14 May 2018

Sunteck Realty

B&K Research [email protected] +91-22-4031 7000 Sunteck Realty Not Rated

VISIT NOTE A play on ’s real estate MID CAP Sunteck Realty (SRIN) is a real estate developer based in Mumbai. It is present Share Data across all residential segment, be it ultra-luxury, premium or mid income Price (Rs) 435 BSE Sensex 35,536 housing segment with some presence in the commercial realty sector as well. Reuters code SUNT.BO • BKC projects to augment cash generating capacity: The BKC projects Bloomberg code SRIN IN Market cap. (US$ mn) 945 catering to the premium and luxury markets are high value complete 6M avg. daily turnover (US$ mn) 2.41 inventories available with SRIN. With 22 unsold units at Signature Islands, Issued shares (mn) 146 and 35 in Signia projects, we believe the BKC projects to register decent Performance (%) 1M 3M 12M Absolute 61397 cash flows going forward. Relative 3 9 72 • ODC project, add on to company’s growth: While BKC is surely the CBD of Key Financials Mumbai, the relatively new District Centre (ODC) will be the Year to 31 Mar FY15 FY16 FY17 EPS (Rs.) 11.4 3.8 17.0 next upcoming location in North Mumbai stimulating housing demand +/- (%) (54.9) (66.3) 343.6 and spurring all-round development. With SRIN having a developable PER (x) 11.0 29.6 11.2 area of 5.7 msf, we expect the ODC projects to be a significant booster for PBV (x) 0.5 0.4 1.3 Dividend/Yield (%) 0.8 1.8 0.8 thecompany’sgrowth.SRINhasdemarcatedSunteckAvenue(1-4)and EV/Sales (x) 5.5 7.2 3.2 Avenue (5-6) for residential and commercial development, respectively. EV/EBITDA (x) 12.3 73.1 8.8 • Foray into mid-income housing: Recently, SRIN announced its ambitious Shareholding Pattern (%) Promoters 67 affordable housing project in Naigaon with a development potential of 10 FIIs 22 mn sq ft. Naigaon enjoys the added advantage in terms of pricing and MFs 4 BFSI's 2 location. This will enhance SRIN’s presence across all the pricing segments Public & Others 5 along with tax benefits, subsidies to buyers, etc. Relative Performance B&K’s view 500 400 300 We believe SRIN’s presence across the pricing spectrum, robust execution 200 track record, lowest leverage among the sector (Net Debt/Equity – 0.2x) are 100 definitely the factors which will drive the growth of the company. Aided by 0 the reviving sector health and post RERA benefits accruing to organised Oct-17 Oct-16 Oct-15 Oct-14 Oct-13 Oct-12 Apr-18 Apr-17 Apr-16 Apr-15 Apr-14 Apr-13 Apr-12 players, we believe there are visible signs of green shoots for SRIN, stemmed Sunteck Realty (Actual) Sensex by the unexplored plausible opportunities that lie ahead! 2 Index Page No. Company description and Structure 4-11 Investment highlights and Key risks 12-14 Investment Thesis 15-36 Real Estate sector – Holistic view and outlook 37-45 Peer comparison 46-47 Detailed consolidated financials 48-50 Company description and Structure Company description

● MMR concentric real estate developer – SRIN is a real estate developer based in Mumbai. It caters to the ultra- luxury, luxury and premium residential segment with some presence in the commercial realty sector as well. The company focusses on a city centric development portfolio of about 23 mn sq ft spread across 25 projects. The residential segment contributes to ~70% of the total development portfolio, with the rest being in commercial space. SRIN is developing a number of its ongoing and plannedprojectsjointlywithvariousotherdevelopersand we believe this partnership enables it to reduce its capital commitment and forge a stronger brand image. Over the past decade, the company has acquired land in the heart of Mumbai, BKC and ODC, , which has proven positive in creating wealth for the company.

● Differential brand strategy, holistic presence in all segments: The company adopts a differential branding scheme for different segments in the real estate that well resonate the product offering across the residential and commercial developments. It has four major brands as on date, which are 1) Signature for Ultra Luxury segment, 2) Signia for Super premium segment, 3) Sunteck City for large format mixed development and 4) Sunteck for the commercial realty segment. These brands provide premium positioning in every market segment. Existing brands for mixed, premium and luxury segment New mid segment brand to come soon…

New Brand for Affordable housing to be announced soon

Source: Company, B&K Research 5 Corporate structure

MFs, FIIs – 25.1% - Pabrai Investment Funds - 8.3% Promoters and Promoter - L&T Mutual Fund Trustee Ltd. – 3.6% Public, Others Group - Birla Sun Life Trustee Company – 1.3% 8.2% 66.7% - Fil Investments (Mauritius) Ltd. – 2.2% - Insurance companies – 2.3%

Sunteck Realty Ltd.

JV with Piramal Enterprises (50%) Company and Other JV/JDA Piramal Sunteck Realty (P) Ltd .

- Signia Oceans, - Signature Islands, BKC (87.5%) - Signia Sky, Nagpur - Signia Isles, BKC (93.5%) - Sunteck Signia City, Jaipur - Signia Pearl, BKC (93.5%) - 1 - Sunteck City Avenue 1-6 - South Mumbai 2 - Sunteck Grandeur – (100%) - Sunteck Icon, BKC (56.5%) - Signia High, (100%) - Signia Pride, Andheri (100%) - Signia Gardens, (100%) - Signia Hills, Andheri (100%) - Sunteck Gateway 51, BKC (55%) - Dubai Project - Sunteck Centre – Vile Parle - Sunteck Kanaka Corporate Park, Goa - Sunteck Crest, Sion - Sunteck Signia City, Jaipur

Source: Company, B&K Research 6 Sunteck projects at a glance – Snapshot

SRIN SRIN Total Sold till Unsold Total Unsold/ Exp Area Collec. Amt Avg Current Project Details Status DoC Type Stake Area area now area Sales total Cost of (msf) Till date Receivable realisation Rates (~) (%) (msf) sold (%) (msf) (msf) Till date units Cons.

Signature Islands, BKC Completed 100.0% Residential 0.64 87.5 0.56 61.7 0.35 0.29 12,489 12,165 325 35,683 22/64 57,000 NA Signia Isles, BKC Completed 100.0% Residential 0.4 93.5 0.37 84.4 0.32 0.08 10,636 8,601 1,365 31,144 12/76 49,000 NA Signia Oceans, Airoli Completed 100.0% Residential 0.16 50 0.08 100 0.08 – 1,223 1,223 – 7,650 Sold – NA Signia Sky, Nagpur Completed 100.0% Residential 0.14 50 0.07 63.9 0.04 0.1 224 224 – 5,598 13/36 7,500 NA Sunteck Grandeur- Andheri Completed 100.0% Commercial 0.07 100 0.07 100 0.4 – 891 370 521 12,728 Sold – NA Sunteck Kanaka, Goa Completed 100.0% Commercial 0.11 50 0.06 58.7 0.03 0.08 260 237 23 8,659 – 10,000 NA Signia Pearl, BKC Under Construction 99.9% Residential 0.43 93.5 0.4 71.7 0.29 0.14 9,204 7,890 1,314 31,738 23/80 49,000 7,000 Sunteck City- Av 1, ODC Under Construction 65.0% Residential 0.73 100 0.73 49.2 0.36 0.37 4,020 2,540 1,480 11,167 240/465 15,500 3,800 Sunteck City- Av 2, ODC Under Construction 31.0% Residential 0.63 100 0.63 46.1 0.29 0.34 4,116 1,448 2,668 14,193 288/536 15,500 3,800 Signia High, Borivali Under Construction 93.4% Residential 0.24 100 0.24 38.6 0.09 0.15 1,108 842 266 12,311 48/81 15,000 4,500 Signia Waterfront, Airoli Under Construction 37.0% Residential 0.29 50 0.15 42.3 0.06 0.23 548 265 284 9,141 94/172 15,000 3,750 Signia Pride, Andheri Under Construction 22.0% Residential 0.05 100 0.05 – – 0.05 – – – – 0/19 25,000 4,000 Sunteck City- Av 3, ODC Under Development 0.0% Residential 0.88 100 0.88 – – 0.88 – – – – – 16,500 3,500 Sunteck City- Av 4, ODC Under Development 0.0% Residential 0.86 100 0.86 – – 0.86 – – – – – 16,500 3,500 Sunteck City- Av 5, ODC Under Development 0.0% Commercial 1.2 100 1.2 – – 1.2 – – – – – 150/m/sf 3,300 Sunteck City- Av 6, ODC Under Development 0.0% Commercial 1.36 100 1.36 – – 1.36 – – – – – 150/m/sf 3,300 Sunteck Crest, Sion Under Development 0.0% Commercial 1.58 50 0.79 – – 1.58 – – – – – 23,000 4,000 Sunteck icon, BKC Under Development 0.0% Commercial 0.17 56.5 0.1 – – 0.17 – – – – – 25,000 4,500 Signia Gardens, Vile Parle Under Development 0.0% Residential 0.17 100 0.17 – – 0.17 – – – – – 20,000 4,000 Sunteck Signia City, Jaipur Under Development 0.0% Commercial 8.57 50 4.29 – – 8.57 – – – – – 9,000 4,000 Signia Hills, Andheri Under Development 0.0% Residential 0.06 100 0.06 – – 0.06 – – – – – 20,000 4,000 South Mumbai 1 Under Development 0.0% Residential 1.79 50 0.9 – – 1.79 – – – – – 30,000 4,000 South Mumbai 2 Under Development 0.0% Residential 1.12 50 0.56 – – 1.12 – – – – – 30,000 4,000 Dubai Under Development 0.0% Mixed 0.83 50 0.42 – – 0.83 – – – – – – – Sunteck Gateway 51, BKC Under Development 0.0% Commercial 0.17 55 0.09 – – 0.17 – – – – – 25,000 4,500

Naigaon- Afford. Housing Under Development 0.0% Mixed 10 100 10 – – 10 – – – – – 6,500 2,250

Source: Company, B&K Research 7 Sunteck projects at a glance – Geographic view

Sunteck Signia City, Jaipur

Sunteck Kanaka, Signia Skys, Goa Nagpur

Source: Company, B&K Research 8 Key charts – Financial information

Net revenue and EBITDA Cash PAT

10,000 50 2,500 44 9,000 45 2,062 8,000 38 40 37 2,000 7,000 35 30 1,636 6,000 30 1,524 1,500 5,000 25 9,256 9,522 Rs mn 4,000 20

6,816 Rs mn 3,000 15 1,000 10 701 2,000 10 3,028 1,000 2,434 5 2,785 1,339 239 3,481 2,589 500 252 0 0 Mar-14 Mar-15 Mar-16 Mar-17 9MFY18 0 Net Sales EBITDA EBITDA Margin Mar-14 Mar-15 Mar-16 Mar-17 9MFY18

Source: Company, B&K Research Net debt, Net debt/EBITDA and EBITDA/Interest Capital employed

12 60 25 23.6 11.4 9.6 10 47.7 50 8.5 20 17.9 8 40 15.7 16.0 5.7 15 6 30 x

Rs bn 4.8

4 16.4 20 Rs bn 10

5.5 2 7.6 7.6 8.0 10 2.0 5 4.0 4.0 1.4 2.4 7.1 1.4 0 0 Mar-14 Mar-15 Mar-16 Mar-17 9MFY18 0 Net Debt Net Debt/EBITDA EBITDA/Interest Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 1HFY18 (Post QIP)

Note: Net debt as on 1HFY18 (adjusted for QIP). Source: Company, B&K Research. 9 Management background

Name Designation Qualifications and Previous Experience

Mr Kamal Khetan Chairman & Managing • An Electronics and Communication engineer from Mangalore University. Director • Over two decades of experience in Real Estate Industry. • Engaged in the overall business management, execution and strategy.

Mr Atul Poopal Executive Director • A civil engineer with more than 30 years of experience in regulatory field. • Profound knowledge of regulation/acts governing development. • In-depth insight in conceptualising, planning, devising and streamlining approval process.

Ms Rachana Hingarajia Non-Executive Women Director • CS & LLB by qualification; over 10 years of experience in Compliance function. • Associated with the group for more than eight years; on Board since March 2015.

Mr Kishore Vussonji Independent Director • A Solicitor with Bombay Incorporated Law Society and an Advocate with the Bar Council of . • On Board since 2008; partner of Kanga & Co. • Over 4 decades of experience in Real Estate transactions in Mumbai.

Mr Ramakant Nayak Independent Director • A certified associate of Indian Institute of Banking and also holds a degree of Science and Law. • On board since 2010; has held leadership positions with Bank of Maharashtra, Saraswat Co- Operative Bank and others; over 4 decades of experience in the field of Commercial Banking.

Mr Mahadevan Kalahasthi Independent Director • A Qualified Practicing Chartered Accountant and Bachelors of Commerce. • On board since 2007; Chairman of Audit/Investors’ Grievance/Compensation Committee. • Over 3 decades of experience in audits, taxation, corporate governance compliances, mergers & acquisitions. 10 Key milestones

EVOLUTION EXPANSION • Ventured into real estate • 2.2 msf to be delivered in the next development with the acquisition 2-3 years worth revenues of Rs of Signature Island (1st residential 34,000 mn. plot at BKC). • Focus on city-centric acquisitions • PartneredwithIndiaREITstofund through asset-light strategy such acquisition. as,JDA,DistressedAssets • Kotak Realty Fund invests Rs. purchases, DM Model. 1,400 mn (~US$ 22 mn) in the 1st • To launch Sunteck City 3rd Avenue Before 2013- entity level PE transaction. and 4th Avenue. 2006 • Formed a 50:50 JV with Ajay 2015 • Sunteck City to create a rental Piramal Group for real estate portfolio of ~Rs 2,700 mn p.a. for development. SRL. • Ongoing and Upcoming Projects sufficient for development over the next four-five years. FOUNDATION EXECUTION & VALUE CREATION • Substantial value creation in • Operations started as a 10projectslocatedinBKC, Business Center Operator with ODC – Goregaon and Airoli 4 rented assets located at BKC, with regards to positioning and Vile Parle and Andheri. capital appreciation. • Blue-Chip clientele such as 2007- 2016 • 2.5 msf delivered during this Intel, HP, Visa, Cable & 2012 period worth revenues of Rs After Wireless, Schlumberger, Ola 45 bn. Cabs and others. • Signature Island achieves • Rental Realisation @ Rs 125- status as the most luxurious 175 psf – monthly residential project of the • No LRD/Debt on the rental country. asset.

Source: Company, B&K Research 11 Investment highlights and Key risks Investment highlights

● BKC and ODC: The key projects – The niche which SRIN has created is through its landmark projects in BKC (Signature Islands, Signia Pearls, Signia Isles) and in ODC, Goregaon (the upcoming Sunteck Avenue project). While the projects in BKC are residential projects catering to ultimate luxury and premium customers, ODC project will be a mixed development project, with residential, commercial and retail spaces. A significant amount of cash flows is expected to come from these projects in the coming years.

● New venture into mid-income level segment – The company has recently forayed into the mid income level segments. The project entails development of 100 acres with a potential developable area of 10 msf. This will lead to perfect diversification across the pricing spectrum, along with Government incentives, like tax exemptions, subsidies to buyers, etc.

● Infusion of fresh capital, net debt-to-equity reduces – The net debt/equity of SRIN ballooned to 1.2x in FY13, which the company brought down to 0.7x in FY16. To keep it further under control, and also to fund construction in upcoming projects, it came up with a successful QIP issue of Rs 5 bn, along with infusion by promoters to the tune of Rs 1.5 bn. This led to a drop of net D/E ratio to just 0.2x (1HFY18 adjusted for QIP), lowest in the industry.

● Keeping balance sheet asset light with JV-JDA approach – To keep the balance sheet asset light and debt under control, the company adopts a well thought strategy of developing projects through JVs and JDAs. This allows the company to build a capital-efficient business by stripping away the investment on land purchase and allowing a greater focus on value addition. This enables the company to earn high RoE with low investment and at the same time maintaining low leverage and low cost of debt.

● Mumbai’s experienced and old player – Sunteck group was founded by Mr Khetan in the year 2000. The first project started in 2005 and since then the company has continuously developed new projects. With almost a decade’s experience in MMR markets, the company is known for entering into promising markets at an early stage.

13 Key risks

• Negative real estate market sentiment – Lately, real estate market in India has seen a sluggish trend suffered throughweaksalesandhighvacancyrates.Highunsoldunder-construction inventory at high prices with SRIN is one of the key risks to our valuations. o With government initiatives like affordable housing, smart cities mission, implementation of RERA, implementation of GST, demand in the real estate space is again recovering and is expected to improve and sustain in the near-term. • Being Mumbai centric player can hit hard: SRIN is a Mumbai specific player, with almost 14.5 msf of the total developable area being in Mumbai. Any slowdown in the Mumbai real estate market can lead to weak financial performance. o With real estate sector becoming more regulated, we expect Mumbai markets to develop as well. Further, with major projects being in Oshiwara and BKC, the prime locations of the city, we expect the company to maintain and register strong cash inflows. • Unsold inventory of large ticket size flats: The company’s three BKC projects itself have a inventory of 57 unsold units (expected realisation for Signature Project – Rs 57,000/sq ft and Rs 49,000 for Signia projects). Since these are large ticket size flats company may find liquidating the inventory tough, which could ultimately result in delay in collections. o The sale of large ticket size flats was basically marred by the recent events, like demonetisation, RERA, GST, etc. With transition phase now coming to an end, we expect the demand to pick-up again across segments.

14 Investment thesis BKC – The luxury housing destination of Mumbai

● BKC emerging as the financial hub of the city offers high growth prospects. Over the last decade, - Complex (BKC) has emerged as an important business district of Mumbai and a base for financial services firms in India, backed by a robust infrastructure development in the region and incentives such as higher Floor Space Index (FSI). In BKC the company has the most aspiring Signature Island project (ultra luxury accommodations), while there are two Signia projects (Super premium residentials) as well.

Sunteck projects in BKC ● As per the BKC planning proposal, out of 370 acres, 23% of the area was reserved for the residential segment, while 40% and 37% was kept for commercial and social purposes.

● Around 50 acres of land has been approved by MMRDA to set up an International Financial Service Centre (IFSC), and some further area to set up a finance SEZ. Establishment of IFSC will further attract other companies to setup offices as tax benefits are available to IFSCs. As on date Gujarat Int. Fin Tech is the only IFSC in the country.

● BKCthushousesanumberoftopMNCs,Banksand Financial Institutions, with most companies having there corporate offices there.

● With top notch professionals, working in BKC, the place is definitely a top luxury housing destination in Mumbai, driven by HNIs, NRIs, industrialists and CxOs. Luxury residentials include Radius Ten, Kanakia

Source: Company, B&K Research Paris, Seasons, etc. 16 BKC residential – Early mover advantage to SRIN

Key advantages to SRIN

● It had bid for residential areas in 2006-07 when the area was in a nascent stage of development and had its presence in only commercial operations. SRIN’s vision of how it could become the top luxury destination at an early stage has added an impetus to the overall growth of company.

● It bought the Signature Island land on FSI basis at a premium to ready properties in nearby locations of Kalanagar, Kalina in 2007. Had bid for adjoining land parcels for Signia Isles and Signia Pearl in 2009 and 2010 at 3-4x of the bid for Signature Island to maintain exclusivity.

● All three projects have received Occupational certificates and are RERA compliant.

● With almost 57 unsold units in these three projects, a huge cash flow is still to be received by the company.

● Recently, 3 units in Sunteck Isles were sold for Rs 670 mn, as compared to Rs 600 mn in last quarter (+11% YoY).

Average price trend – BKC – Constant appreciation! Pricing of peer luxury residential projects

30,000 Project Name Location Developer Realisation (per sq ft) 28,000 26,435 26,435 26,625 26,625 26,350 26,350

25,925 25,925 Signature Island BKC Sunteck Group Rs 57,500 28,730 28,730 25,670 25,670

26,000 28,092 24,480 24,480 24,395 24,395 Signia Isles BKC Sunteck Group Rs 48,000 24,012 24,012 24,000 Signia Pearls BKC Sunteck Group Rs 48,000 Rs per Sqft 22,500 22,500

22,000 Naman Residency BKC Naman Group Rs 35,150 20,825 20,825 Kanakia Paris BKC Kanakia Group Rs 32,000 20,000 Ten BKC BKC Radius Developers Rs 31,000

4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 Seasons BKC Rustomjee Rs 30,000

Source: Company, B&K Research Note: Prices on built-up area. Source: Company, 99acres.com, B&K Research 17 BKC residential projects – Status

Project name Signature Island Signia Isles Signia Pearls

Status Completed Completed Under Construction

Developed (%) 100.0 100.0 99.9

Type Residential Residential Residential

Area msf (msf) 0.64 0.4 0.43

SRIN stake (%) 87.5 93.5 93.5

SRIN area (msf) 0.56 0.37 0.4

Total area sold (%) 61.7 84.4 71.7

Sold till now (msf) 0.35 0.32 0.29

Unsold area (msf) 0.29 0.08 0.14

Total sales (Rs mn) 12,489 9,966 9,204

Average realisation (Rs/sq ft) 35,683 31,144 31,738

Current rates (~) (Rs/sq ft) 57,000 49,000 49,000

Total collections (Rs mn) 12,165 8,601 7,890

Receivables (Rs mn) 325 1,365 1,314

PV of total sales value (inventory) (Rs mn) 12,947 4,058 6,404

Costs to be incurred and taxes (Rs mn) 3,300 769 1,523

Debt repayments (Rs mn) – 560 917

Net surplus (NPV) (Rs mn) 9,647 2,729 3,964

Source: Company, B&K Research 18 Signature and Signia Projects – Luxury segment

The three landmark BKC projects

Source: Company, B&K Research 19 ODC project – The upcoming CBD

● Oshiwara District Centre (ODC), Goregaon in which SRIN’s ambitious Sunteck City (the largest mixed-use development) project is being worked upon, will definitely mark a new growth trajectory for the company.

● MMRDA is set to develop the ODC as the next mega-planned growth centre after Bandra-Kurla Complex (BKC). ODC, which is spread across 160 acres, is expected to gain momentum with the upcoming infrastructure development to become the new growth story of Mumbai.

● The current social infrastructure in and around ODC could make it the next Central Business District (CBD) of like BKC. MMRDA has proposed ODC as the next mega-planned growth centre after BKC. Sunteck City – ODC project ● MMRDA has already developed two flyovers connecting East to West, Ram Mandir Station on the western railway line. Road widening work at six 90ft roads at ODC is ongoing.

● Goregaon is a hub of mid/back-offices of Corporates at business parks including Nirlon, Nesco, Mind Space, Infinity Park, Lotus, etc.

● ODC is set to tread on similar footsteps of BKC. Appreciation in the existing residential projects has been in the range of 25% to 30% compared to 2013 prices. ODC is expected to witness positive movement in rates in the next two-three years.

Source: Company, B&K Research 20 ODC – Well poised to soar high

● in South Mumbai (the traditional CBD) was the preferred location for high-grade office occupiers, and therefore commercial office space investors. Which later on shifted to BKC as it emerged as an alternative location to the traditional CBD. It became more acceptable to MNCs as it offered a better-built environment. ● However, today the Suburban Business District (SBD) intheNorthofMumbai,particularly Oshiwara is also a major commercial office market. As the potential of BKC to provide further office space is exhausted, the city’s ever-growing businesses will need new commercial infrastructure in order to expand and to operate over the medium-term horizon. ● BeinganIslandcity,themajorexpansiondriftwastowards Northern Mumbai. This also saw the gradual shift of office districts northwards, nearer to the residential clusters. The already had a cluster development in , but there was no similar development of the same scale in the Western Suburbs. Hence, it was decided by MMRDA, to plan the next cluster development in Oshiwara, the soon to be CBD. Land holdings by private developers in ODC ODC well placed to enjoy many added advantages Factors● BKC ODC Land holdings (acres) d 0.24 Land holdings Land parcels auctioned by PPP model, planned development by 2.61 MMRDA, planned MMRDA development by MMRDA 1.97 Sunteck Realty Type Greenfield development Brownfield development Access Centrally located Located in the western part of the RNA Corp city but with effective connections to Eastern and harbour suburbs Universal group Benefits and Excellent airport access – Excellent airport access – Has the Adinath Enterprise NICCO Infra Average social infra potential to be transformed from average to excellent

Residential Very few and in single The ratio of development will be 23 options digits 40% commercial and 60% residential

Source: JLL, Company, B&K Research Source: JLL, Company, B&K Research

21 ODC – Well poised to soar high

Value accretion in BKC (Luxury residential projects) ODC project could also witness value accretion

32,000 31,000 1.9x 57,000 27,000 2.6x 2.3x 3.2x 42,000 24,000 2.5x 35,000 19,000

25,000 15,000 22,500 12,500 Rs per Sqft Rs per Sqft 17,500 18,000 15,000 9,000 9,000 9,500 7,000

Kalina Kurla (W) Bandra (W) Kala Nagar BKC Goregaon (E) Lokhandwala ODC 2009-10 2014-15 2009-10 2014-15 Future

Source: Company, B&K Research Snapshot of projects in ODC S.No. Project name Developer name Possession date Units Units Units not Realisation % booked (per RERA) (Total) (Booked) booked (Rs/sq ft)

1 Sunteck City – Avenue 1 Sunteck Realty Ltd. March 2020 465 234 231 15,500 50 2 Sunteck City – Avenue 2 Sunteck Realty Ltd. April 2021 536 261 275 15,500 49 3 Auris Serenity Sheth December 2020-July 2022 1,004 545 459 13,900 54 4 Imperial Heights Wadhwa/Radius June 2019 448 411 37 18,571 92 6 Ekta Tripolis Ekta World December 2017 705 405 300 15,000 57 7 Kalpataru Radiance Kalpataru December 2022 801 492 309 22,000 61 9 Alta Monte & Signet Omkar December 2023 1,407 990 417 17,857 70 13 Lodha Fiorenza Lodha December 2017 209 200 9 19,500 96

Note: Prices on built-up area. Source: Company, 99acres.com, B&K Research

22 SRIN’s ODC project – Sunteck Avenue

● This project is spread over 23 acres of land (developable area of 5.7 msf) and aims to create a mixed used Township of Residential, Commercial, Retail, fine-dining and Entertainment zone.

● SRIN has acquired 23 acres of land between 2010 to 2012 for ~Rs 4.5 bn.

● Apart from the residential projects in Sunteck City Av 1-4, there shall also be retail and commercial spaces leased out in Sunteck City Av 5/6.

● Till now, it has developed 65% and 31% in Sunteck City Avenue 1 and 2, respectively, with total cumulative sales made of 50% and 46% to the tune of Rs 4,020 mn and Rs 4,116 mn, respectively, over the last few years. Sunteck Avenue project – Plan

Source: Company, B&K Research 23 ODC projects – snapshot

Project name Sunteck City Av 1 Sunteck City Av 2 Sunteck City Av 3 Sunteck City Av 4

Status Under Construction Under Construction Under Development Under Development

Developed (%) 65 31 0 0

Type Residential Residential Residential Residential

Area msf (msf) 0.73 0.63 0.88 0.86

SRIN stake (%) 100 100 100 100

SRIN area (msf) 0.73 0.63 0.88 0.86

Total area sold (%) 49.2 46.1 0 0

Sold till now (msf) 0.36 0.29 0 0

Unsold area (msf) 0.37 0.34 0.88 0.86

Total sales (Rs mn) 4,020 4,116 0 0

Avg realisation (Rs/sq ft) 11,167 14,193 0 0

Current rates (~) (Rs/sq ft) 15,500 15,500 16,500 16,500

Total collections (Rs mn) 2,540 1,448 0 0

Receivables (Rs mn) 1,480 2,668 0 0

PV of total sales value (inventory) (Rs mn) 6,509 6,950 11,348 10,218

Costs, Interests & taxes (Rs mn) 3,329 4,348 6,195 5,208

Debt repayments – PV (Rs mn) 1,209 1,276 (225) (180)

Net surplus (NPV) (Rs mn) 1,971 1,326 5,378 5,190

Source: Company, B&K Research 24 Sunteck Avenue

Sunteck Av 1 Sunteck Avenue projects

Sunteck Avenue 2

Source: Company, B&K Research 25 Naigaon project – Play on affordable housing

● Foray into affordable segment – Recently, Sunteck announced its entry in the affordable segment with a potential development of 100 acres from DDPL Global Infrastructure Private Limited and Unicorn Infraprojects and Estates Private Limited. The project is under JDA model, and will be having a revenue generating potential of Rs. 55 bn.

● Includes both residential and retail – The project will be developed in Naigaon, over the next six-seven years, in 3 different phases. The project will have a development potential of 10 mn sq ft, of which around 10% will be retail for shops, malls and restaurants.

● JDA model saves land cost – Since the same is on JDA model, the company wont be buying this land outright and only an upfront payment of Rs 500 mn shall be made and later on 25% will be the revenue share. It is expected to be priced at Rs 2.5 to 3.5 mn per unit. Phase 1 development is expected to be started in the next two quarters.

● Perfect presence across all the different consumer segments – This will lead to perfect diversification across the pricing spectrum, apart from Signature and Signia brands meant for luxury and premium housing. The project comes along with Government incentives, like tax exemptions, subsidies to buyers, etc.

● Naigaon, preferred location compared to peers – As compared to other developers in mid income housing, SRIN enjoys locational advantage in Naigaon. Other similar properties are coming up in locations like , , , etc., whereas SRIN’s project is being developed in Naigaon. Naigaon is nearer to the main city as compared to the locations chosen by other developers. Additionally, an upcoming Creek bridge would reduce down the travel time and make the project more lucrative.

26 Naigaon project location

Virar

Nala Sopara

Naigaon

• As compared to other projects in Virar, Nala Sopara and Palghar, Naigaon is the nearest location to the city. The aerial distance of Naigaon to the main city is almost nearer to the distance between Naigaon and Virar itself.

• Thus, with locational advantages in this segment, SRIN is again going to benefit.

• The future infrastructural developments like the 5 kms sea-link on the will enhance the connectivity of Naigaon to major locations.

Source: Company, B&K Research 27 Affordable Housing – Government’s thrust on realty

● Government’s push towards affordable housing: Government has set an ambitious target of achieving housing- for-all by 2022 by constructing houses with clean sanitation facilities and 24x7 water and electricity supply. The scheme launched in 2015 has the following objectives:-

 Slum rehabilitation of Slum Dwellers with participation of private developers using land as a resource.

 Promotion of affordable housing for weaker section through credit linked subsidy.

 Affordable housing in partnership with Public and Private sectors.

 Subsidy for beneficiary-led individual house construction or enhancement.

● The scheme will cover the entire urban area consisting of 4,041 statutory towns with initial focus on 500 Class I cities and it will be implemented in three phases as follows, viz. Phase-I (April 2015-March 2017) to cover 100 Cities to be selected from States/UTs as per their willingness; Phase-II (April 2017-March 2019) to cover additional 200 cities and Phase-III (April 2019-March 2022) to cover all other remaining cities. The Pradhan Mantri Awas Yojana (PMAY) launched in 2015 subsumes all the previous urban housing schemes and aims at ‘Housing for All’ to be achieved by the year 2022.

● To promote this scheme in rural housing sector the government plans to spend Rs 3.5 trn to construct 35-40 mn houses by 2022 under the Pradhan Mantri Awas Yojana – Gramin (PMAY-G). Similarly, the Pradhan Mantri Awas Yojana (PMAY-Urban) has been conceptualised with intent to build 25-30 mn urban houses over the next five years entailing an investment of Rs 3 trn. As per recent targets, it will construct 12 mn units in urban areas and 10 mn units in rural areas encompassing an expenditure of Rs 1.9 trn for urban housing and Rs 1.3 trn for rural housing.

28 Government’s initiatives of ‘Housing for All’

● Central grant of Rs 0.1 mn per house, on an average, will be available under the slum rehabilitation programme.

● The government’s budgetary support has risen from Rs 142 bn in FY16 to Rs 525 bn in FY19. The government has given Affordable Housing the vital infrastructure status in Union Budget 2017-18.

● Under the Credit Linked Interest Subsidy component, interest subsidy of 6.5% on housing loans availed upto a tenure of 15 years will be provided to EWS/LIG categories, wherein the subsidy pay-out on NPV basis would be about Rs 2.3 lakh per house for both the categories.

● Central assistance at the rate of Rs 1.5 lakh per house for EWS category will be provided under the Affordable Housing in Partnership and Beneficiary-led individual house construction or enhancement.

● Government’s recent relaxation allowing 100% FDI in construction is also supposed to give this scheme a boost as more participation will come from international companies and will also lead to better advanced technologies being introduced in the sector.

Rising urbanisation Trend of Housing Affordability

700 45 25 40 40 600 20 30 590 35 500 28 26 30 15 400 25 20 10 300 340 290 15 200 5 220 10 100 5 0 0 0

1991 2001 2008 2030 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Urban Population (mn) Urbanisation rate (%) Affordability

Source: McKinsey Global Institute, B&K Research Source: HDFC Research, B&K Research 29 Rising allocation in government’s budget

Budgetary allocation – Constantly increasing Top 10 states in India in Affordable Housing

600 450 800 525 400 700 500 350 600 300 500 250 400 400

Rs bn 200 290 300 300 150

Rs bn 200

100 (‘000) No of Houses 210 50 100 413 686 277 468 222 194 207 217 196 383 180 252 179 436 149 375 143 192 155 200 95 149 0 0 116 UP TN MP Har. Jhar. 100 Guj. Karn. Telan. Maha. Andhra P. 0 FY15 FY16 FY17 (A) FY18 (RE) FY19 (BE) Investment (Rs bn) Houses involved (nos '000)

Source: Government papers, B&K Research Source: Ministry of Housing and Urban Affairs, B&K Research

Progress so far…

Project Financial progress (Rs bn) Physical progress (Nos.) As on proposal Investments Central Assistance Central Assistance Houses grounded Houses Houses involved considered in projects involved released for construction completed January 3, 2017 2,691 720 196 45 1,328,295 213,187 –

April 3, 2017 3,735 957 279 78 1,773,052 535,769 92,308

July 31, 2017 5,147 1,275 373 115 2,392,061 993,278 157,106

October 3, 2017 5,974 1,542 443 121 2,857,321 1,150,783 200,096

December 4, 2017 6,671 1,723 495 128 3,199,267 1,408,537 288,963

January 1, 2018 7,474 2,036 577 132 3,743,631 1,647,083 308,892

April 2, 2018 9,121 2,510 684 244 4,435,663 1,930,844 400,074

Source: Ministry of Housing and Urban Affairs, B&K Research 30 Micro market view

Residential Property Rates across Mumbai

Virar: Rs 3400-5300

Vasai: Rs 4000-6000 Location: ODC ~Units unsold ~Inventory size ~Average ticket Naigaon: Particulars Rs 3500-5000 (Nos.) (Rs bn) size (Rs mn) Top developers 2,060 94.3 45.8

Bhayandar (E): SRIN 506 9.8 19.5 Rs 6400-9100 (E): Borivali (W): Rs 9000-14700 Rs 13300-20200 Borivali (E): (W): (W): Rs 12300-19000 Rs 9000-15000 Dombivili: Rs 11000-18100 (E): Rs 5600-8500 Rs 12400-18700 (W): Rs 12700-20000 Goregaon (W): Goregaon (E): Powai : Rs 12700-19300 Rs 13200-21000 Rs 15400-23500

Andheri(W): Andheri (E): Location: BKC (E): Rs 17500-28000 Rs 14000-21500 Rs 11300-17500 ~Units unsold ~Inventory size ~Average ticket Vile Parle (E): Particulars : Rs 21700-36000 (Nos.) (Rs bn) size (Rs mn) Khar (W): Rs 6000-8200 Rs 29000-45500 Santacruz (W): Top developers 973 80.0 82.3 Bandra (W): Rs 26800-44800 Rs 31500-53000 (W): SRIN 57 19.8 330.0 Rs 26000-42000 : : Rs 13700-22500 Rs 29000-45000

Colaba: Rs 30000-50000

Note: Based on Super built area. Source: Company, magicbricks.com, B&K Research 31 Getting the Early Bird Advantage

● SRIN’s acquisition of land and projects at the right time has given it the early mover advantage. With major projectaccretiondonein2009-12andmajorexecutionperformedpostFY13(andstillcontinuing…),webelieve that SRIN is going to ride the execution wave! Strong timely acquisition track record

Source: Company 32 Land acquisition timing

● With a strategic vision, it had bought the residential land for Signature Island on FSI basis at a premium to ready properties in nearby locations of Kalanagar, Kalina in 2006 with the help of private equity/quasi-equity money, at a time, when developers were only looking for commercial developments in BKC.

● Year later, it also bid for adjoining land parcels for Signia Isles and Signia Pearl in 2009 and 2010 at 3-4x of the bid for Signature Island to maintain its exclusivity.

● For Sunteck Avenue, SRIN acquired 23 acre land between 2010 to 2012 for ~Rs 4.5 bn. Initial launches at Sunteck Avenue 1&2 were made in 2012 at Rs 9,000/sq ft to test the market as compared to the current selling price of ~Rs 15,000-16,000/sq ft (almost up by 90%).

● In funding most land transactions, it roped in PE investors, which resulted in minimal investment from SRIN’s side. These transactions demonstrate SRL’s capability to identify attractive land parcels for future growth and get it funded through credible partners thereby ensuring growth with an asset light model. Details of major land deals by roping in credible investors

Sr. Investment Exit Project Fund name no. Year Amount (Rs mn) Year Amount (Rs mn)

1 Signature Island India Reit July 2006 628 October 2008 1,400

2 Signia Isles Kotak REF November 2009 1,037 August 2011 1,401

3 Sunteck City: 3rd-5th Avenue Kotak REF December 2011 1,500 January 2013 to March 2016 ~2,700

Source: Company, B&K Research

33 Capital infusion, net debt reduced to 0.2x

● Fresh capital infused: The company recently Net Debt/Equity constant reduction raised over Rs 6.5 bn from global financial 1.4 1.2 1.2 1.2 institutions through Qualified Institutional 1.0 0.9 Placement (QIP) and promoter’s capital infusion. 1.0

Additionally, the balance sheet has gained 0.8 0.7

x 0.6 0.5 further strength as net debt/equity has 0.6 0.5 improved from 0.53x to 0.2x (post QIP). The QIP 0.4 proceeds are to be partially used for debt 0.2 0.2 repayment and remaining for growth and 0.0 investment into business. FY11 FY12 FY13 FY14 FY15 FY16 FY17 2HFY18 2HFY18 (post QIP)

Source: Company, B&K Research

• Recently, the credit rating of SRIN was elevated to ‘AA-’ from ‘A+’. While the net debt is already expected to reduce to 0.19x by FY18(E), the recent upgradation of credit rating further gives comfort in terms of the reduced cost of funding on the balance debt. Serious Balance Sheet revamping expected to happen post QIP

(Rs mn) FY17 (Rs mn) FY18 (E) Gross debt 9,439 Gross debt 5,500 Structural changes Cash 986 Cash 800 to lighten balance Net debt 8,453 sheet Net debt 4,700 Net worth 17,953 Net worth 25,000 Net debt/Equity (x) 0.47 Net debt/Equity (x) 0.19

Source: Company, B&K Research 34 Other key highlights

● Commercial segment to be expanded: Management has indicated its intent to increase its share in commercial real estate. The Sunteck Brand specifically focuses on the commercial front. Out of the 23 acres ODC project, management has highlighted that some area has been kept for the commercial development. Out of the total developable area of 5.7 msf in Sunteck Avenue, it plans to develop around 2.6 msf (45.6% of total developable area in ODC) for commercial and retail purpose. Apart from above, it also plans to launch commercial and retail projects in Signia City – Jaipur, Sunteck Crest – Sion and Sunteck Icon & Gateway 51 at BKC, admeasuring a total of 6.1 msf of developable area (SRIN stake 3.1 msf). The current change in FSIs as per Mumbai DP-2034 will again be much more beneficial to SRIN, which marks majority of its presence in MMR. As per the DP, with respect to commercial developments, the new FSI are 5 in both Island city and suburbs, respectively (earlier 1.33 and 2.5 each). Apart from above, Fungible FSI for commercial has been increased from 20% to 35%.

● Asset light model via JDAs and JVs: We believe the JV/JDA model helps the company build a capital-efficient business by stripping away the investment on land purchase and allowing a greater focus on value addition. This enables the company to earn high RoE with low investment and at the same time maintaining low leverage and low cost of debt. SRIN has a good track record of procuring deals/lands, and executing projects through partnership with credible partners/financers. It had earlier acquired land parcels for Signature Islands (financier India REIT), Signia Isles (financier Kotak Realty Fund) and Sunteck ODC (financier Kotak Realty fund). Further, most of the projects are being developed with partners, like Piramal etc., which not only establishes the management’s focus of asset light model and a low capital being blocked but also showcases its ability to rope in strategic and credible investors in its business model.

35 Project-wise NAVs

NAV SRL share SRL value Multiple Target value Project Stage Type Rs/Share (Rs mn) (%) (Rs mn) (x) (Rs mn) Signature Island, BKC Completed Residential 9,647 88 8,441 1.0 8,441 58 Signia Isles, BKC Completed Residential 6,089 94 5,693 1.0 5,693 39 Signia Pearl, BKC Under Construction Residential 3,964 94 3,707 1.0 3,707 25 Sunteck City- Av 1, ODC Under Construction Residential 1,971 100 1,971 1.0 1,971 13 Sunteck City- Av 2, ODC Under Construction Residential 1,326 100 1,326 1.0 1,326 9 Sunteck City- Av 3, ODC Under Development Residential 5,378 100 5,378 0.9 4,840 33 Sunteck City- Av 4, ODC Under Development Residential 5,190 100 5,190 0.9 4,671 32 Sunteck City- Av 5, ODC Under Development Commercial 17,329 100 17,329 0.9 15,596 107 Sunteck City- Av 6, ODC Under Development Commercial 17,029 100 17,029 0.9 15,326 105 Signia Waterfront, Airoli Under Construction Residential 841 50 421 1.0 421 3 Signia High, Borivali Under Construction Residential 1,445 100 1,445 1.0 1,445 10 Sunteck Icon, BKC Under Development Commercial 1,754 57 991 0.7 694 5 Sunteck Gateway 51, BKC Under Development Commercial 1,776 55 977 0.9 879 6 Sunteck Kanaka, Goa Completed Commercial 251 50 125 1.0 125 1 Signia Sky, Nagpur Completed Residential 191 50 96 1.0 96 1 Signia Pride, Andheri Under Construction Residential 430 100 430 1.0 430 3 Signia Hills, Andheri Under Development Residential 386 100 386 0.7 270 2 Signia Gardens, Vile Parle Under Development Residential 1,166 100 1,166 0.7 816 6 Sion Projects Under Development Residential 4,836 50 2,418 0.7 1,693 12 Signia Jaipur Under Development Commercial 6,197 50 3,098 0.7 2,169 15 South Mumbai Project 1 Under Development Residential 8,450 50 4,225 0.7 2,958 20 South Mumbai Project 2 Under Development Residential 5,073 50 2,536 0.7 1,775 12 Dubai project Under Development Mixed 6,757 50 3,379 0.5 1,689 12 Affordable Housing Under Development Residential 8,556 100 8,556 0.6 5,133 35 Net debt (Post QIP) 4,797 (33) Total 529

36 Real estate sector – Holistic view and Outlook Real estate sector – In a turmoil?

● Sector undergoing structural changes: During the past few years, Indian real estate markets have seen a transformation and is being shifted gradually from a mix of organised and unorganised segment to a complete organised one. Multiple factors are impacting the real estate market being demonetisation, implementation of Real Estate Regulation Act (RERA), initiatives like Housing for All by 2022 – under Pradhan Mantri Awas Yojana (PMAY), implementation of GST, etc.

● The sector has been lately facing sluggish pace of growth particularly categorised by weak launches, high unsold inventories at high prices, focus on offloading existing projects rather than launching new ones and ultimately, the market has seen a continuous dip in the past few years. No. of housing units launched and Growth in Top 8 cities No. of housing units sold and Growth

300 0 270 15 11.7 (5) 260 10 250 (10.6) 262 (10) 5 200 (15) 250 0 (20) 150 240 245 (26.9) (6.8) (5) (27.7) (25) (6.7) Growth (%) 230 235 Growth (%) 100 (30) (10) 228 (35) 220 50 (41.1) (15) Launches (No of houses in ‘000) in of houses (No Launches

(40) ‘000) in (No of houses Sales (17.4) 269 240 176 104 210 (20) 0 (45) 2014 2015 2016 2017 2014 2015 2016 2017 Launches (Nos '000) Growth Sales (Nos '000) Growth

Source: Knight Frank Research, B&K Research

38 Sector health: Plagued till now

● Unclear regulatory system: Real estate projects in India take a long time to complete due to a complicated and corrupt regulatory mechanism. Due to unavailability of a concrete legal framework many projects launched didn’t even start construction, leave timely completion. Further, the requirement of a no of clearances to start a project from different agencies, gives birth to corruption, delays project and thus shoots up the project costs. ● Huge unsold inventory, mismatching of demand: The real estate sector at present is suffering from excess supply of houses with very little real demand. The bigger problem is that most of the purchases are driven from an investment point of view. There is still a shortage of housing units in India at the EW/MIG level. Simply, there is a mismatch between the ticket sizes at which units are being demanded and supplied. With a boost to affordable housing, coupled with Maharashtra Government’s recent development plan we expect this gap to reduce in future. ● Existence of unorganised players: The sector was further marked with presence of unorganised players. This part of the sector is not supported by the extensive paperwork that one would find in the organised, formal sector, which results in further lack of legal backings. These incentivised dumping of black money in the sector, ultimately resulting in money being siphoned off, and no actual projects coming in existence. ● High trust deficit: During previous decade, the market was overheated with many projects being launched nationwide. The prices increased and reached an unsustainable stage. Many new developers came into the market, but did not have the ability to deliver. Delay in construction, inability of builders to complete projects and handover possession led to the destruction of end-user confidence and trust in developers. ● High land prices: During last decade, to keep with boom in real estate sector, builders kept on purchasing more land, often backed by private equity leading to appreciation in land prices. Consequently, the end product became costlier, but people’s income didn’t rise at the same rate leading to a gap in demand and supply. Those builders who made deals at the correct prices survived, and the rest are now desperate to offload there properties. ● Dumping ground for black money: Being unorganised, without any proper regulatory framework, lot of black money has found its way into real estate, where it was very easy to park it This ultimately pushed up real estate prices to levels at which most people couldn’t afford to buy a home to live in. 39 RERA – Catalyst for real estate industry revival…

• Enactment of Real Estate Regulation Act (RERA) – Real Estate Regulation Act (RERA) came into effect from 1st May, 2017 on the wake of home buyers being duped by unscrupulous real estate developers. RERA would protect Home Buyers and provide transparency between buyers, real estate developers and agents. Enacted with an objective of ensuring accountability towards allottees, protect their interest, infuse transparency, reduce frauds & delays and establish regulatory mechanism with a fast track dispute resolution mechanism. Key compliances under RERA

Compliance Details

Registration necessary • Every project (total developable area >500 sq mtrs / no. of apartments > 8) to be registered. for each project • Existing projects without Completion Certificate or Occupancy Certificate to register.

• Will result in more transparency as projects and developers come into compliance net.

Regulatory authority • Real Estate Regulatory Authority established for protection of the stakeholder’s interests, accumulating data at a designated established repository and creating a grievance redressal system. • Real Estate Appellate Authority (REAT) shall be the appropriate forum for appeals. • Will deter unscrupulous developers from cheating and defrauding buyers.

Title representation • Developer required to make a positive warranty on his right title and interest on the land, which can be used later against him by the home buyer in case of title defect.

Disclosures on project • Buyers will be able to monitor the progress of the project on the RERA website. status • Will ensure timely completion of projects since real time status monitoring will be in place.

Informed changes • Informing allottees about any minor addition or alteration and requiring consent of 2/3rd allottees about any other addition or alteration.

Maintaining separate • 70% of the amount realised from buyers, shall be deposited in a separate bank account to cover the cost of construction and the account land cost and shall be used only for that purpose. • Will control and check diversion of buyers funds. Source: Company, B&K Research 40 …and beneficial for established players like SRIN

RERA to benefit established players like SRIN

Exit of unorganized developers and consolidation in the • Gap creation opens up potential new markets market • Opportunities to acquire distressed projects

Stringent compliance to lead to fewer new launches • Time advantage as already implementing all norms initially

Trust deficit in sector to reduce post RERA • Projects of reputable developers to see demand increase implementation

Increased transparency in sector leads to higher foreign • SRIN has in the past established partnerships with globally investment through PE and REITs renowned investors

Source: Company • Recent enactment of RERA will definitely be a boost for the real estate sector as a whole. We believe that the streamlining and creating a regulatory legal framework in the real estate sector will definitely benefit players like SRIN. This act focussing on fair practices in the sector, will help in shifting the market share from the hands of unorganised players to organised players. • As for SRIN, it has received RERA registration for all of its projects in which construction or sales are underway. For the projects which are under development, RERA registration shall be obtained once the construction starts/sales are made.

41 Real estate – Revival on cards…

Signs of improvement in Real Estate market

● Consolidation to benefit large players – With implementation of RERA, there might be temporary reduction in new launches across all cities as only those developers confident of meeting timelines will undertake new projects. It is evident that the enactment of RERA will bring consolidation to an otherwise fragmented sector. Unorgainsed players will be wiped out, either running into bankruptcy or unable to complete launched projects. More joint ventures/joint developments will be the order of the day with financially distressed developers being taken over by larger players to complete stalled projects and will present the industry with a fresh line up of competitors.

● Structural reforms to strengthen sector – With structural reforms, like RERA, demonetisation, the much needed regulatory framework will come in place leading to more transparency in the sector. Projects of reputable builders will see an increase in demand and it will be more easier for these developers to attract strategic profitable partnerships. Completion of existing projects will be prioritised over launching new ones, with developers remodeling their business processes to streamline delivery, without stretching themselves too much in terms of debt. This will lead to revival of the lost faith and trust of buyers from developers and act as a trigger in demand.

● Demonetisation, sector to see some relief from black money – Cash has always been the king for the real estate sector. Though demonetisation may have affected the sector negatively in the short run, but we believe that a reduction of investments from black money will eventually reduce land prices thereby making the end products more affordable to the consumers and keeping the prices in check.

42 Real Estate- Revival on cards . . .

● Housing for all, the kick for sector demand- One of the key agenda items of the current government has been housing for all by 2022. Lower cost borrowing for the sector, giving it a infrastructure status, faster approval of the projects, tax benefits will all add impetus to the flickering housing demand and will definitely act as a trigger for sector revival as a whole.

● Government’s push to reduce unsold inventory- Benefit on the Unsold Inventory (No notional Rental Income for one Year) will definitely help developers struggling withexcessunitsandgivethemsomebreathingtimeto liquidate their inventory. Further govt has also provided certain tax relaxation on Joint Development in matters relating to taxation on Land Transfer which will reduce litigation on the point of taxation for landowners and will provide an impetus to the execution of more JDAs.

● REITs to bring in the liquidity in sector- An underdeveloped capital and debt market for the sector, coupled with limited options for raising funds, has resulted in significant cash blockage for developers owning assets. REIT as an investment vehicle is expected to infuse much-needed liquidity in the sector, helping them to scale up investments. REITs are modeled just like mutual funds and provide their investors with all types of income streams and benefits of long-term capital appreciation along with tax benefits. A REIT also trades on major stock exchanges and provides investors with a highly liquid stake in real assets typically offering high yields.

43 MMR Real estate market

The Mumbai Metropolitan Region (MMR; spread over 4,355 sq km), Trend of sales, launches and average prices in MMR

includes Mumbai City, Thane, Palghar and Raigad districts. Mumbai 70 8,200

being the financial capital, will always be a prey of increasing 60 8,100 8,000 population and immigration from other cities. Being an island city, land 50 7,900 availibility remains a key concern because of which expansion happens 40

7,800 Rs. only in one direction. That’s the reason why the development is 30 7,700

happening in the northern suburbs. Being one of the few states that ('000) No of units 20 7,600

notified the RERA in a timely manner, it saw headwinds on account of 10 7,500

demonetisation and RERA, leading to a decline in launches. Primary 0 7,400 reason being more focus on completion of existing projects by builders CY14 CY15 CY16 CY17 Launches (housing units) Sales (housing units) Wt. Avg Price and developers. RERA compliance and a reduction in prices; however, did led to marginal increase in sales in CY17. Source: Knight Frank Mumbai Real Estate market versus Others Market situation within Mumbai

Launches Sales Unsold Launches Sales Unsold Age of unsold Age of unsold Quarters Quarters Location (CY17- (CY17- Inventory Location (CY17- (CY17- Inventory inventory inventory (qtrs) to sell to sell units) units) (Dec 17-units) units) units) (Dec 17-units) (qtrs) NCR 11,726 37,653 166,831 18.5 17.2 Cent. Mumbai 402 931 4,175 19.4 18.3 Ahmedabad 4,790 15,741 26,884 10.3 7 Cent. Suburbs 6,029 6,185 18,379 13.6 11.6 Mumbai 23,253 62,256 115,964 15.6 7.6 1,544 5,969 21,842 14.7 11.0 Pune 12,705 33,966 28,455 12.6 3.4 Peri. Cent. Suburbs 2,139 24,232 23,912 15.9 4.5 Kolkata 15,940 14,147 39,252 12.1 12.1 Peri. West. Suburbs 6,970 12,697 15,701 17.2 5.1 Hyderabad 3,511 14,243 17,356 17.8 5 South Mumbai - 299 929 16.4 12.4 Bengaluru 22,410 34,546 109,112 13 10.6 Thane 3,134 6,065 11,679 13.3 8.1 Chennai 9,235 15,520 24,640 14.2 6.2 West. Suburb 3,035 5,608 19,329 16.0 11.7 Source: Knight Frank Source: Knight Frank 44 Why specifically Mumbai real estate market?

 Mumbai Development Plan-2034; icing on the cake – The Mumbai Development Plan 2034 approved by the Maharashtra government announced a host of incentives for both commercial and residential building.

 Increased FSI – The new FSI are 3 and 5 in Island city for residential and commercial projects respectively (earlier 1.33 each), and for suburbs it is 2.5 and 5 for residential and commercial projects (earlier 2 and 2.5). Apart from above, Fungible FSI for commercial has been increased from 20% to 35%. FSI will be further calculated on gross plot area instead of net plot area (net of RG).

 Release of no development land – The city will see a release of 3,355 hectares of land previously designated as no-development zone for building apartments and commercial complexes.

 Push to affordable housing – About 2,100 hectares of above and 300 hectares of salt pan land will be specifically demarcated for affordable homes under the Development Plan 2034 targeting 1 mn units.

 Ready reckoner rates might update – Recently the Bombay Stamp (Determination of True Market Value of Property) Rules were amended, easing norms for lowering the benchmark rates. A possible cut in ready- reckoner rates (used for calculating stamp duty and registration fee), will lower the burden on buyers. The state is also considering waiving the property tax on flats with carpet area of up to 700 sq ft to clear the unsold inventory.

 Reduced stamp duty for affordable houses – Maharashtra’s Stamp Duty and Registration department has started collecting Rs 1,000 only as stamp duty fee (earlier5%ofstampdutyvalueforhomesbetween320sqft to 646 sq ft). The incentive is available to those whose income is not more than Rs 0.3 mn (for home up to 320 sq ft) and Rs 0.6 mn (for home up to 646 sq ft). Further, thehomeshouldbeeligibleunderPMAYschemeand should be first house of buyer.

 Overhaul in Mumbai infrastructure – The overall infrastructure in the city is improving and a slew of infrastructure projects were commissioned in the city including monorail, a Metro line, a bunch of flyovers, freeway which connects the eastern suburbs, a new airport terminal, Bandra-Versova Sea Link, etc. The overhaul in infrastructure would definitely boost the real estate sector as well. 45 Peer comparison SRIN – A comparison with peers

Net DE – lowest of all RoE and RoCE profile

2.0 18 1.9 16.2 1.8 RoE RoCE 1.8 16 14.1 13.3 1.6 14 1.4 11.7 1.3 1.4 12 11 9.1 9.9 12.6 1.2 10 7.6 0.9 0.9 0.9 6.8 1.0 8 9.4 9.3 8.4 8.6 0.8 6 6.7 6.8 0.6 0.4 4 5.2 0.4 2 0.20 2.8 0.2 0 DLF Oberoi Godrej Prestige Phoenix Sobha ltd Brigade Kolte Sunteck DLF Oberoi Godrej Prestige Phoenix Sobha ltd Brigade Kolte Sunteck Realty Prop. estates mills Enterp. Patil Realty Realty Prop. estates mills Enterp. Patil Realty

Note: ND/E ratio as at 1HFY18 end. SRIN adj. for QIP. Source: Company, B&K Research. Note: RoE/RoCE for FY17. Source: Company, B&K Research. Revenue and Margins Cash flow generation

90 60 20 1.0 51.2 80 46.4 50 15 0.8 70 41.8 14.1 8.7 0.6 60 36.6 40 10 4.8 4.0 0.4 50 28.4 5 1.7 3.5 2.4 24.9 30 1.4

% 0.2 40 33.7 0.1 0.9 18.7 0

Rs bn 19.3 0.0 0.4 30 15.8 20 0.0 22.9 (5) (3.5) 20 (4.4) (5.7) (4.9) (3.3) (0.2) 10 10 10.7 13.1 (10) (9.0) (0.4) 6.6 9.2 7.2 7.6 8.8 0 0 (15) (0.6) DLF Oberoi Godrej Prestige Phoenix Sobha Brigade Kolte Sunteck DLF Oberoi Godrej Prestige Phoenix Sobha Brigade Kolte Sunteck Realty Prop. estates mills ltd Enterp. Patil Realty Realty Prop. estates mills ltd Enterp. Patil Realty Sales (Rs bn) EBITDA Margins Net Margins CFO (Rs bn) CFI (Rs bn) CFF (Rs bn) CFO to sales (x)

Note: Revenue as at FY17. Source: Company, B&K Research Note: CFO as at FY17. Source: Company, B&K Research 47 Detailed consolidated financials Financials

Income Statement (Consolidated) Balance Sheet (Consolidated)

Period end (Rs mn) Mar 14 Mar 15 Mar 16 Mar 17 Period end (Rs mn) Mar 14 Mar 15 Mar 16 Mar 17

Net sales 9,256 3,028 2,434 9,522 Share capital 120 120 120 120 Reserves & surplus 5,358 15,544 15,865 17,826 Growth (%) 2,963.7 (67.3) (19.6) 291.3 Shareholders' funds 5,477 15,664 15,985 17,946 Operating expenses (6,470) (1,689) (2,194) (6,041) Minority interest and others 1,217 715 584 714

Operating profit 2,785 1,339 239 3,481 Non-current liabilities 78 672 390 321 Long-term borrowings 2 1 346 296 EBITDA 2,785 1,339 239 3,481 Other non-current liabilities 76 671 44 25 Growth (%) 5,038.5 (51.9) (82.1) 1,354.8 Current liabilities 21,763 26,697 24,776 17,791 Depreciation (14) (20) (22) (23) ST borrowings, Curr maturity 5,920 10,643 11,994 9,143 Other income 127 140 179 82 Other current liabilities 15,843 16,054 12,781 8,647

EBIT 2,898 1,460 396 3,540 Total (Equity and Liabilities) 28,535 43,748 41,734 36,771 Non-current assets 1,898 2,331 3,755 3,699 Finance cost (170) (176) (169) (455) Fixed assets (Net block) 321 442 421 403 Profit before tax 2,728 1,284 227 3,084 Non-current Investments 89 1,491 2,674 2,674 Tax (current + deferred) (900) (470) 63 (872) Long-term loans and advances 887 67 91 70 Other non-current assets 601 331 570 553 Profit / (Loss) for the period 1,828 814 290 2,212 Current assets 26,636 41,417 37,979 33,071 P/L of Associates, Min Int, Pref Div (318) (132) (60) (173) Cash & current investment 250 1,620 1,668 1,529 Other current assets 26,387 39,797 36,311 31,542 Reported Profit / (Loss) 1,510 682 230 2,040 Total (Assets) 28,534 43,748 41,734 36,771 Adjusted net profit 1,510 682 230 2,040 Total debt 5,921 10,644 12,340 9,440 Growth (%) 3,674 (55) (66) 787 Capital employed 12,691 27,694 28,953 28,123 49 Financials

Cash Flow Statement (Consolidated) Key ratios (Consolidated)

Period end (Rs mn) Mar 14 Mar 15 Mar 16 Mar 17 Period end (%) Mar 14 Mar 15 Mar 16 Mar 17 Adjusted EPS (Rs) 25.2 11.4 3.8 17.0 Profit before tax 2,728 1,284 227 3,084 Growth 3,674.4 (54.9) (66.3) 343.6 Depreciation 14 20 22 23 CEPS (Rs) 25.4 11.7 4.2 17.2

Change in working capital (2,917) (12,311) (58) 442 Book NAV/share (Rs) 91.4 261.3 266.6 149.7 Dividend/share (Rs) 1.0 1.0 2.0 1.5 Total tax paid (859) 118 (562) (651) Dividend payout ratio 4.0 8.8 52.2 8.8 Others 59 41 (9) 382 EBITDA margin 30.1 44.2 9.8 36.6

Cash flow from oper. (a) (975) (10,849) (380) 3,280 EBIT margin 31.3 48.2 16.3 37.2 Tax rate 33.0 36.6 (27.8) 28.3 Capital expenditure (9) (141) (1) (5) RoCE 25.4 7.2 1.4 12.4

Change in investments 79 (1,913) (1,290) 232 Total debt/Equity (x) 0.9 0.6 0.7 0.5 Net debt/Equity (x) 0.8 0.6 0.6 0.4 Others 102 127 78 51 Du Pont Analysis - ROE

Cash flow from inv. (b) 172 (1,927) (1,213) 278 Net margin 16.3 22.5 9.4 21.4 Asset turnover (x) 0.3 0.1 0.1 0.2 Free cash flow (a+b) (803) (12,776) (1,593) 3,558 Leverage factor (x) 5.9 3.4 2.7 2.3

Equity raised/(repaid) 0 (1,296) 0 8 Return on equity 31.8 6.4 1.5 12.0

Debt raised/(repaid) 838 4,723 1,696 (2,900) Valuations (Consolidated)

Period end (x) Mar 14 Mar 15 Mar 16 Mar 17 Dividend (incl. tax) (53) (82) (120) (180) PER 5.4 11.0 29.6 11.2 Others (172) 10,290 (148) (416) PCE 5.4 10.7 27.0 11.0 Cash flow from fin. (c) 613 13,635 1,428 (3,489) Price/Book 1.5 0.5 0.4 1.3 Yield (%) 0.7 0.8 1.8 0.8 Net chg in cash (a+b+c) (190) 859 (165) 69 EV/EBITDA 5.0 12.3 73.1 8.8 50 Thank You B&K Universe Profile By Market Cap (US$ mn) By Recommendation

180 160 156 133 160 141 140 140 120 120 100 88 100 80 80 61 60 60 no. of no. of companies no. of no. of companies 40 40 10 13 11 20 20 1 0 0 > $2bn $200mn - $2bn < $200mn BUY OP UP SELL NR UR

B&K Securities is the trading name of Batlivala & Karani Securities India Pvt. Ltd. B&K Investment Ratings. LARGE CAP MID CAP SMALL CAP (Market Cap > USD 2 bn) (Market Cap of USD 200 mn to USD 2 bn) (Market Cap +20% (absolute returns) >+25% (absolute returns) >+30% (absolute returns) OUTPERFORMER +10% to +20% +15% to +25% +20% to +30% UNDERPERFORMER +10% to -10% +15% to -15% +20% to -20% SELL <-10% (absolute returns) <-15% (absolute returns) <-20% (absolute returns)

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