Daiwa June Initiating

Industry Report
15 June 2010 (No. of pages: 73)
India Property Sector

Construction & real estate: India
Positive
Amit Agarwal
(91) 22 6622 1063
[email protected]
Initiation of coverage: slow and steady revival
Summary
Optimism in the market about an improving domestic economy and sentiment toward
Information Technology/Information Technology Enabled Services (IT/ITES) have led to a
revival in demand for housing. We initiate coverage of the India Property Sector with a
Positive rating, due to the revival of housing demand, improving balance sheets of most
property companies, and signs of a recovery in the commercial property sector. We have 1
(Buy) ratings for Puravankara Projects (Puravankara), Orbit and Anant Raj Industries (Anant
Raj), and 3 (Hold) ratings for DLF, Unitech and Housing Development & Infrastructure (HDIL).
We see revival in demand driven by an improving economy and IT/ITES sector: An

improving economy and sentiment toward the IT/ITES sector are driving demand for housing.
Residential sales have increased steadily over the past year, and inquiries in the commercial
segment continue to rise.
Improving balance sheets: Rising demand for residential property and an improvement in
companies’ ability to raise funds from the capital markets have helped to improve the balance
sheets of real-estate companies due to the improvement in cash flow. We expect the pick-up
in the commercial sector to lead to further improvements in the balance sheets of real-estate
companies.
We see the main share-price drivers as: 1) a pick-up in commercial-property leasing/sales

volume, and 2) an improvement in companies’ ability to raise funds in the capital markets.
We see the main risks as: 1) an international macro-economic slowdown that would lead to
lower hiring in the IT/ITES sector and sentiment weakening, and 2) interest rates rising.
India Property Sector: valuation summary

Company Bloomberg Share price Target price +/- Year PER (x) EV/EBITDA (x) Dividend yield (%)
name code (local curr.) Rating (local curr.) (%) end 2009 2010E 2011E 2012E 2009 2010E 2011E 2012E 2009 2010E 2011E 2012E
Anant Raj Industries ARCP IN 105.80 1 159.00 50.3 Mar 15.1 13.1 16.6 10.7 12.6 11.0 14.5 8.7 0.6 0.2 0.2 0.2
DLF DLFU IN 258.20 3 278.00 7.7 Mar 9.8 25.3 31.5 13.9 10.5 18.4 18.8 10.8 0.1 0.1 0.1 0.1
HDIL HDIL IN 218.55 3 226.00 3.4 Mar 8.9 14.1 10.4 9.5 13.0 14.1 12.2 8.8 0.0 0.0 0.8 2.3
Orbit ORB IN 247.20 1 367.00 48.5 Mar 25.2 14.3 9.9 6.1 11.8 11.7 7.4 4.8 0.0 0.9 1.0 1.0
Puravankara Projects PVKP IN 102.60 1 150.00 46.2 Mar 15.2 15.1 17.7 12.6 21.8 17.7 20.9 12.8 0.0 1.0 0.5 1.5
Unitech UT IN 69.05 3 77.00 11.5 Mar 9.4 23.8 22.5 17.4 12.6 20.7 20.5 14.6 0.3 0.3 0.3 0.4
Source: Company, Daiwa forecasts Note: based on share prices at the close on 9 June 2010
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH Global Equity Research

CERTIFICATIONS, ARE PROVIDED ON THE LAST TWO PAGES OF THIS REPORT.
Contents
The three most important charts in this report ... ..............................................................3
Executive summary...........................................................................................................4
Sector recovery – slow and steady....................................................................................5

An improving economy .............................................................................................5
IT/ITES has started hiring and salaries are rising......................................................5
Improving sentiment ..................................................................................................6
Key factors likely to inhibit a recovery in the short term ..........................................6
Company comparison .......................................................................................................9

Landbank comparison................................................................................................9
NAV comparison by location ....................................................................................9
Peer valuation comparison.......................................................................................10
Company section
Anant Raj Industries ................................................................................................11
DLF..........................................................................................................................19
Housing Development & Infrastructure ..................................................................28
Orbit.........................................................................................................................38
Puravankara Projects ...............................................................................................49
Unitech.....................................................................................................................60
Amit Agarwal (91) 22 6622 1063 India Property Sector 2

The three most important charts in this report ...
Peer valuation comparison
Share Shares Market Premium/
price o/s* cap. EPS (Rs) PER (x) PBR (x) ROCE (%) NAV discount
Company name (Rs) (m) (Rs m) FY12E FY12E FY12E FY12E FY12E to NAV
DLF Ltd 258 1,697 437,876 18.6 13.9 1.8 11 278 (7)
Unitech Ltd 69 2,616 180,525 4.0 17.4 1.4 8 77 (10)
Orbit 247 55 13,580 40.3 6.1 1.2 18 367 (33)
Anant Raj 106 315 33,352 9.9 10.7 0.8 8 159 (33)
HDIL 219 372 81,062 23.1 9.4 0.9 10 226 (4)
Puravankara Projects Ltd 103 213 21,983 8.1 12.6 1.3 10 150 (31)
Source: Bombay Stock Exchange (BSE), Daiwa forecasts, * on a fully-diluted basis
Note: based on share prices at the close of 9 June 2010
Note: The shares of Orbit are not fully-diluted since the recent issue of 1:1 bonus shares will be effective from the date of Annual General
Meeting in June 2010. We will update our NAV and target price after it becomes effective
YoY changes in hiring by Infosys, TCS, and Wipro (IT/ITES companies)

80%
60%
40%
20%
0%
(20)%
(40)%
FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
Source: Infosys, TCS, Wipro, Daiwa forecasts
Commercial vacancy rates (%) for Mumbai, NCR and Bangalore

18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
CY2006 CY2007 CY2008 CY2009 1Q CY10
Mumbai NCR Bangalore
Source: Cushman and Wakefield

Executive summary
We initiate coverage of the India property sector with a Positive rating. In our view,
the sector is poised for a recovery, due to a pick-up in demand driven by an
improving economy and IT/ITES sector, signs of a recovery in the commercial
segment, and improving balance-sheet health. We initiate coverage of Puravankara,
Orbit and Anant Raj with 1 (Buy) ratings, and DLF, Unitech and HDIL with 3
(Hold) ratings.
The above stocks have underperformed the SENSEX for the year to date, as we
believe they had run ahead of the fundamentals and therefore corrected
subsequently.
Stock performance relative to the SENSEX (%)

1M 3M 6M
DLF Ltd (8.7) (15.2) (30.7)
Unitech Ltd (5.2) (5.9) (20.7)
HDIL (7.7) (27.4) (34.8)
Puravankara 1.6 1.5 9.2
Orbit Corp Ltd (13.5) (6.3) (11.6)
Anant Raj (11.3) (22.3) (19.2)
Source: Bloomberg
Residential sales volume has improved; prices are stable

Residential sales volume has recovered from the trough in December 2008-January
2009, although it is still 50-80% below the peak level. The revival in demand is
being driven partially by the recovery in the IT/ITES sector as a result of increased
hiring and higher salaries, which has resulted in better job security, and partially by
the shift in developers’ focus to more affordable housing. However, with weak
demand for commercial and retail property, the developers are depending on
residential sales to maintain cash flow, which we believe could lead to
overcapacity and limit the upside potential for prices.
Commercial segment is improving

Our channel checks and discussions with various industry professionals indicate
that while there has been an increase in enquiries in the commercial sector, actual
sales/rental volumes remain low, which has resulted in vacancy rates remaining
high. We expect sales/rental volumes to improve from 1H11 onward.
Balance-sheet restructuring – slow and steady

The balance sheets of most of the property companies have continued to improve
since the trough in the property cycle in 4Q FY09, helped partially by being able to
raise cash from the capital markets, which has enabled companies to reduce their
debt. Debtor amounts on balance sheet are declining and customer advances have
started to increase, which have helped them meet their construction commitments.
Credit ratios also look healthier, in our view.
Key share-price driver

We see an improvement in office leasing/sales as one of the main positive drivers
for share prices for the sector, as we believe this would also signify an increase in
hiring and implies an increase in demand for housing. Further, successful capital
raising by companies would help reduce debt and improve cash flow, in our
opinion.
Risks
We see the main risks to our views as: 1) an international macro-economic
slowdown that would lead to lower hiring in the IT/ITES sector and sentiment
weakening, and 2) interest rates rising.

Sector recovery – slow and steady
We believe we are witnessing a slow but steady recovery in the sector.
We are optimistic about the Indian economy, and expect the improvement in
demand for IT/ITES to drive demand growth in the sector. The key reasons for our
optimism about the sector are:
• the improving economy,
• hiring has resumed for the IT/ITES sector and salaries are increasing, and
• improving sentiment among potential buyers.
However, we see the main concerns as:

• continued weakness in the commercial and retail sectors, which has led to
increased pressure on companies to maintain cash flow from the sale of
residential space,
• our expectation that an oversupply of newly-launched residential space could
limit the upside potential for prices and thus NAV accretion over the next six
months,
• the balance sheets of companies in the sector are improving but remain weak,
and
• concerns in the market about the macro-economic situation.
An improving economy
GDP increased by 7.4% India’s economy expanded by 7.4% for FY10 compared with 6.7% for FY09. The
YoY for FY10 compared increase was driven by rises in industrial production, up 10.4% YoY (compared
with 6.7% YoY for with 2.8% YoY for FY09), and manufacturing, up 10.9% YoY (FY09: 2.8% YoY).
FY09 The expansion in the manufacturing sector was due mainly to an increase in capital
goods, of 19.2% YoY (FY09: 7.3% YoY), and consumer durables, up 26.1% YoY
(FY09: 4.5%).
Daiwa’s chief economist Daiwa’s chief economist for Asia (ex-Japan), P.K Basu, forecasts India’s GDP
for Asia (ex-Japan) growth to accelerate to 9.3% YoY for FY11 from 7.4% YoY for FY10. During a
forecasts GDP growth to recent presentation, he said ‘We think the five-year moving average of real GDP
accelerate to 9.3%YoY growth (8.5%) is the new potential growth rate – especially as the gross domestic
for FY11 investment rate has risen to 36% at present (from 25% five years ago) on the back
of an increase in investment, which is reflected in the continued strength of capital-
goods output and imports over the past five years (the gross domestic savings rate
is 35%)’. The economic growth is visible, with hiring plans increasing across
various industries, rising salaries and improving sentiment. Certain service sectors
are also witnessing a revival, with the IT/ITES sector ramping up hiring plans and
raising salaries. The strong pick-up in sales of consumer durables (26.1% YoY for
FY10, compared with 4.5% YoY for FY09) suggests an improvement in overall
consumer sentiment.
IT/ITES has started hiring and salaries are rising

The IT/ITES sector accounts for about 50-70% of demand in India’s property
sector. Since the detailed numbers are not available, our view is based on our
discussion with industry experts and anecdotal evidence. The following chart
shows the increase in planned hiring by the IT/ITES major companies (TCS,
Infosys, Wipro) in FY11, and we believe that it indicates renewed confidence in a
revival in the industry.

The following chart shows that the pace of hiring declined sharply between 2008
and 2010 due to the weak macro-economic climate. The three companies recorded
a combined drop of 18% YoY for FY08, a 1% YoY rebound for FY09, followed
by a further 33% YoY decline for FY10. R. Ravi, our IT analyst, expects hiring in
the sector to increase by 71% YoY for FY11 and 15% YoY for FY12.
Change in hiring (YoY) for Infosys, TCS and Wipro

80%
60%
40%
20%
0%
(20)%
(40)%
Source: Companies, Daiwa forecasts
Improving sentiment
The improving outlook for the domestic economy and the pick-up in the IT/ITES
sector have resulted in an improvement in sentiment due to rising salaries and
increased job security, which usually drive residential sales. However, purchasers
remain price-conscious, and any price increases are being met with declines in
sales volume.
Key factors likely to inhibit a recovery in the short term

Balance-sheet ratios improving, but still weak
Balance sheets are Most real-estate companies in India took on large amounts of debt during the
improving but still weak previous bullish phase to fund their aggressive expansion plans. With the collapse
of the real-estate market, cash flow became strained due to substantial debts and
interest payments, combined with business commitments. With the revival of sales
volume, the strains on cash flow have eased somewhat, but balance sheets are still
weak. We attribute this partially to continued weakness in the commercial and
retail segments.
Residential sales volume improving, but stable residential prices

limit the NAV upside potential
Sales volume has Our interaction with brokers indicates that demand, while improving, is still
improved, but remains significantly lower than it was at peak levels. To give an idea of the improvement
significantly lower in demand in Gurgaon, which is located in the National Capital Region (NCR), if
than peak levels the peak sales volume in 2007 was 100 units a month, it dropped to 0-5
units/month in December 2008-January 2009, and stands currently at 50
units/month.
In Bangalore, performing a similar exercise, if 100 units were sold in the peak
period, the trough was 0-5 units per month, and sales are currently around 20-25
units per month. Therefore, while sales have improved since the trough, they are
still 50-75% below peak levels.

In Mumbai, housing registrations with the local Government show that the housing
sales volume increased sharply in May-June 2009, but has trended downward since
then due to price increases by developers.
Developers launching Due to weak demand in the commercial and retail segments, most developers have
projects aggressively to been focussing on the affordable residential segment to maintain cash flow to meet
maintain cash flow as their contractual obligations. Many developers have undertaken aggressive project
commercial and retail launches over the past year. Our interaction with industry participants suggests that
segments remain weak about 50% of the units launched have been bought by investors/speculators.
Prices of new launches The prices of these newly-launched projects remain range-bound, depending on the
are range-bound; nearly location. However, we have seen increases in prices of completed/nearly-complete
complete/completed properties, but they are not relevant since we assume that the cash inflow is already
properties have seen reflected in the balance sheet since the payment is made at pre-sale. The main
increase in prices reason for this is that during the recession many projects were delayed, leading to a
buyer preference for completed units. Also, nearly-complete/complete units
represent only 10-20% of the total housing inventory.
Consequent oversupply In our opinion, the combined impact of oversupply due to aggressive project
will likely restrict the launches by developers and rising, but still-low end-user demand, will limit the
price increases, limiting upside potential for prices. Also, purchasers have become extremely price-
the rises in NAV conscious, and any price increases are being met by declining volume.
Signs of a recovery in the commercial segment

Enquiries for The following chart shows the commercial-property vacancy rates in three key
commercial property are markets: Mumbai, NCR and Bangalore. Demand for commercial property is still
increasing, but demand lukewarm, but we expect it to improve. During our discussions with property
has yet to reflect this industry participants, they indicated that while enquiries have increased sharply,
the actual increase in rental volume remains limited. The main reason for the slow
increase is the lead time of about one year between when a company decides to
increase the space it hires to the actual hiring of the space. With the pick-up in the
IT/ITES sector, we expect rental volume to increase from first quarter of 2010.
Commercial vacancy rates in key markets

18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
2003
2004
2005
2006
2007
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
The graph shows the actual commercial space which has been rented during 2003-
1Q10. The actual commercial space rented reduced in FY08 and FY09, but has
shown signs of stabilisation in 1QCY10. The actual rental volumes have increased
in 1Q CY10 in Bangalore, indicating the optimistic outlook of IT/ITES companies.
We believe that the decline in the rental volumes in Mumbai is due to stock-market
weakness as a result of international economic trends. The Mumbai market is
driven primarily by the confidence of the financial services industry, which has
taken a hit recently due to international economic trends.

Rental volume (m sq ft)
12
10
0
CY2003
CY2004
CY2005
CY2006
CY2007
CY1Q08
CY2Q08
CY3Q08
CY4Q08
CY1Q09
CY2Q09
CY3Q09
CY4Q09
CY1Q10
We see the main share-price drivers as:
1) a pick-up in commercial-property leasing/sales volume, and

2) an improvement in companies’ ability to raise funds in the capital markets.

Company comparison
Landbank comparison
In the following table, we show the spread of landbank volume for the companies
that we cover by location (city). While DLF and Anant Raj focus primarily on
NCR (which is comprised of Delhi, Gurgaon, Manesar, Bahadurgarh, Noida,
Greater Noida and Faridabad), HDIL and Orbit focus on Mumbai, while
Puravankara is the only company under our coverage that focuses on South India.
We prefer the locations of the landbank of Anant Raj, as a large percentage of its
landbank in NCR is located in prime locations of Delhi, compared with DLF which
has most of its landbank in Gurgaon.
We expect HDIL and Orbit to benefit from the expansion of the financial-services
sector, since they are located in Mumbai. We prefer the landbank of Orbit to that of
HDIL, because most of the former’s landbank is located in South and Central
Mumbai, where prices are the highest in India.
Spread of landbank volume (%) by location

Location DLF Unitech HDIL Anant Raj Orbit Puravankara
NCR 63 25 0 87 0 0
Goa 5 0 0 0 0 0
Chennai 3 15 0 0 0 12
Kochi 1 1 8 0 0 10
Bangalore 3 1 0 0 0 66
Hyderabad 1 9 4 0 0 5
Mumbai 1 0 88 0 100 0
Vizag 0 23 0 0 0 0
Kolkata 2 5 0 0 0 1
Others 21 21 1 13 0 6
Total 100 100 100 100 100 100
m sq ft 404 420 193 66 6 115
Source: Companies
Spread of land bank volume (%) by cities in NCR

Delhi 1 0 0 27 0 0
Gurgaon 59 16 0 1 0 0
Noida 2 5 0 4 0 0
Greater Noida 0 3 0 0 0 0
Faridabad/Bahadurgarh 0 0 0 3 0 0
Manesar 0 0 0 52 0 0
NCR 63 25 0 87 0 0
Source: Companies
NAV comparison by location

In the following table, we show the NAVs of all the companies we cover in the
sector by location. While the NCR accounts for 63% of the total landbank of DLF, it
makes up 73% of the total NAV. For Anant Raj, the NCR accounts for 87% of the
total landbank and 89% to the total NAV. For Orbit and HDIL, the biggest
contributor to the landbank and NAV is Mumbai, and for Puravankara it is Bangalore.
Spread of NAV (%) by Location

NCR 73 32 0 89 0 0
Goa 2 0 0 0 0 0
Chennai 0 16 0 0 0 13
Kochi 0 2 11 0 0 9
Bangalore 1 1 0 0 0 66
Hyderabad 0 9 6 0 0 6
Mumbai 7 0 83 0 100 0
Vizag 0 13 0 0 0 0
Kolkata 0 4 0 0 0 0
Others 16 24 0 11 0 4
m sq ft 706,599 201,069 109,057 41,770 24,777 41,633
Source: Daiwa estimates

In the following chart, we provide a valuation summary of all the companies in the
sector that we cover. We prefer to value companies using our end-FY12 NAV
forecast, since this reflects the key aspect of the location of the landbank. In our
opinion, PER is not a good valuation methodology for real-estate companies due to
the usual wide fluctuations in earnings. A PBR approach does not take into account
the location of the landbank, which is the key for any real-estate company.
We value all the companies at 1x our end-FY12 NAV forecast. Since 2007, DLF
has been the market leader, and all of its peers normally trade at a discount to DLF.
However, its weak balance sheet and the slow revival of the commercial-property
sector (about 30% of DLF’s landbank is for commercial property) has led us to
value DLF on a par with its peers. However, we would expect the valuation
premium afforded to DLF previously to re-emerge with an improvement in its
balance sheet and a further pick-up in the commercial-property sector.
Our table shows that DLF, Unitech and HDIL are trading at around our end-FY12
NAV forecasts, and therefore we have 3 (Hold) ratings on the stocks. On a PBR
basis, DLF and Unitech are the most expensive among their peers. While HDIL is
attractive on PBR and PER bases, the stock is trading at close to our end-FY12
NAV forecast. Our 3 (Hold) rating is supported by cash-flow concerns arising from
land acquisition and cash outflows for the airport project where the returns are
likely to be mostly back-end loaded.
We have a 1 (Buy) rating for Orbit, since the stock is trading currently at a steep
discount to our end-FY12 NAV forecast. Our recommendation is supported by
what we believe as an attractive land bank, since this is located primarily in South
and Central Mumbai, which command among the highest prices in India.
We like Puravankara, as we believe it is attractive compared with our NAV-based

target price, and is well positioned to benefit from the expansion of the IT/ITES
sector as its landbank is located primarily in IT/ITES-centric cities in South India.
Anant Raj is also priced attractively relative to its NAV, in our opinion, and is well
supported by an attractive landbank located in Delhi.

Shares
Share price o/s* Market cap. EPS (Rs) PER (x) PBR (x) ROCE (%) NAV Premium/ discount
Company name (Rs) (m) (Rs m) FY12E FY12E FY12E FY12E FY12E to NAV
DLF Ltd 258 1,697 437,876 18.6 13.9 1.8 11 278 (7)
Unitech Ltd 69 2,616 180,525 4.0 17.4 1.4 8 77 (10)
Orbit 247 55 13,580 40.3 6.1 1.2 18 367 (33)
Anant Raj 106 315 33,352 9.9 10.7 0.8 8 159 (33)
HDIL 218 372 81,062 23.1 9.4 0.9 10 226 (4)
Puravankara Projects Ltd 103 213 21,983 8.1 12.6 1.3 10 150 (31)
Source: Bombay Stock Exchange (BSE), Daiwa forecasts, * on a fully-diluted basis*
Note: based on share prices at the close of 9 June 2010
Note: The shares of Orbit are not fully-diluted since the recent issue of 1:1 bonus shares will be effective from the date of Annual General
Meeting in June 2010. We will update our NAV and target price after it becomes effective

Anant Raj Industries 6-mth rating: 1
(ARCP IN) Target price: Rs159.00
Share price: Rs105.80 (9 Jun)
Materials: India
Amit Agarwal
(91) 22 6622 1063
[email protected]
Initiation of coverage: cash-rich

Coverage initiated with a 1 rating Reuters code ANRA.NS
We initiate coverage of Anant Raj with a 1 (Buy) rating and six- Market data
SENSEX Index 16,657.89
month target price of Rs159 based on 1x our end-FY12 NAV Market cap (US$m) 662.91
EV (US$m; 10E) 607.32
forecast. Our rating is supported by what we consider a strong 3-mth avg daily T/O (US$t) 971.71
Shares outstanding (m) 295
balance sheet (net cash), an attractive landbank and the Free float (%) 0.4
experienced management. At our target price the stock would Major shareholder Promoter family (61.4%)
Exchange rate Rs/US$ 47.025
trade at PERs of 25x and 16x on our FY11 and FY12 earnings
Performance (%)* 1M 3M 6M
forecasts. Absolute (11.9) (24.1) (21.4)
Relative (11.3) (22.3) (19.2)
Source: Daiwa
The company has a total landbank of 66m sq ft. About 90% is Note: *Relative to SENSEX Index
located in the NCR with 27% of that in attractive locations in Investment indicators
2010E 2011E 2012E
Delhi. PER (x) 13.1 16.6 10.7
PCFR (x) 6.9 24.6 13.3
EV/EBITDA (x) 11.0 14.5 8.7
It has maintained a net-cash balance throughout the recession PBR (x) 0.9 0.9 0.8
Dividend yield (%) 0.2 0.2 0.2
even as its peers were struggling to meet their debt commitments ROE (%) 6.9 5.4 7.6
ROA (%) 6.2 4.8 7.0
due to weak sales volume. Net debt equity (%) net cash net cash net cash
Source: Daiwa forecasts
Earnings and valuation Price and relative performance

(Rs) Rel to SENSEX Index
For FY10-13, we forecast a sales CAGR of 41% and an earnings 400.0 150
CAGR of 20%. The earnings growth is lower as we expect a 300.0 113
200.0 75
decline in the EBITDA margin (90% to about 60%) as the 100.0 38
0.0 0
impact of low-cost landbank declines. 07/6 07/12 08/6 08/12 09/6 09/12 10/6
Source: Bloomberg, Daiwa

The stock offers 50% upside potential to our target price from
the current level of Rs105.80. In terms of PBR, we believe the
stock is attractive relative to its peers, as it is trading currently at
0.9x and 0.8x our FY11 and FY12 BVPS forecasts, respectively.
The risks to our rating and forecasts are: 1) a slowdown in the

economy, and 2) the international macro-economic situation.
Income summary
Revenue EBITDA Net profit EPS CFPS DPS
Year to 31 Mar (Rs m) (%) (Rs m) (%) (Rs m) (%) (Rs) (%) (Rs) (Rs)
2008 6,038 190.2 5,620 217.5 4,364 247.8 14.810 182.3 (2.598) 1.502
2009 2,508 (58.5) 2,207 (60.7) 2,071 (52.5) 7.028 (52.5) 5.360 0.601
2010E 2,863 14.2 2,586 17.2 2,386 15.2 8.098 15.2 15.391 0.202
2011E 3,533 23.4 2,017 (22.0) 2,010 (15.8) 6.388 (21.1) 4.308 0.160
2012E 5,492 55.4 3,422 69.7 3,108 54.6 9.877 54.6 7.949 0.247
Source: Company, Daiwa forecasts

Company background
Anant Raj is engaged primarily in the development and sale of residential, commercial and retail properties, and the lease of retail and
commercial properties in India.
Anant Raj Industries – financial summary

Profit and loss (Rs m) Balance sheet (Rs m)
Year to 31 Mar 2008 2009 2010E 2011E 2012E As at 31 Mar 2008 2009 2010E 2011E 2012E
Revenue from Real Estate sales 5,678 2,193 2,295 2,543 3,514 Cash & short-term investment 6,048 6,257 4,860 6,342 5,789
Revenue from rental receipts 108 160 490 521 1,447 Inventory 777 126 118 118 118
Other revenue 251 155 79 469 531 Accounts receivable 3,098 2,405 2,396 2,904 4,502
Total revenue 6,038 2,508 2,863 3,533 5,492 Other current assets 4,443 4,517 2,742 2,164 1,469
Other income 0 0 0 0 0 Total current assets 14,366 13,305 10,116 11,528 11,877
COGS (232) (100) (27) (1,240) (1,730) Fixed assets 16,208 20,824 26,922 28,372 31,618
SG&A (185) (201) (250) (277) (340) Goodwill & intangibles 0 0 0 0 0
Other op. expenses (82) (86) (107) (132) (153) Other non-current assets 1,492 3,143 3,004 3,004 3,004
EBIT 5,538 2,121 2,479 1,884 3,269 Total assets 32,067 37,273 40,042 42,903 46,499
Net-interest inc./(exp.) 196 603 342 463 435 Short-term debt 0 0 0 0 0
Assoc/forex/extraord./others 67 93 144 151 159 Accounts payable 197 99 833 680 946
Pre-tax profit 5,800 2,817 2,965 2,498 3,864 Other current liabilities 2,261 1,161 1,047 806 1,118
Tax (1,438) (733) (581) (489) (756) Total current liabilities 2,458 1,260 1,880 1,486 2,064
Min. int./pref. div./others 2 (13) 1 1 1 Long-term debt 580 2,102 1,390 1,390 1,390
Net profit (reported) 4,364 2,071 2,386 2,010 3,108 Other non-current liabilities 19 26 9 9 9
Net profit (adj.) 4,364 2,071 2,386 2,010 3,108 Total liabilities 3,057 3,388 3,279 2,885 3,463
EPS (reported) (Rs) 14.810 7.028 8.098 6.388 9.877 Share capital 591 767 1,184 789 789
EPS (adj.) (Rs) 14.810 7.028 8.098 6.388 9.877 Reserves/R.E./others 28,415 32,431 34,722 38,373 41,390
DPS (Rs) 1.502 0.601 0.202 0.160 0.247 Shareholders' equity 29,006 33,198 35,906 39,162 42,179
EBIT (adj.) 5,538 2,121 2,479 1,884 3,269 Minority interests 3 687 856 856 856
EBITDA (adj.) 5,620 2,207 2,586 2,017 3,422 Total equity & liabilities 32,067 37,273 40,042 42,903 46,499
Net debt/(cash) (5,467) (4,155) (3,470) (4,952) (4,399)
Cash flow (Rs m) Key ratios

Year to 31 Mar 2008 2009 2010E 2011E 2012E Year to 31 Mar 2008 2009 2010E 2011E 2012E
Profit before tax 5,800 2,817 2,965 2,498 3,864 Sales – YoY % 190.2 (58.5) 14.2 23.4 55.4
Depreciation and amortisation 82 86 107 132 153 EBITDA (adj.) – YoY % 217.5 (60.7) 17.2 (22.0) 69.7
Tax paid (1,438) (733) (581) (489) (756) Net profit (adj.) – YoY % 247.8 (52.5) 15.2 (15.8) 54.6
Change in working capital (5,223) 72 2,413 (324) (325) EPS (adj.) – YoY % 182.3 (52.5) 15.2 (21.1) 54.6
Other operational CF items 13 (663) (369) (462) (435) EBITDA margin % (adj.) 93.1 88.0 90.3 57.1 62.3
Cash flow from operations (765) 1,579 4,535 1,355 2,501 EBIT margin % (adj.) 91.7 84.6 86.6 53.3 59.5
Capex (3,588) (4,703) (6,205) (1,582) (3,399) Net-profit margin % (adj.) 72.3 82.6 83.3 56.9 56.6
Net (acquisitions)/disposal (573) (1,605) 143 0 0 ROAE (%) 21.5 6.7 6.9 5.4 7.6
Other investing CF items (1) 691 152 0 0 ROAA (%) 17.5 6.0 6.2 4.8 7.0
Cash flow from investing (4,162) (5,617) (5,909) (1,582) (3,399) ROCE (%) 24.8 6.5 6.7 4.7 7.6
Change in debt (2,823) 1,522 (712) 0 0 ROIC (%) 21.9 5.9 6.3 4.4 7.1
Net share issues/(repurchases) 13,494 2,330 417 1,305 0 Net debt to equity (%) net cash net cash net cash net cash net cash
Dividends paid (518) (207) (70) (59) (91) Effective tax rate (%) 24.8 26.0 19.6 19.6 19.6
Other financing CF items 196 603 342 463 435 Accounts receivable (days) 97.2 400.5 306.1 273.8 246.1
Cash flow from financing 10,350 4,248 (23) 1,709 344 Payables (days) 6.7 21.5 59.4 78.2 54.0
Forex effect/others 0 0 0 0 0 Net interest cover (x) n.a. n.a. n.a. n.a. n.a.
Change in cash 5,422 210 (1,397) 1,482 (554) Net dividend payout (%) 10.1 8.5 2.5 2.5 2.5
Key assumptions PER bands

Year to 31 Mar 2008 2009 2010E 2011E 2012E
Avg price - Residential Gurgaon 2,100 2,205 (Rs)
(Rs/sq ft) n.a. n.a. n.a. 800
Avg price - Residential Delhi 21,000 22,050
(Rs/sq ft) n.a. n.a. n.a. 600
Sale residential (mn sq ft) n.a. n.a. n.a. 0.3 0.4
400 51.9x
39.0x
200 26.1x
13.1x
0 0.2x
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10

Note: Detailed balance sheet and cash flow statements have not been published as yet.

A brief introduction to the company
Anant Raj was established in 1969 and is in engaged in property and infrastructure
development in India, with a focus on the NCR. The company has a landbank of
982 acres, of which 525 acres are in Delhi and 90% of the remainder is within
30km of the capital.
Valuation
We initiate coverage of Anant Raj with a 1 (Buy) rating and six-month target price
of Rs159 based on 1x our end-FY12 NAV forecast. Our calculation for the NAV is
as follows.
• We divided its entire landbank into projects, based on the information provided
by the company.
• We calculated the sales price/sq ft and forecast the sales volume for each project
based on our assessment of the market.
• We assumed an annual inflation rate on the sales and cost prices of 5%.
• From the sales price, we deducted the cost of construction. We arrived at our
cost estimates after discussions with industry experts.
• We also deducted marketing and other costs that we assumed to amount to 4%
of the sales revenue.
• We then deducted income tax based on the tax applicable for the project.
• The resultant cash flow was discounted based on a WACC of 14%. We added
the resultant project level NAV for all the projects to arrive at the NAV of the
company.
• To the NAV we added the land cost for the landbank earmarked for future hotels
and added our forecast of the net cash as at the end of FY12 to arrive at our
valuation for the company.
NAV calculation
Anant Raj has a total of 66m sq ft under development. Using our valuation
methodology, we arrived at an NAV of Rs41,745m, based on a discount rate of
14%. We also added the land cost for the site of future hotels and then adjusted for
the net cash as at 31 March 2012 to arrive at our NAV/share of Rs159.
Anant Raj: calculation of NAV

(Rs m) Comment
Gross NAV 41,770 NAV based on our valuation methodology
Site for hotels 3,980 Valuation assumed at land cost
Net cash 4,399 Cash as at the end of FY12
NAV 50,149
Shares outstanding (m)* 315
NAV(Rs/share) 159
Source: Company, Daiwa forecasts, *fully-diluted basis
In our view, the stock should trade at 1x on our end-FY12 NAV forecast. We
believe a discount is not appropriate to the NAV due to the underlying economic
growth in India and the expansion in the sector that we expect to limit the
downside to the NAV. We have not provided any premium to the NAV as we
expect residential prices to be range-bound over the next one year.
Relative comparison
In our opinion, an NAV-based valuation is the most suitable for real-estate
companies. Valuations based on earnings multiples are not appropriate, we believe,

due to the inherent volatility in earnings. Also, PBRs do not take into account the
difference in the valuations based on the locations of the landbank. We believe that
Anant Raj should be valued on a par with DLF. While we believe DLF has superior
execution capability and a good brand name, Anant Raj has a better-quality balance
sheet (net cash) and a relatively better-located landbank.
We believe Anant Raj’s current valuations are attractive when compared with its
peers, as the stock is trading at a 33% discount to our estimated end-FY12 NAV
and is among the cheapest in terms of PER and PBR.
Risks to our valuation

We believe a slowdown in the IT/ITES sector due to changes in the macro-
economic conditions would reduce demand, driving down property prices. We
estimate that a 1% change in the property price results in a 1% change in the NAV
of the company.
Key assumptions
Sales volume
We expect a gradual improvement in FY11 sales in the residential sector, as it is
dependent on a recovery in the IT/ITES sector. While residential sales in most of
the cities have started to pick up, they are still about 50-80% below the peak sales
volume (depending on the city and its location). We expect sales in the commercial
sector to increase from 1Q11. While commercial sales enquiries have risen over the
past six months, it takes about one year for the leases/sales to materialise.
Anant Raj: sales-volume forecasts (m sq ft)

2011E 2012E 2013E
Residential sales 0.3 0.4 0.9
Retail sales 0.0 0.0 0.0
Total sales volume 0.3 0.5 0.9
Commercial IT leases 0.7 1.3 1.7
Commercial leases 0.2 0.2 0.2
Retail leases 0.1 0.5 0.5
Total lease volume 0.9 1.9 2.4
Total volume 1.2 2.4 3.3
Our forecasts for the sale of the entire landbank are shown in the following table.
About 15m sq ft of the landbank is under construction.
Anant Raj: forecast landbank sales volume (m sq ft)

(m sq ft)
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E

Sales-price assumptions
The following table shows some of our key price assumptions based on the current
prices in the market. We expect residential sales prices to remain stable over the
next 12 months due to the strong pipeline of projects. Most of the developers are
focusing on launching residential projects due to weak demand from the
commercial and retail segments.
Anant Raj: average current sales-price assumptions

Residential Sales price (Rs/sq ft)
New Delhi/Delhi 3,630
Gurgaon 2,500
Manesar 2,500
Bahadurgarh 2,000
Others 2,000
Discount rate
Our key assumptions for the discount rate are shown in the following table. We
have assumed a WACC of 14%.
Anant Raj: calculation of WACC

Cost of debt
Pre-tax cost of debt (%) 15
Tax rate (%) 24
Cost of debt (%) 11
Cost of equity
Risk-free rate (%) 7
Beta 1.5
Market premium (%) 6
Cost of equity (%) 16
WACC (%) 14
Debt (%) 50
Equity (%) 50
Source: Bloomberg, Daiwa estimates
Other assumptions
Anant Raj: assumptions for NAV (%)
Discount rate 14
Rate of inflation – sales 5
Rate of inflation – cost 5
Other costs (as a % of sales) 4
Tax rate 33
Tax rate -80IB 11
Capitalisation rate 10
Sensitivity analysis
Our base-case valuation is based on the NAV. The following table shows the
effect on the NAV of a 1% change in the key assumptions mentioned earlier.
Anant Raj: sensitivity of NAV to change in assumptions

1% change in the average selling price 1% change in NAV
1% change in sales inflation 13% change in NAV
1% change in cost inflation 6% change in NAV
1% change in sales and cost inflation 7% change in NAV
1% change in the discount rate 7% change in NAV
1% change in the capitalisation rate 8% change in NAV

Landbank details
The following tables show the geographical spread of the company’s landbank in
terms of volume and NAV. From these it is clear that it is focused on the NCR,
which for Anant Raj includes Delhi, Gurgaon, Manesar, Bahadurgarh, Noida and
Greater Noida. It has about 87% of its landbank in the NCR and derives 89% of its
NAV from the region.
Anant Raj: spread of land by location Anant Raj: landbank spread by NAV
City (m sq ft) (%) Location NAV (Rs m) (%)
Delhi 18 27 Delhi 23,425 56
Gurgaon 0 1 Gurgaon 153 0
Manesar 35 52 Manesar 12,320 29
Bahadurgarh 2 3 Bahadurgarh 695 2
Noida 3 4 Noida 646 2
Jaipur 1 2 Jaipur (575) (1)
Others 8 11 Others 5105 12
Total 66 100 Total 41,770 100
Source: Company, Daiwa forecasts Source: Company, Daiwa forecasts
Profit and loss analysis

For FY10-13, we forecast an earnings CAGR of 20% and a sales CAGR of 41%.
We expect the earnings growth to be back-ended as we believe there will be a
marginal decline in net profit for FY11 due to a reduction in the EBITDA margin.
Anant Raj has been selling land and property mainly constructed on very cheap
land. This has led to an extremely high EBITDA margin of about 90% for FY08-10,
which we believe is unsustainable. The company expects to launch three new
residential properties in FY11. Although the properties are located in prime
locations, we forecast the EBITDA margin to fall and stabilise between 55-65% for
FY11 and beyond.
Anant Raj’s focus is mainly on the NCR region, which is dependent on the
IT/ITES sector. Given our expectation of an improvement in staff hiring in the
IT/ITES segment and anecdotal evidence of salary increases, we believe house-
buying sentiment will improve and lead to sales growth from FY12.
Anant Raj: revenue Anant Raj: EBITDA margin

(Rs m) 100%
12,000 90%
80%
10,000
70%
8,000 60%
50%
6,000
40%
4,000 30%
20%
2,000
10%
0 0%
FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY14E FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY14E
We expect a marginal year-on-year decline in net profit for FY11 due to a

reduction in the operating margin. However, we expect net profit to rise from FY12
onwards as sales volume starts increasing.

Anant Raj: net profit
(Rs m)
6,000
5,000
4,000
3,000
2,000
1,000
0
FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY14E
Balance-sheet analysis
Anant Raj is the only company that we cover in the sector that has maintained a
net-cash balance throughout the period of the recession.
Anant Raj: net debt-to-equity

(x)
0.30
0.25
0.20
0.15
0.10
0.05
0.00
(0.05)
(0.10)
(0.15)
(0.20)
(0.25)
FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY14E
Cash-flow analysis
Anant Raj is one of the few companies that have enjoyed a positive operating free-
cash flow during the period of the recession. With net cash on the balance sheet,
we believe the company is well-positioned to exploit any opportunity to purchase
properties at distressed prices as the economy recovers.

Anant Raj: operating free-cash flow
(Rs m)
6,000
5,000
4,000
3,000
2,000
1,000
(1,000)
(2,000)
FY07 FY08 FY09 FY10 FY11E FY12E FY13E
Shareholding pattern
The shareholding pattern shown in the following chart clearly indicates that foreign
institutional investors (FII) hold the majority of free-float shares. The FII
shareholding increased from 2Q FY10. As at the end of 4Q FY10, FIIs held
27.95% and domestic institutional investors (DII) held 1.24%. The free-float shares
account for 38.65% of the total outstanding shares.
Anant Raj: shareholding pattern of FII and DII (%)

35
30
25
20
15
10
0
4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10
FII DII
Source: BSE

DLF 6-mth rating: 3
(DLFU IN) Target price: Rs278.00
Amit Agarwal
(91) 22 6622 1063
[email protected]
Initiation of coverage: balance-sheet worries

Coverage initiated with a Hold rating Reuters code DLF.NS
We initiate coverage of DLF with a 3 (Hold) rating and six-month Market data
target price of Rs278, based on 1x our end-FY12 NAV forecast. Market cap (US$bn) 9.32
EV (US$bn; 10E) 13.73
We expect the company’s share-price performance to be weighed 3-mth avg daily T/O (US$m) 54.21
Shares outstanding (m) 1,697
down over the next few months by market concerns about the Free float (%) 21.4
weak balance sheet following the integration with DLF Assets Major shareholder Promoter family (78.6%)
(DAL), and continued weakness in the commercial sector despite
rising residential-sales volume. Absolute (9.3) (17.2) (32.6)
Relative (8.7) (15.2) (30.7)
Source: Daiwa
We are concerned about the weak balance sheet Note: *Relative to SENSEX Index
We forecast the net-debt-to-equity ratio to rise to 0.9x for FY11 Investment indicators
2010E 2011E 2012E
from 0.7x for FY10 due to the purchase of a 41% stake in DAL PER (x) 25.3 31.5 13.9
PCFR (x) 5.6 43.3 5.4
from Symphony Capital Asia (SC Asia) for Rs31.84bn and the EV/EBITDA (x) 18.4 18.8 10.8
integration of DAL, with DLF’s balance sheet leading to a rise in PBR (x) 1.8 1.8 1.6
other debt liabilities and weak cash inflows from its operations. ROE (%) 7.3 5.6 12.2
ROA (%) 3.1 2.2 4.8
Net debt equity (%) 67.5 93.4 75.9
Residential prices expected to remain stable
Price and relative performance
We expect residential sale prices to be stable over the next year
and commercial sales volume to rise from 2011, limiting NAV 1,300 200
1,000 150
accretion. 700 100
400 50
100 0
Catalysts 07/6 07/12 08/6 08/12 09/6 09/12 10/6
We believe a strong revival in demand for commercial property Source: Bloomberg, Daiwa
would enable DLF to monetise its commercial assets.
The successful listing of the proposed real-estate investment trust

(REIT) in Singapore and the sale of the non-core assets would
help improve cash flow, in our opinion.
Income summary
2008 144,530 266.3 97,306 247.8 78,120 304.0 45.824 262.4 (4.478) 0.796
2009 100,354 (30.6) 55,900 (42.6) 44,696 (42.8) 26.335 (42.5) (1.482) 0.342
2010E 74,210 (26.1) 35,024 (37.3) 17,287 (61.3) 10.186 (61.3) 46.284 0.342
2011E 89,945 21.2 37,042 5.8 13,926 (19.4) 8.205 (19.4) 5.964 0.342
2012E 128,272 42.6 61,771 66.8 31,598 126.9 18.618 126.9 47.714 0.342

Company background
DLF is the largest listed real-estate company in India. It is primarily involved in the sale of developed residential units and the sale
and rental of commercial units.
DLF – financial summary

Real Estate sales 140,431 84,802 60,330 69,594 102,150 Cash & short-term investment 21,421 11,956 9,130 4,380 25,563
Lease income 2,847 5,054 6,375 12,094 17,595 Inventory 94,544 109,282 124,120 140,312 163,059
Other revenue 1,252 10,497 7,506 8,256 8,527 Accounts receivable 76,106 21,648 16,660 22,486 25,654
COGS (39,998) (32,295) (25,836) (39,308) (50,535) Fixed assets 100,031 136,006 277,300 301,793 332,078
SG&A (7,227) (12,159) (13,350) (13,596) (15,967) Goodwill & intangibles 20,931 22,651 12,670 12,670 12,670
Other op. expenses (901) (2,390) (3,245) (3,365) (3,506) Other non-current assets 9,102 14,439 55,200 23,360 23,360
Net-interest inc./(exp.) (3,100) (3,195) (11,107) (17,408) (16,289) Short-term debt 0 0 0 0 0
Assoc/forex/extraord./others 2,573 1,345 3,475 1,687 1,771 Accounts payable 17,046 23,249 25,836 15,956 15,764
Pre-tax profit 95,878 51,661 24,147 17,955 43,747 Other current liabilities 55,111 54,995 66,675 64,824 106,198
Tax (17,391) (6,754) (6,960) (4,130) (12,249) Total current liabilities 72,158 78,244 92,511 80,780 121,961
Min. int./pref. div./others (367) (211) 100 100 100 Long-term debt 122,771 163,201 216,769 261,769 255,769
Net profit (reported) 78,120 44,696 17,287 13,926 31,598 Other non-current liabilities 4,254 6,336 8,910 8,910 8,910
EPS (reported) (Rs) 45.824 26.335 10.186 8.205 18.618 Share capital 12,905 17,354 62,590 33,340 33,340
Net debt/(cash) 101,349 151,245 207,639 257,389 230,206

Profit before tax 95,878 51,661 24,147 17,955 43,747 Sales – YoY % 266.3 (30.6) (26.1) 21.2 42.6
Depreciation and amortisation 901 2,390 3,245 3,365 3,506 EBITDA (adj.) – YoY % 247.8 (42.6) (37.3) 5.8 66.8
Tax paid (17,391) (6,754) (6,960) (4,130) (12,249) Net profit (adj.) – YoY % 304.0 (42.8) (61.3) (19.4) 126.9
Change in working capital (94,305) (53,602) 46,925 (24,974) 29,587 EPS (adj.) – YoY % 262.4 (42.5) (61.3) (19.4) 126.9
Other operational CF items 7,284 3,791 11,197 17,905 16,389 EBITDA margin % (adj.) 67.3 55.7 47.2 41.2 48.2
Cash flow from operations (7,634) (2,515) 78,554 10,123 80,979 EBIT margin % (adj.) 66.7 53.3 42.8 37.4 45.4
Net (acquisitions)/disposal (18,990) (6,643) (15,173) 18,360 0 ROAE (%) 73.2 21.5 7.3 5.6 12.2
Other investing CF items 0 12 0 0 0 ROAA (%) 27.1 10.1 3.1 2.2 4.8
Change in debt 23,444 40,431 53,568 45,000 (6,000) ROIC (%) 36.8 13.5 5.0 4.9 7.9
Net share issues/(repurchases) 90,731 4,458 43,844 (29,250) 0 Net debt to equity (%) 51.5 62.6 67.5 93.4 75.9
Dividends paid (7,981) (3,716) (3,716) (3,716) (3,716) Effective tax rate (%) 18.1 13.1 28.8 23.0 28.0
Other financing CF items (3,100) (3,195) (11,107) (17,408) (16,289) Accounts receivable (days) 115.1 177.8 94.2 79.4 68.5
Cash flow from financing 103,094 37,978 82,590 (5,374) (26,005) Payables (days) 24.9 73.3 120.7 84.8 45.1
Forex effect/others 0 0 0 0 0 Net interest cover (x) 31.1 16.7 2.9 1.9 3.6
Change in cash 17,267 (9,451) (2,841) (4,749) 21,183 Net dividend payout (%) 1.7 1.3 3.4 4.2 1.8

Year to 31 Mar 2008 2009 2010E 2011E 2012E
Avg price - Residential Gurgaon n.a. n.a. n.a. 2,750 2,888 (Rs)
(Rs/sq ft)
n.a. n.a. n.a. 1,537
Avg price - Residential Chennai 2,400 2,520
(Rs/sq ft)
Avg price - Residential Bangalore n.a. n.a. n.a. 2,300 2,415 1,037
(Rs/sq ft)
Sale residential (mn sq ft) n.a. n.a. n.a. 10.6 17.7 537
35.2x
27.5x
19.8x
12.0x
37 4.3x
Jul-07 Jul-08 Jun-09


DLF is India's largest listed property company in terms of revenue, earnings,
market capitalisation and developable area. It was established 62 years ago. DLF
has completed 238m sq ft of developments since its establishment and has 405m sq
ft of planned projects. It has a presence in 30 cities across India.
The company’s primary business is the development of residential, commercial,

and retail properties. It has also been involved in the infrastructure, special
economic zone (SEZ) and hotel businesses.
Valuation
We initiate coverage of DLF with a 3 (Hold) rating and six-month target price of
Rs278 based on 1x our end-FY12 NAV forecast. We calculated the NAV as
follows.
• We divided DLF’s entire landbank into projects, based on the information
provided by the company.
• We assumed an annual inflation rate on the sales and cost prices of 6%. Further,
we assumed residential property prices would rise by 30% each for FY13 and
FY14 based on the historical trend over the past 10 years.
• We discounted the resultant cash flow based on a WACC of 12%. We added the
resultant project level NAV for all the projects to arrive at the NAV of the
company.
• From the NAV we deducted our forecast of the net debt as at the end of FY12
and the unpaid landbank to arrive at the final valuation of the company.
• We have added the receivables expected by the company from the state
governments of Haryana and Delhi from the proposed projects of the Dwarka
Convention Centre in New Delhi and land in Haryana. DLF won the bid for the
construction of the Dwarka Convention Centre and had paid the deposits for the
land to the government of Haryana.
DLF: calculation of NAV (end-FY12)

(Rs m) (Rs/share)
NAV (landbank) 706,264 416
Less unpaid land cost 15,860 9
Add assumed non-core asset sales 11,500 7
NAV (landbank) adjusted for changes 701,904 414
Less net debt (FY12E) 230,206 136
NAV 471,698 278
NAV(Rs/share) 278

Key assumptions
Sales volume
We expect a gradual improvement in FY11 sales in the residential sector, as it is
dependent on a recovery in the IT/ITES sector. While residential sales in most of
the cities have started to pick up, they are still about 50-80% below the peak sales
volume (depending on the city and its location). We expect sales in the commercial
sector to increase from 1Q11. While commercial sales enquiries have risen over the
past six months, it takes about one year for the leases/sales to materialise.
DLF: sales-volume forecasts by type (m sq ft)

Sales volume FY11E FY12E FY13E
Residential 10.6 17.7 24.8
Office 3.1 3.9 6.6
Retail 0.6 1.0 0.4
Total 14.3 22.6 31.8
The following table shows our forecasts for the sale of the entire landbank. About
58m sq ft of the landbank is currently under construction, of which 39m sq ft is
being constructed as residential units and small commercial units for sale, and 19m
sq ft is office and retail space.
DLF: forecast landbank sales volume (m sq ft)

Assumed sales (m sq ft)
45
40
35
30
25
20
15
10
5
0
FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21E FY22E
The following table shows some of the our key price assumptions based on the
current market prices. We expect residential prices to remain stable over the next
12 months due to the strong pipeline of projects. Most of the developers are
focusing on launching residential projects due to the weak demand in the
DLF: average current sales-price assumptions

Key price assumptions Residential sales (Rs/sq ft) Office rentals (Rs/sq ft/month)
Gurgaon 2,750 85
Kolkata 2,400 40
Chennai 2,400 50
Bangalore 2,300 38
Pune 2,050 36

Discount rate
DLF: calculation of WACC

Cost of debt
Pre-tax cost of debt 11%
Tax rate 24%
Cost of debt 8%
Cost of equity
Risk-free rate 7%
Beta 1.49
Market premium 6%
Cost of equity 16%
WACC 12%
Debt 50%
Equity 50%
Other assumptions
DLF: NAV assumptions
Discount rate 12%
Rate of inflation-sales 6%
Rate of inflation-cost 6%
Other costs (as a % of sales) 5%
Tax rate (%) 33%
Tax rate -80IB (%) 11%
Capitalisation rate 10%
effect on the NAV of a 1% change in the key assumptions mentioned earlier.
DLF: sensitivity of NAV to change in assumptions

1% change in the average sales price 3% change in NAV
1% change in sales and cost inflation 2.5% change in NAV
1% change in the discount rate 3.5% change in NAV
1% change in the capitalisation rate 3.5% change in NAV
Peer comparison
Compared with its peers, DLF’s current NAV, PBR and PER valuations are
expensive. In terms of NAV, the stock is trading at a discount of only 7% to NAV
compared with Orbit, Anant Raj, and Puravankara, which are trading at discounts
of more than 30% to NAV. From FY08-09, DLF’s stock traded at a premium to its
peers in terms of NAV. However, we do not expect it to trade at a premium to its
peers over the next 12 months as:
1) DLF is focused on commercial property, which we expect to see an

improvement in sales/lease volumes over the next six-to-12 months, and
2) it has a relatively weak balance sheet, especially following the integration with
DAL.
Landbank details
terms of volume and NAV. From these it is clear that it is focused on the NCR,

which includes New Delhi/Delhi, Gurgaon, Manesar, Bahadurgarh, and Noida and
Greater Noida. It has about 63% of its landbank in the NCR but derives 73% of its
NAV from the region.
Landbank spread by volume Landbank spread by NAV

Gurgaon 239 59 Gurgaon 461,896 65
New Delhi/Delhi 6 1 New Delhi/Delhi 42,835 6
Noida 7 2 Mumbai 52,191 7
Goa 21 5 Noida 13,022 2
Kolkata 9 2 Panipat 12,669 2
Chennai 12 3 Jalandhar 8,292 1
Kochi 4 1 Baroda 8,576 1
Bangalore 12 3 Bangalore 7,873 1
Hyderabad 6 1 Ahmedabad 8,585 1
Chandigarh 12 3 Chandigarh 11,505 2
Nagpur 10 2 Nagpur 8,113 1
Pune 13 3 Pune 6,577 1
Mumbai 4 1 Goa 13,868 2
Metropolitan cities 9 2 Metropolitan cities 8,898 1
Tier-1 cities 9 2 Tier-1 cities 9,183 1
Tier-II cities 4 1 Tier-II 7,240 1
Others 26 6 Others 25,276 4
Total 404 100 Total 706,264 100
Source: Company Source: Company, Daiwa estimates
Financial-statement analysis
The following table shows that the company’s residential sales have been rising
consistently after their worst quarter (since DLF was listed in FY08) in 3Q FY09.
We expect residential sales to continue to rise on the back of increased demand.
Most of the sales for FY10 were from the premium city-centre project (Capital
Greens) sold in New Delhi. The average selling price and consequently the
EBITDA margin for the project was higher than the average selling price we
estimate for the landbank.
DLF: quarterly home sales (m sq ft)

9
8
7
6
5
4
3
2
1
0
1Q FY08
2Q FY08
3Q FY08
4Q FY08
1Q FY09
2Q FY09
3Q FY09
4Q FY09
1Q FY10
2Q FY10
3Q FY10
4Q FY10
Source: Company
However, we expect the company’s average selling price to decline in FY11, as

most of the income booked for FY10 was from the sale of premium flats located in
New Delhi. In our opinion, an increase in the proportion of sales from the
affordable residential segment will lead to a reduction in the EBITDA margin for
FY11. Given our expectation of an improvement in the commercial segment from

4Q FY11, we believe an increase in sales from this segment will lead to a rise in
the EBITDA margin.
DLF: gross margin

70%
68%
66%
64%
62%
60%
58%
56%
54%
52%
FY09 FY10 FY11E FY12E FY13E FY14E
Rising debtors/unbilled receivables
Our analysis of the past 12 quarters indicates that after hitting a low in 4Q FY09,
sales rose for the subsequent quarters, pointing to a revival in the sector. DLF was
able to sell its Capital Greens project over the past three quarters. While we expect
sales to improve in the future, we are concerned about the rising debtors/unbilled
receivables, which imply a reduction in cash flow over the medium term.
DLF: quarterly sales

Sales have been rising (Rs m)
quarter-on-quarter since
50,000
4Q FY09 …
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
1Q FY08
2Q FY08
3Q FY08
4Q FY08
1Q FY09
2Q FY09
3Q FY09
4Q FY09
1Q FY10
2Q FY10
3Q FY10
4Q FY10
Source: Company
The following chart shows the steady rise in debtors and other current assets
(primarily unbilled receivables). The decline for 4Q FY10 was due to the removal
of the debtors pertaining to DAL after the latter’s merger with DLF. The DAL
debtors accounted for about Rs35bn of DLF’s Rs100bn of debtors/unbilled
receivables as at the end of 4Q FY10.

DLF: quarterly debtors and unbilled receivables
. . . as have the (Rs m)
debtors/unbilled
receivables, indicating 120,000
weak cash flow 100,000
80,000
60,000
40,000
20,000
0
1Q FY08
2Q FY08
3Q FY08
4Q FY08
1Q FY09
2Q FY09
3Q FY09
4Q FY09
1Q FY10
2Q FY10
3Q FY10
4Q FY10
This has led to an increase in the company’s net debt. The sharp rise in net debt for
4Q FY10 was due to additional loans taken to meet the company’s commitment to
purchase the cumulative convertible preference shares of DAL, which had been
sold to SC Asia by the promoters and have now been bought by DLF. The amount
to be paid to SC Asia is about Rs30.84bn.
DLF: quarterly net debt

Rising debt (Rs m)
250,000
200,000
150,000
100,000
50,000
0
1Q FY08
2Q FY08
3Q FY08
4Q FY08
1Q FY09
2Q FY09
3Q FY09
4Q FY09
1Q FY10
2Q FY10
3Q FY10
4Q FY10
The sale of non-core assets has been slow

DLF had planned to sell non-core assets valued at Rs55bn in FY10 to help
maintain adequate cash flow to meet its commitments. However, it was able to sell
only Rs18bn worth. The successful sale of its remaining non-core assets will help
improve the balance sheet by reducing the debt.
The merger with DAL has led to a weaker balance sheet

The merger of DLF and DAL has resulted in a weaker balance sheet due to the
mismatch of increased liabilities and currently non-producing assets. Total
liabilities rose by Rs37bn on the balance sheet and a further Rs30.84bn has to be
paid to SC Asia for the purchase of the cumulative convertible preference shares,
which accounted for about 41% of DAL’s total share capital. This does not include
an amount of Rs35bn payable to DLF for the purchase of commercial assets, which
is included in the other liabilities of Rs44.9bn as DAL has merged already with
DLF.

However, of the 13m sq ft of commercial office property taken over by DLF, 7m
sq ft is still under construction and therefore is not generating any income.
Meanwhile, lease rentals of 6.5m sq ft of the assets under lease are being paid
discounted with the banks for a period of five years, and therefore the rental cash
flow is not available to DLF.
DAL: balance sheet at the time of the merger with DLF

Liabilities (Rs m) Assets (Rs m)
CCPS - promoters 15,970 Fixed assets 75,970
CCPS - investors 29,270 Capital work in progress 53,030
Capital reserve 11,510
Other liabilities 44,910
Loans 21,210
Current liabilities 6,130
Total 129,000 129,000
Source: DLF
The following shareholding pattern chart shows that FIIs hold the majority of the
free-float shares. FII ownership increased in 1Q FY10 due to the sale of 10% of the
total shareholding by the promoters. The total holding of FIIs has decreased
steadily in the past few quarters. The free-float shares account for 21.4% of the
total outstanding shares.
Shareholding pattern (%)

18
16
14
12
10
8
6
4
2
0
3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10
FII DII
Source: BSE
Note: promoters hold 78.6% of the total shares

Housing Development 6-mth rating: 3
& Infrastructure Target price: Rs226.00
(HDIL IN) Amit Agarwal

(91) 22 6622 1063
[email protected]
Initiation of coverage: we see cash-flow strains

Coverage initiated with a 3 rating Reuters code HDIL.NS
We initiate coverage of HDIL with a 3 (Hold) rating and six-month Market data
target price of Rs226 based on 1x our end-FY12 NAV forecast. We Market cap (US$bn) 1.67
EV (US$bn; 10E) 2.37
expect the company’s cash flow to come under pressure due to the 3-mth avg daily T/O (US$m) 40.27
out-flow of Rs6bn for land for the Mumbai Airport project. Further, Free float (%) 49.9
we believe the stock is fully valued as it is trading currently at only Major shareholder Promoter family (50.2%)
a 3% discount to our target price.
Absolute (8.4) (29.1) (36.6)
Relative (7.7) (27.4) (34.8)
Aggressive launch of commercial, residential spaces
Source: Daiwa
Note: *Relative to SENSEX Index
HDIL launched about 8.3m sq ft of residential and 1.5m sq ft of
commercial projects in FY10. In our view, the success of the Investment indicators
2010E 2011E 2012E
projects will depend on their timely execution. PER (x) 14.1 10.4 9.5
PCFR (x) n.a. n.a. 4.0
EV/EBITDA (x) 14.1 12.2 8.8
Airport project on track PBR (x) 1.1 1.0 0.9
ROE (%) 10.1 10.3 10.2
HDIL has completed more than 75% of the first phase of the ROA (%) 5.4 6.3 6.6
Mumbai Airport project and plans to relocate about 25,000 families Net debt equity (%) 47.0 42.1 21.7
in the next three months. The project accounts for 23% of NAV, by
our estimates.
1,200 250
900 188
Cash flow likely to be strained in FY11 600 125
300 63
We expect cash flow in FY11 to be under pressure from a Rs6bn 0 0
payment for airport-project land. For FY11-13, we forecast an 07/6 07/12 08/6 08/12 09/6 09/12 10/6
earnings CAGR of 29% and a 30% sales CAGR. We expect Source: Bloomberg, Daiwa
earnings to be driven by transferable development receipt (TDR)
sales in FY11 and residential and commercial sales in FY12-13.
Catalyst. 1) A rise in residential prices in Mumbai. Risks. 1) A

delay in the airport project, and 2) a deterioration in the
international macro-economic situation or the financial markets.
Income summary
2008 23,804 97.7 16,921 156.2 14,099 157.2 65.797 116.1 (171) 4.960
2009 17,284 (27.4) 7,782 (54.0) 6,772 (52.0) 24.581 (62.6) (48.422) 0.000
2010E 15,021 (13.1) 7,893 1.4 5,779 (14.7) 15.540 (36.8) (16.694) 0.000
2011E 16,815 11.9 9,458 19.8 7,814 35.2 21.014 35.2 (7.731) 1.700
2012E 21,975 30.7 11,364 20.1 8,584 9.9 23.086 9.9 54.577 5.000

Company background
HDIL is engaged in the development and sale/lease of residential and commercial and retail property, primarily in Mumbai.
Housing Development & Infrastructure – financial summary

Revenues from sale of Cash & short-term investment 3,505 755 7,918 1,063 6,108
residential/commercial 23,804 3,062 828 4,704 8,773 Inventory 55,229 69,128 87,567 96,011 100,031
Revenues from sale of TDR 0 14,131 13,875 11,483 12,057 Accounts receivable 566 1,669 2,030 1,034 1,446
Other revenue 0 92 318 629 1,145 Other current assets 13,132 17,097 15,677 21,677 15,677
Total revenue 23,804 17,284 15,021 16,815 21,975 Total current assets 72,432 88,649 113,191 119,784 123,262
Other income 0 0 0 0 0 Fixed assets 596 749 2,047 2,217 4,992
COGS (6,329) (8,358) (6,186) (6,505) (9,646) Goodwill & intangibles 91 478 2,591 2,591 2,591
SG&A (553) (1,144) (943) (852) (966) Other non-current assets 1,915 2,497 2,441 2,429 2,429
Other op. expenses (22) (25) (724) (111) (263) Total assets 75,034 92,375 120,270 127,021 133,274
EBIT 16,899 7,756 7,169 9,347 11,101 Short-term debt 0 0 0 0 0
Net-interest inc./(exp.) (1,408) (332) (462) (80) (36) Accounts payable 396 3,293 3,773 5,027 1,172
Assoc/forex/extraord./others 529 290 345 362 380 Other current liabilities 7,081 3,400 4,987 6,290 19,990
Pre-tax profit 16,021 7,715 7,052 9,630 11,446 Total current liabilities 7,476 6,693 8,760 11,317 21,162
Tax (1,922) (943) (1,330) (1,816) (2,861) Long-term debt 31,127 41,433 41,017 35,017 25,017
Min. int./pref. div./others 0 0 56 0 0 Other non-current liabilities 15 30 63 63 63
Net profit (reported) 14,099 6,772 5,779 7,814 8,584 Total liabilities 38,619 48,156 49,841 46,397 46,242
Net profit (adj.) 14,099 6,772 5,779 7,814 8,584 Share capital 18,042 18,042 38,826 41,946 41,946
EPS (reported) (Rs) 65.797 24.581 15.540 21.014 23.086 Reserves/R.E./others 18,373 26,176 31,603 38,677 45,086
EPS (adj.) (Rs) 65.797 24.581 15.540 21.014 23.086 Shareholders' equity 36,415 44,218 70,429 80,623 87,032
DPS (Rs) 4.960 0.000 0.000 1.700 5.000 Minority interests 0 0 0 0 0
EBIT (adj.) 16,899 7,756 7,169 9,347 11,101 Total equity & liabilities 75,034 92,375 120,270 127,021 133,274
EBITDA (adj.) 16,921 7,782 7,893 9,458 11,364 Net debt/(cash) 27,622 40,678 33,100 33,954 18,909

Profit before tax 16,021 7,715 7,052 9,630 11,446 Sales – YoY % 97.7 (27.4) (13.1) 11.9 30.7
Depreciation and amortisation 85 413 2,836 111 263 EBITDA (adj.) – YoY % 156.2 (54.0) 1.4 19.8 20.1
Tax paid (1,922) (943) (1,330) (1,816) (2,861) Net profit (adj.) – YoY % 157.2 (52.0) (14.7) 35.2 9.9
Change in working capital (52,251) (19,775) (15,312) (10,891) 11,412 EPS (adj.) – YoY % 116.1 (62.6) (36.8) 35.2 9.9
Other operational CF items 1,415 (750) 546 92 36 EBITDA margin % (adj.) 71.1 45.0 52.5 56.2 51.7
Cash flow from operations (36,652) (13,340) (6,208) (2,875) 20,294 EBIT margin % (adj.) 71.0 44.9 47.7 55.6 50.5
Capex (464) (179) (2,022) (281) (3,038) Net-profit margin % (adj.) 59.2 39.2 38.5 46.5 39.1
Net (acquisitions)/disposal (337) (576) 62 0 0 ROAE (%) 64.4 16.8 10.1 10.3 10.2
Other investing CF items (61) 1,371 (4,576) 0 0 ROAA (%) 29.8 8.1 5.4 6.3 6.6
Cash flow from investing (862) 616 (6,536) (281) (3,038) ROCE (%) 43.0 10.1 7.3 8.2 9.8
Change in debt 27,371 10,306 (416) (6,000) (10,000) ROIC (%) 39.6 9.1 6.2 7.0 7.6
Net share issues/(repurchases) 16,242 0 20,784 3,120 0 Net debt to equity (%) 75.9 92.0 47.0 42.1 21.7
Dividends paid (1,243) 0 0 (740) (2,175) Effective tax rate (%) 12.0 12.2 18.9 18.9 25.0
Other financing CF items (1,408) (332) (462) (80) (36) Accounts receivable (days) 28.2 23.6 44.9 33.3 20.6
Cash flow from financing 40,962 9,974 19,906 (3,699) (12,211) Payables (days) 11.5 38.9 85.9 95.5 51.5
Change in cash 3,448 (2,750) 7,163 (6,855) 5,045 Net dividend payout (%) 7.5 0.0 0.0 8.1 21.7

Year to 31 Mar 2008 2009 2010E 2011E 2012E
Avg price - Residential Mumbai n.a. n.a. n.a. 5,958 7,066 (Rs)
City (Rs/sq ft) 1,525
Avg price - Residential Mumbai n.a. n.a. n.a. 2,000 2,344
(Rs/sq ft)
1,025
Avg price - TDR (Rs/sq ft) n.a. n.a. n.a. 2,250 2,363
Sale residential (mn sq ft) n.a. n.a. n.a. 0.0 0.9
Sale TDR (mn sq ft) n.a. n.a. n.a. 5 5 525
23.5x
18.1x
12.7x
7.2x
25 1.8x
Jul-07 Jul-08 Jul-09


HDIL is a property company with a focus on the Mumbai Metropolitan Region.
The HDIL group has completed more than 100m sq ft of construction in all
segments of the property sector and has rehoused about 30,000 families in the past
decade.
The company has operations spanning every aspect of the property business, from
residential, commercial and retail projects, to the redevelopment of slum areas and
land development.
Its key focus includes slum-rehabilitation projects under a local-government

scheme administered by the Slum Rehabilitation Authority (SRA), offering
development rights in exchange for clearing and redeveloping slums, while
providing replacement housing for the displaced slum-dwellers.
HDIL was awarded the Mumbai International Airport Slum Rehabilitation project
in October 2007, a critical component of the modernisation and expansion plan for
Mumbai Airport and one of the largest urban-rehabilitation projects in India.
Valuation
We initiate coverage of HDIL with a 3 (Hold) rating and six-month target price of
Rs226 based on 1x our end-FY12 NAV forecast. Our calculation of the NAV is as
follows.
• We divided HDIL’s entire landbank into projects, based on the information
company.
to arrive at the final valuation of the company.
HDIL: calculation of NAV

(Rs m) Comments
NAV 89,843 NAV based on our valuation methodology
Mumbai Airport project 19,214
Gross NAV 109,057
Unpaid land 6,000 For the airport project
Less net debt 18,909 Debt as at 31 March 2012
RNAV 84,148
Shares outstanding (m) 372 As at 30 April 2012
RNAV/share 226
Source: Company, Daiwa estimates
HDIL has a total saleable landbank of 193m sq ft, located primarily in Mumbai and
including TDRs. Based on our discussions with HDIL, we expect the Mumbai

Airport project to generate 53m sq ft of TDRs. Based on our valuation
methodology, we arrived at a gross NAV (excluding the airport project) for end-
FY12 of Rs89,843m. We added the NAV from the airport project of Rs19,214m
and then subtracted our forecast of the net debt as at the end of FY12 of
Rs18,909m to arrive at an NAV of Rs226/share.
Relative valuation
The stock is trading currently at a 3% discount to our target price, which is based
on 1x our end-FY12 NAV forecast. While it appears attractive on a PBR basis, we
are concerned about a slowdown in the TDR sales and the strong likelihood that the
prices for the TDRs will not increase significantly from the current levels. The
main reasons for this is that the TDRs can only be sold for locations north of where
they are generated. As most of the TDRs are being generated in North Mumbai, the
upside on the prices remains limited, as prices decline the further north you go in
Mumbai. Further, we expect cash flow in FY11 to be under pressure due to the
payment of Rs6bn for land for the airport project.
Key assumptions
Sales volume
We expect sales volume to continue to rise on the back of improving sentiment in
the financial-services sector. HDIL’s landbank is mainly in Mumbai, where
property sales are driven mainly by this sector. The company’s residential sales
volume increased sharply following the general election in May 2009 but have
declined over the past eight months due to rises in prices, which indicates to us that
buyers remain very sensitive to prices. Commercial sales and rental volume are
improving gradually, but the number of enquiries from potential customers has
increased sharply over the past nine months. It usually takes about one year for the
lease/sale to materialise following an enquiry. We expect residential and
commercial sales for FY11-12 to be very weak as HDIL recognises income on a
full-completion basis, and we expect the projects under construction currently to be
completed from FY12 onwards.
We expect the company to sell about 5m sq ft of TDRs annually in the next two
years compared with 6.5m sq ft of TDRs sold annually from FY09-10.
HDIL: sales volume forecasts by type (FY11E-13) (m sq ft)

FY11E FY12E FY13E
Plots - - 0.6
Residential - 0.9 1.9
Commercial 0.1 0.1 0.6
Retail 0.1 0.1 0.7
Institutional - - -
TDR 5.1 5.1 5.1
Total 5.3 6.2 8.8
The following table shows our sales-volume forecasts for FY11-20. As at the end
of FY10, HDIL had 7m sq ft of residential and 5.4m sq ft of commercial projects
ongoing. However, as the company recognises income on a full-completion basis,
we expect the sales booked in FY11-12 to remain limited. Given a strong launch
schedule in the years ahead, we expect HDIL’s sales to peak in FY16 and trend
down thereafter.
The sales volume includes the sale of TDRs. Over the next two-to-three years we
expect sales to continue to be driven by TDRs.

HDIL: sales-volume forecasts (m sq ft)
30
25
20
15
10
0
FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E
prices in the residential and commercial markets. We expect residential prices to
remain stable over the next 12 months due to the strong pipeline of projects. Most
of the developers are focusing on launching residential projects due to the weak
demand in the commercial and retail segments.
Location Saleable area Sales price
(m sq ft) ( Rs/sq ft)
Mumbai 98 1,983
Mumbai - city 12 6,400
Pune 1 4,010
Kochi 15 3,117
Hyderabad 8 3,091
TDR 53 2,500
Discount rate
HDIL: calculation of WACC

Cost of debt
Tax rate 34%
Cost of debt 9.2%
Cost of equity
Risk-free rate 7%
Beta 1.4
Market premium 8%
Cost of equity 18%
WACC 14%
Debt 50%
Equity 50%

Other assumptions
HDIL: NAV assumptions
Discount rate 14%
Rate of inflation - sales 5%
Rate of inflation - costs 5%
Tax rate (%) 33%
Our base-case valuation is based on the company’s NAV. The following table
shows the effect on the NAV of a 1% change in our key assumptions. Our price
assumptions for the residential-property sector are based on actual transactions. For
the commercial and retail property sectors, where there are relatively few details on
sales transactions, we have determined the sales prices by using the current
capitalisation rate.
HDIL: sensitivity of NAV to change in assumptions

1% change in the average selling price 1.8% change in NAV
1% change in sales and cost inflation 4% change in NAV
Landbank spread
The following tables show the geographical spread of HDIL’s landbank by volume
and NAV in Mumbai and other cities. Mumbai accounts for 38% of our end-FY12
NAV forecast but only 6% of the total landbank. The Mumbai Airport
redevelopment scheme is the largest project with a share of NAV of 18%. The
project includes 53m sq ft of TDRs expected by the company to be generated from
the project.
HDIL: spread of landbank in volume HDIL: spread of landbank by NAV

Mumbai - city 12 6 Mumbai - city 41,857 38
Virar - Mumbai 51 27 Virar - Mumbai 14,726 14
Vasai - Mumbai 24 13 Vasai - Mumbai 6,427 6
Navi Mumbai 2 1 Navi Mumbai 3,290 3
Palghar - Mumbai 12 6 Palghar - Mumbai 2,027 2
Panvel - Navi Mumbai 8 4 Panvel - Navi Mumbai 2,469 2
Pune 1 1 Pune 329 0
Kochi 15 8 Kochi 11,923 11
Hyderabad 8 4 Hyderabad 6,796 6
Airport Mumbai 59 31 Airport Mumbai 19,214 18
Total 193 100
We expect an improvement in the company’s credit ratio from FY11. The quarterly
credit ratio started improving from 2Q FY10. We expect the reduction in net debt
to continue as the company benefits from customer advances from the sale of
residential and commercial projects. We forecast TDR sales to trend down from the
current level of 6.5m sq ft a year to about 5m sq ft for FY11-12.

HDIL: quarterly net debt (Rs m) HDIL: net debt
50,000 (Rs m)
45,000 45,000
40,000 40,000
35,000 35,000
30,000
30,000
25,000
25,000
20,000
20,000
15,000
10,000 15,000
5,000 10,000
0 5,000
1QFY09
2QFY09
3Q FY09
4Q FY09
1Q FY10
2Q FY10
3Q FY10
4Q FY10
0
FY08 FY09 FY10 FY11E FY12E FY13E
Source: Company Source: Company, Daiwa forecasts
The net debt/EBITDA ratio has also declined from 1Q FY10 and has stabilised
since 2Q FY10. We expect it to decline further from FY12 as a result of an
improvement in cash flow. Our forecasts do not factor in the cost of purchasing any
land.
HDIL: quarterly net debt/EBITDA (x) HDIL: estimated annual net debt/EBITDA (x)
12 6
10 5
8
4
6
3
4
2
2
1
0
3Q FY08
4Q FY08
1Q FY09
2Q FY09
3Q FY09
4Q FY09
1Q FY10
2Q FY10
3Q FY10
4Q FY10
0
Interest coverage
The interest-coverage ratio (EBIT/I) improved from a low of 0.9x for 4Q FY09 to
1.6x for 3Q FY10. The 4Q FY10 ratio fell to 1.5x due to an increase in debt,
leading to a rise in interest costs and a relatively lower EBITDA compared with
previous years.

HDIL: interest-coverage ratio (x)
9
0
3Q FY08 4Q FY08 1Q FY09 2Q FY09 3Q FY09 4Q FY09 1Q FY10 2Q FY10 3Q FY10 4Q FY10
ROCE
With the fall in FY10 revenue, due to lower year-on-year sales volume and prices,
EBIT also dropped, leading ROCE to decline to 7% for the year. With increasing
sales volume and the higher prices relative to the low in 4Q FY09, we expect the
ROCE to increase over the next few years. The WACC for the company is 14%.
For the purpose of calculating the quarterly ROCE we have assumed annualised
EBIT.
HDIL: annualised ROCE HDIL: ROCE

60% 70%
50% 60%
40% 50%
30% 40%
20% 30%
20%
10%
10%
0%
3Q FY08
4Q FY08
1Q FY09
2Q FY09
3Q FY09
4Q FY09
1Q FY10
2Q FY10
3Q FY10
4Q FY10
0%
Profit and loss account

We believe sales bottomed out in FY10 and will increase steadily over the next
three years. For FY11-13, we forecast a sales CAGR of 30% and a profit CAGR of
29%. However, we expect the increase in sales to be back-ended, as HDIL books
sales on a percentage-of-completion basis and all the projects started in FY10 are
due to be completed in FY12-13. Property prices have increased in the past five
months and we expect them to decline by about 10-20% over the next three-to-six
months. Our sales-price assumptions are based on the levels before the recent rise
and we are confident that prices will stabilise at our assumed levels.

HDIL: sales
(Rs m)
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
EBITDA margin has stabilised

The quarterly results since 2Q FY10 show that the EBITDA margin has stabilised
in the range of 40-50%. As we expect sales volumes to increase, we forecast the
EBITDA margin to rise to about 50-55% for the next few years, which was the
level before the recession.
HDIL: quarterly EBITDA margin HDIL: annual EBITDA margin

100% 80%
90%
70%
80%
70% 60%
60% 50%
50%
40%
40%
30% 30%
20%
20%
10%
0% 10%
3Q FY08
4Q FY08
1Q FY09
2Q FY09
3Q FY09
4Q FY09
1Q FY10
2Q FY10
3Q FY10
4Q FY10
0%
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
We expect a sharp improvement in profit from FY13 as the properties under

construction start to be booked after their completion.

HDIL: net profit (Rs m)
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
The following chart shows the shareholding pattern for HDIL. FIIs hold about 28%
of the company’s outstanding shares while DIIs hold about 1.5%.
HDIL: shareholding pattern

30
25
20
15
10
0
2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10
FII DII
Source: BSE

Orbit 6-mth rating: 1
(ORB IN) Target price: Rs367.00
Amit Agarwal
(91) 22 6622 1063
[email protected]
Initiation of coverage: we see attractive landbank

Coverage initiated with a 1 rating Reuters code ORCP.NS
We initiate coverage of Orbit with a 1 (Buy) rating and six- Market data
month target price of Rs367 based on 1x our end-FY12 NAV Market cap (US$m) 289.02
EV (US$m; 10E) 471.72
forecast. Our target price is supported by what we consider as 3-mth avg daily T/O (US$m) 10.19
attractive valuations, a well-located landbank, and an Free float (%) 56.5
experienced management. At our target price the stock would Major shareholder Promoter family (43.5%)
trade at PERs of 15x and 9x on our FY11 and FY12 EPS
forecasts, respectively. Absolute (14.0) (8.4) (14.0)
Relative (13.5) (6.3) (11.6)
Source: Daiwa
An attractive landbank Note: *Relative to SENSEX Index
The company has an attractive landbank based primarily in the Investment indicators
2010E 2011E 2012E
affluent areas in Mumbai. Mumbai property sales are driven PER (x) 14.3 9.9 6.1
PCFR (x) n.a. 2.8 3.2
mainly by the financial sector, which has been recovering EV/EBITDA (x) 11.7 7.4 4.8
recently. PBR (x) 1.6 1.3 1.2
ROE (%) 13.6 14.8 20.8
ROA (%) 5.4 6.5 10.6
Sales volume has risen since 3Q FY09 Net debt equity (%) 101.2 42.6 16.2
Orbit’s sales volume has increased consistently from a low of no
sales in 3Q FY09 to 125,339 sq ft of sales for 4Q FY10.
1,100 350
825 263
We believe concerns about rising debtors will ease 550 175
275 88
There have been rising concerns in the market about the increase 0 0
in the debtors since 4Q FY10. The management has confirmed 07/6 07/12 08/6 08/12 09/6 09/12 10/6
that the rise is due primarily to two projects, and the debtors Source: Bloomberg, Daiwa
should start reducing in FY11-12.
Risks. 1) Rising market concerns about the international macro-

economic environment could have a direct and sustained adverse
effect on the financial markets, driving down the demand for
property in Mumbai, and 2) a rise in interest rates.
Income summary
2008 7,055 268.4 3,465 368.2 2,358 312.1 65.014 208.7 (93.738) 5.500
2009 2,835 (59.8) 1,329 (61.7) 355 (84.9) 9.792 (84.9) (79.428) 0.000
2010E 4,871 71.8 1,893 42.5 951 167.7 17.291 76.6 (52.271) 2.162
2011E 6,029 23.8 2,408 27.2 1,378 44.9 25.061 44.9 87.811 2.500
2012E 7,558 25.4 3,223 33.8 2,216 60.8 40.309 60.8 78.155 2.500

Company background
Orbit is a property developer engaged mainly in developing and selling residential, commercial and retail projects. It is focused
mainly on the property market in Mumbai.
Orbit – financial summary

Completed 1,465 73 0 0 0 Cash & short-term investment 1,841 9 485 3,501 4,000
Projects in progress 5,590 2,763 4,871 6,029 7,558 Inventory 4,123 5,894 5,484 5,484 5,484
COGS (3,236) (1,144) (2,465) (3,199) (3,806) Fixed assets 121 229 303 257 212
Other op. expenses (17) (35) (46) (46) (46) Other non-current assets 102 1 74 74 74
Net-interest inc./(exp.) (544) (768) (908) (809) (641) Short-term debt 0 0 0 0 0
Assoc/forex/extraord./others 29 18 65 68 71 Accounts payable 393 497 301 316 332
Pre-tax profit 2,934 543 1,004 1,621 2,607 Other current liabilities 2,980 1,551 2,189 2,840 2,528
Tax (575) (188) (53) (243) (391) Total current liabilities 3,374 2,048 2,490 3,157 2,860
Min. int./pref. div./others 0 0 0 0 0 Long-term debt 5,302 6,713 9,072 7,813 5,813
Net profit (reported) 2,358 355 951 1,378 2,216 Other non-current liabilities 0 506 512 512 512
Net profit (adj.) 2,358 355 951 1,378 2,216 Total liabilities 8,675 9,267 12,074 11,481 9,185
EPS (reported) (Rs) 65.014 9.792 17.291 25.061 40.309 Share capital 364 364 646 1,196 1,121
Net debt/(cash) 3,461 6,704 8,587 4,312 1,813

Profit before tax 2,934 543 1,004 1,621 2,607 Sales – YoY % 268.4 (59.8) 71.8 23.8 25.4
Depreciation and amortisation 17 35 46 46 46 EBITDA (adj.) – YoY % 368.2 (61.7) 42.5 27.2 33.8
Tax paid (575) (188) (53) (243) (391) Net profit (adj.) – YoY % 312.1 (84.9) 167.7 44.9 60.8
Change in working capital (6,319) (4,039) (4,778) 2,595 1,394 EPS (adj.) – YoY % 208.7 (84.9) 76.6 44.9 60.8
Other operational CF items 544 768 908 809 641 EBITDA margin % (adj.) 49.1 46.9 38.9 39.9 42.6
Cash flow from operations (3,400) (2,881) (2,874) 4,828 4,297 EBIT margin % (adj.) 48.9 45.6 37.9 39.2 42.0
Capex (96) (142) (120) 0 0 Net-profit margin % (adj.) 33.4 12.5 19.5 22.9 29.3
Net (acquisitions)/disposal (101) 101 (74) 0 0 ROAE (%) 57.6 6.7 13.6 14.8 20.8
Other investing CF items (2) 506 10 0 0 ROAA (%) 24.1 2.5 5.4 6.5 10.6
Cash flow from investing (198) 465 (184) 0 0 ROCE (%) 47.8 11.4 12.4 13.3 18.2
Change in debt 4,384 1,411 2,359 (1,259) (2,000) ROIC (%) 51.6 8.1 12.0 12.7 19.7
Net share issues/(repurchases) 2 (59) 2,319 0 285 Net debt to equity (%) 67.1 122.9 101.2 42.6 16.2
Dividends paid (234) 0 (139) (322) (328) Effective tax rate (%) 19.6 34.6 5.3 15.0 15.0
Other financing CF items (542) (765) (904) (804) (635) Accounts receivable (days) 105.3 360.9 271.7 265.2 194.7
Cash flow from financing 3,610 587 3,635 (2,385) (2,678) Payables (days) 13.0 57.3 29.9 18.7 15.7
Change in cash 12 (1,829) 577 2,443 1,619 Net dividend payout (%) 8.5 0.0 12.5 10.0 6.2

Year to 31 Mar 2008 2009 2010E 2011E 2012E
Avg price - Residential Napean n.a. n.a. n.a. 42,000 44,100 (Rs)
Sea Road (Rs/sq ft)
1,511
Avg price - Residential Lower n.a. n.a. n.a. 18,000 18,900
parel (Rs/sq ft)
Sale residential (mn sq ft) n.a. n.a. n.a. 0.3 0.4 1,011
511 24.3x
18.6x
12.8x
7.1x
11 1.3x
Apr-07 Apr-08 Apr-09 Apr-10


Orbit has about 10 years’ experience in the property market. In that period it has
developed property totalling more than 1.5m sq ft in the prime areas of South
Mumbai, such as Babulnath, Tardeo, Worli, Prabhadevi, and Gamdevi. The
promoters have about 20 years of experience in the property sector. The company
is also involved in the local-government scheme to redevelop dilapidated buildings
in Mumbai, which gives the company landbank in attractive locations in the city.
Valuation
We initiate coverage of Orbit with a 1 (Buy) rating and six-month target price of
Rs367 based on 1x our end-FY12 NAV forecast. Our calculation of the NAV is as
follows.
• We divided Orbit’s entire landbank into projects, based on the information
company.
• From the NAV we have deducted our forecast of the net debt as at the end of
FY12, the 35% stake of the private-equity investors in the Mandwa project, and
the unpaid landbank to arrive at the final valuation of the company.
Orbit: calculation of NAV

(Rs m) Comments
Less net debt 1,813 Net debt as the end of FY12
Total NAV 22,964
Less Mandwa stake 2,766 Adjustment for the 35% private-equity stake in Mandwa
Adjusted NAV 20,198
Shares outstanding (m) 55 Not adjusted for the 1:1 bonus and promoter warrants
NAV(Rs/share) 367
Orbit has a total landbank of 6.6m sq ft of saleable area in Mumbai. Based on our
valuation methodology, we arrived at a gross NAV value as at the end of FY12 of
24,777m. We subtracted our forecast of the net debt as at the end of FY12 of
Rs1,813m and the minority interest of the Mandwa project (Rs2,766m) to arrive at
an NAV of Rs367/share.
Our NAV/share is based on the shares outstanding as at the end of FY10 and does
not include the bonus issue (1:1) or the warrants issued to the promoters.
The company has sold 35% of its stake in the Mandwa project already to investors.
In our calculation of NAV, we valued the Mandwa project assuming the full 100%
stake of Orbit and then deducted the 35% stake of the minority investors.

The following chart shows that most of the NAV is derived from three projects:
Mandwa, NS Roadblock, and Lalbaug. The NS Roadblock project is located in the
prime area of Napean Sea Road, while Lalbaug is in Central Mumbai. Mandwa is
about 40 minutes by boat from Mumbai and is emerging as a place for weekend
homes for affluent people.
Orbit: spread of NAV by projects (Rs/share)

450
360
121.5 132.5
270
93.4
180
90 0.0 29.2
1.5 1.2 0.0 4.4 7.2 9.3
0
(90) -33.8
Net debt
Laburnum
Orbit Haven
Mandwa
NS Roadblock
Villa Orb Annex
Total
Orbit Terraces
Orbit Grandeur- Santacruz
Lalbaug
Orbit Residential
Orbit Grand
Orbit Sky Chateau

Relative valuation
We believe Orbit is attractively priced relative to its peers. The stock is trading
currently at PBRs of 1.3x and 1.2x on our FY11 and FY12 BVPS forecasts,
respectively. Our rating is further supported by what we consider as the company’s
well-located landbank. Most of its land is in attractive locations within Mumbai
that command the highest prices in the country.
Key assumptions
Sales volume
We expect a continuous improvement in FY11 sales for the residential-property
sector as the recovery in the financial sector continues. Orbit expects to launch
projects in Napean Sea Road and Andheri among others in FY11.
Orbit: sales-volume forecasts

FY11E FY12E FY13E
Residential (m sq ft) (m sq ft) (m sq ft)
Villa Orb 0.00 0.00 0.00
Orbit Arya 0.00 0.00 0.00
Orbit Haven 0.01 0.02 0.01
Orbit Residential 0.08 0.14 0.02
Orbit Terraces 0.13 0.09 0.00
Orbit Grand 0.02 0.05 0.00
Mandwa 0.00 0.09 0.57
NS Roadblock 0.00 0.00 0.06
Orbit Sky Chateau 0.01 0.01 0.01
Villa Orb Annex 0.01 0.02 0.02
Orbit Grandeur - Santa Cruz 0.00 0.01 0.03
Lalbaug 0.00 0.00 0.11
Laburnum 0.00 0.00 0.01
Total 0.25 0.43 0.84
The following table shows the sales schedule factored into our valuation. We have
assumed sales of the Mandwa project begin in FY12, while the company says it

expects to launch it in FY11. For NS Roadblock we have assumed a launch in
FY13 and for Lalbaug we have assumed a launch in FY13.
Orbit: forecast sales volume schedule (m sq ft)

1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
FY11E FY12E FY13E FY14E FY15E FY16E FY17E
market prices. We expect residential prices to remain stable over the next 12
months due to the strong pipeline of projects. Most of the developers are focusing
on launching residential projects due to the weak demand in the commercial and
retail segments.
Orbit: sales-price assumptions (Rs/sq ft)

Location Sales area Sales price
Residential (m sq ft) (Rs/sq ft)
Villa Orb - Napean Sea Road 0.1 40,320
Orbit Eternia - Lower Parel 0.0 16,000
Orbit Arya - Napean Sea Road 0.1 40,400
Orbit Haven - Napean Sea Road 0.0 40,000
Orbit Residential - Andheri 0.3 10,000
Orbit Terraces - Lower Parel 0.3 19,000
Orbit Grand - Lower Parel 0.1 18,000
Mandwa 3.3 6,500
NS Roadblock - Napean Sea Road 0.3 40,000
Orbit Sky Chateau - Napean Sea Road 0.0 40,000
Villa Orb Annex - Napean Sea Road 0.1 40,000
Orbit Grandeur - Santa Cruz 0.3 15,000
Lalbaug - Lalbaug 0.9 18,500
Laburnum - Gamdevi 0.1 25,000
Discount rate

Orbit: calculation of WACC
Pre-tax cost of debt 14.00%
Tax rate 24.00%
Cost of debt 10.64%
Cost of equity
Risk-free rate 7.50%
Beta 1.5
Market premium 6.00%
Cost of equity 16.50%
WACC 13.57%
Debt 50.00%
Equity 50.00%
Other assumptions
Orbit: NAV assumptions
Discount rate 14%
Tax rate (%) 33%
Our base-case valuation is based on 1x our end-FY12 NAV forecast. The following
table shows the effect on the NAV of a 1% change in our assumptions. The effect
on the capitalisation rate is zero because, with exception of Orbit WTC, all the
other residential projects are meant to be sold. Our price assumptions for the
residential-property sector are based on actual transactions. For the commercial and
retail property sectors, where there are relatively few details on sales transactions,
we have determined the sales prices by using the current capitalisation rate of 10%.
Orbit: sensitivity of NAV to change in assumptions

1% change in the average selling price 1.8% change in NAV
1% change in sales inflation 4.5% change in NAV
1% change in cost inflation 1.6% change in NAV
1% change in the discount rate 2.1% change in NAV
Landbank spread
The following tables show the geographical spread of Orbit’s landbank in Mumbai
and the NAV spread. The Napean Sea Road and Lalbaug projects account for 59%
of NAV but only 26% of the total landbank. While Napean Sea Road is an affluent
area where properties command a price of Rs40,000/sq ft, Lalbaug is in Central
Mumbai and is becoming attractive due to its proximity to business centres, such as
Nariman Point and Bandra Kurla Complex.
The NAV for the Lower Parel landbank is zero as our NAV is based on our end-
FY12 forecast when we assume the projects will have been fully completed and
sold.

Orbit: landbank by location in Mumbai Orbit: landbank by NAV
Andheri Gamdevi Napean Sea Gamdevi

0.9% Road Andheri 2.1%
4.9%
10.1% 0.3% Napean Sea
Santa Cruz Road
Lal Baug
4.5% 29.9%
15.6%
Lal Baug
29.4%
Lower Parel Lower Parel Santa Cruz

6.9% 0.0% 6.5%
Mandwa Mandwa
57.1% 31.9%
We expect a sharp improvement in the company’s credit ratio from FY11. The
quarterly credit ratio started to improve from 2Q FY10 but deteriorated due to a
sharp increase in debt in 4Q FY10. The main reason for the increase in debt was
the payment schedule for two residential projects (Villa Orb and Villa Orb Annex),
which are back-ended, and led to a sharp rise in debtors (from Rs2.8bn for 2Q
FY10 to Rs4.6bn for 4Q FY10). The management said that home sales were
normally on a pre-sale basis and therefore we expect debtors to start to improve
from FY11, leading to the reduction in debt. In our forecasts of the company’s debt,
we have assumed it will not purchase any other properties.
Orbit: quarterly net debt Orbit: annual net debt

Net debt (Quartely) Net debt (Annual)
(Rs m) (Rs m)
10,000 10,000
9,000 8,000
8,000
7,000 6,000
6,000 4,000
5,000
4,000 2,000
3,000 0
2,000
(2,000)
1,000
0 (4,000)
Q4FY08
3QFY10
1Q FY09
2Q FY09
3Q FY09
4Q FY09
1Q FY10
2Q FY10
4Q FY10
(6,000)
The net debt/EBITDA ratio declined in 2Q FY10 and stabilised for 3Q FY10.
However, the increase in debtors mentioned above led to an increase in debt, which
resulted in the ratio rising for 4Q FY10. We expect the payments for these project
to be booked in FY11 and believe an increase in sales will reduce debt for FY11.

Orbit: net debt/EBITDA
(x)
6
(1)
3Q FY09 4Q FY09 1Q FY10 2Q FY10 3Q FY10 4Q FY10 FY11E FY12E FY13E

Note: Quarterly EBITDA are trailing 4Q
Interest coverage
The interest-coverage ratio (EBIT/I) improved from a low of 0.9x for 4Q FY09 to
2.9x for 3Q FY10. The 4Q FY10 ratio fell to 2x due to an increase in debt, leading
to a rise in interest costs.
Orbit: interest coverage (x)

12
10
0
FY11E
FY12E
FY13E
4Q FY08
1Q FY09
2Q FY09
3Q FY09
4Q FY09
1Q FY10
2Q FY10
3Q FY10
4Q FY10
ROCE
With the fall in FY09 revenue, due to lower year-on-year sales volume and prices,
EBIT also dropped, leading ROCE to decline to 11% for the year. With increasing
sales volume and the higher prices relative to the low in 4Q FY09, we expect the
ROCE to increase from FY10. The WACC for the company is 14%.

Orbit: ROCE
(%)
35
30
25
20
15
10
0
3Q FY09 4Q FY09 1Q FY10 2Q FY10 3Q FY10 4Q FY10 FY11E FY12E FY13E
Changes in the capital structure

In FY10, Orbit raised Rs1.5bn through a qualified institutional placement (QIP) by
issuing 7.8m shares at Rs185 each. Warrant conversion led to further dilution,
amounting to 8m shares at Rs42.85 each and 0.78m shares at Rs51.2 each. The
company also issued 4m warrants to the promoters at a conversion price of
Rs189.75. Two-million shares were converted in FY10 and we expect the
remainder to be converted in FY12. The company announced bonus shares in the
ratio of 1:1 in March 2010, which will increase the share base substantially.
Orbit: changes in the share capital

Total value Total premium raised Total capital raised
Shares (m) Par value Premium (Rs/share) (Rs m) (Rs m)
Shares as at end-FY09 36
Warrant conversion July 2009 8 10 33 43 266 81
QIP 8 10 175 185 1,372 78
Warrant conversion 1 10 51 61 40 8
Conversion of the promoter warrants 2 10 180 190 360 20
Shares as at end-FY10 55 2,037 187
Bonus issue (1:1) 55 10 10 (550) -
Shares as at end FY11 110 1,487 187
Warrants of the promoter converted in FY12 2 10 180 190 360 20
Shares as at end-FY12E 112 1,847 207
Profit and loss account

Sales bottomed out in 3Q FY09 and have improved steadily since then. We expect
sales to continue to rise as the financial markets improve. Property prices have
risen in the past five months and we expect them to decline by about 10-20% over
the next six months. Our assumed sales prices are lower than the current prices by
about 10-20%. We expect prices to stabilise after the anticipated decline as buyers
are extremely price-conscious and any increase in price has led to a decline in sales
volume.

Orbit: quarterly revenue and area sold Orbit: revenue and sales-volume forecasts
(Rs m) ('000 sqft) (Rs m) ('000 sqft)
1,500 180 10,000
160 800
1,200 140 700
8,000
120 600
900
100 6,000 500
80
600 400
60
4,000
300 40 300
20 200
2,000
0 0
100
3QFY10
2Q FY09
3Q FY09
4Q FY09
1Q FY10
2Q FY10
4Q FY10
0 0
FY11E FY12E FY13E
Revenue (LHS) Area sold (sq ft) (RHS) Revenue (LHS) Area sold (sq ft) (RHS)
EBITDA margin has stabilised

The results for 3Q-4Q FY10 showed that the EBITDA margin had stabilised in the
range of 30-40%. As we expect sales volume to increase over the next few years,
we forecast the EBITDA margin to rise to about 50% by FY13, the level prior to
the recession.
Orbit: quarterly EBITDA margin Orbit: annual EBITDA margin

(%) (%)
80 60
70
50
60
50 40
40
30
30
20 20
10
10
0
1H FY08
1Q FY08
2Q FY08
3Q FY08
4Q FY08
1Q FY09
2Q FY09
3Q FY09
4Q FY09
1Q FY10
2Q FY10
3Q FY10
4Q FY10
0
As at the end of 4Q FY10, FIIs held 20.8% of the total shareholding shares, while
DIIs held about 3%. The promoters held 43.5%.

Orbit: shareholding pattern (%)
25
20
15
10
0
4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10
FII DII
Source: BSE

Puravankara Projects 6-mth rating: 1
(PVKP IN) Target price: Rs150.00
Amit Agarwal
(91) 22 6622 1063
[email protected]
Initiation of coverage: Looks well-positioned for a recovery

Coverage initiated with a 1 rating Reuters code PPRO.NS
We initiate coverage of Puravankara with a 1 (Buy) rating and Market data

six-month target price of Rs150, based on 1x our end-FY12 Market cap (US$m) 465.65
EV (US$m; 11E) 698.65
NAV forecast. Our rating is supported by what we see as the 3-mth avg daily T/O (US$t) 818.81
company’s attractive valuation, its well-located landbank, its Free float (%) 10.0
premium brand, and an experienced management. At our target Major shareholder Promoter family (90.0%)
price the stock would trade at an FY11 PER of 26x and FY12
PER of 18x on our EPS forecasts. Absolute 0.9 (0.8) 6.2
Relative 1.6 1.5 9.2
Source: Daiwa
Looks well-positioned to benefit from IT/ITES recovery Note: *Relative to SENSEX Index
The landbank is located in IT/ITES-centric towns. A return of Investment indicators

2011E 2012E 2013E
confidence in the IT/ITES sector implies job security and higher PER (x) 17.7 12.6 8.8
PCFR (x) n.a. 5.1 4.5
salaries, which should lead to a rise in demand for housing. EV/EBITDA (x) 20.9 12.8 8.2
PBR (x) 1.4 1.3 1.2
We forecast an earnings CAGR of 20% for FY10-13. We project ROE (%) 8.1 10.5 13.8
ROA (%) 4.0 4.4 5.1
back-ended earnings growth, due to a revival in demand for mid- Net debt equity (%) 69.0 56.4 49.2
to high-end housing from FY12.
Puravankara’s net-debt-to-equity has been maintained at about 550.0 125
0.5x throughout the recessionary period (FY09-10). Further, the 412.5 94
275.0 63
company’s net debt has remained at around Rs8bn, indicating to 137.5 31
0.0 0
us management’s ability to manage a crisis situation. 07/6 07/12 08/6 08/12 09/6 09/12 10/6

The stock is trading currently at 32% below our target price. We
feel comfortable with our valuation, as our property-price
assumptions for FY11 are 10-15% below the current market
prices.
Risks. 1) The global macroeconomic scenario, which could

impact the IT/ITES sector adversely, and 2) interest-rate hikes.
Income summary
2009 4,449 (21.4) 1,367 (35.8) 1,444 (39.8) 6.767 (39.8) (3.466) 0.000
2010 4,784 7.5 1,693 23.9 1,453 0.6 6.809 0.6 (1.323) 1.000
2011E 4,875 1.9 1,573 (7.1) 1,238 (14.8) 5.800 (14.8) (8.121) 0.500
2012E 7,550 54.9 2,476 57.4 1,733 40.0 8.119 40.0 20.004 1.500
2013E 11,289 49.5 3,787 52.9 2,481 43.2 11.627 43.2 23.028 3.500

Company background
Puravankara is a property developer focused on developing and selling residential, commercial and retail projects. It is focused
primarily in South India.
Puravankara Projects – financial summary

Residential/commercial 4,375 4,729 4,820 7,496 11,191 Cash & short-term investment 268 782 354 1,601 2,053
Rental Income 38 25 25 25 68 Inventory 6,871 7,881 13,700 19,769 24,528
COGS (2,596) (2,650) (2,960) (4,621) (6,824) Fixed assets 463 362 1,709 4,503 8,058
Net-interest inc./(exp.) (16) (3) (6) (4) 9 Short-term debt 0 0 0 0 0
Assoc/forex/extraord./others 174 172 173 174 175 Accounts payable 1,052 577 869 1,365 2,027
Tax (26) (298) (309) (433) (620) Total current liabilities 4,659 4,068 6,991 15,566 22,760
Min. int./pref. div./others 0 0 0 0 0 Long-term debt 8,146 8,811 11,311 11,311 11,311
Net profit (reported) 1,444 1,453 1,238 1,733 2,481 Other non-current liabilities 23 9 9 9 9
Net debt/(cash) 7,878 8,029 10,957 9,709 9,257

Profit before tax 1,470 1,751 1,547 2,166 3,102 Sales – YoY % (21.4) 7.5 1.9 54.9 49.5
Depreciation and amortisation 56 111 192 480 869 EBITDA (adj.) – YoY % (35.8) 23.9 (7.1) 57.4 52.9
Tax paid (26) (298) (309) (433) (620) Net profit (adj.) – YoY % (39.8) 0.6 (14.8) 40.0 43.2
Change in working capital (2,116) (1,684) (2,922) 2,203 1,724 EPS (adj.) – YoY % (39.8) 0.6 (14.8) 40.0 43.2
Other operational CF items (123) (162) (241) (147) (160) EBITDA margin % (adj.) 30.7 35.4 32.3 32.8 33.5
Cash flow from operations (740) (282) (1,733) 4,269 4,915 EBIT margin % (adj.) 29.5 33.1 28.3 26.4 25.8
Capex (22) (10) (1,539) (3,274) (4,425) Net-profit margin % (adj.) 32.5 30.4 25.4 23.0 22.0
Net (acquisitions)/disposal (151) (153) 0 0 0 ROAE (%) 11.2 10.2 8.1 10.5 13.8
Other investing CF items (1,005) 397 324 480 676 ROAA (%) 5.8 5.4 4.0 4.4 5.1
Cash flow from investing (1,178) 233 (1,215) (2,794) (3,749) ROCE (%) 6.5 7.0 5.4 7.2 9.9
Change in debt 1,622 665 2,500 0 0 ROIC (%) 6.5 5.9 4.4 5.9 8.5
Net share issues/(repurchases) 78 0 0 0 0 Net debt to equity (%) 57.7 54.1 69.0 56.4 49.2
Dividends paid 0 (250) (125) (375) (874) Effective tax rate (%) 1.8 17.0 20.0 20.0 20.0
Other financing CF items 135 148 145 147 160 Accounts receivable (days) 80.8 86.2 84.3 62.4 58.1
Cash flow from financing 1,835 563 2,520 (228) (714) Payables (days) 80.9 62.1 54.1 54.0 54.8
Forex effect/others 0 0 0 0 0 Net interest cover (x) 83.9 556.1 218.8 487.9 n.a.
Change in cash (83) 514 (428) 1,248 452 Net dividend payout (%) 0.0 14.7 8.6 18.5 30.1

Year to 31 Mar 2011E 2012E 2013E
Avg price - Residential Chennai 2,142 2,249 2,362 (Rs)
(Rs/sq ft)
620
Avg price - Residential Bangalore 2,321 2,437 2,558
(Rs/sq ft)
520
Sale residential (mn sq ft) 2.0 3.0 4.2 420
56.7x
320 43.4x
220 30.1x
120 16.7x
20 3.4x
Aug-07 Aug-08 Aug-09

Puravankara has more than 35 years’ experience of development and sales in the
housing sector, with developments located mainly in the cities of Bangalore,
Chennai, Kochi, Coimbatore, Hyderabad, and Kolkata in India, and Colombo in Sri
Lanka. It has a total landbank of 115m sq ft.
Investment summary
We initiate coverage of Puravankara with a 1 (Buy) rating and six-month target
price of Rs150, based on 1x our end-FY12 NAV forecast. Our rating is supported
by what we see as the company’s attractive valuation, its well-located landbank,
which should benefit from the IT/ITES recovery, its premium brand, and an
experienced management. At our target price the stock would trade at an FY11
PER of 26x and FY12 PER of 18x on our EPS forecasts.
Looks well-positioned to benefit from the IT/ITES recovery

Puravankara’s entire landbank is located in IT/ITES-centric cities, including
Bangalore (66% of total volume), Chennai (12%), Hyderabad (5%) and Kochi
(10%). With the recovery in the economy, we expect hiring and salaries in the
IT/ITES sector to improve, and for this to lead to a return of confidence. The
resulting increase in demand for housing should lead to an improvement in the
company’s sales going forward, in our view.
We expect earnings CAGR of 22% for FY10-13

We forecast a back-ended earnings CAGR of 20% for FY10-13 on a sales CAGR
of 33%. We expect the net profit for FY11 to be affected by marginal sales growth
and a decline in the EBITDA margin due to the impact of the sale of affordable
housing. However, given our expectation of an increase in demand for mid- to
high-end housing from FY12, we expect the company’s sales and EBITDA margin
to improve.
Balance sheet remains healthy

Puravankara has maintained a healthy balance sheet, with a net-debt-to-equity ratio
of about 0.5x throughout the slowdown in the economy. Its net debt remained at
about Rs8bn during FY10, despite the sharp slowdown in demand, implying a
strong ability to manage the balance sheet, in our view. Annualised debtor days fell
to 83 for 4Q FY10 from a peak of 361 for 2Q FY10.
We see attractive valuation; comfortable with our valuation

Puravankara is trading currently at a 32% discount to our NAV of Rs150. We are
comfortable with our valuation, as in our forecasts we have assumed property
prices at about 10-15% below the current prices. We have also extended our
development period to 10 years compared with the management’s estimate of
seven years.
Risks
1. A slowdown in the IT/ITES sector due to global macro-economic conditions.
2. A slower-than-expected increase in demand, which could drive down property
prices.
3. Execution risk.

Valuation
We initiate coverage of Puravankara with a six-month target price of Rs150 based
on 1x our end-FY12 NAV forecast. Our methodology for the calculation of the
NAV is given below:
• We divided Puravankara’s entire landbank into projects, based on the
information given by the company.
• We arrived at the sale price/sq ft and the anticipated sales volume for each
project based on our assessment of the market.
• We assumed an annual inflation rate on the sale and cost price of 5%.
• From the sale price, we deducted the cost of construction. We derived our cost
estimates after discussions with industry experts.
• We further deducted marketing and other costs that we assumed to be 6% of the
sales revenue.
resultant project level NAV for all the projects to arrive at our NAV estimate for
the company.
• From the NAV, we deducted our forecast of the net debt as at the end of FY12
NAV calculation
Puravankara has a total landbank under development of 115m sq ft. Based on the
our valuation methodology, we arrived at an NAV of Rs41,633m based on a
discount rate of 14%. We made further adjustments for the net debt as at 31 March
2012 to arrive at our NAV/share of Rs150.
Puravankara: Daiwa calculation of NAV

(Rs m) Comments
Less net debt 9,709 Debt as at the end of March 2012
NAV 31,923
Shares outstanding (m) 213 As at the end of March 2012
NAV/share 150
In our view, the stock should trade at 1x our end-FY12 NAV forecast. In our view,
a discount is not appropriate on the NAV due to the underlying expansion in the
economy and the sector, which we would expect to limit the downside to the NAV.
However, we expect slow sales- and lease-volume growth in the commercial
segment and the oversupply of commercial space to cap rises in property prices,
limiting the upside potential for the NAV.
The following tables show the geographical spread of the NAV and our key
assumptions.

Key NAV assumptions – properties for sale
Saleable Land Base Base
Location area Revenue Cost cost NAV revenue cost Land cost NAV
(m sq ft) (Rs m) (Rs m) (Rs m) (Rs m) (Rs/sq ft) (Rs/sq ft) (Rs/sq ft) (Rs/sq ft)
Residential
Bangalore 61 170,770 92,317 9,530 18,336 2,210 1,200 156 300
Mysore 1 1,282 891 93 72 1,870 1,300 156 120
Colombo 1 4,490 2,113 215 679 2,550 1,200 156 492
Chennai 11 30,783 18,108 1,772 3,631 2,040 1,200 156 319
Kochi 9 24,658 13,925 1,398 2,638 2,125 1,200 156 294
Hyderabad 4 12,481 6,293 626 1,927 2,380 1,200 156 480
Kolkata 1 2,316 1,090 128 200 2,550 1,200 156 244
Coimbatore 4 9,527 6,335 601 932 1,955 1,300 156 242
Total residential 92 256,307 141,072 14,363 28,416
Commercial
Bangalore 6 33,178 14,921 953 5,396 3780 1700 156 882
Chennai 1 5,048 2,554 177 917 3360 1700 156 806
Kochi 1 2,663 1,268 112 834 2940 1400 156 1,162
Total commercial 8 40,890 18,744 1,242 7,148
Total 100 297,197 159,816 15,605 35,564
Key NAV assumptions – leased properties

Leasable Lease rent Capital Base lease Capital
area annualised expenditure NAV rent expenditure NAV
Location (m sq ft) (Rs m) (Rs m) (Rs m) (s/sq ft/pm) (Rs/sq ft) (Rs/sq ft)
Bangalore 6.1 2,313 8,078 1,219 32 1,320 199
Mysore 0.7 206 1,614 147 25 2,306 210
Chennai 1.1 382 2,375 465 28 2,087 408
Kochi 0.9 264 1,428 239 25 1,591 266
Hyderabad 1.9 623 4,129 561 28 2,227 302
Total commercial 10.7 3,788 17,623 2,630
Retail
Bangalore 3.1 2,937 7,968 2,568 80 2,604 839
Chennai 0.6 478 730 527 70 1,284 927
Kochi 0.4 175 966 132 33 2,152 294
Hyderabad 0.3 169 730 212 46 2,363 686
Total retail 4.4 3,415 8,698 3,439
Total 15 7,203 26,322 6,069
Relative comparison
In our opinion, an NAV-based valuation is the most suitable for property stocks.
Valuations based on earnings multiples are not appropriate due to the inherent
earnings volatility. Also PBRs do not take into account the difference in the
valuations based on landbank location.
We believe that Puravankara should be valued on a par with DLF. While we

believe DLF has a better-located landbank, superior execution capability and a
good brand name, we think Puravankara has a better-quality balance sheet.
Valuation triggers
1. Improvement in the IT/ITES sector: a faster-than-expected recovery in the
IT/ITES sector, implying an increase in hiring and better salaries would lead to
an improvement in demand for housing, thereby improving the valuations.
Risks to the valuation

1. Decline in property prices: a slowdown in the IT/ITES sector due to unfolding
macro-economic conditions would lower demand, driving down property
prices. We estimate that a 1% change in property prices leads to a 4% change
in our NAV estimate for the stock.

Key assumptions
Sales volume
We expect a gradual improvement in sales in the residential sector in FY11, as
sales volume is dependent on the recovery of the IT/ITES sector. While residential
sales in most cities have started picking up, sales are still about 50-80% below the
peak sales volume (depending on the city and location). We expect sales in the
commercial sector to pick up from 4Q FY11. While commercial-sales enquiries
appear to have increased in the past six months, it takes about a year for the
lease/sale to materialise.
Puravankara: sales and lease schedule (m sq ft)

2011E 2012E 2013E
Commercial sales 0.03 0.07 0.15
Commercial leases 0 0 0.16
Retail leases 0 0 0
Total 2.08 3.08 4.49
Our assumptions for the sale of the entire landbank is given below. About 19 m sq
ft of the landbank is under construction
Puravankara: Daiwa landbank sales forecasts

(m sq ft)
25
20
15
10
0
2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E
The assumptions given below are some of our key pricing assumptions based on
the current property prices prevalent in the market. We expect residential prices to
remain stable over the next year due to the expected strong pipeline of projects.
Most of the developers are focusing on launching residential projects, as a result of
weak demand from the commercial and retail segments.

Puravankara: Daiwa sales-price assumptions – residential
Saleable area Base revenue
(m sq ft) (Rs/sq ft)
Bangalore 61 2,210
Mysore 1 1,870
Colombo 1 2,550
Chennai 11 2,040
Kochi 9 2,125
Hyderabad 4 2,380
Kolkata 1 2,550
Coimbatore 4 1,955
Discount rate
Our key assumptions for the discount rate are shown below. We assume a WACC
of 14%.
Puravankara: Daiwa calculation of WACC

Cost of debt
Tax rate 24%
Cost of debt 11%
Cost of equity
Risk free rate 7%
Beta 1.45
Market premium 7%
Cost of equity 17%
WACC 14%
Debt 60%
Equity 40%
Source: Daiwa estimates, Bloomberg
Other assumptions
Puravankara: Daiwa assumptions for NAV
Discount rate 14%
Rate of inflation - sales 5%
Rate of inflation - costs 5%
Tax rate (%) 33%
Our base-case valuation is based on our end-FY12 NAV forecast. The following
table shows the effect on the NAV of a 1% change in our key assumptions.
Puravankara: sensitivity of NAV to changes in assumptions

1% change in the average sale price 4% change in NAV
1% change in sale inflation 11% change in NAV
1% change in sale and cost inflation 1.6% change in NAV
1% change in discount rate 5% change in NAV
1% change in cap rate 10% change in NAV
Landbank details
The following tables show the geographical spread of Puravankara’s landbank in
terms of volumes and NAV. The tables show that the company is focused on

southern India, particularly Bangalore, Chennai and Kochi. About 66% of its
landbank is located in Bangalore and it derives 65% of NAV from the region.
Puravankara: spread of landbank by location Puravankara: spread of landbank by NAV

Mysore 1 1 Pune 679 2
Pune 1 1 Kochi 3,844 9
Chennai 14 12 Mysore 219 1
Kochi 11 10 Coimbatore 932 2
Kolkata 1 1 Chennai 5,540 13
Coimbatore 4 3 Hyderabad 2,699 6
Hyderabad 6 5 Kolkata 200 0
Total 115 100 Total 41,633 100
Source: Puravankara Source: Company, Daiwa estimates

We forecast an earnings CAGR of 22% for FY10-13, driven by a sales CAGR of
33%. We expect earnings growth to be back-ended, with a marginal decline in the
net profit for FY11, due to a reduction in the average sales price as the impact of
affordable housing sales kicks in from FY11.
Puravankara is focused primarily on the IT/ITES townships of Bangalore, Chennai,

Hyderabad and Kochi. With improved hiring for the IT/ITES segment and
anecdotal evidence of salary increases, we expect sentiment toward the property
sector to become more favourable, leading to the company recording sales growth
mainly from FY12. The average sales price in Puravankara’s affordable-housing
category is less than Rs2,000/sq ft compared with an average selling price of
Rs2,500-Rs3,000/sq ft for its other projects. Over the past two years, the company
has launched 3.46m sq ft of residential sales in the affordable category in
Bangalore and 2.23m sq ft in Chennai.
Puravankara: revenue forecasts Puravankara: EBITDA margin

(Rs m) 40%
12,000
35%
10,000 30%
8,000 25%
20%
6,000
15%
4,000
10%
2,000
5%
0 0%
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
We forecast the impact of the increase in affordable-housing sales to lead to a

reduction in the EBITDA margin from 35% in FY10 to 32% in FY11. We expect
the margin to increase gradually after FY11 as demand for mid- to high-end
housing increases.
We expect a marginal decline in the net profit for FY11 due to a reduction in the
operating margin, but expect net profit to increase from FY12 onwards.

Puravankara: net-profit forecasts
(Rs m)
3,000
2,500
2,000
1,500
1,000
500
0
We expect the net-debt-to-equity ratio to decline over the next few years assuming
no purchase of land by Puravankara. In FY07, its net-debt-to-equity ratio increased
sharply due to aggressive expansion as the company was buying land. The ratio
dropped to about 0.5x in FY08 after it raised funds from the capital markets. The
ratio has remained at the same level since FY08, but we expect it to decline from
FY12 as the IT/ITES sector recovers and demand for housing increases.
Puravankara: net-debt-to-equity ratio (x)

3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Credit ratio has started improving

The company’s credit ratio has shown a steady improvement over the past few
quarters, signalling to us the company’s improving balance sheet. The annualised
ROCE collapsed to 1% in 2Q FY10 but improved to 6% in 4Q FY10. The interest-
coverage ratio has also shown signs of improvement, recovering from a low of 0.2x
for 2Q FY10 to 1x for 4Q FY10.

Puravankara: ROCE (annualised) Puravankara: interest coverage (x)
35% 5.0
4.5
30%
4.0
25% 3.5
20% 3.0
2.5
15% 2.0
10% 1.5
1.0
5%
0.5
0% 0.0
1Q FY08
2Q FY08
3Q FY08
4Q FY08
1Q FY09
2Q FY09
3Q FY09
1Q FY10
2Q FY10A
3Q FY10
4Q FY10
1Q FY07
2Q FY07
3Q FY07
4Q FY07
1Q FY08
2Q FY08
3Q FY08
4Q FY08
1Q FY09
2Q FY09
3Q FY09
1Q FY10
2Q FY10A
3Q FY10
4Q FY10
4Q FY09
4Q FY09
Debtor days have been on a declining trend since 3Q FY10. The sharp increase in
2Q FY10 was due to the sale of land in September 2009 and the payment being
made in October 2009. Stripping out the receivables on the sale of land (Rs1,450m),
debtor days for 2Q FY10 were relatively lower than in 1Q FY10. The net
debt/EBITDA increased sharply for 2Q FY10 due to a marked decline in EBITDA
with a spike in selling and marketing expenses, but fell sharply in 3Q FY10 and
declined further in 4Q FY10.
Puravankara: debtor days (annualised) Puravankara: net debt/EBITDA

400 (x)
40
350
35
300
30
250 25
200 20
15
150
10
100 5
50 0
(5)
0
1Q FY08
2Q FY08
3Q FY08
4Q FY08
1Q FY09
2Q FY09
3Q FY09
1Q FY10
2Q FY10A
3Q FY10
4Q FY10
4Q FY09
3QFY10
1Q FY07
2Q FY07
3Q FY07
4Q FY07
1Q FY08
2Q FY08
3Q FY08
4Q FY08
1Q FY09
2Q FY09
3Q FY09
4Q FY09
1Q FY10
2Q FY10
4Q FY10
Cash-flow analysis
We project strong operating free-cash flow from FY12 based on our sales forecasts.
With the likely pick-up in demand from the recovery in the IT/ITES sector and
increases in salaries, we expect customer advances to increase markedly from the
sale of residential units. However, if the demand improvement is affected by a
slowdown in the IT/ITES sector as a result of emerging macroeconomic factors,
and/or the company enters an expansionary phase by purchasing land, the
improvement in cash flow we expect could be delayed.

Puravankara: operating free-cash flow (Rs m)
6,000
5,000
4,000
3,000
2,000
1,000
(1,000)
(2,000)
2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E
The shareholding pattern below indicates clearly that FIIs comprise the majority of
investors of the free float. The FII shareholding contracted during 2Q-3Q FY10 but
has increased since. The free float in the stock is only 10.04%.
Puravankara: shareholding pattern of FIIs and DIIs

(% holding)
9
8
7
6
5
4
3
2
1
0
2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10
FII DII

Unitech 6-mth rating: 3
(UT IN) Target price: Rs77.00
Amit Agarwal
(91) 22 6622 1063
[email protected]
Initiation of coverage: we expect slow revival

Coverage initiated with a 3 rating Reuters code UNTE.NS
Unitech is focused on affordable housing. It had an aggressive Market data

launch schedule in FY10 and further launches planned for FY11. Market cap (US$bn) 3.58
EV (US$bn; 10E) 4.72
In our view, the timely execution of projects will be key to the 3-mth avg daily T/O (US$m) 55.47
company maintaining buyer loyalty. We initiate coverage with a Free float (%) 0.6
3 (Hold) rating as the stock looks fully valued on our six-month Major shareholder Promoter family (45.0%)
target price of Rs77, based on 1x our end-FY12 NAV forecast.
Absolute (5.8) (8.1) (22.9)
Relative (5.2) (5.9) (20.7)
In FY10, Unitech launched 26.6m sq ft in sales and sold 16.2m
Source: Daiwa
sq ft. Most of its launches were affordable housing. Note: *Relative to SENSEX Index
Investment indicators
2010E 2011E 2012E
The company has about 32m sq ft under construction currently. PER (x) 23.8 22.5 17.4
The timely execution of these projects will be the key to ongoing PCFR (x) n.a. 38.4 11.9
EV/EBITDA (x) 20.7 20.5 14.6
sales, in our view. PBR (x) 1.7 1.5 1.4
ROE (%) 9.2 7.3 8.4
ROA (%) 2.6 2.7 3.1
We see earnings growth driven by a revival in sales Net debt equity (%) 51.7 36.1 23.8
We forecast earnings and sales CAGRs of 28% and 30%,
respectively, for FY11-13. However, we expect the EBITDA Price and relative performance
margin to decline over the same period due to lower margins 600.0 200
from affordable-housing sales. 450.0 150
300.0 100
150.0 50
0.0 0
Unitech’s balance-sheet health has been improving, with the net- 07/6 07/12 08/6 08/12 09/6 09/12 10/6
debt-to-equity ratio falling from 2x for FY08 to 0.5x for FY10,
on our estimates.
Share-price catalysts. 1) A rise in residential-property prices.

Risks. 1) execution skill, 2) the global macro economy, 3) a
slowdown in the IT/ITES sector, and 4) political risk.
Income summary
2008 41,400 25.9 22,286 11.3 16,683 27.8 10.277 (36.1) (6.533) 0.292
2009 28,574 (31.0) 15,565 (30.2) 11,955 (28.3) 7.364 (28.3) 0.838 0.210
2010E 29,313 2.6 10,712 (31.2) 7,084 (40.7) 2.905 (60.6) (4.919) 0.211
2011E 31,806 8.5 10,909 1.8 8,025 13.3 3.067 5.6 1.796 0.227
2012E 46,908 47.5 14,535 33.2 10,355 29.0 3.958 29.0 5.793 0.293

Company background
Unitech is engaged primarily in development and sale of residential, commercial and retail properties and the lease of retail and
commercial properties in India.
Unitech – financial summary

Real Estate revenues 35,971 23,795 24,299 27,434 42,429 Cash & short-term investment 14,083 6,448 7,870 21,039 33,334
Other Revenues 5,430 4,779 5,014 4,373 4,479 Inventory 422 368 585 585 585
COGS (16,870) (10,508) (15,637) (17,599) (27,007) Fixed assets 31,442 33,257 35,203 36,725 38,291
SG&A (2,244) (2,501) (2,965) (3,298) (5,366) Goodwill & intangibles 1,126 11,672 11,672 11,672 11,672
Net-interest inc./(exp.) (2,048) (1,753) (1,925) (556) (109) Short-term debt 0 0 0 0 0
Assoc/forex/extraord./others 641 789 765 803 843 Accounts payable 8,497 22,549 13,660 5,792 8,893
Tax (3,986) (2,424) (2,264) (2,713) (4,494) Total current liabilities 83,093 102,124 101,700 110,207 143,317
Min. int./pref. div./others (5) (13) 138 0 0 Long-term debt 85,524 90,558 60,680 63,680 63,680
Net profit (reported) 16,683 11,955 7,084 8,025 10,355 Other non-current liabilities 19,196 17,936 17,924 17,924 17,924
EBIT (adj.) 22,081 15,356 10,370 10,491 14,115 Minority interests 1,159 615 615 615 615
Net debt/(cash) 71,441 84,110 52,810 42,641 30,346

Profit before tax 20,674 14,392 9,210 10,738 14,849 Sales – YoY % 25.9 (31.0) 2.6 8.5 47.5
Depreciation and amortisation 205 209 341 418 420 EBITDA (adj.) – YoY % 11.3 (30.2) (31.2) 1.8 33.2
Tax paid (3,986) (2,424) (2,264) (2,713) (4,494) Net profit (adj.) – YoY % 27.8 (28.3) (40.7) 13.3 29.0
Change in working capital (29,547) (12,549) (21,209) (4,299) 4,272 EPS (adj.) – YoY % (36.1) (28.3) (60.6) 5.6 29.0
Other operational CF items 2,048 1,733 1,925 556 109 EBITDA margin % (adj.) 53.8 54.5 36.5 34.3 31.0
Cash flow from operations (10,606) 1,361 (11,997) 4,699 15,156 EBIT margin % (adj.) 53.3 53.7 35.4 33.0 30.1
Net (acquisitions)/disposal (9,617) (12,190) 4,107 0 0 ROAE (%) 59.6 27.3 9.2 7.3 8.4
Other investing CF items 4,297 132 (3,175) 0 0 ROAA (%) 9.4 4.9 2.6 2.7 3.1
Change in debt 45,718 5,035 (29,879) 3,000 0 ROIC (%) 22.5 10.4 5.4 4.9 6.2
Net share issues/(repurchases) 84 2,147 47,091 8,559 0 Net debt to equity (%) 198.4 162.7 51.7 36.1 23.8
Dividends paid (475) (341) (514) (594) (766) Effective tax rate (%) 19.3 16.8 24.6 25.3 30.3
Other financing CF items (2,048) (1,753) (1,925) (556) (109) Accounts receivable (days) 39.3 107.1 136.8 142.9 115.3
Cash flow from financing 43,280 5,088 14,773 10,410 (875) Payables (days) 69.7 198.3 225.4 111.6 57.1
Change in cash 3,855 (7,634) 1,422 13,169 12,295 Net dividend payout (%) 2.8 2.8 7.3 7.4 7.4

Year to 31 Mar 2011E 2012E
Avg price - Residential Gurgaon 3,045 3,197 (Rs)
(Rs/sq ft)
Avg price - Residential 2,800 2,940 3,000
Noida/Greater Noida (Rs/sq ft)
Sale residential (mn sq ft) 5.8 9.6 2,000
1,000
0 48.4x
36.3x
24.2x
12.1x
0.0x
Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 May-10


Unitech was established in 1972 and is involved in the development and sale/lease
of residential, commercial/IT parks, retail, hotel, amusement parks, and SEZs. The
company and Norway-based Telenor Group recently established UNINOR (Not
listed) – a telecommunications services company that provides GSM services in 22
circles across India.
Valuation
We value Unitech at Rs77/share based on 1x our end-FY12 NAV forecast. The
calculation of the NAV was as follows.
• We divided Unitech’s entire landbank into projects, based on the information
given by the company.
• We arrived at the sale price/sq ft and the anticipated sales volume for each
project based on our assessment of the market.
• We assumed an annual inflation rate on the sale and cost price of 5%.
• From the sale price, we deducted the cost of construction. We arrived at our cost
estimates following discussions with industry experts.
• We further deducted marketing and other costs that we assumed to be 5% of
sales revenue.
• The resultant cash flow was discounted based on a WACC of 13%. We added
the resultant project level NAV for all the projects to arrive at the NAV of the
company.
NAV calculation
Unitech has a total of 420m sq ft of saleable land. Based on our valuation
methodology, we arrived at a NAV of Rs201,069m using a discount rate of 13%.
We added Unitech’s shares in Unitech Corporate Park (Not rated) and its share of
the telecoms investment’s net debt as at the end of March 2012 to arrive at our
NAV/share estimate of Rs77.
Unitech: Daiwa calculation of NAV

(Rs m) (Rs/share)
Residential 92,356 35
Commercial 57,487 22
Retail 51,226 20
Gross NAV 201,069 77
Less net debt 30,346 12
Unitech shares in UCP 945 0
Telecoms investments 29,877 11
NAV 201,545 77
Shares outstanding (m) * 2,616
NAV/(Rs/share) 77
Source: Company, Daiwa forecasts, * on a fully-diluted basis
In our view, the stock should trade at 1x our end-FY12 NAV forecast. We have not
applied any discount to the NAV due to the underlying expansion of the economy
and sector that we expect over the next few years, which we believe will limit the
downside for the NAV. However, we expect the slow revenue growth in the
commercial segment and a potential oversupply to limit the increase in property
prices, hence limiting the upside for our NAV estimate.

Relative comparison
In our opinion, an NAV-based valuation is the most suitable for real-estate stocks.
Valuations based on earnings multiples are not appropriate due to the inherent
earnings volatility. Also, PBRs do not take into account the difference in valuations
based on the location of landbanks.
We believe that Unitech should be valued on a par with DLF. While we believe
DLF has a better landbank in terms of location, Unitech has a relatively better-
quality balance sheet. Also, Unitech’s primary focus is on the residential segment
currently (95% of the total landbank), which ensures consistent cash flow, thereby
reducing the pressure on cash flow. DLF has a 30% focus on the commercial
segment where cash flow is back-ended, which therefore increases the pressure on
cash flow.
Valuation triggers
• Improvement in the IT/ITES sector: a faster-than-expected improvement in the
IT/ITES sector in terms of increase in hiring and higher salaries, would lead to
an increase in demand, and hence an improvement in the valuation, in our view.
Risks to the valuation

• Decline in property prices: a slowdown in the IT/ITES sector due to unfolding
macroeconomic conditions could reduce the demand driving down property
prices. We estimate that a 1% change in property prices leads to a 2% change in
our NAV estimate.
• Concerns related to the international macro-economic situation.
• Execution risk.
Key assumptions
Sales volume
We expect a gradual improvement in sales for the residential sector in FY11, as
this segment is dependent on the recovery of the IT/ITES sector. While residential
sales in most cities have started picking up, they are still about 50-80% below peak
sales volumes (depending on the city and location). We expect sales in the
commercial sector to pick up from 4Q FY11. While commercial sales enquiries
have increased in the past six months, it takes about a year for a lease/sale to
materialise.
Unitech: Daiwa sales-volume forecasts (m sq ft)

FY11E FY12E FY13E
Plots 0.0 0.0 0.0
Commercial 1.2 2.0 2.9
Retail 0.5 0.8 1.1
Total 7.5 12.4 16.8
The following chart shows our assumptions for the sale of the entire landbank. The
company has about 32m sq ft of landbank under construction currently.

Unitech: Daiwa sales forecasts for the landbank
(m sq ft)
45
40
35
30
25
20
15
10
5
0
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
2026E
2027E
2028E
2029E
2030E
The following table shows some of our key pricing assumptions based on the
current prices prevalent in the market. We expect residential prices to remain stable
for the next year due to the strong pipeline of projects. Most of the developers are
focusing on launching residential projects due to weak demand from the
Unitech: sale-price assumptions

Location Saleable area Base revenue
Residential (m sq ft) (Rs/sq ft)
Gurgaon 67.0 2,900
Noida 22.9 2,500
Greater Noida 13.3 3,000
Kolkata 22.7 2,300
Chennai 63.1 2,500
Kochi 4.1 2,300
Bangalore 2.9 2,300
Hyderabad 38.1 2,200
Siliguri 5.9 1,600
Mohali 17.4 2,200
Agra 12.7 1,800
Varanasi 13.9 1,800
Vizag 97.1 1,800
Discount rate
Unitech: Daiwa calculation of WACC

Cost of debt
Tax rate 24%
Cost of debt 11%
Cost of equity
Risk-free rate 7%
Beta 1.5
Market premium 6%
Cost of equity 16%
WACC (rounded up) 13%
Debt 50%
Equity 50%
Source: Daiwa estimates, Bloomberg

Other assumptions
Unitech: Daiwa assumptions for NAV
Discount rate 13%
Tax rate (%) 33%
effect on the NAV of a 1% change in our key assumptions.
Sensitivity of NAV to change in assumptions

1% change in the average selling price 2% change in NAV
Landbank details
terms of volumes and NAV. They show that about 32% of Unitech’s NAV is
derived from the NCR, which includes Gurgaon, Noida and Greater Noida, but
only 24% of its landbank is located in the NCR. Some 26% of Unitech’s landbank
is located in southern India, which contributes 28% to the NAV. Also, 29% of its
landbank is in tier-2 cities such as Vizag, Agra and Varanasi, which contribute only
17% to the NAV.
Spread of landbank by volume Spread of landbank by NAV

Gurgaon 67 16 Gurgaon 42,961 21
Delhi 0 0 Delhi 1,453 1
Noida 23 5 Noida 14,312 7
Greater Noida 13 3 Greater Noida 6,233 3
Kolkata 23 5 Kolkata 7,245 4
Chennai 63 15 Chennai 31,874 16
Kochi 4 1 Kochi 3,260 2
Hyderabad 38 9 Hyderabad 18,591 9
Chandigarh 4 1 Chandigarh 1,474 1
Siliguri 6 1 Siliguri 2,535 1
Mohali 17 4 Mohali 10,404 5
Agra 13 3 Agra 4,298 2
Varanasi 14 3 Varanasi 4,610 2
Vizag 97 23 Vizag 25,434 13
Maharashtra 15 4 Maharashtra 17,633 9
Others 20 5 Others 7,221 4
Total 420 100 Total 201,069 100
Execution should remain the key

Unitech has about 32m sq ft under construction currently. The timely execution of
the projects will be the key to ongoing sales, in our view. Any delay in completion
dates could imply cancellations, as buyers could shift to projects with committed
completion dates.

We forecast an earnings CAGR of 28% for FY10-13, driven by a sales CAGR of
30%. Earnings declined by 41% YoY for FY10, despite a 3% YoY rise in revenue
due to a decline in the EBITDA margin from 55% for FY09 to 37%. The decline in
the margin was caused by the company’s increasing focus on affordable housing
compared with its focus on premium properties historically. The shift in focus has
been driven by increased demand for affordable housing. We forecast the EBITDA
margin to stabilise in the range of 30-35% from FY11.
Unitech has landbank spread across the country. However, the NCR, Bangalore,
Chennai, Hyderabad and Kochi constitute 50% of the landbank, and these locations
are focused primarily on the IT/ITES industry. With our expectation of an
improvement in the hiring in the IT/ITES segment and anecdotal evidence of salary
increases, we expect an improvement in sentiment that should lead to sales growth
primarily from FY12. The average sales price currently is Rs2,500-Rs3,000/sq ft.
Unitech sold about 16m sq ft of residential property in the NCR, Chennai, Kolkata
and Mumbai in FY10.
Unitech: revenue forecasts Unitech: EBITDA margin

(Rs m) 70%
70,000
60%
60,000
50%
50,000
40%
40,000
30%
30,000
20,000 20%
10,000 10%
0 0%
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
Unitech: net-profit forecasts

(Rs m)
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
We expect the debt-to-equity ratio to decline over the next few years as hiring and
salaries in the IT/ITES sector improve, leading to a rise in demand, and assuming
no purchase of land. For FY06-08, the company’s net-debt-to-equity ratio was

above 1.5x due to aggressive expansion as it was buying land. We forecast the net-
debt-to-equity ratio dropped to 0.5x in FY10 as the company raised funds from the
capital markets.
Unitech: net-debt-to-equity ratio

(x)
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Credit ratio has started to improve

The company’s credit ratio has started to stabilise after declining sharply over the
past two years. We expect the credit ratio to see a steady improvement over the
next few years due to an increase in sales and better balance-sheet management.
Unitech was successful in reducing its net-debt-to-equity ratio from 2x in FY08 to
0.5x in FY10, on our estimates.
Interest coverage has been trending down steadily over the past three years due to
declining EBIT, as sales fell and interest costs rose due to the increase in debt.
However, we expect this trend to reverse, as sales have started increasing and the
net debt has fallen significantly over the past two years.
For the purpose of calculating the interest-coverage ratio, we have assumed a

steady interest rate of 13%. We have not taken the interest expense as shown in the
P&L account, as most of the interest incurred is capitalised and therefore is not
included in the P&L.
Unitech: ROCE Unitech: interest coverage

45% (x)
4.5
40%
4.0
35%
3.5
30%
3.0
25%
2.5
20%
2.0
15% 1.5
10% 1.0
5% 0.5
0% 0.0
FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E

Debtor days have increased consistently from FY08 until FY10. However, with the
gradual improvement in sentiment due to apparent rise in confidence among
buyers, we expect debtor days to show a declining trend from FY11. Historically,
in the recessionary environment, buyers have held back purchases and stopped
paying the committed instalments for house purchases due to job insecurity or
property prices declining to below their purchase prices. With the improvement in
the economy since FY10, we expect the negative sentiment to reverse, leading to a
decline in debtor days from FY11.
The net-debt-to-EBITDA increased sharply in FY09 due to a sharp decline in

EBITDA, with the sharp fall in sales and an increase in debt to meet the company’s
cash-flow commitments. We expect this trend to reverse, with an improvement in
confidence leading to a decline in the net-debt-to-EBITDA ratio from FY11.
Unitech: debtor days Unitech: net-debt-to-EBITDA

180 (x)
6
160
140 5
120
4
100
80 3
60 2
40
1
20
0 0
FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
Cash-flow analysis
We project a marginal improvement in cash flow for FY11, which we expect to be
helped by a reduction in debtor days and an increase in advances from customers.
Unitech is primarily developing residential units where the payments are based on
pre-sales, as this improves cash flow for the company. With our expectation of a
pick-up in demand due to an improvement in the IT/ITES sector and anticipated
increases in salaries, we believe customer advances will increase sharply from the
sale of residential units. However, if the demand improvement is affected by a
slowdown in the IT/ITES sector due to emerging macroeconomic factors, and/or
the company enters an expansion spree by purchasing land, the anticipated
improvement in cash flow could be delayed, in our view.

Unitech: operating free cash flow
(Rs m)
40,000
30,000
20,000
10,000
(10,000)
(20,000)
(30,000)
(40,000)
The following table shows clearly that FIIs comprise the majority of investors of
the free float. The FII shareholding increased during 2Q FY10 due to the
company’s capital-raising initiatives during the period. DIIs hold only 3.5% of the
total shares outstanding compared with 32% held by FIIs. The free float in the
stock is 55%.
Unitech: shareholding pattern of FII and DII

(%)
40
35
30
25
20
15
10
5
0
4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10
FII DII
Source: BSE

DAIWA’S ASIA PACIFIC RESEARCH DIRECTORY
Hong Kong
Regional Research Head, Pan Asia Research Nagahisa MIYABE (852) 2848 4971 [email protected]
Regional Research Co-head Craig IRVINE (852) 2848 4485 [email protected]
Macro Economy (Hong Kong, China) Kevin LAI (852) 2848 4926 [email protected]
Strategy (Regional) Mun Hon THAM (852) 2848 4426 [email protected]
All Industries (China), Pan Asia Research Hongxia ZHU (852) 2848 4460 [email protected]
Automobiles (China) Ricon XIA (852) 2848 4923 [email protected]
Capital Goods – Electrical Equipment and Machinery Ole HUI (852) 2848 4468 [email protected]
(China)
Consumer/Retail (Hong Kong, China) Peter CHU (852) 2848 4430 [email protected]
Consumer/Retail (China) Nicolas WANG (852) 2848 4963 [email protected]
IT/Electronics – Semiconductor and Solar (Regional, Pranab Kumar SARMAH (852) 2848 4441 [email protected]
Taiwan, Singapore, Hong Kong and China) (Regional Head of IT/Electronics)
IT/Electronics – Tech IT Services (Hong Kong, China) Joseph HO (852) 2848 4443 [email protected]
Materials/Energy (Regional) Alexander LATZER (Regional Head of Materials) (852) 2848 4463 [email protected]
Oil & Gas (China, Korea) Andrew CHAN (852) 2848 4964 [email protected]
Property Developers (Hong Kong) Jonas KAN (Head of Hong Kong Research) (852) 2848 4439 [email protected]
Property Developers (China), Small/Medium Caps Kevin LEUNG (852) 2848 4489 [email protected]
(Hong Kong, China)
Telecommunications (Regional, Greater China and Marvin LO (852) 2848 4465 [email protected]
Singapore) (Regional Head of Telecommunications)
Transportation – Marine, Capital Goods – Geoffrey CHENG (852) 2848 4024 [email protected]
Infrastructure Construction (Hong Kong, China) (Regional Head of Transportation and Infrastructure)
Transportation – Aviation and Expressway Kelvin LAU (852) 2848 4467 [email protected]
(Hong Kong, China, Singapore)
Transportation (HK, China) Edwin LEE (852) 2532 4349 [email protected]
Utilities Dave DAI (852) 2848 4068 [email protected]
South Korea
Banking/Finance Chang H LEE (Head of Research) (82) 2 787 9177 [email protected]
Automobiles, Shipbuilding, Steel Sung Yop CHUNG (82) 2 787 9157 [email protected]
Capital Goods (Construction and Machinery) Mike OH (82) 2 787 9179 [email protected]
Consumer/Retail Sang Hee PARK (82) 2 787 9165 [email protected]
Industrials, Pan Asia Research Naoki IEIRI (82) 2 787 9184 [email protected]
IT/Electronics (Tech Hardware and Memory) Jae H LEE (82) 2 787 9173 [email protected]
IT/Electronics Steve OH (82) 2 787 9195 [email protected]
IT/Electronics, Software (Internet/On-line Game), Thomas Y KWON (82) 2 787 9181 [email protected]
Telecommunications
Materials (Chemicals) Daniel LEE (82) 2 787 9121 [email protected]
Taiwan
Head of Research, Pan Asia Research Hirokazu MITSUDA (886) 2 2758 8754 [email protected]
Co-head of Research, Strategy Alex YANG (886) 2 2345 3660 [email protected]
Consumer/Retail Yoshihiko KAWASHIMA (886) 2 8780 5987 [email protected]
IT/Technology Hardware (PC) Calvin HUANG (886) 2 2758 8805 [email protected]
IT/Technology Hardware (Handsets and Components) Andrew CHANG (886) 2 8789 5341 [email protected]
IT/Technology Hardware (Panels) Chris LIN (886) 2 8788 1614 [email protected]
IT/Technology (Small/Medium Caps) Jamie YEH (886) 2 8788 1696 [email protected]
IT/Technology Hardware, Pan Asia Research Mitsuharu WATANABE (886) 2 2758 9437 [email protected]
Materials, Small/Medium Caps Albert HSU (886) 2 8786 2212 [email protected]
India
Strategy/Capital Goods/Industrials/Utilities Jaideep GOSWAMI (Head of Research) (91) 22 6622 1010 [email protected]
Automobiles Hitesh GOEL (91) 22 6622 1060 [email protected]
Banking/Finance Punit SRIVASTAVA (91) 22 6622 1013 [email protected]
Materials Vishal CHANDAK (91) 22 6622 1006 [email protected]
Oil & Gas, Construction, Small/Medium Caps Atul RASTOGI (91) 22 6622 1020 [email protected]
Pharmaceuticals and Healthcare, Consumer Kartik A. MEHTA (91) 22 6622 1012 [email protected]
Real Estate Amit AGARWAL (91) 22 6622 1063 [email protected]
Software (Tech IT Services), Telecommunications R. RAVI (91) 22 6622 1014 [email protected]
Singapore
Head of Research, Pan Asia Research Tatsuya TORIKOSHI (65) 6321 3050 [email protected]
Quantitative Research Deep KAPUR (65) 6321 3079 [email protected]
(Global Director of Quantitative Research)
Macro Economy (Regional) Prasenjit K BASU (65) 6321 3069 [email protected]
(Chief Economist, Asia Ex-Japan)
Banking, Property and REITs (Singapore) David LUM (65) 6329 2102 [email protected]
(Regional Head of Banking/Finance)
Conglomerates, Soft Commodities, Energy and Chris SANDA (65) 6321 3085 [email protected]
Small/Medium Caps (Singapore)
Australia
Banking/Insurance Johan VANDERLUGT (61) 3 9916 1335 [email protected]
Resources/Mining/Petroleum David BRENNAN (61) 3 9916 1323 [email protected]
Japan
Industrials (Regional), Pan Asia Research Taiki KAJI (81) 3 5555 7174 [email protected]
Industrials (Regional), Pan Asia Research Daijiro HATA (81) 3 5555 7178 [email protected]

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Daiwa June Initiating

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Industry Report

15 June 2010 (No. of pages: 73)

India Property Sector

Initiation of coverage: slow and steady revival

 We see revival in demand driven by an improving economy and IT/ITES sector: An

 We see the main share-price drivers as: 1) a pick-up in commercial-property leasing/sales

India Property Sector: valuation summary

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH Global Equity Research

The three most important charts in this report ... ..............................................................3

Sector recovery – slow and steady....................................................................................5

Company comparison .......................................................................................................9

Amit Agarwal (91) 22 6622 1063 India Property Sector 2

YoY changes in hiring by Infosys, TCS, and Wipro (IT/ITES companies)

Source: Infosys, TCS, Wipro, Daiwa forecasts

Commercial vacancy rates (%) for Mumbai, NCR and Bangalore

Mumbai NCR Bangalore

Source: Cushman and Wakefield

Amit Agarwal (91) 22 6622 1063 India Property Sector 3

Stock performance relative to the SENSEX (%)

Residential sales volume has improved; prices are stable

Commercial segment is improving

Balance-sheet restructuring – slow and steady

Key share-price driver

Amit Agarwal (91) 22 6622 1063 India Property Sector 4

However, we see the main concerns as:

IT/ITES has started hiring and salaries are rising

Amit Agarwal (91) 22 6622 1063 India Property Sector 5

Change in hiring (YoY) for Infosys, TCS and Wipro

Source: Companies, Daiwa forecasts

Key factors likely to inhibit a recovery in the short term

Residential sales volume improving, but stable residential prices

Amit Agarwal (91) 22 6622 1063 India Property Sector 6

Signs of a recovery in the commercial segment

Commercial vacancy rates in key markets

Mumbai NCR Bangalore

Source: Cushman and Wakefield

Amit Agarwal (91) 22 6622 1063 India Property Sector 7

Source: Cushman and Wakefield

We see the main share-price drivers as:

1) a pick-up in commercial-property leasing/sales volume, and

Amit Agarwal (91) 22 6622 1063 India Property Sector 8

Spread of landbank volume (%) by location

Spread of land bank volume (%) by cities in NCR

NAV comparison by location

Spread of NAV (%) by Location

Amit Agarwal (91) 22 6622 1063 India Property Sector 9

We like Puravankara, as we believe it is attractive compared with our NAV-based

Peer valuation comparison

Amit Agarwal (91) 22 6622 1063 India Property Sector 10

Initiation of coverage: cash-rich

Earnings and valuation Price and relative performance

Source: Bloomberg, Daiwa

 The risks to our rating and forecasts are: 1) a slowdown in the

Amit Agarwal (91) 22 6622 1063 India Property Sector 11

Anant Raj Industries – financial summary

Cash flow (Rs m) Key ratios

Key assumptions PER bands

Source: Company, Daiwa forecasts

Amit Agarwal (91) 22 6622 1063 India Property Sector 12

Anant Raj: calculation of NAV

We see revival in demand driven by an improving economy and IT/ITES sector: An

We see the main share-price drivers as: 1) a pick-up in commercial-property leasing/sales

The risks to our rating and forecasts are: 1) a slowdown in the

The successful listing of the proposed real-estate investment trust

Catalyst. 1) A rise in residential prices in Mumbai. Risks. 1) A