
Interest
Less : Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
(Inc)/Dec in FA
Free Cash Flow
(Pur)/Sale of Invest.
CF from Investments
(Inc)/Dec in Networth
(Inc)/Dec in Debt
Less : Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
2010
1,579
491
783
283
4,522
-1,913
-1,340
-3,253
-484
-1,824
-51
4,890
783
0
4,057
320
1,410
1,729
2011
2,581
606
1,234
914
7,919
-4,740
-2,438
-7,178
-1,070
-3,508
12,896
-812
1,234
526
10,324
2,052
1,729
3,781
2012
1,510
605
1,193
626
227
2,247
-6,556
-4,309
938
-5,618
53
3,626
1,193
461
2,025
-1,769
3,781
2,013
2013
4,256
682
1,489
1,314
875
1,273
-6,533
-5,260
-9
-6,542
4,556
6,638
1,489
491
9,214
2,868
2,013
4,880
2014
4,995
893
2,290
1,750
3,952
2,326
-5,168
-2,843
-1,137
-6,305
-207
5,218
2,290
614
2,107
-1,484
4,880
3,396
2015
6,314
1,397
3,214
2,647
11,188
-3,109
-5,008
-8,117
100
-4,908
5,698
7,843
3,214
658
9,669
1,973
3,395
5,368
(INR Million)
2016E
7,268
1,562
3,620
2,544
4,423
5,283
-6,000
-717
0
-6,000
0
3,394
3,620
658
-884
-1,751
5,368
3,617
2017E
9,404
1,782
3,890
3,291
3,826
7,757
-5,500
2,257
0
-5,500
0
2,611
3,890
658
-1,938
21
3,617
3,639
June 2015
14

Real Estate
NOTES
June 2015
15

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Real Estate
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