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Real Estate May 22, 2014
Kolte Patil Developers
Bloomberg: KPDL IN Reuters: KOLT.BO
BUY
Institutional Equities
India Research
RESULT REVIEW
Recommendation
CMP: Rs123
Target Price: Rs186
Previous Target Price Rs160
Upside (%) 51%
Stock Information Market Cap. (Rs bn / US$ mn) 09/158
52-week High/Low (Rs) 134/48
3m ADV (Rs mn /US$ mn) 50/0.8
Beta 1.3
Sensex/ Nifty 24,298/7,253
Share outstanding (mn) 76
Stock Performance (%) 1M 3M 12M CYTD
Absolute 24.7 59.9 23.6 33.8
Rel. to Sensex 16.9 36.3 2.3 16.6
Performance
Source: Bloomberg
Estimates Revision
(%) FY15E FY16E
Sales 6.8 3.9
EBITDA 5.1 3.9
PAT 0.9 0.4
Source: Bloomberg, Karvy Institutional Research
Analysts Contact Parikshit Kandpal
022 6184 4311
Varun Chakri
022-6184 4326
40 60 80 100 120 140
15,000 17,000 19,000 21,000 23,000 25,000
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Sensex (LHS) Kolte Patil Developers
The right ingredients?
KPDL reported subpar headline financial performance with Revenue,
EBIDTA and PAT below our estimates by (9.7%), (28.3%) & (39.2%). Delay
in construction (pending approvals) and higher S&M cost impacted
profitability. Building on strong 4QFY14 pre-sales of 0.79mn sqft and new
approvals of ~12.8mn sqft, KPDL has guided for FY15-17E cumulative pre-
sales of 12mn sqft at an average realization of Rs6,000/sqft and Rs72bn in
value. Further approvals of ~ 15mn sqft are expected during FY15E. We
maintain our BUY stance with increased NAV target price of Rs186/share.
4QFY14 headline numbers a miss, profitability lags
KPDL 4QFY14 Consolidated Net revenue, EBIDTA & PAT de-grew (18.5%),
(40.7%) & (71.1%) YoY respectively, below our estimates by (9.7%), (28.3%) &
(39.2%). KPDL recorded 0.79mn sqft of new sales at Rs5,374/sqft realization
and Rs4,245mn sale value. Average realization decreased 4.0% YoY whilst
declining 6.2% QoQ, owing to higher share from affordable projects.
Gross/Net debt increased by Rs160/89mn to Rs2,210/1,360mn QoQ. 4QFY14
Net D/E stood at 0.17x (vs 0.16x 3QFY14), adjusted for CCD.
Expected approvals of 28.3mn sqft – lends visibility to FY15-17E pre sales
guidance of ~12mn sqft
KPDL expects to receive 28.3 mn sqft of new approvals over FY15E. Strong
approvals pipeline lends visibility to KPDL FY15-17E pre-sales guidance of
12mn sqft at an average realization of Rs6,000/sqft. The icing on the cake is
that the launches are from existing paid land inventory and KPDL doesn’t
look to acquire any new land parcels during FY15E.
New Townships, Mumbai foray - may add upto Rs79/share optional value
We expect new Township & Mumbai foray to add about Rs79/share optional
upside to our NAV estimate. The Sanjivani Township project with ~15mn
sqft saleable area has been certified as ‘Green building’ and is currently being
evaluated for EC (can add about Rs21/share to SOTP). Increase in township
FSI may add Rs44/share and Mumbai foray may add Rs15/share to SOTP.
Maintain BUY: NAV increased to Rs186/share
We maintain our BUY stance on KPDL with increased SOTP-based target
price of Rs186/share. We have recalibrated our base price estimates 3-5% and
reduced WACC from 20% to 18% post the CRISIL A+ rating. Our valuation is
based on 0.9x our end-FY15E NAV forecast. At CMP the KPDL trades at
5.7xFY16E EPS and offers ~3.5% dividend yield.
Key Financials (Consolidated)
Y/E Mar (Rs mn) FY12 FY13 FY14 FY15E FY16E
Operating income 2,492 7,275 7,642 8,548 10,219
EBITDA 677 1,921 2,208 2,811 3,642
Net profit (post minority) 341 1,074 920 1,307 1,635
EPS (Rs) 4.5 14.2 12.1 17.2 21.6
RoE (%) 4.8 14.9 12.2 15.4 16.9
P/E (x) 16.7 5.3 10.1 7.1 5.7
Source: Company, Karvy Institutional Research
2
May 22, 2014
Kolte Patil Developers
Quarterly results KPDL 4QFY14 Consolidated Net revenue, EBIDTA & PAT grew (18.5%),
(40.7%) & (71.1%) YoY respectively, below our estimates by (9.7%), (28.3%) &
(39.2%). Net revenue de-grew 18.5% YoY and 9% QoQ. Decline in revenue was
on account of delayed construction in the Downtown project which recorded
Rs170mn in sales, a Rs240mn shortfall vs 3QFY14 (and this accounted for the
variation from our numbers). The main reason attributable was delayed
approvals for the tree cutting at the site.
EBIDTA de-grew 40.7% YoY higher than revenue de-growth. This was on
account of 129.9% YoY growth in the selling expenses. KPDL carried out 3-4
page advertisement in the Times of India and other leading news paper on
delivering 10mn sqft area, besides putting up hoarding in Mumbai, other cities
in Maharastra and Bangalore for Projects.
PBT de-grew 58.7% YoY, higher than EBIDTA de-growth as Interest expense
grew 56.5% YoY. KPDL expects to bring down interest costs as the Company
has been assigned CRISIL A+/Stable rating’. The interest cost may reduce from
15% to 12%.
KPDL reported net profit of Rs130mn vs our expectation of Rs214mn a de-
growth of 71% and higher de-growth vs PBT. Tax rate for the quarter was 51%
owing to losses in a subsidiary.
Exhibit 1: Consolidated - 4QFY14 quarterly performance
Rs mn 4QFY13 3QFY14 4QFY14 Growth %
YoY
Growth %
QoQ FY13 FY14 YoY %
Net Sales 2,099 1,881 1,711 (18.5) (9.0) 7,275 7,642 5.0
Expenditure 1,431 1,309 1,315 (8.1) 0.4 5,354 5,434 1.5
Cost of material consumed 1,179 1,104 1,050 (11.0) (4.9) 4,600 4,617 0.4
Administration & general expenses 90 79 61 (32.2) (22.7) 242 264 9.2
Employee cost 109 85 83 (24.0) (2.5) 279 292 4.8
Selling expenses 53 41 121 129.9 195.0 202 260 28.7
Public issue & Miscellaneous exp. - - -
31 -
Operating Profit 668 573 397 (40.7) (30.7) 1,921 2,208 15.0
(% of operating profit) 31.8 30.4 23.2 (865.8) (725.8) 26.4 28.9 249.5bps
Depreciation 26 13 20
59 71 20.7
Other Income 176.0 19.2 48.9
365 152 (58.5)
EBIT 819 579 425 (48.1) (26.6) 2,227 2,289 2.8
Interest 76 120 119 56.5 (1.2) 363 457 25.7
Profit before Tax 743 459 306 (58.7) (33.2) 1,864 1,832 (1.7)
Tax 238 158 155 (34.6) (1.7) 625 663 6.2
Profit after Tax 505 301 151 (70.1) (49.8) 1,239 1,169 (5.6)
Net Profit 505.4 300.8 151.1 (70.1) (49.8) 1,239 1,169 (5.6)
Minority Interest 54.8 96.8 21.0 (61.7) (78.3) 165 249 51.0
Net Profit after minority 450.6 204.0 130.2 (71.1) (36.2) 1,074 920 (14.3)
EPS (Rs/share) 5.9 2.7 1.7 (71.1) (36.2) 14.2 12.1 (14.3)
Source: Company, Karvy Institutional Research
3
May 22, 2014
Kolte Patil Developers
Sales volume steady – in absence of major approvals
For the 4QFY14 KPDL recorded new sales of 0.79mn sqft and Rs4,245mn in value.
The average realization decreased by 4.0% YoY to Rs5,374/sqft. The decrease in
realization is largely on account of 0.1mn sqft sales in Kondhwa project at
Rs4,800/sqft and Bangalore project sales of 0.08mn sqft at Rs4,700/sqft. Both these
projects are in the affordable segment. During FY14, KPDL achieved 2.13mnsqft in
new sales and Rs11,501mn in new sales value. Average FY14 realization stood at
Rs5,400/sqft which is a growth of 14.7% YoY. KPDL has given robust 12mn sqft
cumulative pre-sales guidance for FY15-17E with an average realization of
Rs6,000/sqft, translating into a sales value of Rs72bn.
Exhibit 2: Sales volume and realization trend
Y/E Mar 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 FY13 FY14 % change
Sales booked (mn sqft) 0.8 0.8 0.50 0.5 0.45 0.45 0.44 0.79 2.7 2.1 (19.6)
Value of pre-sales (Rsmn) 3,800 3,380 2,500 2,800 2,152 2,582 2,521 4,245 12,480 11,501 (7.8)
Average Realization/sqft 4,634 4,072 5,000 5,600 4,783 5,737 5,730 5,374 4,709 5,399 14.7
Source: Company, Karvy Institutional Research
Marginal debt uptick – net D/E at 0.2x During 4QFY14, KPDL Gross debt increased by Rs981mn to Rs3,370mn (vs
Rs2,390mn during 2QFY14). Adjusting for the ASK PE investment in the Kondhwa
project as NCD (equity structure) amounting to Rs820mn & Tuscan CCD’s of
Rs340mn the Net debt stands at Rs1,360mn. Net D/E stacks up at 0.2x.
Exhibit 3: Net D/E – lowest amongst peer
Rs mn 3QFY14 4QFY14 Chg QoQ Comments
Gross Debt 2,390 3370 981 Debt increase largely on account of Rs820mn NCD for Kondhwa Project
Structure NCD's (340) (1,160) (820) Deducting NCD & CCD as they are Equity structured as debt by KPDL and JVs
Cash 415 700 285
Current investments 364 150 (214)
Net debt 1,271 1,360 89 Marginal increase in consolidated debt
Net Worth 7,872 8,060 188
Net Debt/equity (x) 0.16 0.17
Net D/E marginal increase
Source: Company, Karvy Institutional Research
Revenue largely driven by JV projects The key contributor to the revenue underperformance is Downtown as KPDL got
delayed approval for tree cutting and hence construction delays.
Exhibit 4: Project wise revenue contribution (Rs mn)
Project 1QFY14 2QFY14 3QFY14 4QFY14
Life Republic - Phase I 490 630 470 460
Corolla - Phase I 220 190 100 110
Tuscan - Phase I & II 150 110 190 160
Margosa Heights I & II 270 230 180 130
Downtown - Phase I 380 100 410 170
Glitterati 24K 130 110 160 120
City Bay 30 70 20 70
Green Olive Venture 20 20 20 60
Others 480 430 330 440
Total 2,170 1,890 1,880 1,710
Source: Company, Karvy Institutional Research
4
May 22, 2014
Kolte Patil Developers
Change in estimates
We have recalibrated our FY15E and FY16E estimates largely to reflect upon (i)
marginal recalibration of the project pricing upwards - 3-5% (ii) higher Sales
&Marketing cost as KPDL plans new launches for FY15E & (iii) lower other
income as current investment has been monetized towards land acquisitions. We
have marginally changed our FY15E and FY16E EPS by 0.9% and 0.4%
respectively.
Exhibit 5: Change in Estimates
Y/E March (Rs mn) FY15E FY16E
Old New Change % Old New Change % Comments
Operating income 8,003 8,548 7 9,835 10,219 3.9 Increase in base price assumption leads to
marginal revenue estimates upgrade
% growth - 12
23 20
Operating expenditure 4,458 4,648 4 5,297 5,179 -2.2
We have increase our S&M costs by
Rs180mn owing to new launches though
the impact is muted by high realization
EBITDA 2,676 2,811 5 3,504 3,642 3.9
EBIDTA change lower than revenue
change on account of disproportionate
revenue & cost recalibration
EBIDTA Margin (%) 33.4 32.9 -54.4bps 35.6 35.6 0.9bps
We build EBIDTA margins contraction
during FY15E, marginal expansion in
FY15E
Depreciation 75 75 - 82 82 -
EBIT 2,601 2,736 5 3,422 3,560 4.0
Interest expenditure 439 439 - 431 431 -
Other income 170.3 91.0 -47 187.3 100.1 -46.6
Lowering our estimate for other income
as KPDL has been utilizing surplus for
Land acquisition, also current investment
has come down during
PBT 2,332 2,389 2.4 3,178 3,229 1.6
Tax 765 788 3.0 1,043 1,065 2.2
Adjusted PAT before minority 1,567 1,601 2.1 2,135 2,163 1.3
PAT Margin before minority (%) 19.6 18.7 -85.9bps 21.7 21.2 -54.3bps
Minority interest 271.7 293.8 8 506.4 527.9 4
Adjusted PAT 1,295 1,307 0.9 1,628.9 1,635.3 0.4
Lower other income and higher taxes
mutes the EBIDTA improvement at Net
profit level
PAT Margin (%) 16.2 15.3 -90.1 16.6 16.0 -56.0
Source: Company, Karvy Institutional Research
5
May 22, 2014
Kolte Patil Developers
Investment Rationale
Approvals no more a limiting factor – about ~28.3mn new
projects expected by FY15E
Projects in advance stages of Environment clearances
In our earlier visit note dated 10th Jan 2014, ‘Right time, ride Time?’ we had
highlighted our concerns on slow progress on Environmental approvals for
Maharashtra real estate projects. The two state committees State Expert Appraisal
Committee (SEAC) & State Environment Impact Assessment Authority (SEIAA,
that gives final Environmental Clearance to projects recommended by SEAC) were
dissolved in July-13 as some of the members had resigned. The new committees
have started appraising the projects end Nov-13. This has resulted in significant
movement on approvals with KPDL receiving new projects approvals worth
~2.6mn sqft (during 4QFY14) and another ~25.7mn sqft (expected by FY15E of
which ~11.2mn sqft expected by 1HFY15E) worth projects are in final stages of
approval.
Exhibit 6: Final SEIAA approvals received
Project Location Area mn sqft Stake % Launches
Jazz Aundh Annexe 0.7 100 1HFY15E
Giga Viman Nagar 0.4 100 1HFY15E
Bavdhan Bavdhan 0.5 62 1HFY15E
Kondhwa Kondhwa 0.7 30% cashflow share 1QFY15E
Hills & Dales – Phase III Kondhwa 0.3 75 1HFY15E
Total 2.6
Source: Company, Karvy Institutional Research
Kondhwa deal may add about – Rs7.5/share to the NAV/share
KPDL has announced ~2mn sqft of Kondhwa project financial closure with private
equity fund Ask Investment encompassing an area of ~35acres for a total
consideration of Rs2.2bn. The deal is part cash (Rs1,600mn) and part area share
(worth Rs600mn) to the owner. KPDL shall be investing Rs480mn whilst ASK will
invest Rs1,120mn and Rs600mn (~0.58mn sqft) will be given go to the land owner
as area share. The project will have a total saleabe area of ~2mn sqft of which land
owner share will be ~0.58mn sqft whilst KPDL share will be ~1.42mn sqft. Land
owner has option to give his share to KPDL for construction and marketing, at 5%
PMC charge. Capital structure is through NCD and ASK will receive proceeds as
interest, based on 70% profit share till hurdle rate of 19% (post tax). KPDL shall
receive 30% profits (post tax) as interest. Incremental IRR beyond ~19% will have a
30:70 sharing. The project is located in close proximity to key business, education
and religious centres with excellent connectivity through (Mumbai- Bangalore
Highway) NH4 and (Pune-Solapur Highway) NH9. In the Phase I, KPDL has
received Environmental Clearance for ~0.7mn sqft and balance 0.7mn sqft is
expected by 2QFY15E. The project has been soft launched in Mar-14 and KPDL has
already sold ~0.1mn sqft area, launch price was Rs4,300/sqft which is now
Rs4,800/sqft. The prevailing prices in the location range from Rs4,500-5,500/sqft.
The deal is plain vanilla with capital structure as NCD to avail tax benefit. There is
no guaranteed IRRs or exit to be provided by KPDL to ASK private equity fund.
6
May 22, 2014
Kolte Patil Developers
SEAC/SEIAA – approvals worth ~25.7mn sqft pending with
1HFY15E visibility of which ~11.2mn sqft may come by 1HFY15E
In Exhibit 6 we highlight projects currently under the SEAC/SEIAA appraisal.
Sanjivani Integrated Township: The significant achievement during Mar-14 was
SEAC recommending the project to SEIAA for final EC approval. This shall make
available for development about ~14.5mn sqft of saleable area. The project is
pending locational clearance from Maharastra Urban Development Ministry and
hence this will be a major impediment for final EC approval. We expect the
‘locational clearance’ to come by 1HFY15E lending visibility to a 4QFY15E end
launch. Sanjivani township can add Rs21/share to our NAV estimate with a
further option upside of Rs15/share in case township FSI increase from 0.5x to 1x
(currently in final stages of approval). We have not yet included project in NAV.
Wakad Project update: The project approval is still pending with SEAC. The
committee has sought site inspection as one old structure is present on the land.
Management highlighted that the site inspection is already over now and final EC
may be expected by 1QFY15E. Wakad project contributes about Rs13.3/share to
our NAV estimate and is completely owned by KPDL.
Corolla Project update: Is in the final stages of EC approval (~2.7mn sqft), SEAC
meeting on 27th March 2014 has listed the project for discussion and final approval
is expected by 1QFY15E. KPDL holds about 37% stake in the project. Corolla
project contributes about Rs10.5/share to our NAV estimate.
Life Republic Township update: The phase two of the township with a saleable
area of ~5.8mn sqft has been referred for EC revalidation. The process is routine as
EC approval is usually valid for 5yrs. A similar revalidation was done for the
Kondhwa project. The Life Republic project received locational clearance in Mar-14
and expected Phase-II launch is schedule in 2HFY15E. Life Republic project
contributes about Rs37.2/share to our NAV estimate.
We expect about ~25.7mn sqft of approvals to come in 9MFY15E. KPDL has been
awaiting new approval since past 6-9M and these projects are in the final appraisal
leg as KPDL has already made representation to SEAC/SEIAA on these projects in
earlier meetings. The significant milestone shall be achieving new approvals of
~11.2mnsqft by 1HFY15E.
Exhibit 7: Projects appraisal being done by SEAC
Project Location Approval status Comment Kolte Share % Expected EC
Sanjivani Integrated Township Urse
SEAC approved and
reffered to SEIAA in
Mar-14
14.5 50% profit share 3QFY15E
Wakad Wakad
Still with SEAC, final
approval by
1QFY15E
2.0 100 1QFY15E
Kondhwa Kondhwa Change of use 0.7 30% cash flow share 2QFY15E
Corolla Wagholi Final EC expected by
1QFY15E 2.7 37% Associate 1QFY15E
Life Republic – Phase 2 Hinjewadi EC revalidation
pending with SEAC 5.8 45 2QFY15E
Total 25.7
Source: Company, Karvy Institutional Research
7
May 22, 2014
Kolte Patil Developers
New Townships, Mumbai foray - may add upto
Rs79/share optional value
Townships locational clearance – key to long term growth
KPDL has about ~14.5 mn sqft of gross saleable area currently under locational
clearance and final approval is expected by 3QFY15E. Besides Maharastra
Government has in principal approved the increase in FSI for ‘Special Townships’
and final ‘Government Gazette’ is awaited. In case of increase in the FSI from 0.5x
to 1x the likely saleable area will double from ~14.5mn sqft to ~29mn sqft.
Exhibit 8: Location clearance timelines
Location clearance Saleable Area (mn sqft) Kolte Share % EC status Expected Clearance
Sanjivani Integrated Township 14.5 50% profit share Initiated 3QFY15E
Total 14.5
Source: Company, Karvy Institutional Research
Optional upside from Townships can add – Rs64/share to KPDL
We have not considered the FSI increase in Life Republic in our valuation
estimates as we await final ‘Government Note’ on the same. With regards to
Sanjivani Integrated township we await Environment clearance before
incorporating the same into our model. The FSI increase in Life Republic can add
upto Rs29/share to our valuation estimate whilst Sanjivani Township can add
about Rs21/share with 0.5x FSI and Rs36/share at 1x FSI.
Exhibit 9: Optional upside can add a further Rs64/share to our SOTP Value (Rs160/share)
Name Location Sale area
(sq ft)
Total GNAV
(Rs mn)
KPDL
shares (%)
KDPL GNAV
(Rs mn)
KDPL Saleable
area (sqft)
GNAV/
Share (Rs)
Life Republic - Increase FSI Hinjewadi 8.9 4,924 45 2,216 4 29
Sanjivani Township Urse 13 3,107 50 1,553 6.5 21
Sanjivani Township -
Increase FSI Urse 10.4 2,237 50 1,118 5.2 15
Total
32.3 10,267
4,887 16 64
Source: Company, Karvy Institutional Research
Mumbai yet to play out – may add about Rs15/share
KPDL forayed into Mumbai real estate market with its first redevelopment project
win at Khar (West), Linking Road (Aug-13). The project has a total developable
area of 0.1mn sqft and KPDL has guided for ~Rs300-350mn profits from the
project. Besides this project KPDL has won two more redevelopment projects in
Mumbai with saleable area of ~0.35mn sqft. Considering average pricing of
~Rs13,500/sqft, on quick maths the Mumbai can contribute about ~Rs15/share to
NAV estimates. We await more clarity before ascribing any value. We expect ~20%
profit contribution from Mumbai from FY16E.
8
May 22, 2014
Kolte Patil Developers
Strengthening management bandwidth, improving
transparency
High growth to be accessed with – management bandwidth,
transparency & brand building
KPDL has embarked upon a journey of being a ~10% market share in Pune market
with incremental growth coming in from Bangalore & Pune. Whilst the growth has
to be measured up with the increase in management bandwidth, KPDL first time
in its history has recruited experienced & fresh talents from Grade A, Management
schools. Besides KPDL is building up a Strategy team – (i) which will look into
global brands tie up for luxury projects (ii) identifying new upcoming strategic
locations to invest in & (iii) brand building. Operations teams has been
strengthened to focus on (i) cost saving – KPDL has partnered with IBM to
improve EBIDTA margins from FY16E onwards through automated processes,
compensation to IBM will be directly linked to savings from these initiatives (ii)
building technology – extensive use of MIVAN Aluform which helps in (a) lesser
reliability on labour (b) more seismic resistance (c) higher carpet area & (d) faster
completion. With a focus on consistence transparency KPDL during 1HFY14 has
changed its Auditor to Deloitte Haskins & Sells, whilst initiatives on rewarding
shareholders, has resulted in a 15-25% profit being paid out as dividend.
Strong execution and contractual compliance – has been a key brand pull
In our channel checks with leading real estate funds, we found that KPDL enjoys
high comfort with the leading Principals at these funds. Some of the key attributes
being highlighted include (i) high contractual compliance (ii) strong business
engagement values (iii) commitment to execution & (iv) presence in highly end
user driven and affordable Pune markets. With most of the key projects being
positioned in key IT corridors of Kharadi (East Pune) and Hinjewadi (West Pune),
KPDL seems to be in a sweet spot. Both these locations have become a Rs5,000-
6,000/sqft capital value markets with stable demand which is largely IT driven.
Low debt + high dividend payout
KPDL has a very conservative approach on availing debt for funding growth. Our
interaction with the Promoters suggests a clear strategy of dissociating growth and
means of financing, with loan funds for expansion being the last option. Whilst
real estate investors are wary of increasing debt levels in the portfolio companies,
KPDL is one amongst few which has judiciously stayed away from the ‘greed
mirage’ of acquiring land parcels and utilizing projects cashflows to keep
servicing banks/financial institution. To show solidarity with its own philosophy,
KPDL has stated policy of distributing 15-25% of annual profits as dividend and
utilize balance cash for land acquisition purpose. The preferred mode for land
acquisition would be JDA, JVs, Private Equity and lastly loan funds. Current Net
Debt/Equity stands at 0.17x) and KPDL Board has sanctioned 0.2-0.5x – though
the approach remains conservative owing to strong cash-flow visibility.
Exhibit 10: Low net D/E + high dividend payout
FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E
Net D/E (%) 21.4 8.9 19.1 19.2 25.2 8.7 24.6 14.8 (0.0)
Dividend Rs/share 1.7 1 1 1.6 1.6 3.5 3.5 3.5 4.3
Source: Karvy Institutional Research
9
May 22, 2014
Kolte Patil Developers
Key assumptions and estimates
Exhibit 11: Summary of key assumptions and estimates
Estimates Growth (%) Comments
FY14 FY15E FY16E FY14 FY15E FY16E
Volume assumptions
Residential (mn sqft) 2.1 2.5 3.5 (19.6) 18.3 39.8
Sales de-growth in FY14 due to slower pace of
approvals and limited in hand inventory. Pick up
during FY15-16E as we expect final approvals worth
~28.7mn sqft to come in during FY15-16E. KPDL has
guided for 2.5-3mn sqft of pre-sales for FY15E and
cumulative 12mn sqft of pre-sales for FY15-17E.
FY16E – 4-4.5mns sqft & FY17E – 4.5-5mn sqft
Residential (Rs/sqft) 5,399 5,500 5,620 14.7 1.9 2.2
Marginal increase in Realization in line with WPI
inflation or lower. KPDL expect average realization of
Rs6,000/sqft during FY15-17E
Total Pre - Sales 11,501 13,859 19,800 (7.8) 20.5 42.9
Sharp uptick in new sales during FY15-16E, owing to
stronger pre-sales. KPDL has guided for Rs72bn pre-
sales over FY15-17E.
Earnings forecast
Sales (Rs mn) 7,642 8,548 10,219 5.0 11.9 19.6 Growth uptick on strong pre-sales
EBIDTA (Rs mn) 2,208 2,811 3,642 15.0 27.3 29.6
EBIDTA Margin (%) 28.9 32.9 35.6 250bps 399bps 275bps Margin increase on account of better realization &
higher share from commercial property sales
PAT (Rs mn) 920 1,307 1,635 (14.3) 42.0 25.1
PAT Margin (%) 12.0 15.3 16.0 (272bps) 324bps 72bps Increase in PAT margins in line with overall estimates
EPS (Rs) 12.1 17.2 21.6 (14.3) 42.0 25.1
Cash flows forecast
CFO - a (875) 1,343 2,344
Strong operating cash flows during FY15-16E
CFI - b 114 (11) (12)
FCF - a+b (761) 1,332 2,332
Free cash-flow positive
CFF-c 722 (700) (2,058)
Reduction in debt in FY16E on account of strong
FCF
Total change in cash -
a+b+c (39) 632 274
Source: Karvy Institutional Research
10
May 22, 2014
Kolte Patil Developers
Valuation – increase NAV based target of Rs186/share
Target Price of Rs186 implies 51% upside
We have valued KPDL using DCF and arrive at a target price of
Rs186/share (previous target price of Rs160/share). We have reduced our
WACC from 20% to 18% on account of CRISIL A+ rating and also increased
base sale price assumption by 3-5% across project. Our valuation is based
on 0.9x our end-FY15E NAV forecast.
Exhibit 12: NAV Calculation – Increase to Rs186/share
Rs mn Old New comments
Gross NAV 14,662 16,556
We have taken 3-5% Price hike across projects in Pune in
line with KPDL current rate. Value KPDL at 18% WACC
(previous 20%).
Less Net debt 1,571 1,330 Net Debt as on end FY15E
Current Investments 394 394 end FY15E - liquid funds
NAV 13,485 15,619
Shares outstanding (mn) 76 76 As of Mar-14
NAV/share 178 206
Discount to NAV 10% 10%
Target Price 160 186
Source: Karvy Institutional Research
Future development Land bank – not considered in valuation
Besides the 26.7mn sqft of land under execution and approval stage, KPDL
has potential future land bank with a saleable area of 30.7mn sqft. In our
valuation estimates we have not considered the future land parcels as there
is limited visibility on the launch front and there is no major upfront
investment, with most of these engagements through a JV or JDA.
Exhibit 13: Future development potential not considered in valuation
Particulars and
Location of
Land
Total Project
Area (In
Acres)
Saleable
Area (sq.ft)
Title/MOU/DAPA
/Saledeed/JV
Share of
KPDL
KPDL's
Share of Area
(in Acres)*
Status
Urse Township 475.00 15,000,000 DAPA 50% 237.5
Near to Lodha Township Contour 9, Urse
Township is in the BS. It’s a 50:50 Profit
sharing (launch target by mid-FY16E end)
with Sanjivani Remidies a Pune Pharma firm
Ghotawade 70.17 3,228,529 JV 50% 35.1
This is a JV with Petroleum Company -
Vibhu. Earlier the KPDL had plans to make a
SEZ now they would be looking to want to
do residential project (will target by end
FY15E)
Jambhe
Township 383.00 8,341,740 JV 50% 118.5
JV with ICICI, 45% equity stake, we expect
the FSI increase from 0.5x to 1x may result in
the incremental addition of 10.3mn sqft
Sadapur
(Lonavala) 101.00 4,000,000 MOU 33.33% 33.6
Rs160mn is the total deposit to be paid of
which paid Rs50mn. KPDL will have 34%
profit share in the township. This project is
with Kothari Products Limited
Lohgad
(Lonavala) 90.00 200,000 MOU 33.33% 30.0
Total 1,119.3 30,770,269 528
Source: Company, Karvy Institutional Research
11
May 22, 2014
Kolte Patil Developers
Key valuation assumptions
In exhibit 14 we highlight our sales and cost inflation forecasts. We expect
property price appreciation in line with WPI inflation i.e. 6% and cost inflation of
slightly higher at 6%. We forecast other costs including marketing, SGA and
employees’ costs at 14% of sales. We have discounted the cash flows using 18% as
hurdle rate.
Exhibit 14: Base case assumptions
Assumptions %
Discount rate 18
Annual rate of inflation - sales price 5
Annual rate of inflation - cost of construction 7
Other costs - marketing, SGA, employee cost (as % sales) 12
Tax rate 33
Source: Karvy Institutional Research
In the exhibit 14 we highlight our sale price and construction cost forecasts. Our
pricing assumptions are moderate and at a 10-20% discount to the current
prevailing prices. We have marginally increased our base price by 3-5%.
Exhibit 15: Base property price and construction cost assumptions
Location City Saleable area
mn sqft
Prices
Rs/sqft
Cost
Rs/sqft
Wagholi Pune 4.4 3,750 2,000
Hinjewadi Pune 10.0 4,700 2,200
Kharadi Pune 2.9 5,350 2,400
Undri-NIBM Pune 0.5 5,050 2,400
Mohamad Wadi Pune 1.0 4,150 2,100
Aundh Annexe Pune 1.3 5,600 2,600
Boat Club Road Pune 0.1 9,000 3,200
Viman Nagar Pune 0.6 8,500 3,500
Aundh Pune 1.0 6,500 2,600
Kalyani Nagar Pune 0.6 7,500 2,600
Bavdhan Pune 1.1 4,600 2,100
Atria Pune 0.2 7,500 3,200
Wakad Pune 2.0 5,400 2,400
Koramangla Block III Bangalore 0.2 7,000 2,100
Hosur Road Bangalore 0.6 6,100 2,300
Kannur Road Bangalore 0.2 3,500 1,800
Total
26.7
Source: Company, Karvy Institutional Research
12
May 22, 2014
Kolte Patil Developers
Key Catalysts
Success of new launches
KPDL has planned ~7-8mn sq ft of new launches over FY15E with 80% of the
launches in Pune. Bulk of these project will be in final stage of Environment
clearance. With in hand inventory of ~3.5mn sqft (recent approvals) we forecast the
FY15E new sales to come largely from the new launches at higher realization. With
revenue mix changing to newer projects, EBIDTA margins expansion may result in
operating leverage playing out. We built up gradual pre-sales recovery for FY15E
& FY16E with pre-sales number ~2.5mn sq ft & ~3.5mn sqft respectively.
Locational clearance of Life Republic – Phase II received, Sanjivani
township location clearance awaited – may happen by 3QFY15E
KPDL has received ‘locational clearance’ for the Phase II of the ‘Life Republic’
township encompassing an area of 200acres in Mar-14. Assuming an FSI of 0.5x
and 25% loading this shall result in a total saleable area of ~5.8mn sqft. Currently
the Phase 1 – comprising 147acres has been launched, with residual inventory of
0.2mn sqft. Besides Life Republic, KPDL has Sanjivani Township at Urse which is a
50:50 profit share JDA with Sanjivani Pharma. The locational clearance is expected
by 3QFY15E and SEAC has recommended the project to SEIAA for final
Environment Clearance. KPDL has received ‘Green Project’ certification for
Sanjivani Township and this shall act as a catalyst for speedier Environment
Clearance. Sanjivani Township can add about Rs21/share to our SOTP valuation
on 0.5x FSI. With a Maharashtra Government proposal of increasing special townships
FSI to 1x, Sanjivani Township & Life Republic incremental FSI can add about Rs43/share.
Foray in the Mumbai market through less capital intensive
redevelopment Model – may add Rs15/share to our NAV estimate
KPDL has forayed into the Mumbai market with the first redevelopment project
on KHAR linking road which has a development potential of 0.1mn sqft. KPDL
will place the existing occupants in lieu of that the Company will get to sell the
free commercial/residential area. KPDL expects to realize about ~Rs300mn net
profits from the development proceeds. Besides this KPDL has announced two
more redevelopment projects in Mumbai with a total saleable area of ~0.35mn .
Management indicated that Mumbai foray is an extension of presence in Pune
markets & strong brand equity besides in Pune they already have a ~10% market
share which they look to maintain. We believe that this is more of growth chasing
move as there is a 3x difference in average realization and KPDL wants to
cautiously establish its footprints here. We expect Mumbai to add further upside of
about Rs15/share to our NAV estimate of Rs160/share with existing pipeline.
13
May 22, 2014
Kolte Patil Developers
Key Risks to our BUY stance
Exit by PE partner could result in increase in debt levels
KDPL has maintained that it is not liable to provide exit to its PE partners in the
JVs but it did buy Arora Int. UK's (its JV partner in 2 projects, one each in Pune
and Bangalore) stake. While the deal was done at valuations attractive for KDPL,
any future stake purchase would result in an increase in debt, something that
markets may not look upon favourably.
Oversupply situation in the Pune market may lead to a price correction
Pune is a crowded Township market with multiple developers vying for market
share. Whilst the end user prices still remain affordable at Rs3,500-5,500/sqft any
volume oversupply situation may result in 10-15% price correction. For every 1%
correction in base residential prices our NAV estimate for KPDL will be negatively
impacted by 3%.
Delays in new project approvals
Whilst we have sufficient visibility on the FY14E financial estimates, we are
cautious on the launch approvals for FY15E as any delays may results in
decelerating revenue estimates/profitability for FY15-16E. There has been a 6-
9Months approvals delays in some of the projects owing to (i) Maharastra State
Environment Committee was dissolved in July-13 and took 5months to get
reconstituted. This led to a 6 months delay in ~4mn sqft of new approvals for
KPDL.
High mortgage rates/slowdown in IT/ITES sector
Pune is typically an end user market with investors comprising about 25-30% of
overall sales volumes. An end user market which is 60-65% driven by IT/ITES
sector is highly sensitive to direction of IT/ITES job scenario & mortgage rates. A
negative direction could adversely impact the real estate sales.
14
May 22, 2014
Kolte Patil Developers
Consolidated Financials
Exhibit 16: Profit & Loss Statement
Y/E Mar (Rs mn) FY12 FY13 FY14 FY15E FY16E
Operating income 2,492 7,275 7,642 8,548 10,219
% growth 23% 192% 5% 12% 20%
Operating expenditure 1,815 5,354 5,434 5,737 6,577
EBITDA 677 1,921 2,208 2,811 3,642
% growth -20% 184% 15% 27% 30%
Depreciation 21 59 71 75 82
EBIT 656 1,862 2,137 2,736 3,560
Interest expenditure 263 363 457 439 431
Non-operational income / Exceptional 105 365 152 91 100
PBT 498 1,864 1,832 2,389 3,229
Tax 140 625 663 788 1,065
PAT / Net profit - reported 358 1,239 1,169 1,601 2,163
Minority 17 165 249 294 528
Adjusted PAT / Net profit 341 1,074 920 1,307 1,635
% growth -29% 215% -14% 42% 25%
Source: Company, Karvy Institutional Research
Exhibit 17: Balance Sheet
Y/E Mar (Rs mn) FY12 FY13 FY14E FY15E FY16E
Cash & equivalents 464 1,122 1,083 1,715 1,989
Debtors 443 762 1,253 1,795 2,759
Inventory 9,892 9,826 10,241 10,617 12,196
Loans & advances 2,429 2,553 3,772 4,526 5,567
Miscellaneous 357 375 499 512 512
Total Current Assets 13,585 14,637 16,848 19,165 23,023
Current liabilities & provisions 3,934 5,502 5,332 6,336 9,688
Net current Assets 9,651 9,136 11,517 12,829 13,335
Investments 725 394 394 394 394
Gross Block 625 927 1,019 1,121 1,233
CWIP - 12 55 - -
Net Block 559 851 818 845 875
Miscellaneous 41 27 27 27 27
Total assets 10,977 10,408 12,756 14,095 14,631
Debt 2,282 1,745 3,045 3,045 1,745
Minority Interest 1,484 1,490 1,738 2,032 2,560
Total liabilities 3,766 3,235 4,784 5,078 4,306
Shareholders' equity 758 758 758 758 758
Reserves & surpluses 6,453 6,415 7,214 8,259 9,568
Total networth 7,211 7,172 7,972 9,017 10,325
Total liabilities & equity 10,977 10,408 12,756 14,095 14,631
Net debt (cash) 1,818 624 1,963 1,330 (243)
Source: Company, Karvy Institutional Research
15
May 22, 2014
Kolte Patil Developers
Exhibit 18: Cash Flow Statement
Y/E Mar (Rs mn) FY12 FY13 FY14E FY15E FY16E
PBT 341 1,864 1,832 2,389 3,229
Depreciation 21 59 71 75 82
Interest 263 363 457 439 431
Tax (285) (235) (663) (788) (1,065)
(Incr) / decr in net working capital (140) 260 (2,420) (680) (233)
Others (46) (229) (152) (91) (100)
Cash flow from operating activities 154 2,082 (875) 1,343 2,344
(Incr) / decr in capital expenditure (125) (345) (38) (102) (112)
(Incr) / decr in investments 59 (378) - - -
Others 93 265 152 91 100
Cash flow from investing activities 27 (458) 114 (11) (12)
Incr / (decr) in borrowings 263 (350) 1,300 - (1,300)
Issuance of equity - - - - -
Dividend paid (130) (253) (121) (261) (327)
Others (263) (363) (457) (439) (431)
Cash flow from financing activities (130) (967) 722 (700) (2,058)
Net change in cash 52 657 (39) 632 274
Closing cash balance 464 1,121 1,083 1,715 1,989
Source: Company, Karvy Institutional Research
Exhibit 19: Key Ratios
Y/E March FY12 FY13 FY14E FY15E FY16E
EBITDA margin % 27.2 26.4 28.9 32.9 35.6
EBIT margin % 26.3 25.6 28.0 32.0 34.8
Net profit margin % 13.7 14.8 12.0 15.3 16.0
Dividend payout ratio (x) 0.4 0.1 0.1 0.2 0.2
Net debt: equity (x) 0.3 0.1 0.246 0.148 (0.024)
Working capital turnover (x) 0.2 0.7 0.6 0.6 0.7
Gross block turnover (x) 4.0 7.9 7.5 7.6 8.3
RoCE % 5.2 13.8 12.6 14.1 17.1
RoE % 4.8 14.9 12.2 15.4 16.9
Source: Company, Karvy Institutional Research
Exhibit 20: Valuation Parameters
FY12 FY13 FY14E FY15E FY16E
EPS (Rs) 4.5 14.2 12.1 17.2 21.6
Diluted EPS (Rs) 4.5 14.2 12.1 17.2 21.6
Book value per share (Rs) 95.2 94.7 105.2 119.0 136.3
P/E (x) 27.3 8.7 10.1 7.1 5.7
P/BV (x) 1.3 1.3 1.2 1.0 0.9
EV/EBITDA (x) 16.4 5.2 5.1 3.8 2.5
EV/Sales (x) 4.5 1.4 1.5 1.2 0.9
Source: Company, Karvy Institutional Research
Institutional Equities Team Rahul Sharma
Head – Institutional Equities /
Research / Pharma +91-22 61844310 [email protected]
Gurdarshan Singh Kharbanda Head - Sales-Trading +91-22 61844368/69 [email protected]
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Disclosures Appendix
Analyst certification
The following analyst(s), who is (are) primarily responsible for this report, certify (ies) that the views expressed
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his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views
contained in this research report.
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