14 May Sunteck Realty. B&K Research

Transcription

1 14 May 2018 Sunteck Realty B&K Research

2 Sunteck Realty VISIT NOTE MID CAP Share Data Price (Rs) 435 BSE Sensex 35,536 Reuters code SUNT.BO Bloomberg code SRIN IN Market cap. (US$ mn) 945 6M avg. daily turnover (US$ mn) 2.41 Issued shares (mn) 146 Performance (%) 1M 3M 12M Absolute Relative Key Financials Year to 31 Mar FY15 FY16 FY17 EPS (Rs.) /- (%) (54.9) (66.3) PER (x) PBV (x) Dividend/Yield (%) EV/Sales (x) EV/EBITDA (x) Shareholding Pattern (%) Promoters 67 FIIs 22 MFs 4 BFSI's 2 Public & Others 5 Relative Performance Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Sunteck Realty (Actual) Sensex A play on Mumbai s real estate Not Rated Sunteck Realty (SRIN) is a real estate developer based in Mumbai. It is present across all residential segment, be it ultra-luxury, premium or mid income housing segment with some presence in the commercial realty sector as well. BKC projects to augment cash generating capacity: The BKC projects catering to the premium and luxury markets are high value complete inventories available with SRIN. With 22 unsold units at Signature Islands, and 35 in Signia projects, we believe the BKC projects to register decent cash flows going forward. ODC project, add on to company s growth: While BKC is surely the CBD of Mumbai, the relatively new Oshiwara District Centre (ODC) will be the next upcoming location in North Mumbai stimulating housing demand and spurring all-round development. With SRIN having a developable area of 5.7 msf, we expect the ODC projects to be a significant booster for thecompany sgrowth.srinhasdemarcatedsunteckavenue(1-4)and Avenue (5-6) for residential and commercial development, respectively. Foray into mid-income housing: Recently, SRIN announced its ambitious affordable housing project in Naigaon with a development potential of 10 mn sq ft. Naigaon enjoys the added advantage in terms of pricing and location. This will enhance SRIN s presence across all the pricing segments along with tax benefits, subsidies to buyers, etc. B&K s view We believe SRIN s presence across the pricing spectrum, robust execution track record, lowest leverage among the sector (Net Debt/Equity 0.2x) are definitely the factors which will drive the growth of the company. Aided by the reviving sector health and post RERA benefits accruing to organised players, we believe there are visible signs of green shoots for SRIN, stemmed by the unexplored plausible opportunities that lie ahead! 2

3 Index Page No. Company description and Structure 4-11 Investment highlights and Key risks Investment Thesis Real Estate sector Holistic view and outlook Peer comparison Detailed consolidated financials 48-50

4 Company description and Structure

5 Company description MMR concentric real estate developer SRIN is a real estate developer based in Mumbai. It caters to the ultraluxury, luxury and premium residential segment with some presence in the commercial realty sector as well. The company focusses on a city centric development portfolio of about 23 mn sq ft spread across 25 projects. The residential segment contributes to ~70% of the total development portfolio, with the rest being in commercial space. SRIN is developing a number of its ongoing and plannedprojectsjointlywithvariousotherdevelopersand we believe this partnership enables it to reduce its capital commitment and forge a stronger brand image. Over the past decade, the company has acquired land in the heart of Mumbai, BKC and ODC, Goregaon, which has proven positive in creating wealth for the company. Differential brand strategy, holistic presence in all segments: The company adopts a differential branding scheme for different segments in the real estate that well resonate the product offering across the residential and commercial developments. It has four major brands as on date, which are 1) Signature for Ultra Luxury segment, 2) Signia for Super premium segment, 3) Sunteck City for large format mixed development and 4) Sunteck for the commercial realty segment. These brands provide premium positioning in every market segment. Existing brands for mixed, premium and luxury segment New mid segment brand to come soon New Brand for Affordable housing to be announced soon Source: Company, B&K Research 5

6 Corporate structure Promoters and Promoter Group 66.7% MFs, FIIs 25.1% - Pabrai Investment Funds - 8.3% - L&T Mutual Fund Trustee Ltd. 3.6% - Birla Sun Life Trustee Company 1.3% - Fil Investments (Mauritius) Ltd. 2.2% - Insurance companies 2.3% Public, Others 8.2% Sunteck Realty Ltd. JV with Piramal Enterprises (50%) Piramal Sunteck Realty (P) Ltd. Company and Other JV/JDA - Signia Oceans, Airoli - Signia Sky, Nagpur - Sunteck Signia City, Jaipur - South Mumbai 1 - South Mumbai 2 - Signature Islands, BKC (87.5%) - Signia Isles, BKC (93.5%) - Signia Pearl, BKC (93.5%) - Sunteck City Avenue Sunteck Grandeur Andheri (100%) - Sunteck Icon, BKC (56.5%) - Signia High, Borivali (100%) - Signia Pride, Andheri (100%) - Signia Gardens, Vile Parle (100%) - Signia Hills, Andheri (100%) - Sunteck Gateway 51, BKC (55%) - Dubai Project - Sunteck Centre Vile Parle - Sunteck Kanaka Corporate Park, Goa - Sunteck Crest, Sion - Sunteck Signia City, Jaipur Source: Company, B&K Research 6

7 Sunteck projects at a glance Snapshot Project Details Status DoC Type Area (msf) SRIN Stake (%) SRIN Area (msf) Total area sold (%) Sold till now (msf) Unsold area (msf) Total Sales Till date Collec. Till date Amt Receivable Avg realisation Unsold/ total units Exp Current Cost of Rates (~) Cons. Signature Islands, BKC Completed 100.0% Residential ,489 12, ,683 22/64 57,000 NA Signia Isles, BKC Completed 100.0% Residential ,636 8,601 1,365 31,144 12/76 49,000 NA Signia Oceans, Airoli Completed 100.0% Residential ,223 1,223 7,650 Sold NA Signia Sky, Nagpur Completed 100.0% Residential ,598 13/36 7,500 NA Sunteck Grandeur- Andheri Completed 100.0% Commercial ,728 Sold NA Sunteck Kanaka, Goa Completed 100.0% Commercial ,659 10,000 NA Signia Pearl, BKC Under Construction 99.9% Residential ,204 7,890 1,314 31,738 23/80 49,000 7,000 Sunteck City- Av 1, ODC Under Construction 65.0% Residential ,020 2,540 1,480 11, /465 15,500 3,800 Sunteck City- Av 2, ODC Under Construction 31.0% Residential ,116 1,448 2,668 14, /536 15,500 3,800 Signia High, Borivali Under Construction 93.4% Residential , ,311 48/81 15,000 4,500 Signia Waterfront, Airoli Under Construction 37.0% Residential ,141 94/172 15,000 3,750 Signia Pride, Andheri Under Construction 22.0% Residential /19 25,000 4,000 Sunteck City- Av 3, ODC Under Development 0.0% Residential ,500 3,500 Sunteck City- Av 4, ODC Under Development 0.0% Residential ,500 3,500 Sunteck City- Av 5, ODC Under Development 0.0% Commercial /m/sf 3,300 Sunteck City- Av 6, ODC Under Development 0.0% Commercial /m/sf 3,300 Sunteck Crest, Sion Under Development 0.0% Commercial ,000 4,000 Sunteck icon, BKC Under Development 0.0% Commercial ,000 4,500 Signia Gardens, Vile Parle Under Development 0.0% Residential ,000 4,000 Sunteck Signia City, Jaipur Under Development 0.0% Commercial ,000 4,000 Signia Hills, Andheri Under Development 0.0% Residential ,000 4,000 South Mumbai 1 Under Development 0.0% Residential ,000 4,000 South Mumbai 2 Under Development 0.0% Residential ,000 4,000 Dubai Under Development 0.0% Mixed Sunteck Gateway 51, BKC Under Development 0.0% Commercial ,000 4,500 Naigaon- Afford. Housing Under Development 0.0% Mixed ,500 2,250 Source: Company, B&K Research 7

8 Sunteck projects at a glance Geographic view Sunteck Signia City, Jaipur Sunteck Kanaka, Goa Signia Skys, Nagpur Source: Company, B&K Research 8

9 Key charts Financial information Net revenue and EBITDA Cash PAT Rs mn 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, ,256 9,522 6, ,028 2,434 2,785 1, ,481 2,589 Mar-14 Mar-15 Mar-16 Mar-17 9MFY18 Net Sales EBITDA EBITDA Margin Rs mn 2,500 2,000 1,500 1, ,062 1,524 1, Mar-14 Mar-15 Mar-16 Mar-17 9MFY18 Source: Company, B&K Research Net debt, Net debt/ebitda and EBITDA/Interest Capital employed Rs bn x Rs bn Mar-14 Mar-15 Mar-16 Mar-17 9MFY18 Net Debt Net Debt/EBITDA EBITDA/Interest Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 1HFY18 (Post QIP) Note: Net debt as on 1HFY18 (adjusted for QIP). Source: Company, B&K Research. 9

10 Management background Name Designation Qualifications and Previous Experience Mr Kamal Khetan Chairman & Managing Director An Electronics and Communication engineer from Mangalore University. Over two decades of experience in Real Estate Industry. Engaged in the overall business management, execution and strategy. Mr Atul Poopal Executive Director A civil engineer with more than 30 years of experience in regulatory field. Profound knowledge of regulation/acts governing development. In-depth insight in conceptualising, planning, devising and streamlining approval process. Ms Rachana Hingarajia Non-Executive Women Director CS & LLB by qualification; over 10 years of experience in Compliance function. Associated with the group for more than eight years; on Board since March Mr Kishore Vussonji Independent Director A Solicitor with Bombay Incorporated Law Society and an Advocate with the Bar Council of Maharashtra. On Board since 2008; partner of Kanga & Co. Over 4 decades of experience in Real Estate transactions in Mumbai. Mr Ramakant Nayak Independent Director A certified associate of Indian Institute of Banking and also holds a degree of Science and Law. On board since 2010; has held leadership positions with Bank of Maharashtra, Saraswat Co- Operative Bank and others; over 4 decades of experience in the field of Commercial Banking. Mr Mahadevan Kalahasthi Independent Director A Qualified Practicing Chartered Accountant and Bachelors of Commerce. On board since 2007; Chairman of Audit/Investors Grievance/Compensation Committee. Over 3 decades of experience in audits, taxation, corporate governance compliances, mergers & acquisitions. 10

11 Key milestones Before 2006 FOUNDATION Operations started as a Business Center Operator with 4 rented assets located at BKC, Vile Parle and Andheri. Blue-Chip clientele such as Intel, HP, Visa, Cable & Wireless, Schlumberger, Ola Cabs and others. Rental Rs psf monthly No LRD/Debt on the rental asset. EVOLUTION Ventured into real estate development with the acquisition of Signature Island (1st residential plot at BKC). PartneredwithIndiaREITstofund acquisition. Kotak Realty Fund invests Rs. 1,400 mn (~US$ 22 mn) in the 1st entity level PE transaction. Formed a 50:50 JV with Ajay Piramal Group for real estate development EXECUTION & VALUE CREATION Substantial value creation in 10 projects located in BKC, ODC Goregaon and Airoli with regards to positioning and capital appreciation. 2.5 msf delivered during this period worth revenues of Rs 45 bn. Signature Island achieves status as the most luxurious residential project of the country. EXPANSION 2.2 msf to be delivered in the next 2-3 years worth revenues of Rs 34,000 mn. Focus on city-centric acquisitions through asset-light strategy such as, JDA, Distressed Assets purchases, DM Model. To launch Sunteck City 3rd Avenue and 4th Avenue. Sunteck City to create a rental portfolio of ~Rs 2,700 mn p.a. for SRL. Ongoing and Upcoming Projects sufficient for development over the next four-five years After Source: Company, B&K Research 11

12 Investment highlights and Key risks

13 Investment highlights BKC and ODC: The key projects The niche which SRIN has created is through its landmark projects in BKC (Signature Islands, Signia Pearls, Signia Isles) and in ODC, Goregaon (the upcoming Sunteck Avenue project). While the projects in BKC are residential projects catering to ultimate luxury and premium customers, ODC project will be a mixed development project, with residential, commercial and retail spaces. A significant amount of cash flows is expected to come from these projects in the coming years. New venture into mid-income level segment The company has recently forayed into the mid income level segments. The project entails development of 100 acres with a potential developable area of 10 msf. This will lead to perfect diversification across the pricing spectrum, along with Government incentives, like tax exemptions, subsidies to buyers, etc. Infusion of fresh capital, net debt-to-equity reduces The net debt/equity of SRIN ballooned to 1.2x in FY13, which the company brought down to 0.7x in FY16. To keep it further under control, and also to fund construction in upcoming projects, it came up with a successful QIP issue of Rs 5 bn, along with infusion by promoters to the tune of Rs 1.5 bn. This led to a drop of net D/E ratio to just 0.2x (1HFY18 adjusted for QIP), lowest in the industry. Keeping balance sheet asset light with JV-JDA approach To keep the balance sheet asset light and debt under control, the company adopts a well thought strategy of developing projects through JVs and JDAs. This allows the company to build a capital-efficient business by stripping away the investment on land purchase and allowing a greater focus on value addition. This enables the company to earn high RoE with low investment and at the same time maintaining low leverage and low cost of debt. Mumbai s experienced and old player Sunteck group was founded by Mr Khetan in the year The first project started in 2005 and since then the company has continuously developed new projects. With almost a decade s experience in MMR markets, the company is known for entering into promising markets at an early stage. 13

14 Key risks Negative real estate market sentiment Lately, real estate market in India has seen a sluggish trend suffered throughweaksalesandhighvacancyrates.highunsoldunder-construction inventory at high prices with SRIN is one of the key risks to our valuations. o With government initiatives like affordable housing, smart cities mission, implementation of RERA, implementation of GST, demand in the real estate space is again recovering and is expected to improve and sustain in the near-term. Being Mumbai centric player can hit hard: SRIN is a Mumbai specific player, with almost 14.5 msf of the total developable area being in Mumbai. Any slowdown in the Mumbai real estate market can lead to weak financial performance. o With real estate sector becoming more regulated, we expect Mumbai markets to develop as well. Further, with major projects being in Oshiwara and BKC, the prime locations of the city, we expect the company to maintain and register strong cash inflows. Unsold inventory of large ticket size flats: The company s three BKC projects itself have a inventory of 57 unsold units (expected realisation for Signature Project Rs 57,000/sq ft and Rs 49,000 for Signia projects). Since these are large ticket size flats company may find liquidating the inventory tough, which could ultimately result in delay in collections. o The sale of large ticket size flats was basically marred by the recent events, like demonetisation, RERA, GST, etc. With transition phase now coming to an end, we expect the demand to pick-up again across segments. 14

15 Investment thesis

16 BKC The luxury housing destination of Mumbai BKC emerging as the financial hub of the city offers high growth prospects. Over the last decade, Bandra-Kurla Complex (BKC) has emerged as an important business district of Mumbai and a base for financial services firms in India, backed by a robust infrastructure development in the region and incentives such as higher Floor Space Index (FSI). In BKC the company has the most aspiring Signature Island project (ultra luxury accommodations), while there are two Signia projects (Super premium residentials) as well. Sunteck projects in BKC Source: Company, B&K Research As per the BKC planning proposal, out of 370 acres, 23% of the area was reserved for the residential segment, while 40% and 37% was kept for commercial and social purposes. Around 50 acres of land has been approved by MMRDA to set up an International Financial Service Centre (IFSC), and some further area to set up a finance SEZ. Establishment of IFSC will further attract other companies to setup offices as tax benefits are available to IFSCs. As on date Gujarat Int. Fin Tech is the only IFSC in the country. BKCthushousesanumberoftopMNCs,Banksand Financial Institutions, with most companies having there corporate offices there. With top notch professionals, working in BKC, the place is definitely a top luxury housing destination in Mumbai, driven by HNIs, NRIs, industrialists and CxOs. Luxury residentials include Radius Ten, Kanakia Paris, Seasons, etc. 16

17 BKC residential Early mover advantage to SRIN Key advantages to SRIN It had bid for residential areas in when the area was in a nascent stage of development and had its presence in only commercial operations. SRIN s vision of how it could become the top luxury destination at an early stage has added an impetus to the overall growth of company. It bought the Signature Island land on FSI basis at a premium to ready properties in nearby locations of Kalanagar, Kalina in Had bid for adjoining land parcels for Signia Isles and Signia Pearl in 2009 and 2010 at 3-4x of the bid for Signature Island to maintain exclusivity. All three projects have received Occupational certificates and are RERA compliant. With almost 57 unsold units in these three projects, a huge cash flow is still to be received by the company. Recently, 3 units in Sunteck Isles were sold for Rs 670 mn, as compared to Rs 600 mn in last quarter (+11% YoY). Average price trend BKC Constant appreciation! Rs per Sqft 30,000 28,000 26,000 24,000 22,000 20,000 20,825 22,500 24,012 24,480 24,395 26,625 25,670 25,925 26,435 26,350 28,092 28,730 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 Source: Company, B&K Research Pricing of peer luxury residential projects Project Name Location Developer Realisation (per sq ft) Signature Island BKC Sunteck Group Rs 57,500 Signia Isles BKC Sunteck Group Rs 48,000 Signia Pearls BKC Sunteck Group Rs 48,000 Naman Residency BKC Naman Group Rs 35,150 Kanakia Paris BKC Kanakia Group Rs 32,000 Ten BKC BKC Radius Developers Rs 31,000 Seasons BKC Rustomjee Rs 30,000 Note: Prices on built-up area. Source: Company, 99acres.com, B&K Research 17

18 BKC residential projects Status Project name Signature Island Signia Isles Signia Pearls Status Completed Completed Under Construction Developed (%) Type Residential Residential Residential Area msf (msf) SRIN stake (%) SRIN area (msf) Total area sold (%) Sold till now (msf) Unsold area (msf) Total sales (Rs mn) 12,489 9,966 9,204 Average realisation (Rs/sq ft) 35,683 31,144 31,738 Current rates (~) (Rs/sq ft) 57,000 49,000 49,000 Total collections (Rs mn) 12,165 8,601 7,890 Receivables (Rs mn) 325 1,365 1,314 PV of total sales value (inventory) (Rs mn) 12,947 4,058 6,404 Costs to be incurred and taxes (Rs mn) 3, ,523 Debt repayments (Rs mn) Net surplus (NPV) (Rs mn) 9,647 2,729 3,964 Source: Company, B&K Research 18

19 Signature and Signia Projects Luxury segment The three landmark BKC projects Source: Company, B&K Research 19

20 ODC project The upcoming CBD Oshiwara District Centre (ODC), Goregaon in which SRIN s ambitious Sunteck City (the largest mixed-use development) project is being worked upon, will definitely mark a new growth trajectory for the company. MMRDA is set to develop the ODC as the next mega-planned growth centre after Bandra-Kurla Complex (BKC). ODC, which is spread across 160 acres, is expected to gain momentum with the upcoming infrastructure development to become the new growth story of Mumbai. The current social infrastructure in and around ODC could make it the next Central Business District (CBD) of western suburbs like BKC. MMRDA has proposed ODC as the next mega-planned growth centre after BKC. MMRDA has already developed two flyovers connecting East to West, Ram Mandir Station on the western railway line. Road widening work at six 90ft roads at ODC is ongoing. Goregaon is a hub of mid/back-offices of Corporates at business parks including Nirlon, Nesco, Mind Space, Infinity Park, Lotus, etc. ODC is set to tread on similar footsteps of BKC. Appreciation in the existing residential projects has been in the range of 25% to 30% compared to 2013 prices. ODC is expected to witness positive movement in rates in the next two-three years. Sunteck City ODC project Source: Company, B&K Research 20

21 ODC Well poised to soar high Nariman Point in South Mumbai (the traditional CBD) was the preferred location for high-grade office occupiers, and therefore commercial office space investors. Which later on shifted to BKC as it emerged as an alternative location to the traditional CBD. It became more acceptable to MNCs as it offered a better-built environment. However, today the Suburban Business District (SBD) in thenorthofmumbai,particularly Oshiwara is also a major commercial office market. As the potential of BKC to provide further office space is exhausted, the city s ever-growing businesses will need new commercial infrastructure in order to expand and to operate over the medium-term horizon. BeinganIslandcity,themajorexpansiondriftwastowards Northern Mumbai. This also saw the gradual shift of office districts northwards, nearer to the residential clusters. The Eastern Suburbs already had a cluster development in Powai, but there was no similar development of the same scale in the Western Suburbs. Hence, it was decided by MMRDA, to plan the next cluster development in Oshiwara, the soon to be CBD. Land holdings by private developers in ODC ODC well placed to enjoy many added advantages Factors dbkc ODC Land holdings (acres) Sunteck Realty RNA Corp Universal group Adinath Enterprise NICCO Land holdings Land parcels auctioned by MMRDA, planned development by MMRDA PPP model, planned development by MMRDA Type Greenfield development Brownfield development Access Centrally located Located in the western part of the city but with effective connections to Eastern and harbour suburbs Benefits and Infra Excellent airport access Average social infra Excellent airport access Has the potential to be transformed from average to excellent 23 Residential options Very few and in single digits The ratio of development will be 40% commercial and 60% residential Source: JLL, Company, B&K Research Source: JLL, Company, B&K Research 21

22 ODC Well poised to soar high Value accretion in BKC (Luxury residential projects) ODC project could also witness value accretion 2.6x 1.9x 42,000 57, x 3.2x 27,000 32,000 31,000 24,000 Rs per Sqft 9,500 25, x 7,000 17,500 22,500 35,000 15,000 18,000 Rs per Sqft 9,000 19,000 12,500 15,000 9,000 Kalina Kurla (W) Bandra (W) Kala Nagar BKC Goregaon (E) Lokhandwala ODC Future Source: Company, B&K Research Snapshot of projects in ODC S.No. Project name Developer name Possession date (per RERA) Units (Total) Units (Booked) Units not booked Realisation (Rs/sq ft) % booked 1 Sunteck City Avenue 1 Sunteck Realty Ltd. March , Sunteck City Avenue 2 Sunteck Realty Ltd. April , Auris Serenity Sheth December 2020-July , , Imperial Heights Wadhwa/Radius June , Ekta Tripolis Ekta World December , Kalpataru Radiance Kalpataru December , Alta Monte & Signet Omkar December , , Lodha Fiorenza Lodha December , Note: Prices on built-up area. Source: Company, 99acres.com, B&K Research 22

23 SRIN s ODC project Sunteck Avenue This project is spread over 23 acres of land (developable area of 5.7 msf) and aims to create a mixed used Township of Residential, Commercial, Retail, fine-dining and Entertainment zone. SRIN has acquired 23 acres of land between 2010 to 2012 for ~Rs 4.5 bn. Apart from the residential projects in Sunteck City Av 1-4, there shall also be retail and commercial spaces leased out in Sunteck City Av 5/6. Till now, it has developed 65% and 31% in Sunteck City Avenue 1 and 2, respectively, with total cumulative sales made of 50% and 46% to the tune of Rs 4,020 mn and Rs 4,116 mn, respectively, over the last few years. Sunteck Avenue project Plan Source: Company, B&K Research 23

24 ODC projects snapshot Project name Sunteck City Av 1 Sunteck City Av 2 Sunteck City Av 3 Sunteck City Av 4 Status Under Construction Under Construction Under Development Under Development Developed (%) Type Residential Residential Residential Residential Area msf (msf) SRIN stake (%) SRIN area (msf) Total area sold (%) Sold till now (msf) Unsold area (msf) Total sales (Rs mn) 4,020 4, Avg realisation (Rs/sq ft) 11,167 14, Current rates (~) (Rs/sq ft) 15,500 15,500 16,500 16,500 Total collections (Rs mn) 2,540 1, Receivables (Rs mn) 1,480 2, PV of total sales value (inventory) (Rs mn) 6,509 6,950 11,348 10,218 Costs, Interests & taxes (Rs mn) 3,329 4,348 6,195 5,208 Debt repayments PV (Rs mn) 1,209 1,276 (225) (180) Net surplus (NPV) (Rs mn) 1,971 1,326 5,378 5,190 Source: Company, B&K Research 24

25 Sunteck Avenue Sunteck Av 1 Sunteck Avenue projects Sunteck Avenue 2 Source: Company, B&K Research 25

26 Naigaon project Play on affordable housing Foray into affordable segment Recently, Sunteck announced its entry in the affordable segment with a potential development of 100 acres from DDPL Global Infrastructure Private Limited and Unicorn Infraprojects and Estates Private Limited. The project is under JDA model, and will be having a revenue generating potential of Rs. 55 bn. Includes both residential and retail The project will be developed in Naigaon, over the next six-seven years, in 3 different phases. The project will have a development potential of 10 mn sq ft, of which around 10% will be retail for shops, malls and restaurants. JDA model saves land cost Since the same is on JDA model, the company wont be buying this land outright and only an upfront payment of Rs 500 mn shall be made and later on 25% will be the revenue share. It is expected to be priced at Rs 2.5 to 3.5 mn per unit. Phase 1 development is expected to be started in the next two quarters. Perfect presence across all the different consumer segments This will lead to perfect diversification across the pricing spectrum, apart from Signature and Signia brands meant for luxury and premium housing. The project comes along with Government incentives, like tax exemptions, subsidies to buyers, etc. Naigaon, preferred location compared to peers As compared to other developers in mid income housing, SRIN enjoys locational advantage in Naigaon. Other similar properties are coming up in locations like Virar, Palghar, Nala Sopara, etc., whereas SRIN s project is being developed in Naigaon. Naigaon is nearer to the main city as compared to the locations chosen by other developers. Additionally, an upcoming Vasai Creek bridge would reduce down the travel time and make the project more lucrative. 26

27 Naigaon project location Virar Nala Sopara Naigaon As compared to other projects in Virar, Nala Sopara and Palghar, Naigaon is the nearest location to the city. The aerial distance of Naigaon to the main city is almost nearer to the distance between Naigaon and Virar itself. Thus, with locational advantages in this segment, SRIN is again going to benefit. The future infrastructural developments like the 5 kms sea-link on the Vasai creek will enhance the connectivity of Naigaon to major locations. Source: Company, B&K Research 27

28 Affordable Housing Government s thrust on realty Government s push towards affordable housing: Government has set an ambitious target of achieving housingfor-all by 2022 by constructing houses with clean sanitation facilities and 24x7 water and electricity supply. The scheme launched in 2015 has the following objectives:- Slum rehabilitation of Slum Dwellers with participation of private developers using land as a resource. Promotion of affordable housing for weaker section through credit linked subsidy. Affordable housing in partnership with Public and Private sectors. Subsidy for beneficiary-led individual house construction or enhancement. The scheme will cover the entire urban area consisting of 4,041 statutory towns with initial focus on 500 Class I cities and it will be implemented in three phases as follows, viz. Phase-I (April 2015-March 2017) to cover 100 Cities to be selected from States/UTs as per their willingness; Phase-II (April 2017-March 2019) to cover additional 200 cities and Phase-III (April 2019-March 2022) to cover all other remaining cities. The Pradhan Mantri Awas Yojana (PMAY) launched in 2015 subsumes all the previous urban housing schemes and aims at Housing for All to be achieved by the year To promote this scheme in rural housing sector the government plans to spend Rs 3.5 trn to construct mn houses by 2022 under the Pradhan Mantri Awas Yojana Gramin (PMAY-G). Similarly, the Pradhan Mantri Awas Yojana (PMAY-Urban) has been conceptualised with intent to build mn urban houses over the next five years entailing an investment of Rs 3 trn. As per recent targets, it will construct 12 mn units in urban areas and 10 mn units in rural areas encompassing an expenditure of Rs 1.9 trn for urban housing and Rs 1.3 trn for rural housing. 28

29 Government s initiatives of Housing for All Central grant of Rs 0.1 mn per house, on an average, will be available under the slum rehabilitation programme. The government s budgetary support has risen from Rs 142 bn in FY16 to Rs 525 bn in FY19. The government has given Affordable Housing the vital infrastructure status in Union Budget Under the Credit Linked Interest Subsidy component, interest subsidy of 6.5% on housing loans availed upto a tenure of 15 years will be provided to EWS/LIG categories, wherein the subsidy pay-out on NPV basis would be about Rs 2.3 lakh per house for both the categories. Central assistance at the rate of Rs 1.5 lakh per house for EWS category will be provided under the Affordable Housing in Partnership and Beneficiary-led individual house construction or enhancement. Government s recent relaxation allowing 100% FDI in construction is also supposed to give this scheme a boost as more participation will come from international companies and will also lead to better advanced technologies being introduced in the sector. Rising urbanisation Trend of Housing Affordability Urban Population (mn) Urbanisation rate (%) Affordability Source: McKinsey Global Institute, B&K Research Source: HDFC Research, B&K Research 29

30 Rising allocation in government s budget Budgetary allocation Constantly increasing Top 10 states in India in Affordable Housing Rs bn FY15 FY16 FY17 (A) FY18 (RE) FY19 (BE) Rs bn Andhra P. MP Maha Har Investment (Rs bn) Karn. Guj TN UP Telan Houses involved (nos '000) Jhar No of Houses ( 000) Source: Government papers, B&K Research Source: Ministry of Housing and Urban Affairs, B&K Research Progress so far As on Project proposal considered Investments in projects Financial progress (Rs bn) Central Assistance involved Central Assistance released Houses involved Physical progress (Nos.) Houses grounded for construction Houses completed January 3, , ,328, ,187 April 3, , ,773, ,769 92,308 July 31, ,147 1, ,392, , ,106 October 3, ,974 1, ,857,321 1,150, ,096 December 4, ,671 1, ,199,267 1,408, ,963 January 1, ,474 2, ,743,631 1,647, ,892 April 2, ,121 2, ,435,663 1,930, ,074 Source: Ministry of Housing and Urban Affairs, B&K Research 30

31 Micro market view Residential Property Rates across Mumbai Virar: Rs Vasai: Rs Location: ODC Naigaon: Rs Particulars ~Units unsold (Nos.) ~Inventory size (Rs bn) ~Average ticket size (Rs mn) Borivali (W): Rs Kandivali (W): Rs Goregaon (W): Rs Andheri(W): Rs Khar (W): Rs Bandra (W): Rs Dadar (W): Rs Worli: Rs Bhayandar (E): Rs Dahisar (E): Rs Borivali (E): Rs Malad (E): Rs Goregaon (E): Rs Andheri (E): Rs Vile Parle (E): Rs Santacruz (W): Rs Powai : Rs Chembur: Rs Thane (W): Rs Mulund (W): Rs Kanjurmarg (E): Rs Kamothe: Rs Dombivili: Rs Top developers 2, SRIN Location: BKC Particulars ~Units unsold (Nos.) ~Inventory size (Rs bn) ~Average ticket size (Rs mn) Top developers SRIN Colaba: Rs Note: Based on Super built area. Source: Company, magicbricks.com, B&K Research 31

32 Getting the Early Bird Advantage SRIN s acquisition of land and projects at the right time has given it the early mover advantage. With major projectaccretiondonein andmajorexecutionperformedpostfy13(andstillcontinuing ),webelieve that SRIN is going to ride the execution wave! Strong timely acquisition track record Source: Company 32

33 Land acquisition timing With a strategic vision, it had bought the residential land for Signature Island on FSI basis at a premium to ready properties in nearby locations of Kalanagar, Kalina in 2006 with the help of private equity/quasi-equity money, at a time, when developers were only looking for commercial developments in BKC. Year later, it also bid for adjoining land parcels for Signia Isles and Signia Pearl in 2009 and 2010 at 3-4x of the bid for Signature Island to maintain its exclusivity. For Sunteck Avenue, SRIN acquired 23 acre land between 2010 to 2012 for ~Rs 4.5 bn. Initial launches at Sunteck Avenue 1&2 were made in 2012 at Rs 9,000/sq ft to test the market as compared to the current selling price of ~Rs 15,000-16,000/sq ft (almost up by 90%). In funding most land transactions, it roped in PE investors, which resulted in minimal investment from SRIN s side. These transactions demonstrate SRL s capability to identify attractive land parcels for future growth and get it funded through credible partners thereby ensuring growth with an asset light model. Details of major land deals by roping in credible investors Sr. no. Project Fund name Investment Year Amount (Rs mn) Year Amount (Rs mn) Exit 1 Signature Island India Reit July October ,400 2 Signia Isles Kotak REF November ,037 August ,401 3 Sunteck City: 3rd-5th Avenue Kotak REF December ,500 January 2013 to March 2016 ~2,700 Source: Company, B&K Research 33

34 Capital infusion, net debt reduced to 0.2x Fresh capital infused: The company recently raised over Rs 6.5 bn from global financial institutions through Qualified Institutional Placement (QIP) and promoter s capital infusion. Additionally, the balance sheet has gained further strength as net debt/equity has improved from 0.53x to 0.2x (post QIP). The QIP proceeds are to be partially used for debt repayment and remaining for growth and investment into business. Net Debt/Equity constant reduction x FY11 FY12 FY13 FY14 FY15 FY16 FY17 2HFY18 2HFY18 (post QIP) Serious Balance Sheet revamping expected to happen post QIP Source: Company, B&K Research Recently, the credit rating of SRIN was elevated to AA- from A+. While the net debt is already expected to reduce to 0.19x by FY18(E), the recent upgradation of credit rating further gives comfort in terms of the reduced cost of funding on the balance debt. (Rs mn) FY17 Gross debt 9,439 Cash 986 Net debt 8,453 Net worth 17,953 Net debt/equity (x) 0.47 Structural changes to lighten balance sheet (Rs mn) FY18 (E) Gross debt 5,500 Cash 800 Net debt 4,700 Net worth 25,000 Net debt/equity (x) 0.19 Source: Company, B&K Research 34

35 Other key highlights Commercial segment to be expanded: Management has indicated its intent to increase its share in commercial real estate. The Sunteck Brand specifically focuses on the commercial front. Out of the 23 acres ODC project, management has highlighted that some area has been kept for the commercial development. Out of the total developable area of 5.7 msf in Sunteck Avenue, it plans to develop around 2.6 msf (45.6% of total developable area in ODC) for commercial and retail purpose. Apart from above, it also plans to launch commercial and retail projects in Signia City Jaipur, Sunteck Crest Sion and Sunteck Icon & Gateway 51 at BKC, admeasuring a total of 6.1 msf of developable area (SRIN stake 3.1 msf). The current change in FSIs as per Mumbai DP-2034 will again be much more beneficial to SRIN, which marks majority of its presence in MMR. As per the DP, with respect to commercial developments, the new FSI are 5 in both Island city and suburbs, respectively (earlier 1.33 and 2.5 each). Apart from above, Fungible FSI for commercial has been increased from 20% to 35%. Asset light model via JDAs and JVs: We believe the JV/JDA model helps the company build a capital-efficient business by stripping away the investment on land purchase and allowing a greater focus on value addition. This enables the company to earn high RoE with low investment and at the same time maintaining low leverage and low cost of debt. SRIN has a good track record of procuring deals/lands, and executing projects through partnership with credible partners/financers. It had earlier acquired land parcels for Signature Islands (financier India REIT), Signia Isles (financier Kotak Realty Fund) and Sunteck ODC (financier Kotak Realty fund). Further, most of the projects are being developed with partners, like Piramal etc., which not only establishes the management s focus of asset light model and a low capital being blocked but also showcases its ability to rope in strategic and credible investors in its business model. 35

36 Project-wise NAVs Project Stage Type NAV (Rs mn) SRL share (%) SRL value (Rs mn) Multiple (x) Target value (Rs mn) Rs/Share Signature Island, BKC Completed Residential 9, , , Signia Isles, BKC Completed Residential 6, , , Signia Pearl, BKC Under Construction Residential 3, , , Sunteck City- Av 1, ODC Under Construction Residential 1, , , Sunteck City- Av 2, ODC Under Construction Residential 1, , ,326 9 Sunteck City- Av 3, ODC Under Development Residential 5, , , Sunteck City- Av 4, ODC Under Development Residential 5, , , Sunteck City- Av 5, ODC Under Development Commercial 17, , , Sunteck City- Av 6, ODC Under Development Commercial 17, , , Signia Waterfront, Airoli Under Construction Residential Signia High, Borivali Under Construction Residential 1, , , Sunteck Icon, BKC Under Development Commercial 1, Sunteck Gateway 51, BKC Under Development Commercial 1, Sunteck Kanaka, Goa Completed Commercial Signia Sky, Nagpur Completed Residential Signia Pride, Andheri Under Construction Residential Signia Hills, Andheri Under Development Residential Signia Gardens, Vile Parle Under Development Residential 1, , Sion Projects Under Development Residential 4, , , Signia Jaipur Under Development Commercial 6, , , South Mumbai Project 1 Under Development Residential 8, , , South Mumbai Project 2 Under Development Residential 5, , , Dubai project Under Development Mixed 6, , , Affordable Housing Under Development Residential 8, , , Net debt (Post QIP) 4,797 (33) Total

37 Real estate sector Holistic view and Outlook

38 Real estate sector In a turmoil? Sector undergoing structural changes: During the past few years, Indian real estate markets have seen a transformation and is being shifted gradually from a mix of organised and unorganised segment to a complete organised one. Multiple factors are impacting the real estate market being demonetisation, implementation of Real Estate Regulation Act (RERA), initiatives like Housing for All by 2022 under Pradhan Mantri Awas Yojana (PMAY), implementation of GST, etc. The sector has been lately facing sluggish pace of growth particularly categorised by weak launches, high unsold inventories at high prices, focus on offloading existing projects rather than launching new ones and ultimately, the market has seen a continuous dip in the past few years. No. of housing units launched and Growth in Top 8 cities No. of housing units sold and Growth Launches (No of houses in 000) (10.6) (27.7) (26.9) (41.1) Launches (Nos '000) Growth 0 (5) (10) (15) (20) (25) (30) (35) (40) (45) Growth (%) Sales (No of houses in 000) (6.7) (6.8) (17.4) Sales (Nos '000) Growth (5) (10) (15) (20) Growth (%) Source: Knight Frank Research, B&K Research 38

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

40 RERA Catalyst for real estate industry revival Enactment of Real Estate Regulation Act (RERA) Real Estate Regulation Act (RERA) came into effect from 1 st May, 2017 on the wake of home buyers being duped by unscrupulous real estate developers. RERA would protect Home Buyers and provide transparency between buyers, real estate developers and agents. Enacted with an objective of ensuring accountability towards allottees, protect their interest, infuse transparency, reduce frauds & delays and establish regulatory mechanism with a fast track dispute resolution mechanism. Key compliances under RERA Compliance Registration necessary for each project Details Every project (total developable area >500 sq mtrs / no. of apartments > 8) to be registered. Existing projects without Completion Certificate or Occupancy Certificate to register. Will result in more transparency as projects and developers come into compliance net. Regulatory authority established Real Estate Regulatory Authority established for protection of the stakeholder s interests, accumulating data at a designated repository and creating a grievance redressal system. Real Estate Appellate Authority (REAT) shall be the appropriate forum for appeals. Will deter unscrupulous developers from cheating and defrauding buyers. Title representation Disclosures on project status Informed changes Maintaining separate account Developer required to make a positive warranty on his right title and interest on the land, which can be used later against him by the home buyer in case of title defect. Buyers will be able to monitor the progress of the project on the RERA website. Will ensure timely completion of projects since real time status monitoring will be in place. Informing allottees about any minor addition or alteration and requiring consent of 2/3rd allottees about any other addition or alteration. 70% of the amount realised from buyers, shall be deposited in a separate bank account to cover the cost of construction and the land cost and shall be used only for that purpose. Source: Company, B&K Research Will control and check diversion of buyers funds. 40

41 and beneficial for established players like SRIN RERA to benefit established players like SRIN Exit of unorganized developers and consolidation in the market Gap creation opens up potential new markets Opportunities to acquire distressed projects Stringent compliance to lead to fewer new launches initially Time advantage as already implementing all norms Trust deficit in sector to reduce post RERA implementation Projects of reputable developers to see demand increase Increased transparency in sector leads to higher foreign investment through PE and REITs SRIN has in the past established partnerships with globally renowned investors Source: Company Recent enactment of RERA will definitely be a boost for the real estate sector as a whole. We believe that the streamlining and creating a regulatory legal framework in the real estate sector will definitely benefit players like SRIN. This act focussing on fair practices in the sector, will help in shifting the market share from the hands of unorganised players to organised players. As for SRIN, it has received RERA registration for all of its projects in which construction or sales are underway. For the projects which are under development, RERA registration shall be obtained once the construction starts/sales are made. 41

42 Real estate Revival on cards Signs of improvement in Real Estate market Consolidation to benefit large players With implementation of RERA, there might be temporary reduction in new launches across all cities as only those developers confident of meeting timelines will undertake new projects. It is evident that the enactment of RERA will bring consolidation to an otherwise fragmented sector. Unorgainsed players will be wiped out, either running into bankruptcy or unable to complete launched projects. More joint ventures/joint developments will be the order of the day with financially distressed developers being taken over by larger players to complete stalled projects and will present the industry with a fresh line up of competitors. Structural reforms to strengthen sector With structural reforms, like RERA, demonetisation, the much needed regulatory framework will come in place leading to more transparency in the sector. Projects of reputable builders will see an increase in demand and it will be more easier for these developers to attract strategic profitable partnerships. Completion of existing projects will be prioritised over launching new ones, with developers remodeling their business processes to streamline delivery, without stretching themselves too much in terms of debt. This will lead to revival of the lost faith and trust of buyers from developers and act as a trigger in demand. Demonetisation, sector to see some relief from black money Cash has always been the king for the real estate sector. Though demonetisation may have affected the sector negatively in the short run, but we believe that a reduction of investments from black money will eventually reduce land prices thereby making the end products more affordable to the consumers and keeping the prices in check. 42