Final Project Winter

8/2/2019 Final Project Winter

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1

SMT K.G.MITTAL INSTITUTE OF

MANAGMENT,INFORMATION &

RESEARCH

EQUITY ANALYSIS OF REAL ESTATE SECTOR

BY:

MR.PRANIT VASANT LAKDE

ROLL NO :37

MMS II(2010-1012)

SEMESTER IV


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DECLARATION

I Mr.PRANIT LAKDE hereby declare that the dissertation entitled EQUITY ANALYSIS OF

REAL ESTATE SECTOR submitted to Smt.K.G.Mittal Institute of Managment,IT & Research

in partial fulfillement for the award of the degree of MASTER OF MANAGMENT STUDIES

and that the dissertation has not previously formed the basis of the award of any

degree,Diploma.Associate ship,Fellowship or any other title.

Signature of the student

(Pranit lakde)


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ACKNOWLEDGEMENT

I wish to thank and express my gratitude to those who extended their valuable co-operation and

contribution towards the project, who took out of their busy schedule and provided easy access to

the information required.

I express my sincere thanks to the administration of Smt. K.G Mittal Institute of managment, IT

and Research, Mumbai, Director Dr. Bernadette DSilva ,the teaching and nonteaching staff,

computer lab assisstants who provided adequate support and facilities to accomplish my work of

data collection and completion of project research on time.

Also thanks to my friends and colleagues for their enduring patience and valuable criticism

which shaped the project well.


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EXECUTIVE SUMMARY

My topic contains the various issues in real estate sector related to various key players of realestate. It includes the introduction of real estate sector. The key growth sectors have been officedriven by need for IT space, residential space driven by increased ownership and retail mallsdriven by increasing spending power.

There are no monopolistic positions in real estate, as there are more players today in thedevelopment game.

The Indian real estate market, estimated by around $15 billion, is expected to continue growing at30% annually to reach $45-50 billion in 2010 and $90 billion in 2015.


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CONTENTS

SR NO SUBJECT PG NO

1 OBJECTIVE OF THE STUDY 6

2 SCOPE OF THE STUDY 7

3 LIMITATION OF THE STUDY 8

4 INTRODUCTION TO REAL ESTATE 9

5 GROWTH IN REAL ESTATE SECTOR 10

6 WHY IN VESTMENT IN REAL ESTATE

SECTOR

14

7 OPPORTUNITES FOR INVESTORS 16

8 TYPES OF REAL ESTATE 18


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EQUITY RESEARCH AND ANALYSIS OF

REALTY SECTOR

OBJECTIVESOFTHESTUDY:

The main objectives of the study are as follows:

To Study the REAL ESTATE Sector

To Analyze the Performance of Major Players in REAL ESTATE

To Suggest Top Picks from the Sector

To Study the Sectoral Outlook for Short and Medium Term


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SCOPEOFTHESTUDY:

The study is Limited to Real estate SectorThe Indian economy and the real estate sector in particular are high on its ride to prosperity. AsIndias economic growth curve rises, real estate India has emerged as one of the most appealing

investment areas for domestic as well as foreign investors. Indian real estate has huge potentialdemand in almost every sector, but especially commercial, residential, retail, industrial,hospitality, healthcare etc. But maximum growth is attributed to its growth from the booming ITsector, since an estimated 70 per cent of the new construction is for the IT sector.

Investment scenario has certainly undergone a paradigm shift in India. Gone are the days whenpotential investors used to sought after investment options like equity bonds and park money inshares where your return ranges between 5.55 to 6%. Data showcased by property surveys showthat returns from rental incomes on investment in commercial property in Indian metros, isaround 10.5%, the highest in the world.

RESEARCH METHODOLOGY:

Any effort which is directed to study the strategy needed to identify the problem and selecting of

best solution for better results is known as research.

A system of models, procedures and techniques used to find the results of a research

problem is called research methodology

This is a systematic way to solve the research problem and it is an important component

for the study without which researcher may not be able to obtain the facts and figures from the

employees.


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LIMITATIONS OF THE STUDY:

The study is limited to Realty Sectors Major Players only

Data was not available in case of newly listed Real Estate Companies

The suggestions given are based on Fundamental Analysis only

Time was limited


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INTRODUCTION TO REAL ESTATE

Real estate is a business, not a profession. Real estate is sometimes inaccurately spoken of as a

profession, but it is essentially a business. A profession applies science, art or learning to the use

of others, the profit to the professor or person applying it being incidental; whereas a business is

engaged in primarily for profit, and the profit is to the one engaging in the business.

A profession implies professed attainment in special knowledge. A person may engage in

business with or without special knowledge and no one else is concerned with the question

whether he has any knowledge of the business, because no one else is affected by the result. If he

is successful the rewards are his; if he fails he bears the loss. But let him attempt to practice a

profession and, if he be unskillful, others are directly affected, and the fact that his reward is

diminished thereby is merely incidental to the fact that others suffer.

Ethics of the business.But whether real estate be a business or a profession has no connection

at all with the body of ethics governing it.

Every business can be conducted upon a plane ethically as high as the ideals of any profession,and the men who have been conspicuously successful in the real estate business have attainedsuccess because they have applied to their business the highest ideals of commercial fair dealing.This does not mean that there is any ethical requirement for the seller or the purchaser to giveaway anything which belongs to him, or for either one to disclose to the other his necessity forselling or his requirements for buying; but the bargain having been made, it is absolutely

necessary that it be lived up to by both parties, according to its intent; and, if there be any doubtof the intent of the bargain as it is expressed in writing, that the spirit of the transaction be carriedout rather than that the catch words of a written instrument should govern. Cases are frequent ofmen who to their own detriment perform the thing which they have promised to do although notlegally obligated, and the bigger and more successful the man who makes the promise the moresurely will it be carried out. Important obligations are often incurred upon the mere promise of awell-known man to sell an important piece of property at a definite price, although no legal andenforcible obligation exist ; and the promise is always redeemed if it is made by a man whoknows the business, and it is redeemed not merely from altruistic motives, but also for purelybusiness reasons.Divisions of the business.The principal divisions of the real estate business are investment,

operation and agency. These differ from one another according to the aims of the personsengaging in them and the methods by which those persons expect to make their gains. Toconduct either of the first two divisions of the business, investment or operation, actual moneycapital is required. The most important capital in the agency business is the good will of itscustomers, and that can be husbanded, increased and made very valuable.


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GROWTH IN INDIAN REAL ESTATE

SECTOR:

INDIAN ECONOMY GROWTH

The housing and real estate boom in India is being driven by NRI inflows into India. In 2005, theinflow was 90,000 crores ($21 billion). For China, which was the second biggest recipient, thenumber was $5 billion.

The reason for heavy NRI investment into real estate is that they would like to have a long-termview into India, given the upcoming demographic dividend, and the overall growth prospects. So

they are buying and selling, creating the market. Additionally, it is the simplest (and safest) wayto get a foot in the door right now.

It also needs to bear remembering that land prices in India can only appreciate over the long run (high density, massive demand, growth concentrated in a few regions). Plus, zoning betweencommercial and residential areas in most high growth regions continues to be quite weak, andthat also pushes up demand significantly.

Future growth is going to be in India and China. China received lot of foreign funds, but Indiareceived less. All the development is taking place in India is from domestic Investment and littlebit Foreign Investment. There is lot of Black Money and NRI funds are flowing in Real Estate

business. Going forward MNCs and Foreign money is going to come to India. India is growing atthe rate of 8% PA, it would continue for at least next 10 years.In next 25 years China will havehighest GDP,followed by USA and India. So clearly Real Estate will benefit. In future, dont get

surprised if you see skyscrapers all over major cities in India. My suggestion to All NRIs is dont just buy Land/Flats/House by Ads, do proper research, take help from local people. IndianRegistration system is very inefficient, corrupt. If you want to buy Tajmahal, they are peoplewho can sell it you and register in your Name. And also many Land mafias, encroachments.Despite of all these, you can expect RealEstate a best Investment option.

First, the returns. As mentioned in the article, the returns doesnt justify such a riskyinvestment. The rule of the thumb in US is, the house price must be 11-12 times the annual rent(PE of approximately 12). If it is more than that the interest rate would kill the returns. So, forthe 7K rent, the reasonable price would be around 10 lakhs.

Second, affordability. In US, anything above 3-4 times the annual salary of the intended targetbuyers is considered expensive. Thus, if you are buying an average middle class house, payinganything above 10 lakhs (assuming that middle class average salary is around Rs.20K/month) isa risky venture for resale. And if you are buying a house for 50lakhs make sure there are enoughguys who earn a salary of Rs 1 lakh per month who would love your house and its location.


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Third, high variation. In Chennai, for example, a lot of properties are still available for Rs.500/sq ft (around 30 km from City), while property prices in some parts of the city are aboveRs.10000/sq ft. This is due to lack of infrastructure development. In five years down the line, if

the infrastructure improves and transportation gets better, people paying the 10K/sq ft wouldmove out of the city, and those high priced properties would deflate.

Fourth, risk component. While other forms of investments have very little loan component,house investments are almost financed by 80%+ loans and thus presents a huge risk, if theproperty tanks by even 10%. If the banks raise their rates OR property market cools OR ifsalaries get flatter, a lot of bankruptcies could happen for those who bought on rosy expectations.

Let us make some assumptions about growth. Real GDP is growing at 8% and inflation iscurrently at 7-8%. let us assume that 6% real growth is sustainable for the foreseeable future(conservative assumption) and let us say that 4% inflation is sustainable (again conservative). So,

g=10%. Interest costs are 8% and let us say that we have further 5% maintenance and upkeepcosts (to offset depreciation) and taxes (to put that in perspective, we are talking about somethinglike Rs. 135,000 per year, no mean sum. That puts k (cost of capital) at 13%. Plug in the numbersand you get a PE of 33. Multiply Rs. 84000 (annual rent) by 33 and you get Rs. 27,72000! Ofcourse, I played with the numbers a little. But they are all within the bounds of plausibility.

The biggest problem in Indian market is a huge variation in city and suburban markets and this isset to even out in the future. For eg, recently a lot of hotels companies have started to move toNoida when it offered land at less than 1/40 than DDA offerings. As infrastructure develops theprime city properties are going to cool down (like what we had in LA, SD and Florida realtymarkets that are collapsing from over-heating) and these virgin lands might hotten up.

And another factor is the over zealous IT guys. India has been growing at 7% for the last 10years, but only in the last 2 years Im seeing the huge property growth, while in the period from

1994-2004 the property prices were growing with inflation. So, this time it is more of hype thana reflection of the GDP growth. There is a lot of hot money and too young people, who dont

know what to do with. And NRIs with fat pockets are joining the game.

In the foreseeable future, commercial property - hotels, retail and office segments will grow atthe rate of Indian growth, while residential properties might be lucky if it avoids what US hadbeen undergoing now.

Union Minister of Commerce and Industry, Mr. Kamal Nath said that rapidly increasing realestate sector signifies the varying face of India, while addressing NATCON (National

Convention) 2008. He said that in recent years service sector has directed Indian economy.

Considering the recent economy growth, Mr. Kamal spoke on the requirement of creating

international standard infrastructure and housing facility to carry on the growth rate projected in


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the 11th Five Year Plan. The Real Estate Development sector has the capacity to pay for itself

without straining the limited resources of the State Government, Shri Kamal Nath stated.

Mr. Kamal Nath further said that we have already opened construction development sector forFDI and the policy permits wholly owned subsidiary in this sector in India by a foreigncompany. Of course, there are conditions regarding minimum area for development andminimum capitalization to be brought in by the foreign investor. A number of global playershave entered the Indian market. Growth and investment have also created opportunities forinvestment in real estate sector, he said. Further he included that the Govt. is playing its part asthe launch pad to the development process and the private sector participation is required tobring technical and managerial expertise in delivering good quality mass housing projects.

The fact that many State governments are joining hands with private entrepreneurs inresolving the acute housing problem in urban areas is a good step in this regard. The privatesector and Government has to work in tandem towards a common goal. It is equally important toaddress the institutional and regulatory aspects as well as strengthen and expand the capacity offinancing institutions for further growth of the sector. Over the past decade, India has emerged asa leader in the global economy. It is a magnet for foreign direct investment (FDI), and hasdisplaced Mexico as the third most preferred country for foreign investment. FDI in India isexpected to increase to US$15 billion this year, triple the 2004 figure. Many foreign companiesare starting or expanding operations in India. One-fifth of all Fortune 500 companies includingEli Lilly, General Electric, and Hewlett Packard have set up research and development facilitiesin India. The surge in foreign investment, more joint ventures between Indian and foreigncompanies, and the growth of Indias domestic industries have created more employment

opportunities for Indias young, highly educated, professional workforce and fueled the growth

of the countrys middle class.

Advantage India: Real estate is one of the fastest growing sectors in India. Market analysis pegsreturns from realty in India at an average of 14% annually with a tremendous upsurge incommercial real estate on account of the Indian BPO boom. Lease rentals have been picking upsteadily and there is a gaping demand for quality infrastructure. A significant demand is alsolikely to be generated as the outsourcing boom moves into the manufacturing sector. Further, thehousing sector has been growing at an average of 34% annually, while the hospitality industrywitnessed a growth of 10-15% last year.

Apart from the huge demand, India also scores on the construction front. A Mckinsey reportreveals that the average profit from construction in India is 18%, which is double the profitabilityfor a construction project undertaken in the US. The importance of the Real Estate sector, as anengine of the nations growth, can be gauged from the fact that it is the second largest employer

next only to agriculture and its size is close to US $ 12 billion and grows at about 30% perannum. Five per cent of the countrys GDP is contributed by the housing sector. In the next three

or four or five years this contribution to the GDP is expected to rise to 6%.


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Key Growth Drivers: The propellants for the real estate sector are:

Growth of India's middle class creating demand for housing.

Strong demographic impetus: India has the second largest population in the world and thegrowth rate of population is still rapid.

Rising FDI levels has increased commercial space requirements by foreign firms. Expansion of organized retail sector. Easy availability of finance.


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Why Investment In Real Estate Sector:

The Indian economy and the real estate sector in particular are high on its ride to prosperity. AsIndias economic growth curve rises, real estate India has emerged as one of the most appealing

investment areas for domestic as well as foreign investors. Indian real estate has huge potentialdemand in almost every sector, but especially commercial, residential, retail, industrial,hospitality, healthcare etc. But maximum growth is attributed to its growth from the booming ITsector, since an estimated 70 per cent of the new construction is for the IT sector.

Investment scenario has certainly undergone a paradigm shift in India. Gone are the days whenpotential investors used to sought after investment options like equity bonds and park money inshares where your return ranges between 5.55 to 6%. Data showcased by property surveys show

that returns from rental incomes on investment in commercial property in Indian metros, isaround 10.5%, the highest in the world.

Key Facts

1. Selling and buying Indian property is now considered as the most profitable and attractivebusiness opportunity in the present real estate scenario in India. New demands have added tostrength of real estate markets across the commercial, residential and retail sectors in India. Notsurprisingly, demand for Indian property has been increasing steadily for the past few years and

it has exceeded supply. There has also been an upward swing on the real estate price values inthe recent years. Due to the huge demand and rising prices, investment and speculative interest inreal estate is growing while excess money supply, stock market gains and policy changes areadding to the trend in favor of the real estate sector.

2. In the last one year, the capital values of the commercial office spaces has increased by up to40% owing to the increase in the demand from IT / ITES and BPO sector across major metros inIndia.

3. India has a distinct regulatory and financing management in place.

4. Real estate boom in India is supported by its own flourishing economy on a sustainable basis.Here, growth of the property market is not a result of renovation and overhauling; but rapiddevelopment that witness for India riding the high growth wave.


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Factors Favoring Investments:

Tremendous growth has been taking place in both residential as well as commercial segments

that is attracting huge investments phenomenal price escalation (more than 100% in severalplaces) in last couple of years.

Lower interest rates, easy availability of housing finance, burgeoning income and better jobprospects, increase of nuclear families have given a boost to the demand for residentialproperties in India. The net yields (after accounting for all outgoings) on residential property arecurrently at 4-6% p.a. However, these investments have benefited from the improving residentialcapital values. As such, investors can count on potential capital gains to improve their overallreturns. Capital values in the residential sector have risen by about 25-40% p.a in the last 2 years.

The retail market in India has been growing due to increasing demand from retailers, higher

disposable incomes and opening up of FDI in Retail. The capital appreciation in this sector isclose to 20-35% p.a. However, the risks associated with this sector are higher as retailers areprone to cyclical changes typical of a business cycle. Changing consumer behavior combinedwith increasing disposable incomes will ensure further growth of the retail sector in India.

In the present day scenario, if there is any powerful investment tool that brings burgeoningfinancial returns, it is INDIAN REAL ESTATE!!! Investors should consider the parametersminutely and meticulously to find out why investing in Indian real estate now is the best viableoption.


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Opportunities for Investors in Indian Real

Estate :

India in the recent times has been the potential goldmine for investors all over the world. With abooming economy and liberalized government policies, investors from all over the globe arechoosing India as their business destination.

As Indian real estate rules the economic vibes of the country, the most important beneficiary ofthe recent boom in this sector is the investors. Driven by positive growth in the real estatescenario and the Government of Indias decision to allow100% foreign direct investment (FDI)under the 'automatic route' in the construction and development there has been a significant risein the number of Indian as well as foreign investors in the realty sector.

While top developers in India like the DLF, Ansal, Omaxe, Sobha Developers, Bengal Ambuja,Unitech, Vatika and Sahara Infrastructure among a few have initiated large scale real estatedevelopments in the residential sector catering to all segments of the society. With morecorporate houses entering real estate, a corporatisation of real estate can be witnessed.

Real estate is much more professionally managed with a number of big players (developers aswell as corporates) entering the business. There are no monopolistic positions in real estate, asthere are more players today in the development game. The greater the number of players, thehealthier the competition and the beneficiary of all this would at last be the end-user.

In the residential segment, with the increase of disposable incomes and easy availability of homeloans, most builders are trying to woo investors with lucrative features and the latest inclusionsare premium luxury apartments and condominiums fitted with the most modern accessories inhome luxury.

The commercial ventures include state-of-the-art office spaces, sprawling malls, multiplexes andretail outlets. Reports indicate that around 200 new malls with a combined retail space of Rs.2.5crore/sq.ft and investment of Rs.12.500 crore are expected to come up in this year.

The boom and the relaxation in FDI are also attracting interest from foreign investors to invest inIndia and many are seen tying up with the local developers in expanding their business. As the

competition in the market is intense, builders are going out of their way to be different andprovide quality services.

Major real estate investors in the foray Emmar Properties, of Dubai one of the largest listedreal estate developer in the world has tied up with the Delhi-based MGF Developments toannounce India's largest FDI in the realty sector for mall and other facilities in Gurgaon. On theother hand, in a recent development DLF and UK-based construction major, Laing O'Rourke(LOR), has joined hands for participation in airport modernization and infrastructure projects.
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Again, Morgan-Stanley Real Estate has announced that its investment of around US$ 68 millionin Mantri Developers Private Ltd, a private Bangalore-based real estate developer. DB Real

Estate, a unit of Deutsche Bank AG, has set up plans to start a global fund that will invest asmuch as US$ 300 million in India to tap an expected surge in demand for property.

Vancouver-based Royal Indian Raj International Corporation (RIRIC) will invest a whoppingUS$ 2.9 billion in a single real-estate project named Royal Garden City in Bangalore. Estimatedto be of retail value Rs 41,000 crores, this project is to be completed in period of 10 years.Indonesia-based Siputra Selim group is slated to invest $200 million into the housing sector inKolkata.

Indiabulls Real Estate (IREL) is proposing to enter into arrangements with Dev PropertyDevelopment, a company incorporated in the Isle of Man, whereby Dev shall subscribe to new

shares and also acquire a minority shareholding from the company, in Indiabulls Property(IPPL), Indiabulls Real Estate (IRECPL) and Indiabulls Infrastructure Development (IIDL). Devhas completed an initial public offering of its ordinary shares for a total amount of Rs 12 billionor GBP 138 million and shall be listed on the alternative investment market of the London StockExchange.

As the real estate investments open up opportunities for the associated fields like Home Loansand Home Insurance, a number of global insurance companies have shown interest in thesector. This include companies like Cesma International from Singapore, American InternationalGroup Inc (AIG), High Point Rendel of the UK, Colony Capital and Brack Capital of the US,and Lee Kim Tah Holdings to name a few.
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Types of Real Estate:

Retail Real Estate:

Retailing in India continues to be a booming industry. The Indian retail sector has seen stronginterest from global players as well as Indian companies particularly since the governmentopened the doors for FDI in single-brand retail in Feb this year. According to this years GlobalRetail Development Index by A.T. Kearney, India is positioned globally as the leadingdestination for retail investment.

Retail is already Indias largest industry, accounting for over 10.0% of the

countrys GDP and around 8.0% of the employment. Expected growth is at 32.0% CAGR over

the next ten years to reach a size of USD 60 billion by 2015. While India already has the highestretail outlet density in the world with the unorganized sector contributing a major chunk (98.0%),the modern retail sector is emerging in India with an increasing trend towards multi-storey malls,

supermarkets, hypermarkets and convenience stores.

Housing Real Estate Demand:

Several factors including rapid population growth, rising incomes, emergence of nuclearfamilies, tax incentives, availability of home loans at competitive rates are responsible for thegrowing demand for houses and hence extensive residential construction. There is currently ashortage of around 20 million units and the demand is expected to rise in the forthcoming years.The current scenario is very conducive for investment in the housing real estate sector.

Corporate Real Estate:

It sets the corporate image, impacts a companys performance and worker productivity and is thesecond largest expense in most income statements. Effective CRE executives strive toproactively and strategically support the core business, align their organizations and operationsto rapidly changing corporate mandates and deal with a constant stream of small and large issuesall requiring immediate attention. Among the ongoing challenges faced by CRE executivesare: improving department and operating performance, lowering costs, time pressured decisionmaking, managing complex vendor relations, and never-ending compliance concerns.


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Real Estate FDI

India of today can be acknowledged as the one of the fastest growing economy in the world andin this current economic status, real estate has emerged as one of the most appealing investmentareas for domestic as well as foreign investors. And this high growth curve in the real estatesector owes some credit to a booming economy and liberalized Foreign Direct Investments (FDI)regime in the real estate sector.The Government of India in March 2005 amended existing norms to allow 100 per cent FDI inthe construction business. This liberalization act cleared the path for foreign investment to meetthe demand into development of the commercial and residential real estate sectors. It has alsoencouraged several large financial firms and private equity funds to launch exclusive fundstargeting the Indian real estate sector.

Until now, only Non Resident Indians (NRIs) and Persons of Indian Origin (PIOs) were

permitted to invest in the housing and the real estate sectors. Foreign investors other than NRIswere allowed to invest only in development of integrated townships and settlements eitherthrough a wholly owned subsidiary or through a joint venture company in India along with alocal partner.

Some of the foreign players who have already tied up with Indian real estate developers are LeeKim Tah Holdings, CESMA International Pvt Ltd., Evan Lim, and Keppel Land from Singapore,Salim Group from Indonesia, Edaw Ltd., from USA, Emaar Group from Dubai, IJM, Ho HupConstruction Co., from Malaysia etc.

Indian Real estate is on the high growth path

In 2003-04, India received total FDI inflow of US$ 2.70 billion, of which only 4.5% wascommitted to real estate sector. In 2004-05 this increased to US$ 3.75 billion of which, the realestate shares was 10.6%.

However, in 2005-06, while total FDIs in India were estimated at US$ 5.46 billion, the real estateshare in them was around 16%. The Study, nevertheless projects that in 2006-07, total FDIs willtouch about US$ 8 billion in which the real estate share is estimated to be about 26.5%.


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Source: ASSOCHAM report

Guidelines for FDI application in Indian real estateThe Government of India has set up certain guidelines for investors willing to apply in FDI inreal estate, which have conditions like area, investment options and target for completion of aproject.

1) Minimum area:

In case of development of serviced housing plots, 10 hectares (25 acres)

In case of construction-development projects, built-up area of 50,000 sq m.

In case of a combination project, any of the above two conditions

2) Investment:

Minimum capitalization

for wholly owned subsidiaries - US$ 10 million

for JV with Indian partners - US$ 5 million, to be brought in within 6 months ofcommencement of business


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Original investment cannot be repatriated before a period of three years from completion of

capitalization.

The investor may exit earlier with prior approval from Foreign Investment Promotion Board

(FIPB).

3) Time frame & rules:

At least 50 per cent of the project to be developed within five years from the date of obtainingall statutory clearances.

Investor cannot sell undeveloped plots - where roads, water supply, street lighting, drainage,sewerage and other conveniences are not available.

REMF and REIT

One of the most anticipated promises for the Indian real estate sector, which in turn will benefitdevelopments of hotels, has been the entry of Real Estate Mutual Funds (REMFs) or Real EstateInvestment Trusts (REITs).Industry experts believe that REMFS and REITS will definitely ensure more availability of fundsto the developers and faster growth of real estate sector. A few real estate entities like HDFCReal Estate Fund, ICICI-Tishman Speyer, Ascendas India IT Park Fund, Kotak Mahindra RealtyFund, IDFC, and Edelweiss Capital have received approval and started investing in real estate.

FDI in Indian Real Estate and Economic Growth:

With this change in the government policy on FDI, all real estate sectors, residential,commercial and retail are currently witnessing huge growth in demand. India, during the firsthalf of 2005-06 fiscal has attracted more than three times foreign investment at US$ 7.96 billionduring making it amongst the "dominant host countries" for FDI in Asia and the Pacific (APAC).

India in the next five-year period is estimated to require investments worth US $ 25 billion withthe urban housing sector. This again has opened up opportunities for foreign investments in therealty sector. The Central government allowed up to 100% FDI for setting up townships in 2002.However, the flow of FDI investments has been thwarted by the 100 acre criterion; sinceacquiring such a large chunk of land was impossible in metropolitan cities and even satellitecities and state capitals.

But a landmark decision taken by the Union government in 2005, where the minimum land areafor development by foreign investors was lowered from the earlier floor of 100 acres to 25 acreshas thrown open the lucrative parts of the Indian realty market to global investors. Anotherperceptible spin-off of the easing of FDI policies will be the impact on quality and inevitableacceleration in construction activities.


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Foreign Direct Investments in the real estate sector in India would also contribute towardsmaking the sector more organized. Besides increasing professionalism in the sector, it wouldbring in advanced technology and help in the creation of healthy and competitive marketenvironment for both domestic and foreign investors.


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EXISTING TOP PLAYERS IN REAL

ESTATE INDUSTRY

Followings are the existing players in the Indian real estate industry:

DLF

Oberoi Realty

HDIL

Godrej Properties

Indiabulls Real estate

Prestige Estate

Sobha Developers

Omaxe

Anant Raj Industries

Parsvnath developers


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FINANCIAL ANALYSIS OF TOP

EXISTING PLAYERS:

MARKET CAPITAL OF TOP EXISTING PLAYERS:

MARKET CAP. (RS. CRORE) NET

PROFIT

TOTAL ASSETS

DLF33,985.39 1269.58 28,870.03

HDIL4857.62 897.36 13,832.47

Godrej properties4,817.21 106.15 1,701.00

Prestige Estate3,644.90 - -

Indiabulls Real

3,313.94 45.81 6,526.27

Sobha Developer2,288.32 182.40 3,067.59

Omaxe2,217.32 62.51 2,942.10

Parsvnath1,982.25 75.48 3,801.73

Anant Raj Ind 1,873.86 167.47 4,563.21

Oberoi Realty7,551.01 - -


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P/E ratio of the Each Security:

Name of Company P/E

DLF29.46

Oberoi Realty30.03

HDIL5.54

Godrej Properties60.07

Prestige Estate16.94

Indiabulls Real74.10

Sobha Developer12.79

Omaxe 39.07

Anant Raj Ind 14.46


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EPS History of Various Real Estate

Companies in last 3 Years

Name of Company 2009 2010 2011

DLF9.12 4.51 7.48

Oberoi Realty- - -

HDIL 30.14 16.78 21.62

Godrej Proper12.37 17.44 15.21

Prestige Estate- - -

Indiabulls Real0.11 0.39 -

Sobha Developer15.04 13.94 18.61

Omaxe4.50 5.23 -

Parsvnath6.12 6.74 -

Anant Raj Ind

12.40 8.04 5.68


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Overall sales of real estate developers

improved in FY10:

Large sized real estate companies experienced maximum growth in sales of 94% and 85% inFY07 and FY08 respectively compared with peers, followed by a decline of 39.5% in FY09 anda minimal growth of 2% in FY10 demonstrating slowest recovery.

Mid-sized companies had a growth of 80.35% and 68.99% in sales in FY07 and FY08 followedby a decline of 22.2% in FY09. However, these companies displayed better recovery in saleswith growth of 16.11% in FY10 compared with large and small peers.

Small-sized companies grew 93.7% and 72.7% in FY07 and FY08 respectively but suffered the

most in FY09 with their sales declining 45.5% compared with mid-size and large companies. InFY10, small companies registered a growth of 3.3% in sales.


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Total income grew in line with sales in the past five years. In FY07, total income grew at 92%followed by 84% growth in FY08. In FY09, total income declined 31% and the declinenarrowed to 1% in FY10.

In FY08, real estate companies generated 6% of total income from other income comprisingincome from financial services and prior period, extraordinary and other income. It increased to16% in FY09 and then dropped to 12% in FY10. Growth in the other income segment was 80%in FY07, 117% in FY08 and 78% in FY09 followed by 24% decline in FY10.

In FY08, growth in total income of mid-size companies was driven by other income. Otherincome grew more than nine times compared with the previous year. The proportion of otherincome to total income also increased from 2.5% in FY07 to 13.5% in FY08, which led toincrease in total income.

In FY10, vis--vis growth in sales, total income of large and small companies declined. Otherincome of these companies declined significantly by 27% and 60% respectively, leading to adecline in total income. In FY09, other income constituted 16% of total income of smallcompanies which reduced to 7% in FY10.


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Decline in profit continued in FY10:

Along with growth in sales, net profit of real estate companies also grew. Companies generatedprofit at a growth rate of 216.98% and 132.82% in FY07 and FY08 respectively. Small

companies recorded maximum growth in profit in FY07 at 315.64% followed by mid and largecompanies with growth of 268.78% and 203.5% respectively. In FY08, large companiesrecorded the maximum growth of 139.41% followed by midsize companies with 120.47% andsmall companies with 79.06% growth.

Total income of realty companies declined 31% in FY09, in line with the fall in net profit of42.86%, whereas total expenses of the sector registered a 24% decline despite an increase of73.5% in interest expense.


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Although PAT of the surveyed companies grew at a CAGR of 33% over FY06FY10, thesecompanies registered a 25.79% decline in profits in FY10. Mid-size players performed better,recording PAT growth of 7.3% versus large and small peers; PAT of which declined 30.6% and36.8% respectively. This trend was in sync with total income, where mid-size companiesrecorded a growth and large and small companies registered a decline. The setback inperformances of real estate companies is attributable to the sudden slump in demand thataffected sales, in turn constraining expansion plans of real estate players.

The financial crisis had impacted margins of real estate companies. NPM stood at 17% in FY06and grew to 28.1% in FY07and reached 35.5% in FY08 owing to growing income and rise inproperty prices. In addition, growth in income outpaced growth in expenses. However in FY09,sales and property prices declined sharply resulting in NPM declining to 29.4%. The decline inincome was greater than the decline in expenses. This is attributable to high raw material as wellas interest expenses. Debt had grown at 52.12% CAGR whereas interest expensehad grown at83.4% CAGR. Total expenses grew at 9.9% as against a 1% decline in total income, leading toNPM decreasing to 21.9% in FY10. Even though interest expenses reduced as debt levels didnot increase significantly, the drop in NPM is primarily impacted by rising raw materialexpenses.


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NPM of all companies decreased irrespective of revenue size. As on Mar 10, the NPM for large,mid and small companies was 21%, 27.7% and 17.9% compared with 29.4%, 30.3% and 26.4%respectively during FY09.


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Overall EBITDA margins declined 10

percentage points in FY10

From FY06-FY09, real estate companies collectively registered continuous growth in EBITDAmargin from 28% in FY06 to 62% in FY09. However, these companies registered a decline inEBITDA margin by 10 percentage points in FY10. This is attributable to a 1% decline in totalincome and rising price movements in crucial raw materials such as cement, steel and aluminumthat led to 23.5% growth in raw material expenses, which contributed 16.75% of total income.

EBITDA margin, a measure of profitability and importantly efficiency, is a key metric forvaluing a company in a leveraged buyout and for measuring cash flow.

Further, the study revealed that small companies lagged behind peers. In FY10, EBITDAmargin of small companies stood at 33% as against the industry aggregate of 52%. To cope withcompetition and expand their presence small companies focused more on advertising and

marketing. In FY10, while advertising expenses of large and mid-size companies reduced 35%and 6.3% respectively, that of small companies increased 32.5%.


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Raw material and interest expenses

contributed more than 50% of total expenses

in FY10

High operational cost has been identified as a major reason for impacting growth and margins of

the real estate industry. Overall expenditure of companies for FY09 was 118.9 bn compared

with 130.62 bn in FY10. It increased 9.9% overall with the increase being 8.4%, 21.7% and

3.97% in case of large, mid-size and small companies respectively. Interest and raw materialexpenses are the two major components which together accounted for more than 50% of totalcost of these companies in FY10.

During FY09 and FY10, interest expense of companies was the highest cost input and it formed

25% and 22.7% respectively of total income. Companies also spent heavily on raw material at

28.25 bn in FY10 versus 22.87 bn in FY09.

Depreciation accounted for 1.76% of income amounting to 2.96 bn in FY10. Depreciation has

risen due to increasing fixed assets of companies. Gross fixed assets grew at a five-year CAGRof 48.23% with maximum growth in assets in FY07 and FY08 of 101.08% and 87.43%respectively. Due to the credit crunch in FY09 as a result of the financial crisis and volatilecapital markets, companies invested in fixed assets at a slower rate of 15.9% and 10.48% in

FY09 and FY10 respectively. In FY10, depreciation formed 2.3% of total expenses.Depreciation expenses of large, mid and small companies increased 3.2%, 50% and 11.1% inFY10 compared with 76.5%, 8.8% and 69.4% respectively in FY09.


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In FY10, raw material constituted 21.6% of total expenses versus 19.24% in FY09. Rawmaterial expenditure of real estate companies grew 23.5% in FY10 versus 18% decline in FY09.As prices of raw materials such as steel, aluminum and cement increased in FY10 as against adrop in FY09.

Dwindling revenue due to the lag effect of recession made companies adopt various cost-cuttingmeasures to register better profits. As a result of these measures, compensation to employeeexpense came down 7.2% in FY10. Owing to decline in profit, both large and small playersregistered a decline in compensation to employees of 8.9% and 5.2% respectively in FY10. Asonly mid-sized players registered growth in profit in FY10, compensation to employees of thisset of players increased 5.6%.


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The D&B study reveals that from FY06 to FY10, real estate companies have reduced theirspending on advertising and marketing, except in case of small players. Advertising andmarketing spend of small players as a percentage of total expenses increased from 2.9% inFY06 to 3.8% in FY10. As large and mid-size players are better established compared withsmall players, they reduced their advertising expenses.

Interest expense has been a burden on real estate companies with these expenses growing at ahigher pace compared with any other component. Interest expense of overall real estate

companies, however, decreased 10.2% in FY10. This is a result of capital restructuringundertaken by way of replacing costlier short term loans with long term ones and raising equityat a faster pace and bringing debt-equity ratio down.

In FY10, however, only mid-size companies have seen an increase in interest expense by51.9%. The increase in interest expense is attributable to higher debt levels which grew 16.36%over previous year. The increase in debt is to foster expansion plans, reopen stalled projects andlaunch new projects on better recovery in sales and profits. Further, short-term loans, which arerelatively more expensive, constituted 21% of total borrowings for mid-size companies and

totaled 5.47 bn in FY10.

Large and small companies, on the other hand, recorded 13.5% and 1% decrease in interestexpense. In case of large companies, this decrease was largely due to a reduction in therelatively expensive short-term borrowings of 46% in FY09 and 44% in FY10. In case of smallcompanies too, short term borrowings decreased 19% in FY09. Overall debt of large and smallcompanies increased just 3.09% and 9.54% respectively in FY10.

Noticeably, the share of interest expenses as part of total expenses reduced to 29.3% in FY10from 35.8% in FY09 (the highest in the past five years). The share of interest expense in total


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expense for large-size, mid-size and small-size companies was 32.7%, 16.8% and 10.3% inFY10 against 40.9%, 13.4% and 10.8% respectively in FY09.


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Small-size and mid-size companies have a

better Interest coverage ratio

During FY06FY08, business flourished, resulting in high operating income of which interestexpense formed a small portion. Operating income grew at a faster rate compared with interestexpenses during this period. As a result, real estate companies could service interest easily asoperating income generated was around five times the interest expense.

Interest coverage ratio is calculated by dividing a companys profit before interest and taxes(PBIT) by interest expenses paid for the same period. It helps determine how easily a companycan pay interest on outstanding debt from its operating income.

Real estate companies generated operating income at a diminishing rate while incurred interestexpenses at an increasing rate which resulted in a downward trend in interest coverage ratio

between FY06-FY10.

In FY09, the global financial crisis hit the real estate sector hard, resulting in a credit crunch that

led to decreased demand. This resulted in reduced sales and pile up of debt, leading to increasedinterest costs. Due to decline in operating income by 22% and increase in interest expense by73.5% in FY09, interest coverage ratio suddenly slipped from 5.35 in FY08 to 2.38 in FY09. Inaddition, 16.4% decline in operating income outpaced 10.1% decline in interest expenses inFY10 which further brought the ratio down to 2.21. During FY06-FY10, operating income grewat a five-year CAGR of 45.62% whereas interest expense grew at a fiveyear CAGR of 83.35%.


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Small-size and mid-size companies have sustained a higher ratio compared with largecompanies. This is because large companies have higher debt levels in respect to revenue.


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Small-size companies reported highest

inventory turnover in FY10

During FY06-FY08, as property market was attractive companies experienced flourishingbusiness. As a result of strong sales during this period companies invested significantly ininventories such as projects-in-progress, land etc. Inventory grew at 153.9% in FY07 and 70.5%

in FY08 totaling to 304.8 bn whereas sales grew at 93% in FY07 and 82% in FY08 totaling to

228.15 bn. Thus the inventory turnover ratio stood high at 0.92, 0.70 and 0.75 in FY06, FY07

and FY08 respectively. Decline in sales and growth in inventory reserves at 20.4% led to a dropin inventory turnover ratio to 0.39 in FY09 indicating oversupply of commercial and retailspace. Similar trend continued in FY10 wherein 10% growth in inventory outpaced 4% growthin sales bringing the ratio further down to 0.37 demonstrating blocked cash in excessiveinventory investment as well as higher holding cost of inventory to be sold.

Inventory turnover ratio shows how many times a companys inventory is sold and replacedover a period. It is calculated by dividing sales by inventory. Inventory comprises of flats, land,projects-in-progress, and construction materials among others. A low turnover implies poorsales and, therefore, excess inventory whereas a high ratio implies either strong sales orineffective buying

In FY10, mid and small-size companies performed better with a higher ratio of 0.59 and 0.65respectively compared with 0.33 of large companies. Thereby it is observed that largecompanies have procured a large amount of inventory which grew at 10% as compared to 2%growth in sales. On the other hand, small and mid size companies have experienced 1% and 5%


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growth in inventory as compared to the sales growth of 3.3% and 16% respectively indicatingbetter inventory management with a comparatively lower holding cost.


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Real estate developers record steep decrease

in short term debt

In this study, short-term borrowings have been calculated as a sum of short-term bankborrowings, commercial papers and other borrowings. Long-term borrowings have beencalculated by subtracting short-term borrowings from total borrowings.

Real estate companies increased their debt over the past five years at a diminishing rate. In theboom period from FY06 to FY08 companies acquired excessive debt to expand operationsscale. In FY07, long-term debt, which constituted 87.6% of the total debt, grew substantially by174%. Short-term debt, which constituted 12.4% of total borrowings, grew 137%.

In FY08, the debt structure changed as companies obtained more short-term loans, which thenconstituted 41.8% of total loans and grew 4.94 times from FY07. Large real estate developersincreased short-term debt 6.28 times as opposed to mid and small-size companies, whichincreased their short-term loan base by 4% and 33% respectively in FY08. Growth in long-termloans for all real estate companies was slow at 17% in FY08 and constituted 58.18% of total

loans.


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The study reveals that there was an overall decline of52.25 bn in short-term loans by 41%whereas additional long-term loans worth 78.7 bn were obtained (an increase of 44%) during

FY09.

In FY10, the same trend continued with short-term loans decreasing 41% and long-term loansincreasing by 17% and constituting 87.14% of total borrowings. Most real estate companies inthe study restructured debt during this period. In FY09, interest rates had fallen; therefore, bygetting rid of short-term loans which normally come at a higher interest rate and shifting to low-cost long-term loans, companies attempted to cut interest costs.


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High interest expense as a percent of debt

continues to be cause for concern

With cumulative total debt and interest cost growing every year, interest expense of real estatecompanies as a percent of debt increased significantly from FY06 to FY09.

A noteworthy growth in short-term and long-term loans had led to a substantial pile up of total

borrowings in FY08, which totaled to 304.48 bn. This resulted in interest expense growing

110% to 24.54 bn. Consequently cost of debt increased to 8% in FY08.

Rapidly growing interest expense has always been a concern for real estate companies. In FY09,

tough liquidity conditions saw interest expenses of these companies increase further by 73% to

42.57 bn as long-term loans grew 44%, coupled with sizeable short-term loan reserves, even

though short-term loans reduced 41%. Total FY09 borrowings stood at 330.93 bn. Mobilising

sufficient equity in unsteady markets was a constraint and therefore companies borrowed fundsto finance their needs. As a result, cost of debt reached at an all-time high of 13% in the pastfour years.

To curb increasing interest costs, short-term loans, which normally come at a higher cost, werefurther reduced by 41% in FY10 and the comparatively less costly long-term loans were

increased by 17%. Total borrowings in FY10 amounted to 344.61 bn whereas interest expense

declined 10% to 38.24 bn resulting in reduction in interest expense as a percent of debt to


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11%. Mid-size companies were an exception as they faced an increase in cost of debt, whichstood at 12% in FY10. This is explained by increasing interest expenses at 51% in FY10.

Debt-equity ratio declines owing to a larger

equity base

Debt-equity ratio for real estate companies dropped considerably over FY06FY10. During

FY06FY08, companies had a huge debt pile-up of304.48 bn with a relative equity base of

351.85 bn in FY08. However, these companies infused equity at a much faster rate than debt inthe past five years, which resulted in a steep fall in debt-equity ratio. In FY10, although the

equity base of these companies grew significantly to 524.13 bn, debt levels stood at 344.61

bn. Some of the real estate companies, due to poor cash flows made delays in repayments ofdues to banks as a result of which procuring fresh loans from banks was a constraint andresulted in debt levels growing slightly in FY09 and FY10.

Debt-equity ratio measures a companys financial leverage and is calculated by dividing its totalborrowings by equity. Equity has been calculated by adding paid-up equity capital (net offorfeited equity capital) and reserves/funds. This ratio indicates the proportion of equity anddebt a company uses to finance its assets. A high debt-to-equity ratio implies that a company hasa relatively higher commitment to pay fixed interest charges.

Debt-equity ratio for large companies was on the higher side followed by small-size companies.Compared with large companies, small and mid-size companies had a lower debt-equity ratio.Increased cost of debt, rising interest expenses and huge debt-pile ups have resulted in


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companies restructuring capital. As a result, large companies reduced debt-equity ratiosignificantly from 2.53 in FY06 to 0.78 in FY10. Similarly, mid-size companies recorded adrastic decline in the ratio from 0.82 in FY06 to 0.25 in FY10 and small companies recorded aratio of 1.29 in FY06 and 0.32 in FY10.

In FY10, for large, mid-size and small-size companies, total borrowings stood at 310.81 bn, 26.61 bn and 7.2 bn respectively, whereas equity capital stood at 396.89 bn, 105.12 bn and

22.12 bn respectively; equity at five-year CAGR of 106.4%, 94.69% and 74.3% respectively

while total debt level at five-year CAGR of 54.01%, 44.97% and 23.56% respectively.

However, these companies still face risks as significant repayments would be due in comingyears including the restructured loans. The ability of leveraged players to service interest costsand fulfill near-term debt/land obligations continues to be a concern. The financial condition ofdevelopers has not improved to a level that they can hold a project for a long time. They needcash flows to service debt, which they have taken to buy land and for development


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ROA drastically declined to 3.39% in FY10

from 10.14% in FY08

From FY06 to FY08, all real estate companies saw a rise in ROA owing to increase in net profitat a higher pace than increase in assets. However, in FY09 and FY10, these companiesregistered decline in ROA owing to the subsequent decline in profit and increasing investmentin assets. Overall, real estate companies have seen a decline in ROA from 10.14% in FY08 to3.39% in FY10.

Return on assets (ROA) is a profitability ratio that measures the amount of profit made perrupee of assets that a company owns. It is the ratio of net income after taxes to total assets of thecompany. The higher the ratio, the better it is, as the company is earning more money on lessinvestment.

The study further revealed that ROA of mid-size firms has been higher compared with large andsmall peers at 4.48% during FY10. This implies that mid-size firms are earning more on their

assets owing to better sales. ROA for large-size and small-size companies was at 3.18% and3.67% respectively.


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Return on capital employed dwindled due to

decreased revenue and profit margins

ROCE of real estate companies stood at 10% in FY10, declining from 15% in FY09. ROCE ofmid-size companies was stable at 10% whereas that of large and small firms declined sharplyfrom 16% and 14% in FY09 to 10% and 9% respectively in FY10. Decline in profit margin andrevenue of large and small companies led to ROCE of these companies reducing. For mid-sizecompanies, although profit margin declined, 17.3% total income growth helped these companiesmaintain ROCE at the same level as in FY09.

The return on capital employed (ROCE) is a measure of returns that a company is realising fromcapital employed. ROCE is defined as the ratio of profit before interest and taxes (PBIT) tocapital employed.

Another factor that led to a sharp decline in ROCE of real estate players is increase in capitalemployed at a higher pace than PBIT growth. In fact, small and large companies registered asharp decline in PBIT as against a positive growth in capital employed, which had a double

effect on ROCE. In FY10, PBIT of mid-size companies grew at a lesser rate of 19.7% comparedwith 27.8% growth in capital employed. However, large and small companies saw a decline inPBIT of 20% and 30.2% compared with 25.3% and 8.6% growth in capital employed.


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RONW follows a downward trend in the past

five years

Return on Net Worth (RONW) is a ratio of net income after taxes to total end of the year networth. RONW measures return on shareholders equity. RONW of small, mid-size and largecompanies stood at 7% in FY10. However, all real estate companies, irrespective of revenuesize, experienced a fall in their RONW since FY08.

During the boom period of FY06FY08, robust demand for residential and commercialproperties resulted in real estate companies undertaking aggressive expansion plans in variouscapital-intensive projects. As the real estate sector showed signs of recovery in the second halfof FY10, most real estate players aimed to reduce exposure to debt by infusing equity. Thus,although real estate players are still recording decline in profits, they are still resorting toincreasing equity, which has led to decrease in RONW. It has been found out that large players

are the worst hit with RONW reducing the most from 14% in FY09 to 7% in FY10.


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Decreasing trend in ROE is due to decreasing

equity multiplier

A more detailed analysis of ROE of real estate companies was done using DuPont Analysis. TheDuPont method analyses ROE based on asset turnover, NPM and Equity multiplier ratio(Assets/Equity) of companies. This method breaks up ROE in a manner that reveals whether aparticular company has taken additional leverage to improve shareholders returns, which wouldmake a company more risky. Improvement in ROE only because of excess leverage makes acompany riskier and impacts NPM because of the rise in interest burden.

The study reveals that asset turnover of real estate companies faced a downward trend over thepast five years indicating a drop in operating efficiencies. Asset turnover reduced from 0.37 inFY06 to 0.15 in FY10. It was found that growth in income was not proportionate to growth inassets. During FY09 and FY10, total income declined whereas total assets grew marginally.Thus, growth in total assets did not result in improvement in total income during this period.Total income grew at 24.9% CAGR whereas total assets grew at 54.9% CAGR between FY06and FY10.

Additionally, it was found that the equity multiplier dropped drastically over the past five yearsfrom 5.93 in FY06 to 2.06 in FY10, indicating decreasing financial leverage and more infusionof equity than long-term debt. Higher equity multiplier in FY06 and FY07 indicated thatcompanies financed a larger portion of their assets with debt. However, as cost of debt increasedover the past five years, companies added more equity than long-term debt to finance theirneeds. Further, growth in equity outpaced growth in assets. This resulted in a further drop in theasset-equity ratio to 2.34 in FY09 and 2.06 in FY10. Thus leverage factor reduced in FY09 and


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FY10 from the past three years. Assets grew at 54.9% CAGR whereas equity grew at 101.84%CAGR and long-term debt grew at 52.61%.

NPM stood at 17% in FY06 and grew to 28.1% in FY07and 35.5% in FY08 owing to growingincome and rise in property prices. However, sales and property prices declined sharply

resulting in decline in NPM in FY09 to 29.4%. Total expenses did not decline proportionatelywith sales and on the contrary increased 9.9% in FY10 leading to drop in NPM to 21.9%.

In conclusion, decreasing ROE of real estate companies can be attributed to declining assetturnover and NPM but was largely due to the decreasing equity multiplier. Equity capital ofcompanies grew significantly, resulting in a large capital base whereas net profit declined in thepast two years, resulting in a decreasing trend in ROE. Equity capital grew at a five-year CAGRof 101.84% whereas PAT grew at 33% CAGR.


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Recommendations & Suggestions

DLF

Stay away from DLF because largely if you see that debt burden in the company, we think that is

quite alarming and post the merger of the dell assets with the company the financials or maybethe financial structuring of the company has really gone for a toss.

So going by the working, purely on the working and considering the state of the real estateproject, though the things are not as worse as we have been seeing in the Mumbai region in termsof the off take because at least in NCR you are seeing sale of the property, but even there thevolume or the pace is coming or getting slower and slower. So we wont be taking a call on DLFeven at this price and especially ahead of the results.

Godrej Properties

Real estate sales have dropped significantly and deals are not happening. The other thing is

interest rates, they have moved up very sharply so that is hurting the buyers actually and if yousee the valuations of the real estate companies we think they are still a little richly valued

There is one company which we like in the real estate space and that is Godrej propertiesbecause they have developments across the country, its not only Bombay centric. They haveproperties across they country which they are developing. The management has issued a verypositive outlook in the concall which they had, so Godrej Properties at about Rs 650 level looksinteresting with a one year time frame.


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Unitech

Unitech is making risk pattern, technically mired by the weak outlook for the real-estatebusiness. Company is heavily burdened by that in the rising interest scenario. Its telecom joint-venture also is facing headwinds in terms of 2G related scam probes. So we see the stock isbreaking to a level of Rs 20 from the current side

HDIL

We like HDIL, though its got beaten down a lot because it is in the best real estate part of India,which is Mumbai, which never really saw a recession even in the worst period of 2008-2009 andafter lot of hiccups HDILs program of slum improvement has come on and they do have someregulatory issues, but they are getting around them and the stock has corrected humongous.

HDIL seems to be good, though its still a regional player, but the balance sheet is pretty okay

and the business profile of HDIL is the strongest.


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Sector Outlook

The short-term outlook for Indias real estate sector is negative with slowing demand andgrowing liquidity concerns, coupled with the tightening bias of monetary policy, leading to apossible negative impact on the credit profiles of real estate companies.

This slowdown will also aid the process of weeding out some of the weaker entities within thesector, and increasing the relative strength of some of the larger, more established developers.

The liquidity risks on account of significant bullet repayments falling due during the course of

2008 remain a key challenge across the board.

Larger, established and well-capitalised companies with access to banks/financial institutionswould remain better positioned to manage this risk, while smaller players may end up eitherrefinancing these at materially high rates of interest, or could default on their obligations.


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CONCLUSION

The Real estate sector in India has undergone such a dramatic change and rapid change in such ashort span of time. The key growth sectors have been office driven by need for IT space,residential space driven by increased ownership and retail malls driven by increasing spendingpower.

In Feb.2005 The union Govt. permitted 100% FDI in real estate development projectswith a minimum size of 50,000 square meters. The Indian real estate market, estimated ay around$15 billion, is expected to continue growing at 30% annually to reach $45-50 billion in 2010 and$90 billion in 2015.

The investments of investors are divided five broad segments of the industry:

1. Residential

2. Retail,

3. Commercial,

4. Hospitality and

5. Industrial.

Real estate is much more professionally managed with a number of big players(developers as well as corporate entering the business. There are no monopolistic positions inreal estate, as there are more players today in the development game. The greater the number ofplayers, the healthier the competition and the beneficiary of all this would at last be the end-user.


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Bibliography

Websites:

1.www.moneycontrol.com

2.www.nseindia.com

3. www.google.co.in

Newspaper:

4. Economics times

5. DNA
http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.nseindia.com/http://www.nseindia.com/http://www.nseindia.com/http://www.nseindia.com/http://www.moneycontrol.com/

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