SBICAP Sec - India Property - Initiating Coverage-Errclub - Buy For The Cash Flow, Not A Story!

India Property
Initiating coverage
Inst'l Equity Research | India

Buy for the Cash flow, not a Story! December 14, 2017
We see little merit in the street's optimism regarding a recovery in the fortunes of Indian
property developers, which is based on the assumption of overall recovery in housing
demand. Our key counter-arguments are: 1) More than 70% of the land banks of listed
developers are concentrated in four metro cities, which account for less than 10% of
India's concretised housing market. Further, these cities are more mature in terms of
concretisation. Hence, supply-demand dynamics and investor demand are important
drivers in these markets – both these factors seem highly unfavourable in the
foreseeable future; 2) We estimate the annual market size for home-loans greater than
Rs5mn to stand at only ~83,000, based on RBI data. In comparison, the unsold inventory
of houses priced at over Rs6mn in just nine cities alone totals more than 310,000 (or ~4x
annual mortgage demand); 3) Large Indian developers have not reported positive
operational cash flows in the front-loaded, cash flow-oriented real estate development
business in the last 7 years despite significant cumulative sales bookings. RERA will
skew the cash flow prospects even more, going forward; 4) Property stocks are trading
near prior cyclical peaks, with more geared balance sheets, lack of visibility in re-rating
triggers (sales, cash flows, debt reduction) and sub-par single-digit ROEs, which are
unlikely to reflate. This increases the risk of multiple de-rating. Initiate coverage with
SELL on DLF and Prestige, and HOLD on Oberoi and Sobha.
The canvas of listed property developers is limited: Indian property developers are largely
regional (Mumbai, Bangalore, Gurgaon, and Chennai account for more than ~70% of land
bank), focus primarily on mid to premium residential projects (ticket size in excess of Rs5mn),
and tend to have a higher exposure to the more lucrative office/retail business (~40%-60% of
GAV of larger developers). The four metro cities account for less than 10% of India's
concretised housing market, and are more mature in terms of concretisation; hence, supply-
demand dynamics and investor demand are key drivers in these markets. High inventory of
unsold projects coupled with the completion of stalled projects post RERA is likely to keep new
launches (a key enabler of sales) muted. Further, demand stimulation through interest rate
cuts in the premium housing segment appears unlikely. Scaling up in affordable housing
remains a challenge due to low margins, uncertainty in approvals, and high land cost.
Recent reforms to hit non-mortgage demand (investor) demand: We estimate the annual
market for home-loans greater than Rs5mn to stand at ~83,000, based on RBI BSR data. In
comparison, absorption data from Propequity suggests that nine metros alone sold more than
120,000 units, indicating high non-mortgage (investor) activity in the premium segment.
Further, as per Propequity data, unsold inventory of houses priced at over Rs6mn in just 9
cities totals more than 310,000 (or ~4x annual mortgage demand). Recent reforms such as
demonetisation, RERA implementation, and stagnation in property prices are likely to impact
investor demand.
Development business has historically not generated cash flows - why are we excited?
During FY11-FY17, only one (Sobha) developer generated positive cash flow in the core
development business (total pre-tax OCF less rental/other business EBITDA). DLF, Prestige
and Oberoi have reported cumulative negative operational cash flows of ~Rs30bn, Rs10bn
and Rs4bn, respectively, in the development business during FY11-FY17 despite cumulative
sales bookings of ~Rs270bn, Rs173bn and Rs100bn. A weak demand environment coupled
with higher focus on execution could cause further deterioration in cash flow prospects.
Sub-par ROEs and premium valuation multiples unlikely to sustain: Indian developers
have averaged 7.9% ROE during FY11-17, and seen minimal accretion to book (primarily Sandeep Mathew
aided by equity raising). We anticipate asset turns and profit margins to remain depressed, +91 22 4348 7091
which is likely to keep ROEs in single-digits for DLF, Prestige and Sobha (ex-Oberoi). With sandeep.mathew@sbicapsec.com
sub-par ROEs and muted cash flow generation prospects, we anticipate valuation multiples
Anshul Agrawal
(P/B) of property stocks to revert to long-term through-cycle averages. We initiate with a SELL +91 22 4348 7194
rating on DLF and Prestige, and a HOLD rating on Oberoi and Sobha. anshul.agrawal@sbicapsec.com
SBICAP Research on Bloomberg SBICAP <GO>, www.emis.com Please refer to our disclaimer given at the last page.
India Property - Sector SBICAP Securities Ltd
Focus Charts
Exhibit 1: Outstanding home loan accounts >Rs2.5mn and Exhibit 2: Estimated annual market potential for home
Rs5mn as of FY13/16 are a small proportion (more than 95% loans greater than Rs5mn is 1.5x of 9 cities' reported
of developer inventory lies in this) sales bookings and nearly 4x of unsold inventory!
900,000 12.0% 400,000

10.9%
(Number of Accounts)
675,000 9.0% 300,000
(No. of Units)
200,000
450,000 6.1% 6.0%
100,000
2.6%
225,000 3.0%
1.4%
0
0 0.0% India Annual avg Propequity avg Propequity
mortgage annual FY13-16 current unsold
2013 2016
addition (FY13- sales in 9 cities inventory in 9
25 lakh+ accounts 50 lakh+ accounts 16) (>Rs.6mn) cities (>Rs.6 mn)
Source: RBI BSR, Propequity, SSLe
Exhibit 3: Structural changes are negative for investor Exhibit 4: Despite significant bookings during FY11-FY17,
demand - a key driver of premium residential segment Prestige, DLF, and Oberoi generated negative OCF in the
development business
300,000
210,000
(Rs mn)
120,000
30,000
(60,000)
FY11-FY17 Cumulative FY11-FY17 Cumulative
development business sales bookings
pre-tax OCF
Sobha Oberoi Prestige DLF
Source: Company, SSLe
Exhibit 5: Current P/B multiples are near prior peaks Exhibit 6: Sustenance of high PB with low RoE appears
unlikely
8 6.0 Godrej
Properties
6 5.0
P/B (x)
4.0 Phoenix
4
Mills
FY18E P/B (x)
3.0
2
Prestige Oberoi
2.0
0 Sobha
Nov-11
Nov-12
Jun-13
Jul-14
Jan-15
May-12
Feb-16
Mar-17
DLF
Dec-13
Aug-15
Aug-16
Sep-17
1.0
0.0
DLF Sobha
0 5 10 15
Prestige Oberoi
Godrej properties FY18E ROE (%)
Source: Bloomberg, SSLe
sandeep.mathew@sbicapsec.com I anshul.agrawal@sbicapsec.com December 14, 2017 | 2

TABLE OF CONTENT
Canvas for property developers is limited ................................................................. 4
Recent reforms to hit non-mortgage demand (investor demand) ............................. 10
Development business has historically not generated cash flows -
why are we excited?............................................................................................... 16
Valuation multiples likely to de-rate ........................................................................ 23
Companies
Sobha Limited ....................................................................................................... 29
Oberoi Realty Limited............................................................................................. 31
Prestige Estates Projects ....................................................................................... 33
DLF Limited ........................................................................................................... 35

Canvas for property developers is limited

Listed developers are largely regional (concentrating on a few metros), focus primarily
on mid to premium residential projects (ticket size in excess of Rs5mn), and tend to
have an exposure to the more lucrative office/retail business (~40%-60% of GAV of
larger developers). More than 70% of the land banks of listed developers are
concentrated in four metro cities, which account for less than 10% of India's concretised
housing market. Further, these cities are more mature in terms of concretisation, and
hence, supply-demand dynamics and investor demand are key drivers in these markets.
High inventory of unsold projects coupled with completion of stalled projects post
RERA is likely to keep new launches (a key enabler of sales) muted. Further, demand for
offices is largely driven by the IT/ITES sector, and double digit vacancies in key metros
suggest a muted rent outlook (except Bangalore).
Four cities are key volume drivers…

Majority of the land banks of key listed developers (of Sobha, Prestige, Oberoi and DLF) are
located in four key cities - Mumbai, NCR (primarily Gurgaon and Noida/Greater Nodia),
Bangalore and Chennai.
At present, these markets also jointly account for majority of sales for the developer universe
(~70-90% of annual sales volume/value).
Exhibit 7: More than 65% of land banks are located in 4 metros for DLF, Oberoi, Sobha
and Prestige
Gurgaon Mumbai Bangalore Chennai Total
DLF 50% 6% 8% 64%
Sobha 2% 52% 21% 75%
Prestige 80% 15% 95%
Oberoi 95% 95%
Exhibit 8: The four metros also drive more than 80% of sales volume
Gurgaon Mumbai Bangalore Chennai Total
DLF 80% 80%
Sobha 8% 75% 6% 89%
Oberoi 100% 100%
…but they account for less than 10% of urban India's concrete
roof housing stock
Common wisdom would suggest that the key metros (Mumbai, Bangalore, Chennai and NCR
ex-Delhi) account for a majority of the country's concrete roof housing stock. Our analysis of
Census 2011 data, however, suggests that these four cities together accounted for less than
10% of the total housing stock (with a concrete roof) in urban India as of 2011.

Exhibit 9: Four metros together account for less than 10% of Urban India's Concrete
roofed housing stock
Penetration as %
Census 2011 Census houses By Concrete roof
of Urban stock
India 304,932,704 90,244,996
Rural 206,613,946 38,239,192
Urban 98,318,758 52,005,804 100%
Bangalore 2,636,445 1,901,117 3.7%

Mumbai 3,652,472 1,828,198 3.5%
Chennai 1,260,298 994,617 1.9%
Gurgaon 301,432 196,614 0.4%
Target market 7,850,647 4,920,546 9.5%

Source: Census 2011, SSLe
Four cities have higher levels of concretisation, and more mature

absorption trends
Out of ~98mn census houses (as of 2011) in urban India (total houses across rural/urban is
~305mn), only ~53% have a concrete roof.
However, with the exception of Mumbai (~50%, largely attributable to the huge population living
in slums), the penetration of concrete roof houses is higher (65-79%) in the cities of Gurgaon,
Noida, Chennai and Bangalore.
Further, a study of historical absorption trends in the key metros suggests that, apart from the
inherent cyclicality in sales trends (as seen in absorption), there is a broad reference range for
the number of units sold in these markets annually over a longer-term property cycle.
Exhibit 10: Penetration of concrete roof housing stock in Exhibit 11: Unit absorption (new sales) in key metros has
key cities across India a broad reference range coupled with cyclicality
64,000
Gurgaon 65%
Greater Noida 70% 48,000

(No of units)
Noida 68%
32,000
Chennai 79%
Mumbai 50%
16,000
Bangalore 72%
Urban India 53% 0

FY12 FY13 FY14 FY15 FY16 FY17
0% 20% 40% 60% 80% 100% Mumbai Gurgaon Bangalore Chennai
Source: Census 2011, Propequity, SSLe
Beware the concrete supply of the recent building cycle

We have analysed historical sales (since 2010, a year prior to Census) and current unsold
inventory in the key cities to assess the extent of residential supply build-up since the last
published Census data.
According to our study, the supply of concrete roof houses in the four key cities has grown at a
rapid pace; in fact, in emerging cities such as Gurgaon and Noida (growing from a small
housing base), these houses constitute more than 50% of the existing housing stock as of
Census 2011.

Exhibit 12: Penetration of concrete roof housing stock in key cities across India has
been growing rapidly since Census 2011
2,000,000 160%
128%
1,500,000 120%
(Number of Units)
69%
1,000,000 80%
500,000 25% 22% 40%

12%
0 0%
Bangalore Mumbai Chennai Noida Gurgaon
2011 stock of concrete roof houses FY11-17 Sales + Unsold inventory
% of existing stock
Source: Census 2011, Propequity, SSLe
Weak demand and high supply have kept a lid on prices

Data from Propequity continues to suggest high unsold inventory levels in key metros, as
absorption in metros has been decreasing in recent years. This, in turn, has reined in property
prices.
While measures like RERA are likely to curb new supply in the short term, we believe revival in
investor demand will remain a key monitorable.
Exhibit 13: Prices in key metros have stagnated in last 4 Exhibit 14: …as unsold Inventory levels remain high
years…
20,000 100
92
15,000
75
( Rs/Sqft)
61
10,000
(Months)
50 47
40
5,000
25
0
Sep-08
Apr-09
Nov-09
Aug-11
Oct-12
Dec-13
Sep-15
Apr-16
Nov-16
Jul-07
Jun-10
Jan-11
Jul-14
Jun-17
May-13
Feb-08
Mar-12
Feb-15
0
Mumbai Gurgaon Bangalore Chennai Mumbai Gurgaon Bangalore Chennai
Source: Propequity, SSLe

Exhibit 15: Residential Pricing outlook is Negative to flat
Source: SSLe
Listed developers primarily focus on premium segment of

residential (minimal affordable housing exposure)
Listed developers have historically focused on the higher-margin premium residential segment
and have had minimal affordable housing exposure.
Among the leading developers, Sobha and Prestige hardly possess any inventory of units
priced less than Rs5mn.
Exhibit 16: Sobha's unsold inventory is primarily Exhibit 17: Similar is the case with Prestige as well as
above Rs10mn they do not have any inventory priced below Rs5mn
Particulars FY17 Particulars FY17
Less than Rs 50 lakhs 2% Less than Rs 50 lakhs 0%
Rs 50 lakhs to Rs 1 crore 28% Rs 50 lakhs to Rs 1.5 crores 77%
Rs 1 crore to Rs 2 crores 45% Above Rs 1.5 crores 23%
Above Rs 2 crores 24%
Source: Company reports, SSLe
Building scale in residential segment outside of core markets has

been extremely challenging
Developers have historically been region-focused, and in the past, efforts to diversify outside of
core markets and become a pan-India player have met with limited success (example: DLF,
Unitech, etc).
Complexity of the land acquisition process across states and inability to accelerate the
approval process are key impediments when it comes to scaling up in the residential segment
across regional markets.
While the joint-development agreement has helped a few developers (like Godrej Properties) to
establish a more well-rounded presence across regional markets, other companies have been
not been successful in their efforts to do the same.

Affordable housing has remained a challenging proposition
The impetus given to affordable housing (definition of affordable housing varies by developer
and market) by the current government is expected to revive the sector.
However, past attempts by listed and unlisted developers to venture into affordable housing (eg
Provident Housing subsidiary of Purvankara, etc) have seen limited success in terms of scaling
up. This can be attributed to several reasons: the inability to shift smoothly from higher margin
to lower margin business, higher focus on working capital and fast execution, and issues
related to securing timely approvals, as delays can hurt already thin margins, etc.
Further, high land cost (while procuring land from the private sector) also acts as a major
deterrent for developers venturing into this segment.
Office/retail exposure is high

Many listed Indian property developers derive a meaningful share of value (in terms of GAV
contribution) from the office and retail segments.
Office and retail developments are more capital-intensive and less fragmented as compared to
residential projects. Therefore, larger developers have been more successful in scaling up in
these two segments in the past cycle (2006-17).
The recovery of these sectors is also crucial to reflate ROEs above through-cycle averages.
Exhibit 18: Office/Retail is a key contributor to GAV for DLF, Prestige and Oberoi
100
75
(%)
50
25
0
DLF Oberoi Sobha Prestige
Residential GAV Office / Retail GAV Others
Source: SSLe
Office market cycle improving but largely dependent on fortunes of IT/ITES
Currently, among the micro-markets, the Bengaluru office sector appears better placed to
witness a recovery, as vacancies have been declining steadily.
A decline in vacancies (or increase in occupancies) is a strong indicator of rental reversion

prospects. Given the improving market vacancies, and limited near-term supply concerns,
office rentals in these markets are likely to be stable.
A key demand driver for the office segment remains the IT and ITES industry, which still
accounts for nearly 50% of the total demand. Any major reduction in headcounts for the
IT/ITES industry can hamper the fortunes of the office sector.
Mumbai, Chennai and Gurgaon office markets continue to remain depressed with high double-
digit vacancies, coupled with supply pressure, which suggests a flat to negative rent outlook.

Exhibit 19: Bangalore appears well placed for Office recovery
Rent outlook Vacancies Supply pipeline (3 years)

Bangalore Positive 8% 26mn sqft (20% of stock)
Chennai Flat 11% 11.5mn sqft (20% of stock)
Mumbai Flat 17% 10mn sqft (8% of stock)
Gurgaon Negative 28% 11mn sqft
Source: Colliers, Cushman & Wakefield, SSLe
Cap rates likely to trend lower with decline in vacancies, interest rates and introduction
of REITs
Cap rates are expected to trend lower, which should help reflate asset valuations.
Key drivers of cap rates include cost of capital (interest rate outlook expected to remain
benign), occupancy outlook (vacancies are anticipated to steadily decline across most regional
markets), and introduction of REITs in India (a new demand source).

Recent reforms to hit non-mortgage demand (investor demand)

We estimate the annual market for home-loans greater than Rs5mn to stand at ~83,000,
based on RBI BSR data. In comparison, absorption data from Propequity suggests that
nine metros alone sold more than 120,000 units, indicating high non-mortgage (investor)
activity in the premium segment. Recent reforms such as demonetisation, the
clampdown on benami transactions, RERA implementation, withdrawal of taxation
benefits and stagnation in property prices are further likely to impact investor demand.
Although mortgage rates have declined (~200bps), we do not expect the fall to have a
material impact on the fortunes of mid-premium housing (key target segment of
developers).
Non-mortgage demand (investor) high in key metros

As per our analysis of the RBI's BSR data (2016, 2013), SCBs in India have only ~200,000
housing loan accounts whose outstanding loan amount is greater than Rs5mn (primary target
market for a listed developer as minimum ticket size of offering is greater than Rs5mn).
Further, the Rs5mn+ outstanding home loan category accounts for a mere 2.6% of the total
home loans outstanding of SCBs.
Exhibit 20: Outstanding home loan accounts >Rs2.5mn and Rs5mn as of FY13/16 form a
small proportion of total loans (less than 11% of number of loans outstanding)
900,000 12.0%
10.9%
(Number of Accounts)
675,000 9.0%
450,000 6.1% 6.0%
2.6%
225,000 3.0%
1.4%
0 0.0%
2013 2016
25 lakh+ accounts 50 lakh+ accounts
Source: RBI BSR data, SSLe
Based on the above data, and assuming an average loan tenure of 7 years (or closure rate of
~14%) and ~60% market share for SCBs, the average annual market potential for home loans
(greater than Rs5mn) is estimated to have stood at ~83,000 units as of FY16.
Exhibit 21: Total market potential for home loans greater than Rs5mn is estimated to be
only ~83,000 accounts
FY13 FY2016
Total loan accounts 6,570,334 7,656,100
25 lakh+ accounts 403,153 836,473
50 lakh+ accounts 93,900 202,749
Increase in SCB accounts during FY13-16 108,849

Loan closures (assuming 7 yr tenure) 40,243
Gross additions of home loan accounts by SCBs during FY13-16 49,697
SCB market share assumed 60%
Total annual India home loan potential 82,829

Reported sales in just nine cities are nearly 1.5x of estimated
mortgage demand
Based on Propequity data, we find that annual sales of houses with an average price of over
Rs6mn in just nine cities were more than 125,000 during FY13-16 (almost 50% higher of
estimated annual mortgage demand in India over Rs5mn).
This, in our view, indicates the extent of non-mortgage demand (investor driven bulk sales, etc)
that is likely to be impacted, going forward.
It is important to note that not all investor activity is speculative and it could also be viewed as a
sign of real estate emerging as an asset class in India. However, higher investor activity would
also translate into more volatility in local property markets.
Further, not all mortgage sales can be attributed to end-users (investors would ideally want to
use leverage to amplify returns). However, even if we give the benefit of the doubt, we see a
huge disconnect between mortgage offtake and residential sales in the premium segments.
Unsold inventory of ~310,000 in just nine cities vs. annual market

potential of ~83,000
Worryingly, the unsold inventory of houses greater than Rs6mn in the nine cities adds up to
more than ~310,000 units (as per Propequity) vis-à-vis the current annual mortgage market
potential of ~83,000 units (home loans greater than Rs5mn).
Even if the entire high-priced inventory is from the nine cities (a very small probability), it may
take another ~4 years to exhaust the unsold inventory if demand was largely mortgage driven.
Exhibit 22: Estimated annual market potential for home loans greater than Rs5mn is
1.5x reported annual sales of 9 cities
400,000
300,000
(No. of Units)
200,000
100,000
0
India Annual avg Propequity avg annual Propequity current
mortgage addition FY13-16 sales in 9 unsold inventory in 9
(FY13-16) cities (>Rs.6mn) cities (>Rs.6 mn)
Source: RBI BSR data, Propequity, SSLe
Bangalore, Pune and Noida/Greater Noida contribute to bulk of

unsold inventory
In terms of absolute unsold inventory, the shares of Bangalore, Pune and Noida/Greater Noida
are the highest.
However, a more relevant metric is the inventory overhang (number of months to exhaust
unsold inventory at current absorption rates); in this aspect, the NCR and Mumbai markets
seem most vulnerable.

Exhibit 23: Bangalore, Pune and NCR region contribute Exhibit 24:Inventory overhang remains high in Mumbai,
highest to the overall unsold inventory Gurgaon, and Noida/Greater Noida
100
Mumbai 92
Pune 14%
19%
Gurgaon 75
6%
61
(Months)
50 47
Greater 40
Noida
14% Bangalore
19%
25
Noida
4%
Hyderabad Chennai
7% Kolkata 0
8% Mumbai Gurgaon Bangalore Chennai
9%
Source: TRAI, Census India reports, SSLe
Mortgage addition in key metros has been slowing down since

2007
A study of the RBI’s annual Basic Statistical Return (BSR) report on mortgage lending patterns
of scheduled commercial banks (SCBs) shows that the pace of net account additions (a proxy
for housing demand) in major metros has shown signs of significant moderation from as early
as 2009.
The weakest market was Mumbai. Net additions in the city were negative between 2009 and
2016, indicating that the pace of new housing loan account additions was lower than account
closures for SCBs.
Among key metros, only Bangalore saw a growth in net additions during 2009-2016.
From 2002 to 2009, there was a significant increase in net additions in metros due to a low
interest rate environment and affordable property prices. The pace of slowdown in account
additions during 2007-2013 signals market maturity (or demand peaking) in end-user demand
as well as the impact of higher prices on affordability.
Exhibit 25: Mortgage additions by SCBs in key cities during 2002-13 (last available city-
wise data from RBI)
375,000
Growth in new loan accounts has shifted from Metros to
Tier 2 cities
250,000
125,000
(125,000)
GURGAON
THANE
NAGPUR
GHAZ
VADODRA
RREDDY
HYD
VISHPTNM
DEL
KOL
SURAT
PUNE
BGLR
CHN
MUM
NASIK
AHMD
2002-09 2009-16

Structural changes are less investor friendly (more focused on
end-users)
The Indian real estate sector has seen some significant changes in policy in recent years; of
these, the most important one has been the Real Estate Regulatory Authority (RERA).
Other key changes in the economy include demonetisation and the subsequent clampdown on
cash transactions, changes in taxation policy (especially related to rented residential
properties), the crackdown on benami transactions, and changes in FDI policy among others.
Exhibit 26: Key Structural Changes in Real Estate in India
• Easing of FDI norms to • Establishes a regulatory

attract h igher investments oversight mechanism
• Reduction in tax benefits for • Reduces information
ren ted houses asymmetry
• Key impact: Lower investor • Enforces more
demand, higher propects accountability
of PE investments • Key impact: Back ended
cash flow, decline in pace
of new launches, lower
Policy RERA in vestor demand
changes implementation
REIT Affordable
introduction Housing
• Establishes a n ew asset
class for investors;
Yields/cap rate • Tax breaks to developers to
compression likely encourage private
• Higher liquidity for developers participation
• Key impacts: Lo wer cost of • Tax incentives to low-
capital, value unlocking income and middle-income
users to boost demand
Source: SSLe
We believe the key structural changes in residential housing are less investor-demand friendly
and more focused on serving the interests of end-users.
We believe investor-demand is likely to be hurt due to higher compliance costs (such as

mandatory registration of sales, etc), and unfavourable taxation policy (interest deduction on
rented properties capped at Rs2lakh versus unlimited deduction earlier) among others.
Demonetisation and the subsequent clampdown on cash transactions, and the proposal to curb
benami transactions all carry negative implications for investor demand off-take.
Exhibit 27: Key Structural Changes in Real Estate in India
Source: SSLe

RERA implementation is game changer for sector
We believe RERA is a landmark pro-consumer development for the real estate sector.
It will a) reduce information asymmetry (details of all major projects will be available at a
centralised location), b) introduce more accountability (only projects with approvals can be
registered, developers have to provide timelines for project completion with penalties for
deviation, set up escrow accounts, get permission from buyers to alter existing plans, etc), c)
establish a regulatory oversight mechanism for enforcing contracts and timely dispute
resolution, and d) promote good governance, leading to more investor confidence in the sector
(should continue to see higher FDI going forward).
Exhibit 28:RERA can cause significant disruption in cash flow model of developers
Source: SSLe
RERA, however, is likely to introduce a structural shift in the developer's cash flow profile, as
the era of front-ended cash flows (through pre-sales, soft launches, etc) in residential projects
will come to an end, and becomes more construction-linked.
Demonetisation
Any disruption in the cash economy is structurally negative for real estate demand, as
historically, real estate was a preferred asset class to park excess cash for investors.
Further, the cash economy was artificially lowering expected returns for investors (due to
zero/negative WACC for cash/black economy), which will now begin to increase.
While the initial demand shock from demonetisation was sharp (as seen in Q3FY17 sales
volumes), subsequent quarter sales have been surprisingly strong (especially Q4FY17). It is
still too early to extrapolate the same as demand revival, and we expect the slowdown to start
reflecting from H2FY18e sales.

Exhibit 29: Demonetisation impact on real estate
• Enquiries / new bookings declined 50-60% across markets

• Cancellations have risen in projects where the sale has not been registered
• Weak sales will accentuate inventory overhang in metros, impacting prices
Demand • Expectation of a price correction to futher slow sales
• Investor driven markets like NCR/Mumbai to be more impacted
shock
• Real estate has been a favoured asset class to hide cash; Structurally demand
for asset class could decline with slowdown in cash economy
• Impact to segments like luxury product category expected to be higher
• Liquidity to decline for smaller unorganized developers; Liquidity (cash working
Cash capital) constraints to emerge
• Cost of capital for overall real estate sector expected to increase (cash economy
economy WACC is zero or negative)
• Pace of supply to be impacted near-term

• New launches / pre-launch (dependent or investors) momentum expected to
decrease
Supply • More acute in investor driven markets
impact
• Market Prices likely to edge closer towards circle/ready reckoner rates

• Impact expected to be disproportionately higher in land transactions impacting
prices due to Illiquid nature of product and Higher cash in circulation in land
deals
Pricing • Anticipate higher amplitude or price correction in investor driven markets
Source: SSLe
Tax exemptions decreased for investors while holding period

reduced
In the FY17 Budget, the government capped the tax benefits available to rented properties by
limiting the interest deduction to Rs0.2mn (from unlimited earlier), and brought it in-line with the
deduction available for a new-home buyer.
The government also reduced the holding period requirement to 2 years (from 3 years) for
gains to qualify as long-term in the case of immovable property.
Affordable housing - The new buzz

In FY17, private developers were given tax exemption for affordable housing projects. These
projects have to be launched before FY19 and completed within 5 years (and also meet
stipulated house size norms) to avail of full tax exemption.
For end-users and first-home buyers, the government introduced a Credit-Linked Subsidy
scheme (CLSS) targeting first-home buyers to provide subsidy on interest burden.
While the total allocation for the mid-income scheme CLSS scheme is ~ Rs10bn, the initial
response to the same has been weak (only ~10% or ~5,000 MIG loans has been disbursed).
Easing of FDI restrictions

FDI norms in the country have eased considerably with the removal of minimum size
investment restrictions and reduction in holding period requirement.
These changes make most residential and commercial real estate projects FDI-compliant, and
enable them to access funding.
While the easing of FDI restrictions has been aimed at encouraging FDI inflows into the sector,
it also raises the risk of short-term speculative capital inflows.
Development business has historically not generated cash flows -

why are we excited?
Listed developers have struggled to generate positive operational cash flows in the core
real estate development business (total pre-tax OCF less rental/other business EBITDA)
in a pre-RERA scenario over the last 7 years (FY11-FY17). Over a cumulative 7-year
period (FY11-FY17), only one (Sobha) developer generated positive cash flow in the core
development business. Looking ahead, a weak demand environment coupled with
higher focus on execution could impact cash flow generation prospects in the near
term. RERA implementation appears to have created a level-playing field for all
developers, and we envisage a shift from land banking to joint development model to
conserve capital (may benefit larger developers).
Weak cash flow generation in development business

Street and investors' optimism with respect to Indian developer stocks is largely reliant on the
anticipated cash flow generation from the core development business (primarily residential).
We have analysed the historical operational cash flow generation in the core development
business (defined as total pre-tax OCF minus annuity/other business EBITDA) of four leading
developers - DLF, Sobha, Prestige and Oberoi.
Over a cumulative 7-year period (FY11-FY17), only one (Sobha) developer generated positive
cash flow in the core development business. It is understandable when a company incurs
losses for 1-2 years (weak market, receivables, scaling up, etc); however, it is worrying when
the losses continue over an extended period of time (such as 7 years).
Exhibit 30: Only Sobha generated cumulative positive operational cash flow in
development business during FY11-FY17
FY11-FY17 Cumulative development business pre-tax OCF

30,000
15,000
(Rs mn)
(15,000)
(30,000)
A common assumption regarding premium residential development is that these projects

generate high margins and are less working capital-intensive (due to pre-sales); hence, they
should ideally also generate strong cash flows.
In reality, however, DLF, Prestige and Oberoi reported cumulative negative operational cash
flows of ~Rs30bn, Rs10bn and Rs4bn, respectively, during FY11-FY17.
Among the larger developers, only Sobha reported consistent positive pre-tax operational cash
flows in the development business during FY11-17.

Exhibit 31: Sobha has the best track record in terms of Exhibit 32: Oberoi's cash flows have been dented by
cash flow generation in the development business 2 poor years (FY14/15)
5,400 5,019 5,000 4,629

3,138
4,281 2,198
4,053 1,499 1,414
3,814 3,707
3,600 3,000 0
(Rs mn)
(Rs mn)
1,800 (5,000)
(5,626)
0 (10,000)
(11,387)
(860)
(1,800) (15,000)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Development Project OCF Development Project OCF
Further, DLF and Prestige have consistently struggled to report positive operational cash flows
in the development business.
Exhibit 33: DLF has struggled to generate positive cash Exhibit 34: Prestige has also faced similar cash flow
flows in development business since FY13 generation problem in development business
15,000 13,300 2,500

10,831 1,791
5,204 857 684
2,188
0 0
(607)
(Rs mn)
(Rs mn)
(1,114)
(9,649)
(15,000) (2,500)
(11,748)
(30,000) (5,000)
(4,943)
(45,000) (39,742) (7,500) (6,996)

Development Project OCF Development Project OCF
Annuity business income is saving grace

Cumulative consolidated pre-tax OCF of Indian developers tends to get reflated with the steady
annuity income streams from the rental businesses (especially in case of DLF, Oberoi and
Prestige). We have tried to segregate the same to get a clearer picture of the cash flow
generation in the core development business (primarily residential and some commercial).
The annuity business cash flows (we use EBITDA as proxy) are primarily derived from lease of
office and retail properties, and in certain cases, the hospitality business (Oberoi and Prestige).
We find that annuity rental streams often provides a core support to consolidated pre-tax OCF,
which tends to take the attention away from the cash flow generation of the development
businesses.
Contribution of rentals to overall cash flows is more significant in the case of DLF and Prestige
(and to a lesser extent, Oberoi).

Exhibit 35: DLF has consistently generated strong cash Exhibit 36: Similar is the case with Oberoi's rental and
flows in annuity businesses hospitality business
50,000 8,000
4,000
25,000
0
(Rs mn)
(Rs mn)
0
(4,000)
(25,000)
(8,000)
(50,000) (12,000)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY12 FY13 FY14 FY15 FY16 FY17
Pre-tax OCF Rent/ Other biz EBITDA Pre-tax OCF Rental and hospitality EBITDA
OCF from Development Project OCF from Development Project
Exhibit 37: Prestige's annuity business cash flows continue Exhibit 38: Sobha has been generating cash flows in all
to flourish while development segment lags businesses consistently
12,000 6,600
6,000 4,400
(Rs mn)
(Rs mn)
0 2,200
(6,000) 0
(12,000) (2,200)
Pre-tax OCF Pre-tax OCF
Facilities Rental & Maintenance EBITDA Contractual and manufacturing EBITDA
OCF from Development Project OCF from Development Project
Weak cash flows despite sales growth and plateauing of projects

under construction
The inability to generate positive cash flows in the development business (especially in a pre-
RERA scenario where developers could pre-launch projects) could be attributed to lack of
sales bookings, surge in working capital intensity (due to scaling up of projects under
construction), or a combination of both.
With respect to scaling up, we find that almost all developers (excluding DLF) witnessed a
significant increase in projects under execution between FY11 and FY17. However, the share
of projects under execution has largely plateaued
Only one developer – Sobha – successfully scaled up without any significant disruption to its
cash flow generation during FY11-FY17.

Exhibit 39: DLF's devco projects under construction has Exhibit 40: Oberoi has seen a significant scale up in its
been declining since FY14 projects under construction
60 16
45 12
(mn sq ft)
(mn sq ft)
30 8
15 4
0 0
DevCo Residential projects est. area (msf)
Exhibit 41: Prestige has grown its projects under execution Exhibit 42: Sobha has managed the scale up in execution in
at a rapid pace during FY11-14, which peaked in FY16 a significantly better manner than its peers
80 44
60 33
(mn sq ft)
(mn sq ft)
40 22
20 11
0 0
Residential Real estate ongoing projects (msf)
Reported sales (bookings) appears to be poor leading indicator

Among the leading developers, only Sobha has shown a reasonable degree of correlation
between sales bookings and cash flow generation. During FY11-FY17, Sobha reported sales
bookings worth Rs133bn, and generated pre-tax OCF from development business amounting
to ~Rs18bn.
Prestige, Oberoi and DLF have struggled to generate cash flows on a cumulative basis over
FY11-17 despite reporting strong sales bookings during the period.
In case of Prestige, we find a significant disconnect in sales and cash flows. The company’s
sales bookings improved significantly to ~Rs173bn during FY11-FY17. However, the same did
not translate into cash flows over an extended period. We estimate Prestige suffered a cash
burn of Rs23bn in its development business over the 7 years.
In case of DLF, cash burn has increased consistently with a decline in sales bookings. Over
FY11-FY17, the company reported cumulative sales bookings of Rs271bn, but the
corresponding cash burn in the development business amounted to Rs77bn.
Oberoi has reported cumulative sales bookings of ~Rs100bn over FY12-FY17 (post listing).
During the corresponding period, the company's cumulative cash burn, which was primarily
seen in FY14 and FY15, stood at Rs14bn.

Exhibit 43: Despite significant bookings during FY11-FY17, Prestige, DLF, and Oberoi
generated negative OCF in the development business
300,000
210,000
(Rs mn)
120,000
30,000
(60,000)
FY11-FY17 Cumulative FY11-FY17 Cumulative sales
development business pre-tax OCF bookings

Exhibit 44: Sobha's sales bookings and development cash Exhibit 45: However, Prestige's sales bookings and
flow generation have largely been in sync development business cash flows have been divergent
25,500 48,000
36,000
17,000
(Rs mn)
(Rs mn)
24,000
8,500
12,000
0
0
(8,500) (12,000)
Sales Value Development OCF Sales Value Development OCF
Exhibit 46: DLF has struggled to generate positive cash Exhibit 47: Oberoi's sales bookings are yet to translate into
flows in development since FY14 meaningful cash flow generation
90,000 45,000
60,000
30,000
(Rs mn)
(Rs mn)
30,000
15,000
0
0
(30,000)
(60,000) (15,000)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY12 FY13 FY14 FY15 FY16 FY17
Sales Value Development OCF Sales Value Development OCF

Unsold inventory to under-construction ratio explains Oberoi's
working capital surge; Prestige surprises negatively
We have mapped under-construction projects (in mn.sq.ft) to unsold inventory to verify if it
resulted in a working capital squeeze.
We find that in the case of Oberoi, the ratio (unsold inventory to under-construction) rose
quickly during FY14-FY17 (around the same time that operational cash flows turned negative in
the development business).
However, in the case of Prestige, the cash flow burn has been continuing despite the ratio
consistently trending down.
Exhibit 48: Ratio of unsold inventory to underconstruction projects will help identify
working capital squeeze (evident in case of Oberoi)
80%
65%
50%
35%
20%
FY11 FY12 FY13 FY14 FY15 FY16 FY17
Oberoi Sobha Prestige

Transition to post RERA environment

Under RERA, developers will have to register projects with the respective state regulator, and
this will be possible only after the company has obtained all the key approvals. A front-ended
cash flow model will now shift to a more working capital-intensive one (at least on paper), with
higher emphasis on execution. Developers are more likely to change their land banking model
to a more asset-light joint-development approach to conserve capital and boost ROCE.
Further, developers reliant on investor sales will find the going more difficult in a post-RERA
environment.
Exhibit 49:RERA can cause significant disruption in cash flow model of developers
Pre-launches / Bulk
sales to investors (with
or without approvals)
• Developers p urchased land • Due to lack o f escrow
banks th rough excess cash • Allowed to sell apartments to mechan ism, cash flow
flo ws generated in other investors/end-users even diversion was common
projects or equity witho ut necessary ap provals delaying p roject execution
• Projects could be lanched for • No escrow mechanism to • Delay in obtaining necessary
sale with out necessary ensure cash flows were n ot app rovals was common
ap provals or even full land d iverted/misused • Weak dispute resolution
own ership • Bulk investor played a crucial mechan ism for customers in
role (powerful lobby) in case of projects delays
working capital management
Land bank aggregation

Execution
(total / partial)
Source: SSLe
Bulk sales to investors (a common strategy in investor-driven markets) may also reduce
considerably, as Maharashtra RERA mandates that a sale agreement has to be registered in
case of buyers paying more than 10% of the apartment value to developers.
Developers are likely to forego an aggressive land aggregation strategy (outright land
purchases) in favour of a joint development agreement model to lessen the cash flow burden
arising from upfront land payments and potential approval delays (listed developers like
Indiabulls Real Estate have already announced such a shift). This, in turn, is likely to bring
down land prices.
RERA is likely to help consolidate a highly unorganised market in the longer term. We believe
lesser information asymmetry can also help rationalise prices.
In the near term, since all ongoing under-construction projects will fall under RERA, strain on
cash flows - owing to higher focus on execution rather than new launches - is a key concern.
Can developers scale up on affordable housing? Highly unlikely

Affordable housing projects typically tend to offer low margins (in comparison to premium) and
require fast execution with a tight leash on working capital.
Key impediments to the scalability of the model are land availability (at reasonable cost), lack
of visibility on timely approvals (delays are common) and working capital constraints (low
margins; hence, limited ability to lever up).
Developers with legacy land banks are more likely to pursue affordable housing in a notable
manner.
Reducing house sizes while maintaining a higher ASP is another potential way to address the
affordable housing equation. However, there may be regulatory restrictions (density norms,
height restrictions that may not allow the developer to utilise the available FSI fully, etc) that
serve as a deterrent while following this approach.

Valuation multiples likely to de-rate

Indian developers have averaged 7.9% ROE during FY11-17, and seen minimal accretion
to book (primarily aided by raising of equity). We expect asset turns and profit margins
to remain depressed. Sub-par ROEs and muted cash flow generation prospects suggest
that multiple de-rating are more likely. We anticipate valuation multiples (P/B) of
property stocks to revert to long-term through-cycle averages. We initiate with a SELL
rating on DLF, Oberoi, and Prestige, and a HOLD rating on Sobha.
Sub-par ROEs unlikely to improve

Indian developers have historically seen very low ROEs due to inefficient capital allocation
(large capital deployed in land bank), and asset turns have hardly improved. Further, a
combination of annuity and development businesses also tends to lower the ROEs.
We believe ROEs of developers are likely to remain subdued as we do not expect any
improvement in asset turns, ability to re-lever (except Oberoi) or materially improve net
margins, going forward.
Exhibit 50: Developer ROEs have been hovering around single digits for a long period
20.0%
15.0%
10.0%
5.0%
0.0%
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18e
FY19e
FY20e
Source: SSLe
Breaking down ROEs of developers. we find that asset turns and net profit margins have been
on a declining trend during FY11-FY17.
We anticipate sales to remain muted for developers, which is likely to keep asset turns low, and
do not anticipate any material improvement in the net profit margins.
The ability to re-lever is also weak, except in the case of Oberoi.
Exhibit 51: Asset turns have not improved and we expect Exhibit 52: Net margins are likely to continue to remain
an improvement only in case of Sobha and Oberoi depressed
0.5 60.0
0.4
40.0
0.3
20.0
0.2
0.1 0.0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18e
FY19e
FY20e
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18e
FY19e
FY20e
Sobha Oberoi Prestige DLF Sobha Oberoi Prestige DLF

Analysing historical book value accretion, we find that capital raising (QIP, etc) has played a
key role in book value accretion of larger developers (especially in case of DLF and Prestige
who also focus on the asset-heavy office and retail rental businesses).
Exhibit 53: DLF's book value has decreased between Exhibit 54: Prestige has seen a near equal contribution
FY11-17 due to write-offs from equity raising and net profits during FY11-17
360,000 48,000
270,000 36,000
(Rs mn)
(Rs mn)
180,000 24,000
90,000
12,000
0
2011 Cum. Cum. Net Estd. 2017 0
equity profit net write-offs 2011 Cum. equity Cum. Net 2017
raised of raised profit net of
dividends dividends
In the case of Oberoi and Sobha, there is a larger accretion to book value from net profits
during FY11-17.
Exhibit 55: Oberoi's book accretion has been aided more Exhibit 56: Sobha has seen the maximum earnings
by profit contribution accretion
70,000 28,000
52,500 21,000
(Rs mn)
(Rs mn)
35,000 14,000
17,500
7,000
0
2011 Cum. equity Cum. Net 2017 0
raised profit net of 2011 Cum. equity Cum. Net 2017
dividends raised profit net of
dividends

Increasing debt levels remain a concern
Debt levels of listed Indian developers have continued to increase owing to weak cash flows in
the core businesses and stake buyouts, etc. This along with continued weakness in cash flow
generation is a key concern for the sector, going forward.
Exhibit 57: Net debt has increased continuously over last 3 years for all key developers
except Oberoi
300,000
225,000
(Rs mn)
150,000
75,000
0
FY15 FY16 FY17
DLF Sobha Prestige Oberoi
Standard leverage ratios (Net D/E, Net-debt/ EBITDA) are

unreliable indicators of balance sheet strength
Considering the absence of cash flows (primarily due to working capital changes) in the core
real estate development business, standard leverage ratios (trailing net-debt to equity, trailing
net-debt to reported EBITDA, etc) are poor lead indicators to assess the balance sheet
strength of developers.
For example, companies such as Unitech and HDIL have defaulted or faced repayment issues
when the common leverage indicators suggested minimal stress
Exhibit 58: Net D/E of Unitech and HDIL did not indicate high leverage; Absence of cash
flows was the bigger problem
0.8
0.6
(x)
0.4
0.2
0.0
2011 2012 2013 2014 2015
Unitech HDIL

Premium multiples for low single digit ROEs unsustainable
The recent multiple re-rating of the sector has been driven by expectations of a sustained
improvement in sales (since 4QFY17), reflating most property stocks to prior cyclical peak
valuations.
Most Indian developer stocks continue to generate sub-par ROEs, and in the absence of higher
asset turn and margin levers, we do not see significant scope for RoE expansion.
Exhibit 59: Sustenance of high PB with low RoE appears unlikely
6.0 Godrej
Properties
5.0
4.0
Phoenix Mills
FY18E P/B (x)
3.0
Prestige Oberoi
2.0
Sobha
1.0 DLF
0.0
0 2 4 6 8 10 12 14 16
FY18E ROE (%)
Multiples likely to de-rate

An analysis of long-term through-cycle P/B multiples of Indian property stocks (FY09-current)
suggests that multiples are well above the mean for leading listed property developers. And in
the case of Oberoi and Prestige, trading is almost close to prior peak forward P/B multiples.
Sustaining the current high multiple seems difficult in light of the anticipated weakness in cash
flow generation prospects.
Exhibit 60: 1-yr fwd P/B of DLF has reverted to historical Exhibit 61: Sobha's 1-yr fwd P/B is trading above STD+1
through-cycle average despite fundamentals weakening suggesting low multiple re-rating potential
3.5 2.5
DLF historical fwd P/B Sobha historical fwd P/B
3.0
2.0
2.5
2.0 1.5
1.5
1.0
1.0
0.5 0.5
Nov-08
Jun-09
Jan-10
Aug-10
Nov-11
Jun-12
Jan-13
Aug-13
Apr-14
Nov-14
Jun-15
Jan-16
Aug-16
Apr-17
Nov-17
Nov-09
Nov-10
Nov-11
Nov-12
Nov-13
Nov-14
Nov-15
Nov-16
Nov-17
Mar-11
May-10
May-11
May-12
May-13
May-14
May-15
May-16
May-17
P/B (x) Average through cycle P/B (x) Average through cycle
STD +1 STD -1 STD +1 STD -1
Source: Company, Bloomberg

Exhibit 62: Oberoi's 1-yr fwd P/B trading above prior peak Exhibit 63: This holds true for Prestige Estates as well
de-rating appears imminent
3.0 3.5
Oberoi historical fwd P/B Prestige historical fwd P/B
2.5 3.0
2.5
2.0
2.0
1.5
1.5
1.0 1.0
0.5 0.5
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
P/B (x) Average through cycle P/B (x) Average through cycle
STD +1 STD -1 STD +1 STD -1
Source: Company. Bloomberg
NAV re-rating catalysts appear weak

A continued rise in the NAV of property stocks (especially developers) appears unlikely as key
variables (market value of land, etc) are unlikely to improve.
In the case of annuity plays, however, yield compression (causing a decline in cap rates) could
provide some valuation upside.
Exhibit 64: Key NAV variables
Source: SSLe

Most expensive in the region with higher leverage and cost of
capital
Indian developers have now begun to trade at a significant premium to most Asian markets
despite sub-par ROEs and relatively higher leverage and cost of capital.
The sustainability of the same over an extended period remains highly unlikely.
Exhibit 65: Indian property stocks are currently amongst the most expensive in Asia
M arket Cap P/E (x) P/B (x) ROE Net D/E (x)
Segm ents
Com pany (USD m n) FY18E FY19E FY20E FY18E FY19E FY20E FY17 FY17
DLF 6,159 77.8 82.2 59.9 1.5 1.5 1.5 2.6 0.9
Sobha 807 32.8 23.9 18.7 1.9 1.8 1.7 5.8 0.8
Oberoi 2,321 21.6 15.5 14.2 2.4 2.1 1.9 7.8 0.0
Indian
Prestige 1,671 28.2 29.1 23.6 2.3 2.1 2.0 7.0 1.1
Developers
Phoenix Mills 1,280 28.6 23.7 16.2 3.3 3.4 2.5 10.5 1.3
Godrej Properties 2,311 51.1 36.3 28.7 6.9 5.9 5.1 11.4 1.9
Segm ent Average 40.0 35.1 26.9 3.0 2.8 2.5
Cheung Kong 5,623 10.5 9.6 8.9 0.8 0.8 0.7 7.5 0.3
Sino Land 1,331 12.9 17.1 14.7 0.6 0.6 0.6 4.2 (0.2)
Sun Hung Kai 5,420 12.2 11.4 10.6 0.7 0.7 0.6 5.5 0.1
HK Developers
Kerry Properties 720 8.4 10.1 9.1 0.5 0.5 0.5 3.9 0.3
Henderson Land 2,992 13.8 15.6 13.4 0.7 0.7 0.7 5.1 0.1
Segm ent Average 11.6 12.7 11.3 0.7 0.7 0.6
Great Eagle 425 15.2 14.9 14.0 0.5 0.5 0.5 3.4 0.3
Hang Lung Properties 1,272 15.2 17.3 18.3 0.6 0.6 0.6 4.5 0.0
Hong Kong Land NA NA NA NA NA NA NA 3.1 0.1
HK Investors
Hysan 650 17.9 17.5 16.8 0.6 0.6 0.6 3.4 0.1
Midland 23 11.5 11.3 8.7 1.2 1.1 1.0 (1.8) (0.4)
Segm ent Average 15.0 15.2 14.5 0.7 0.7 0.7
Capitaland 226 17.2 16.6 16.6 0.8 0.8 0.7 4.8 0.4
City Development 174 21.0 18.3 18.0 1.2 1.1 1.1 6.5 0.2
Singapore
Keppel Land NA NA NA NA NA NA NA 5.8 0.3
Developers
Wing Tai Holdings 27 25.8 34.8 43.4 0.5 0.5 0.5 1.1 0.0
Segm ent Average 21.4 23.3 26.0 0.8 0.8 0.8
Ascendas Trust 118 16.3 15.2 15.4 1.3 1.3 1.2 7.5 0.5
CapitaCommercial Trust 103 19.5 22.2 22.5 1.1 1.1 1.1 4.8 0.5
Singapore Capitamall Trust 114 17.8 18.3 18.4 1.1 1.1 1.1 6.2 0.4
Investors Suntec REIT 83 25.2 25.6 25.2 1.0 1.0 1.0 3.7 0.6
K-REIT 63 25.8 25.8 27.0 0.9 0.9 0.9 3.7 0.5
Segm ent Average 20.9 21.4 21.7 1.1 1.1 1.1
Source: Bloomberg, SSLe
We prefer Sobha, Oberoi but valuations cap upside; SELL

Prestige, and DLF
Among the large listed Indian developers, we believe Sobha and Oberoi are the players
creating a sustainable business with an eye on recurring cash flows. However, at 1.7x-2x
FY20e P/B, we find limited comfort in valuations.
We initiate coverage with a SELL rating on Prestige, and DLF. This is because, despite the
tailwinds of yield compression and potential REIT listing, these companies have been unable to
generate cash flows in the core business and the current expensive valuations increase the
risk of de-rating.

Sobha Limited
Initiating Coverage | Real Estate | SOBHA IN

Building a sustainable franchise December 14, 2017
Among Indian developers, Sobha has the strongest track record of Rat ing Target Price (Rs) Upside/ Downside (%)
generating recurring operational cashflows in the core real estate
development business. A strong emphasis on execution, as evidenced by
HOLD 562 2
its project deliveries totalling ~25.5mn.sq.ft over FY11-17, and focus on M a rke t da t a
end-user sales in its core markets (Bengaluru and South India) have been C urre nt price Rs 551
the key drivers. The company's current order book of Rs15.2bn in its M kt capit alisat ion USDm 823
contractual business is the highest ever in its operational history and aids Average daily value 3M USDm 5.2
near-term earnings visibility. However, like the rest of the developer Free f loat % 43.9
universe, Sobha is likely to be affected by the introduction of RERA and the Promot er holding % 56.1
current lack of clarity on new project approvals (due to NGT ruling in Foreign holding % 29.7
Bangalore). This, in turn, is likely to curb new launches in the residential
segment. Further, Sobha's bulk of unsold inventory continues to be in the 1 Y e ar P e rf o rm anc e
Rs10mn+ category, which is likely to hamper the pace of sales bookings. 300
Valuations are not cheap (FY20e 1.7X P/B vs. historical avg of 1.5x P/B,
FY20e ROE of 9.5%). However, a good track record, aided by transparency 225
and delivery on key metrics (such as guidance, launches, execution, etc),
suggests that Sobha will continue to enjoy a valuation premium over peers 150
We initiate with a HOLD rating and target price of Rs562 (DCF-based NAV).
75
Strong recurring operational cashflow generation likely to sustain: Sobha
has been one of the few Indian developers generating positive operational 0
Dec-16 Mar-17 Jun-17 Sep-17 Dec-17
cashflows in the residential development business over the past 7 years. The
company has generated cumulative positive operational cash flows of ~Rs23bn Sobha Ltd Nifty Index
in residential development since FY11. Sobha (a good indicator of execution) has
consistently outperformed regional peers (Prestige, Puravankara, etc) in terms of Source: Bloomberg, SSLe
project delivery over the past 4 years. Sobha’s average FY13-FY17 annual
delivery of 7mn.sq.ft is twice that of Prestige (Purvankara). Further, cash flows
from its development business closely track reported sales booking, which is an
encouraging sign.
Robust contractual order book; but core Bangalore residential market
remains sluggish: Sobha’s asset-light contractual business has grown at a
CAGR of 16% between FY12-FY17 and contributed around 34% to FY17 sales.
Sobha's current contractual order book of Rs15.2bn is the highest in its history,
and provides earnings visibility. However, the core Bangalore residential market
continues to be sluggish, with inventory pileup (inventory months of 40, steadily
increasing in the last 4 years), and lack of visibility on new project approvals post
the NGT ruling. Also, Sobha's unsold inventory primarily lies in the Rs.10mn+
bracket, which could slow down sales bookings.
Valuation premium likely to sustain, but unattractive risk-reward; HOLD:
Sobha’s consistency in meeting guidance, transparency, and delivery suggests
that its valuation premium over peers will sustain, going forward. However, the
current valuations of 1.7x FY20e P/B (9.5% FY20e ROE) do not provide much
upside. We initiate coverage on Sobha with a HOLD rating and a target price of
Rs562 (DCF-based NAV).
Financial Summary
Y/E Mar (Rs m n) FY16 FY17 FY18e FY19e FY20e
Net sales 18,651 22,462 27,488 32,527 37,411
EBITDA 5,034 4,198 5,163 5,342 6,156
EBITDA margin (%) 27.0 18.7 18.8 16.4 16.5
Adjusted net profit 1,533 1,479 1,657 2,281 2,917
EPS (Rs) 15.6 15.4 17.2 23.7 30.3
Grow th (%) (35.6) (1.8) 12.0 37.7 27.9
P/E (x) 35.3 35.9 32.0 23.3 18.2 Sandeep Mathew
P/B (x) 2.1 2.0 1.9 1.8 1.7
+91 22 4348 7091
EV/EBITDA (x) 15.0 17.9 14.5 13.7 11.4
sandeep.mathew@sbicapsec.com
Net D/E (x) 0.8 0.8 0.8 0.7 0.5
RoE (%) 6.1 5.7 6.1 8.0 9.5
Anshul Agrawal
OCF / share 29 37 34 44 58
BV / share 261 275 288 307 332 +91 22 4348 7194
Source: Company, SSLe anshul.agrawal@sbicapsec.com
Sobha SBICAP Securities Ltd
Financials
Income statement Balance sheet
Y/E Mar (Rs m n) FY16 FY17 FY18e FY19e FY20e Y/E Mar (Rs m n) FY16 FY17 FY18e FY19e FY20e
Net sales 18,651 22,462 27,488 32,527 37,411 Cash & Bank balances 1,333 1,241 2,417 2,215 2,361
growth (%) (23.6) 20.4 22.4 18.3 15.0 Other Current assets 58,586 81,510 83,736 85,777 88,130
Operating expenses 13,617 18,264 22,325 27,185 31,255 Investments 272 227 227 227 227
EBITDA 5,034 4,198 5,163 5,342 6,156
growth (%) (18.5) (16.6) 23.0 3.5 15.2 Net fixed assets 5,598 5,151 5,246 5,330 5,406
Depreciation &amortisation 634 638 605 616 625 Goodw ill & intangible assets 47 2 2 2 2
EBIT 4,400 3,560 4,558 4,726 5,532 Other non-current assets 454 799 799 799 799
Other income 134 386 50 97 89 Total assets 66,290 88,930 92,427 94,350 96,925
Interest paid 1,725 1,497 2,135 1,418 1,267
Extraordinary/Exceptional - - - - - Current liabilities 15,058 36,785 37,956 40,055 43,295
PBT 2,809 2,449 2,473 3,405 4,353 Borrow ings 22,924 23,417 24,417 22,417 19,417
Tax 1,267 970 816 1,124 1,437 Other non-current liabilities 2,538 2,283 2,283 2,283 2,283
Effective tax rate (%) 45.1 39.6 33.0 33.0 33.0 Total liabilities 40,519 62,486 64,657 64,755 64,996
Net profit 1,541 1,479 1,657 2,281 2,917
Minority interest 9 - - - - Share capital 981 963 963 963 963
Reported Net profit 1,533 1,479 1,657 2,281 2,917 Reserves & surplus 24,634 25,482 26,807 28,632 30,965
Non-recurring items - - - - - Shareholders' funds 25,614 26,445 27,770 29,595 31,928
Adjusted Net profit 1,533 1,479 1,657 2,281 2,917 Minority interest 156 - - - -
growth (%) (35.6) (3.5) 12.0 37.7 27.9 Total equity & liabilities 66,290 88,930 92,427 94,350 96,925
Financial ratios Cash flow statement

Y/E Mar FY16 FY17 FY18e FY19e FY20e Y/E Mar (Rs m n) FY16 FY17 FY18e FY19e FY20e
Profitability and return ratios (%) Pre-tax prof it 2,809 2,578 2,473 3,405 4,353
EBITDAM 27.0 18.7 18.8 16.4 16.5 Depreciation 634 638 605 616 625
EBITM 23.6 15.8 16.6 14.5 14.8 Chg in w orking capital (1,505) 130 (1,055) 58 887
NPM 8.2 6.6 6.0 7.0 7.8 Total tax paid (619) (679) (816) (1,124) (1,437)
RoE 6.1 5.7 6.1 8.0 9.5 Other operating activities 1,511 872 2,085 1,322 1,178
Operating CF 2,830 3,539 3,292 4,277 5,607
- - - - -
Capital expenditure (1,442) (316) (700) (700) (700)
Per share data (Rs) Chg in investments 93 336 50 97 89
O/s shares (mn) 98 96 96 96 96 Other investing activities
EPS 15.6 15.4 17.2 23.7 30.3 Investing CF (1,349) 20 (650) (603) (611)
OCF 28.9 36.7 34.2 44.4 58.2 FCF 1,388 3,222 2,592 3,577 4,907
FCF 14.2 33.5 26.9 37.1 51.0 - 0 - - -
BV 261 275 288 307 332 Equity raised/(repaid) - - - - -
DPS 7 2 3 5 6 Debt raised/(repaid) (781) (3,222) (1,135) (3,418) (4,267)
Dividend (incl. tax) (686) (193) (331) (456) (583)
Valuation ratios (x) Other f inancing activities (141)
P/E 35.3 35.9 32.0 23.3 18.2 Financing CF (1,607) (3,415) (1,466) (3,875) (4,850)
P/BV 2.1 2.0 1.9 1.8 1.7
EV/EBITDA 15.0 17.9 14.5 13.7 11.4 Net chg in cash & bank bal (126) 143 1,176 (201) 145
EV/Sales 4.1 3.3 2.7 2.3 1.9
Other key ratios

Net D/E (x) 0.8 0.8 0.8 0.7 0.5
Du Pont Analysis - RoE

NPM (%) 8.2 6.6 6.0 7.0 7.8
Asset turnover (x) 0.3 0.3 0.3 0.3 0.4
Equity Multiplier (x) 2.6 3.0 3.3 3.3 3.1
RoE (%) 6.1 5.7 6.1 8.0 9.5
sandeep.mathew@sbicapsec.com | anshul.agrawal@sbicapsec.com December 14, 2017 | 30

Oberoi Realty Limited
Initiating Coverage | Real Estate | OBER IN

Limited re-rating triggers December 14, 2017
Oberoi's key strengths have been its strong balance sheet and a stable Rat ing Target Price (Rs) Upside/ Downside (%)
annuity income stream from its office and retail assets, which provide a HOLD 475 5
strong opportunity to re-lever selectively (land acquisitions, etc). However,
in the core residential development business, the company continues to M a rke t da t a
struggle to generate positive operational cash flows (cumulative pre-tax C urre nt price Rs 4 52
operational cash flow loss in the business amounted to Rs4.1 bn during M kt capit alisat ion USDm 2,382
Average daily value 3M USDm 3.1
FY11-17). It is comforting to note that the company has ~Rs24bn in near-
Free f loat % 27.5
complete inventory, which it can monetise (though ticket size per unit is
Promot er holding % 72.5
higher than Rs30mn). We believe new sales momentum (Worli, Goregaon, Foreign holding % 27.5
etc.) is likely to remain subdued post the implementation of RERA and
continued weakness in the Mumbai premium residential market. Given the 1 Y e ar P e rf o rm anc e
lack of near-term earnings and cash flow triggers, we initiate coverage with 180
a HOLD rating and a target price of Rs475 (DCF based NAV).
155
Strongest balance sheet in sector but yet to accelerate on cash flow
generation: Oberoi's key strength is its relatively unlevered balance sheet 130
(current net D/E of -0.2x), which provides opportunities to acquire new projects,
105
especially in a weak real estate market. However, cash flow generation from the
core development business has been muted (cumulative pre-tax operational 80
cashflow loss in the business amounted to Rs4.1bn during FY11-17). It is Dec-16 Mar-17 Jun-17 Sep-17 Dec-17
comforting to note that the company has ~Rs24bn in near-complete inventory, Oberoi Realty Ltd Nifty Index
which it can monetise in the near term, although the current pace of sales in
these projects suggest a sales run-rate of 5-6 years. Further, the average ticket Source: Bloomberg, SSLe
size in these projects (Exquisite, Esquire) is higher than Rs30mn, targeting the
premium segment.
Monetising premium residential real estate in Mumbai has been a
challenge: Oberoi has met with maximum success in its residential projects
during the initial launch phases. Sales volumes post a project launch have been
muted. The long sales gestation cycle associated with projects (projects
launched in FY10-11 still have unsold inventories) continues to impact cash flow
generation. The average ticket sizes of Oberoi's projects exceed Rs25mn, and
the ability to monetise premium residential projects in a weak Mumbai real estate
market (low investor demand) remains low, in our view. We believe this, in turn,
is likely to keep cash flow generation also muted.
Quality annuity portfolio; limited valuation upside - HOLD: Oberoi Realty
generated approximately Rs2.5bn of annuity income from its rental properties,
including Westin, and Rs1.7bn of EBITDA in FY17. While a strong balance sheet
and annuity portfolio limit downside risks, current valuations (1.9x FY20e P/B,
14.2% ROE) provide limited upside. We initiate coverage with a HOLD rating and
a target price of Rs475 (DCF based NAV).
Financial Summary
Net sales 14,161 11,137 19,441 27,908 31,158
EBITDA 6,763 5,701 10,147 13,991 15,622
EBITDA margin (%) 47.8 51.2 52.2 50.1 50.1
EPS (Rs) 12.9 11.1 21.0 29.3 31.9
Grow th (%) 33.7 (14.3) 90.0 39.3 8.9
P/E (x) 35.1 40.8 21.6 15.5 14.3 Sandeep Mathew
P/B (x) 2.9 2.7 2.4 2.1 1.9
+91 22 4348 7091
EV/EBITDA (x) 22.7 27.6 15.4 10.7 9.7
sandeep.mathew@sbicapsec.com
Net D/E (x) (0.2) (0.2) (0.1) (0.2) (0.2)
RoE (%) 8.1 6.6 11.9 14.3 14.2
Anshul Agrawal
OCF / share 13 5 8 23 22
BV / share 159 169 186 217 238 +91 22 4348 7194
Oberoi Realty SBICAP Securities Ltd
Financials
Y/E Mar (Rs mn) FY16 FY17 FY18e FY19e FY20e Y/E Mar (Rs mn) FY16 FY17 FY18e FY19e FY20e
grow th (%) 53.5 (21.4) 74.6 43.6 11.6 Other Current assets 44,520 49,809 54,908 57,066 62,702
Operating expenses 7,398 5,437 9,293 13,918 15,536 Investments 13,766 16,018 11,018 11,018 11,018
EBITDA 6,763 5,701 10,147 13,991 15,622
grow th (%) 31.6 (15.7) 78.0 37.9 11.7 Net fixed assets 11,145 10,860 12,326 13,727 15,064
Depreciation &amortisation 490 495 534 600 663 Goodw ill & intangible assets 26 21 21 21 21
EBIT 6,273 5,206 9,614 13,391 14,959 Other non-current assets 1,517 2,092 5,661 8,104 8,886
Other income 428 473 665 430 589 Total as sets 74,838 84,541 90,583 98,532 109,476
Interest paid 68 56 87 87 87
Extraordinary/Exceptional Current liabilities 16,692 18,595 18,860 18,508 19,986
PBT 6,632 5,623 10,192 13,734 15,462 Borrow ings 4,734 8,686 8,686 8,686 8,686
Tax 2,293 1,868 3,058 4,120 4,639
Effective tax rate (%) 34.6% 33.2% 30.0% 30.0% 30.0% Total liabilities 21,426 27,282 27,547 27,195 28,673
Net profit 4,340 3,754 7,134 9,614 10,823
Minority interest - - Share capital 3,393 3,395 3,395 3,395 3,395
Reported Net profit 4,340 3,754 7,134 9,614 10,823 Reserves & surplus 50,018 53,864 59,641 67,942 77,408
Non-recurring items - - Shareholders' funds 53,411 57,260 63,037 71,337 80,803
Adjusted Ne t profit 4,340 3,754 7,134 9,614 10,823 Minority interest - - - - -
grow th (%) 36.8 (13.5) 90.0 34.8 12.6 Total equity & liabilitie s 74,838 84,541 90,583 98,532 109,476

Y/E Mar FY16 FY17 FY18e FY19e FY20e Y/E Mar (Rs mn) FY16 FY17 FY18e FY19e FY20e
Profitability and return ratios (%) Pre-tax profit 6,545 5,623 10,192 13,734 15,462
EBITDAM 47.8 51.2 52.2 50.1 50.1 Depreciation 490 495 534 600 663
EBITM 44.3 46.7 49.5 48.0 48.0 Chg in w orking capital (995) (2,845) (4,834) (2,510) (4,158)
NPM 30.6 33.7 36.7 34.4 34.7 Total tax paid (2,118) (1,825) (3,058) (4,120) (4,639)
RoE 8.1 6.6 11.9 14.3 14.2 Other operating activities 345 288 - - -
Ope rating CF 4,267 1,735 2,834 7,703 7,328
Capital expenditure (465) (763) (5,568) (4,443) (2,782)

Per s hare data (Rs)
O/s shares (mn) 336.0 339.3 339.3 328.2 339.3 Other investing activities (1,969) (3,627) 5,000 - -
EPS 12.9 11.1 21.0 29.3 31.9 Inves ting CF (2,434) (4,389) (568) (4,443) (2,782)
OCF 12.7 5.1 8.4 23.5 21.6
BV 159.0 168.8 185.8 217.3 238.2
DPS 4.8 - 4.0 4.0 4.0 Equity raised/(repaid) 3,258 60 - - -
Debt raised/(repaid) (453) (705) - - -
Dividend (incl. tax) (1,607) - (1,357) (1,313) (1,357)
Valuation ratios (x) Other financing activities
P/E 35.1 40.8 21.6 15.5 14.3 Financing CF 1,198 (644) (1,357) (1,313) (1,357)
P/BV 2.9 2.7 2.4 2.1 1.9
EV/EBITDA 22.7 27.6 15.4 10.7 9.7 Net chg in cash & bank bal 3,032 (3,298) 908 1,947 3,189
EV/Sales 10.9 14.1 8.0 5.4 4.9
Other k ey ratios
Net D/E (x) (0.2) (0.2) (0.1) (0.2) (0.2)

NPM (%) 30.6 33.7 36.7 34.4 34.7
Asset turnover (x) 0.2 0.1 0.2 0.3 0.3
RoE (%) 8.7 6.8 11.9 14.3 14.2

Prestige Estates Projects
Initiating Coverage | Real Estate | PEPL IN

Struggling to generate cash flows December 14, 2017
Prestige Estates has struggled to generate cash flows in the real estate Rat ing Target Price (Rs) Upside/ Downside (%)
development business (ex-annuity and hospitality) since FY11. During SELL 250 (15)
FY11-17, despite reporting ~32.9mn.sq.ft (valued at Rs.192 bn) of sales
bookings, the company’s cumulative pre-tax operational cash loss from the M a rke t da t a
development business totaled Rs10.3bn. We also remain concerned on the C urre nt price Rs 294
outlook, as approvals in Bangalore have been delayed post the NGT ruling M kt capit alisat ion USDm 1,710
in May 2016; also, with the implementation of RERA, the focus is likely to
Free f loat % 30.0
shift to more end-user sales. The outlook for Prestige's annuity business
remains good, and there is a potential for some yield compression benefits
Foreign holding % 2.1
in case of a REIT listing. However, valuations (2.0x FY20e P/B, RoE of 8.8%)
are expensive, and leverage levels (1.1x Net D/E) could trend higher in case
1 Y e ar P e rf o rm anc e
cash flow generation does not improve. We initiate coverage on Prestige
250
with a SELL rating and a target price of Rs250 (DCF-based NAV).
200
Strong operational performance but high cash flow burn continues in core
development business: Despite reporting strong operational numbers in terms 150
of sales bookings during FY11-17 (cumulative sales of 32.9mn.sq.ft), Prestige
failed to generate positive cash flows in its development business. The 100
company’s cumulative pre-tax operational cash loss in the development business
50
(defined as pre-tax operational cash flow less annuity business EBITDA) during Dec-16 Mar-17 Jun-17 Sep-17 Dec-17
FY11-17 amounted to Rs10.3bn. While losses for a couple of years can be
attributed to stretched working capital, etc, it is worrying to see the company Prestige Estates Projects Nifty Index
consistently failing to generate cash profits in a primarily front-loaded cash flow Source: Bloomberg, SSLe
business.
Annuity business is key cash flow generator; low delta seen from yield
compression: Prestige currently owns and operates 18.1mn.sq.ft of office and
2.7mn.sq.ft of retail space. The annuity businesses generated rental income of
~Rs12.6bn in FY17 and EBITDA of ~Rs7bn (26% of sales, 92% of pre-tax OCF).
Prestige's assets are primarily dependent on the IT/ITES sector’s growth in
Bangalore, and the rental outlook in the market is anticipated to be stable. While
the rental portfolio can benefit from lower yields and cap rate compression (listing
of REITs, etc), the delta is still low (~Rs10/share impact for 100bps
compression).
Gearing remains elevated, valuations expensive; SELL: Prestige’s capital
raising exercises (totalling approximately Rs22bn, including IPO and two QIPs)
have historically provided cushion to the balance sheet. Current gearing levels
(1.1x Net D/E) remain elevated in our view, especially in light of weak core cash
flows. Prestige currently trades at the higher end of the valuation band (at 2.0x
FY20e P/B, RoE of 8.8%), and we believe risk-reward at current levels remains
unattractive. We initiate coverage on Prestige with a SELL rating and a target
price of Rs250 (DCF-based NAV).
Financial Summary
Net sales 58,141 48,617 48,688 50,122 60,995
EBITDA 13,493 10,070 12,005 12,664 14,379
EBITDA margin (%) 23.2 20.7 24.7 25.3 23.6
EPS (Rs) 17.4 10.1 10.5 10.1 12.5
Grow th (%) 96.6 (41.9) 3.4 (3.2) 23.3
P/E (x) 16.8 29.0 28.0 28.9 23.5
Sandeep Mathew
P/B (x) 2.6 2.5 2.3 2.1 2.0
EV/EBITDA (x) 11.6 16.2 14.1 14.0 12.3 +91 22 4348 7091
Net D/E (x) 1.1 1.1 1.1 1.2 1.1 sandeep.mathew@sbicapsec.com
RoE (%) 15.6 8.5 8.5 7.7 8.8
OCF / share 13 13 24 16 21 Anshul Agrawal
BV / share 112 119 128 137 147 +91 22 4348 7194
Prestige Estates Projects SBICAP Securities Ltd
Financials
Y/E Mar (Rs m n) FY16 FY17 FY18e FY19e FY20e Y/E M ar (Rs m n) FY16 FY17 FY18e FY19e FY20e
Net sales 58,141 48,617 48,688 50,122 60,995 Cash & Bank balances 5,069 4,313 2,734 444 1,167
EBITDA 13,493 10,070 12,005 12,664 14,379
grow th (%) 23.5 (25.4) 19.2 5.5 13.5 Net f ixed assets 34,034 33,107 43,187 50,370 50,864
Depreciation &amortisation 1,274 1,637 2,360 2,894 3,131 Goodw ill & intangible assets 3,111 3,116 3,116 3,116 3,116
Other income - - - - - Total ass ets 162,644 166,267 175,897 189,823 199,939
Interest paid 3,462 3,160 3,790 4,105 4,262
PBT 8,757 5,273 5,855 5,665 6,986 Borrow ings 53,999 57,657 62,657 67,657 67,657
Tax 2,291 1,600 1,932 1,869 2,305 Other non-current liabilities 3,190 1,093 1,093 1,093 1,093
Ef fective tax rate (%) 26.2% 30.3% 33.0% 33.0% 33.0% Total liabilitie s 118,379 119,513 125,809 136,508 142,646
Net profit 6,466 3,673 3,923 3,796 4,680
Minority interest (67) (121) - - - Share capital 3,750 3,750 3,750 3,750 3,750
Reported Net prof it 6,533 3,794 3,923 3,796 4,680 Reserves & surplus 38,249 40,890 44,225 47,451 51,429
Non-recurring items - - Shareholders ' funds 41,999 44,640 47,975 51,201 55,179
Adjus te d Ne t profit 6,533 3,794 3,923 3,796 4,680 Minority interest 2,266 2,114 2,114 2,114 2,114
grow th (%) 96.6 (41.9) 3.4 (3.2) 23.3 Total e quity & liabilities 162,644 166,267 175,897 189,823 199,939

Y/E Mar FY16 FY17 FY18e FY19e FY20e Y/E M ar (Rs m n) FY16 FY17 FY18e FY19e FY20e
Profitability and re turn ratios (%) Pre-tax prof it 6,090 5,394 5,855 5,665 6,986
EBITDAM 23.2 20.7 24.7 25.3 23.6 Depreciation 1,584 1,637 2,360 2,894 3,131
EBITM 21.0 17.3 19.8 19.5 18.4 Chg in w orking capital (2,321) (1,259) 2,693 (596) 79
RoE 15.6 8.5 8.5 7.7 8.8 Other operating activities 2,907 2,315 - - -
Operating CF 4,965 4,849 8,976 6,093 7,891
Capital expenditure (5,179) (8,672) (14,966) (12,814) (6,466)

Per s hare data (Rs)
O/s shares (mn) 375.0 375.0 375.0 375.0 375.0 Other investing activities (1,333) 3,746 - - -
EPS 17.4 10.1 10.5 10.1 12.5 Inve sting CF (6,512) (4,926) (14,966) (12,814) (6,466)
OCF 13.2 12.9 23.9 16.2 21.0
BV 112.0 119.0 127.9 136.5 147.1
DPS 3.2 - 1.6 1.5 1.9 Equity raised/(repaid) - - - - -
Debt raised/(repaid) 2,063 (797) 5,000 5,000 -
Dividend (incl. tax) (1,219) - (588) (569) (702)
Valuation ratios (x) Other f inancing activities
P/E 16.8 29.0 28.0 28.9 23.5 Financing CF 844 (797) 4,412 4,431 (702)
P/BV 2.6 2.5 2.3 2.1 2.0
EV/EBITDA 11.6 16.2 14.1 14.0 12.3 Net chg in cash & bank bal (703) (874) (1,579) (2,290) 723
EV/Sales 2.7 3.4 3.5 3.5 2.9
Other ke y ratios
Net D/E (x) 1.1 1.1 1.1 1.2 1.1

NPM (%) 11.2 7.8 8.1 7.6 7.7
Asset turnover (x) 0.4 0.3 0.3 0.3 0.3
RoE (%) 15.6 8.5 8.5 7.7 8.8

DLF Limited
Initiating Coverage | Real Estate | DLFU IN

A long road to recovery December 14, 2017
Rat ing Target Price (Rs) Upside/ Downside (%)

DLF’s profitability and cashflows are heavily hinged on its rental portfolio,
which, despite the tailwinds of REITs and potential yield compression, has SELL 153 (33)
witnessed a reduction in economic interest by 33% post-CCPS conversions
M a rke t da t a
and proposed buyback. The company’s sales booking run-rate has fallen
C urre nt price Rs 228
below that of regional peers (Sobha, Prestige, etc) due to high inventory
M kt capit alisat ion USDm 6,311
overhang in its key residential markets like Gurgaon. DLF has become
leaner by disposing of loss-making entities (Aman, Insurance business,
Free f loat % 25.0
etc), but cash flow in the core development business has been very weak;
the company reported over Rs30bn of pre-tax operational cash flow loss
during FY11-17. Leverage remains high (in comparison to cash flow
1 Y e ar P e rf o rm anc e
generation) and dilution appears highly likely. Despite the expected
250
infusion of Rs112.5bn by the promoter and anticipated equity raising of
~Rs38bn, we see limited upside. We initiate coverage on DLF with a SELL 200
rating and a target price of Rs153 (DCF-based NAV).
150
Highly profitable businesses diluted; core development business
struggling: DLF has diluted ~33% stake in its most profitable businesses 100
through the conversion of CCPS. Outside of the annuity businesses, DLF's cash
50
flow generation has been very weak. We estimate that DLF reported over Dec-16 Mar-17 Jun-17 Sep-17 Dec-17
Rs30bn of pre-tax operational cash flow loss during FY11-17 in its core
development business. The inability to generate cash flows in this business over DLF Ltd Nifty Index
an extended period of time is worrying. Source: Bloomberg, SSLe
Core operations turnaround still away; Gurgaon market recovery likely to
be very slow: Inventory overhang in DLF’s key markets like Gurgaon remains
high (at 92 months, highest among metros), and a high quantum of finished
product supply is likely to cap new launches. The company’s booking run-rate is
now lower than that of regional peers (Sobha, Prestige, etc) and prospects for a
turnaround remain subdued. Further, investor-driven markets like Gurgaon/NCR
may continue to see muted demand post RERA and unfavourable policies.
Gearing levels remain high - SELL: DLF’s debt levels continue to rise, and
weak cash flow generation from the core development business and risk of
contingent liabilities (Rs90bn) are likely to aggravate the situation. Further, scope
for debt reduction through non-core asset disposal is limited, as most of the asset
sales are complete. The anticipated infusion of Rs112.5bn by the promoter and
proposed equity raising of ~Rs.38bn are likely to reduce debt by almost half.
However, the corresponding equity dilution (~39%) is significant, and is likely to
keep ROEs depressed. While the listing of annuity assets in a REIT may provide
some yield compression benefits, it is unlikely to have a substantial impact on
valuations. We would wait to see some improvement in terms of cash flows
before turning positive. We initiate coverage on DLF with a SELL rating and a
target price of Rs153 (DCF-based NAV).
Financial Summary
Net sales 99,256 82,212 83,477 86,362 92,882
EBITDA 39,972 34,333 36,067 37,146 40,146
EBITDA margin (%) 40.3 41.8 43.2 43.0 43.2
EPS (Rs) 1.7 4.0 3.0 2.9 3.9
Grow th (%) (80.7) 132.1 (24.0) (5.4) 37.3
P/E (x) 133.2 57.4 75.5 79.8 58.1
P/B (x) 1.7 1.7 1.5 1.5 1.5 Sandeep Mathew
EV/EBITDA (x) 15.7 19.2 18.0 17.4 15.7 +91 22 4348 7091
Net D/E (x) 0.8 1.0 0.7 0.7 0.6 sandeep.mathew@sbicapsec.com
RoE (%) 1.3 2.9 2.2 1.9 2.6
OCF / share 17 (5) 11 7 16 Anshul Agrawal
BV / share 135 138 148 150 153
+91 22 4348 7194
anshul.agrawal@sbicapsec.com
DLF SBICAP Securities Ltd
Financials
Y/E Mar (Rs m n) FY16 FY17 FY18e FY19e FY20e Y/E Mar (Rs m n) FY16 FY17 FY18e FY19e FY20e
EBITDA 39,972 34,333 36,067 37,146 40,146
grow th (%) 32.2 (14.1) 5.1 3.0 8.1 Net fixed assets 238,370 236,131 239,516 242,227 244,982
Depreciation &amortisation 7,659 5,725 5,518 5,580 5,640 Goodw ill & intangible assets 11,916 11,799 11,799 11,799 11,799
Other income 6,714 7,193 6,147 6,199 7,223 Total assets 617,305 643,307 638,682 645,221 656,013
Interest paid 26,798 29,798 28,026 25,414 24,891
PBT 12,229 6,003 8,671 12,351 16,837 Borrow ings 253,962 293,196 243,196 243,196 233,196
Tax 5,642 2,293 2,601 3,705 5,051 Other non-current liabilities 14,803 16,094 16,094 16,094 16,094
Eff ective tax rate (%) 46.1% 38.2% 30.0% 30.0% 30.0% Total liabilities 375,353 396,340 348,585 350,655 355,312
Net profit 6,587 3,710 6,069 8,646 11,786
Minority interest 1,569 923 164 3,060 4,118 Share capital 3,567 3,568 3,914 3,914 3,914
Reported Net prof it 5,018 2,787 5,905 5,586 7,668 Reserves & surplus 237,123 242,160 284,944 289,413 295,548
Non-recurring items (1,967) 4,293 - - - Shareholders' funds 240,691 245,728 288,858 293,327 299,462
Adjusted Net profit 3,051 7,080 5,905 5,586 7,668 Minority interest 1,261 1,239 1,239 1,239 1,239
grow th (%) (43.5) 132.1 (16.6) (5.4) 37.3 Total equity & liabilities 617,305 643,307 638,682 645,221 656,013

Y/E Mar FY16 FY17 FY18e FY19e FY20e Y/E Mar (Rs m n) FY16 FY17 FY18e FY19e FY20e
Profitability and return ratios (%) Pre-tax prof it 9,534 6,003 8,671 12,351 16,837
EBITDAM 40.3 41.8 43.2 43.0 43.2 Depreciation 7,778 5,725 5,518 5,580 5,640
EBITM 32.6 34.8 36.6 36.6 37.2 Chg in w orking capital (3,738) (45,217) 10,245 (1,412) 13,443
RoE 1.3 2.9 2.2 1.9 2.6 Other operating activities 23,673 27,788 - - -
Operating CF 30,848 (8,979) 21,833 12,814 30,870
Capital expenditure (6,190) (2,147) (8,903) (8,291) (8,396)

Per share data (Rs)
O/s shares (mn) 1,781.8 1,781.8 1,954.8 1,954.8 1,954.8 Other investing activities (3,033) 10,863 - - -
EPS 1.7 4.0 3.0 2.9 3.9 Investing CF (9,223) 8,716 (8,903) (8,291) (8,396)
OCF 17.3 (5.0) 11.2 6.6 15.8
BV 135.1 137.9 147.8 150.1 153.2
DPS 4.1 0.0 0.6 0.6 0.8 Equity raised/(repaid) 913 1 38,406 - -
Debt raised/(repaid) (12,106) 7,909 (50,164) (3,060) (14,118)
Dividend (incl. tax) (7,272) (39) (1,181) (1,117) (1,534)
Valuation ratios (x) Other financing activities
P/E 133.2 57.4 75.5 79.8 58.1 Financing CF (18,465) 7,871 (12,939) (4,177) (15,651)
P/BV 1.7 1.7 1.5 1.5 1.5
EV/EBITDA 15.7 19.2 18.0 17.4 15.7 Net chg in cash & bank bal 3,160 7,608 (10) 346 6,822
EV/Sales 6.3 8.0 7.8 7.5 6.8
Other key ratios

Net D/E (x) 0.8 1.0 0.7 0.7 0.6

NPM (%) 3.1 8.6 7.1 6.5 8.3
Asset turnover (x) 0.2 0.1 0.1 0.1 0.1
RoE (%) 1.3 2.9 2.2 1.9 2.6

SBICAP Securities Limited

(CIN): U65999MH2005PLC155485 | Research Analyst Registration No INH000000602
SEBI Registration No.: NSE Capital Market: INB 231052938 | NSE Derivatives: INF 231052938 | BSE Capital Market: INB 011053031
Currency Derivatives: INE 231052938 | CDSL: IN-DP-CDSL-370-2006 | IRDA/IR2/2014/241
Corporate Office:
th
Marathon Futurex, A & B Wing, 12 Floor, N. M. Joshi Marg, Lower Parel, Mumbai -400013.
Tel.: 91-22-4227 3300/01 | Fax: 91-22-4227 3335 | Email: sbicapresearch@sbicapsec.com | www.sbismart.com
KEY TO INVESTMENT RATINGS

Guide to the expected return over the next 12 months. 1=BUY (expected to give absolute returns of 15 or more percentage points);
2=HOLD (expected to give absolute returns between -10 and 15 percentage points); 3=SELL (expected to give absolute returns
less then -10 percentage points)
DISCLOSURES & DISCLAIMERS
Analyst Certification
The views expressed in this research report (“Report”) accurately reflect the personal views of the research analysts (“Analysts”) employed by
SBICAP Securities Limited (SSL) about any and all of the subject issuer(s) or company(ies) or securities. This report has been prepared based
upon information available to the public and sources, believed to be reliable. I/We also certify that no part of my/our compensation was, is, or will be
directly or indirectly related to the specific recommendation(s) or view(s) in this report.
The Analysts engaged in preparation of this Report or his/her relative:-

(a) do not have any financial interests in the subject company mentioned in this Report; (b) do not own 1% or more of the equity securities of the
subject company mentioned in the report as of the last day of the month preceding the publication of the research report; and (c) do not have any
material conflict of interest at the time of publication of the Report.
The Analysts engaged in preparation of this Report:-

(a) have not received any compensation from the subject company in the past twelve months; (b) have not managed or co-managed public offering
of securities for the subject company in the past twelve months; (c) have not received any compensation for investment banking or merchant
banking or brokerage services from the subject company in the past twelve months; (d) have not received any compensation for products or
services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) have
not received any compensation or other benefits from the subjectcompany or third party in connection with the Report; (f) have not served as an
officer, director or employee of the subject company; and (g) are not engaged in market-making activity for the subject company.
Name Qualification Designation Sector

Sandeep Mathew MMS Analyst Infra / Logistics / Telecom / Real Estate
Anshul Agrawal B.Com, CA Associate Telecom / Mid-caps

Other Disclosures
SBICAP Securities Limited (“SSL”), a full service Stock Broking company, is engaged in diversified financial services business including equity broking, DP services,
distribution of Mutual Funds, insurance products and other financial products. SSL is a member of the National Stock Exchange of India (NSE) Limited and BSE Limited.
SSL is also a Depository Participant registered with the NSDL and CDSL. SSL is a large broking house catering to retail, HNI and institutional clients. It operates through
its branches and authorised persons spread across the country and the clients are provided online trading through internet and offline trading through branches, and call
and trade facility. SSL is a wholly owned subsidiary of SBI Capital Markets Limited (“SBICAP”), which is engaged in investment banking, project advisory and financial
services activities and is registered with the Securities and Exchange Board of India as a “Category I” Merchant Banker. SBICAP is a wholly owned subsidiary of State
Bank of India. Hence, State Bank of India and all its subsidiaries, including, SBICAP and banking subsidiaries, are treated and referred to as Associates of SSL.
We hereby declare that our activities were neither suspended nor have we materially defaulted with any stock exchange authority with whom we are registered in the last
five years. However SEBI, Exchanges and Depositories have conducted routine inspections, and based on their observations have issued advice letters or levied minor
penalty for certain procedural lapses. We have not been debarred from doing business by any Stock Exchange/SEBI or any other authorities, nor has our certificate of
registration been cancelled by SEBI at any point of time.
SSL or its Associates, may: (a) from time to time, have long or short positions in, and buy or sell the securities of the company mentioned in the Report or (b) be engaged
in any other in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the
company discussed herein or act as an advisor or lender/borrower to such company or may have any other potential conflict of interests with respect to any
recommendation and other related information and opinions.
SSL does not have actual/beneficial ownership of one per cent or more securities of the subject company at the end of the month immediately preceding the date of
publication of the Report. However, since Associates of SSL are engaged in the financial services business, they might have in their normal course of business financial
interests or actual/beneficial ownership of one per cent or more in various companies including the subject company mentioned herein this Report.
SSL or its Associates might have managed or co-managed public offering of securities for the subject company in the past twelve months and might have received
compensation from the companies mentioned in the Report during the period preceding twelve months from the date of this Report for services in respect of managing or
co-managing public offerings/corporate finance, investment banking or merchant banking, brokerage services or other advisory services in a merger or specific
transaction.
Compensation paid to Analysts of SSL is not based on any specific merchant banking, investment banking or brokerage service transaction.
SSL or its Associate did not receive any compensation or any benefit from the subject company or third party in connection with preparation of this Report.
This Report is for the personal information of the authorised recipient(s) and is not for public distribution and should not be reproduced, transmitted or redistributed to any
other person or in any form without SSL’s prior permission. The information provided in the Report is from publicly available data, which we believe, are reliable. While
reasonable endeavors have been made to present reliable data in the Report so far as it relates to current and historical information, but SSL does not guarantee the
accuracy or completeness of the data in the Report. Accordingly, SSL or any of its Associates including directors and employees thereof shall not be in any way
responsible or liable for any loss or damage that may arise to any person from any inadvertent error in the information contained, views and opinions expressed in this
Report or in connection with the use of this Report.
Please ensure that you have read “Risk Disclosure Document for Capital Market and Derivatives Segments” as prescribed by Securities and Exchange Board of India
before investing in Indian securities market.
The projections and forecasts described in this Report should be carefully evaluated as these :
1. Are based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies.
2. Can be expected that some of the estimates on which these were based, will not materialise or will vary significantly from actual results, and such variances may
increase over time.
3. Are not prepared with a view towards compliance with published guidelines or generally accepted accounting principles. No independent accountants have
expressed an opinion or any other form of assurance on these.
4. Should not be regarded, by mere inclusion in this report, as a representation or warranty by or on behalf of SSL the authors of this report, or any other person, that
these or their underlying assumptions will be achieved.
This Report is for information purposes only and SSL or its Associates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Though
disseminated to recipients simultaneously, not all recipients may receive this report at the same time. SSL will not treat recipients as clients by virtue of their receiving
this report. It should not be construed as an offer to sell or solicitation of an offer to buy, purchase or subscribe to any securities this report shall not form the basis of or
be relied upon in connection with any contract or commitment, whatsoever. This report does not solicit any action based on the material contained herein.
It does not constitute a personal recommendation and does not take into account the specific investment objectives, financial situation/circumstances and the particular
needs of any specific person who may receive this document. The securities discussed in this Report may not be suitable for all the investors. SSL does not provide
legal, accounting or tax advice to its clients and you should independently evaluate the suitability of this Report and all investors are strongly advised to seek professional
consultation regarding any potential investment.
Certain transactions including those involving futures, options, and other derivatives as well as non-investment grade securities give rise to substantial risk and are not
suitable for all investors. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of
or income derived from the investment.
The price, value and income of the investments referred to in this Report may fluctuate and investors may realise losses on any investments. Past performance is not a
guide for future performance. Actual results may differ materially from those set forth in projections. SSL has reviewed the Report and, the current or historical
information included here is believed to be reliable, the accuracy and completeness of which is not guaranteed. SSL does not have any obligation to update the
information discussed in this Report.
The opinions expressed in this report are subject to change without notice and SSL or its Associates have no obligation to tell the clients when opinions or information in
this report change. This Report has not been approved and will not or may not be reviewed or approved by any statutory or regulatory authority in India, United Kingdom
or Singapore or by any Stock Exchange in India, United Kingdom or Singapore. This report may not be all inclusive and may not contain all the information that the
recipient may consider material.
The securities described herein may not be eligible for sale in all jurisdictions or to all categories of investors. The countries in which the companies mentioned in this
Report are organised may have restrictions on investments, voting rights or dealings in securities by nationals of other countries. Distributing
/taking/sending/dispatching/transmitting this document in certain foreign jurisdictions may be restricted by law, and persons into whose possession this document comes
should inform themselves about, and observe, any such restrictions. Failure to comply with this restriction may constitute a violation of laws in that jurisdiction.
Legal Entity Disclosure

Singapore: This Report is distributed in Singapore by SBICAP (Singapore) Limited (Registration No. 201026168R), an Associate of SSL incorporated in Singapore.
SBICAP (Singapore) Limited is regulated by the Monetary Authority of Singapore as a holder of a Capital Markets Services License and an Exempt Financial Adviser in
Singapore. SBICAP (Singapore) Limited’s services are available solely to persons who qualify as Institutional Investors or Accredited Investors (other than individuals) as
defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”) and this Report is not intended to be distributed directly or indirectly to
any other class of persons. Persons in Singapore should contact SBICAP (Singapore) Limited in respect of any matters arising from, or in connection with this report via
email at singapore.sales@sbicap.sg or by call at +65 6709 8651.
United Kingdom: SBICAP (UK) Limited, a fellow subsidiary of SSL, incorporated in United Kingdom is authorised and regulated by the Financial Conduct Authority. This
marketing communication is being solely issued to and directed at persons (i) fall within one of the categories of “Investment Professionals” as defined in Article 19(5) of
the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Financial Promotion Order”), (ii) fall within any of the categories of
persons described in Article 49 of the Financial Promotion Order (“High net worth companies, unincorporated associations etc.”) or (iii) any other person to whom it may
otherwise lawfully be made available (together “Relevant Persons”) by SSL. The materials are exempt from the general restriction on the communication of invitations or
inducements to enter into investment activity on the basis that they are only being made to Relevant Persons and have therefore not been approved by an authorised
person as would otherwise be required by section 21 of the Financial Services and Markets Act 2000 (“FSMA”).

SBICAP Sec - India Property - Initiating Coverage-Errclub - Buy For The Cash Flow, Not A Story!

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

SBICAP Sec - India Property - Initiating Coverage-Errclub - Buy For The Cash Flow, Not A Story!

Transféré par

Droits d'auteur :

Formats disponibles

India Property

Inst'l Equity Research | India

900,000 12.0% 400,000

675,000 9.0% 300,000

Source: RBI BSR, Propequity, SSLe

Source: Company, SSLe

Source: Bloomberg, SSLe

sandeep.mathew@sbicapsec.com I anshul.agrawal@sbicapsec.com December 14, 2017 | 2

Canvas for property developers is limited ................................................................. 4

Recent reforms to hit non-mortgage demand (investor demand) ............................. 10

Development business has historically not generated cash flows -

why are we excited?............................................................................................... 16

Valuation multiples likely to de-rate ........................................................................ 23

Sobha Limited ....................................................................................................... 29

Oberoi Realty Limited............................................................................................. 31

Prestige Estates Projects ....................................................................................... 33

DLF Limited ........................................................................................................... 35

sandeep.mathew@sbicapsec.com I anshul.agrawal@sbicapsec.com December 14, 2017 | 3

Canvas for property developers is limited

Four cities are key volume drivers…

sandeep.mathew@sbicapsec.com I anshul.agrawal@sbicapsec.com December 14, 2017 | 4

Bangalore 2,636,445 1,901,117 3.7%

Target market 7,850,647 4,920,546 9.5%

Four cities have higher levels of concretisation, and more mature

Greater Noida 70% 48,000

Urban India 53% 0

Source: Census 2011, Propequity, SSLe

Beware the concrete supply of the recent building cycle

sandeep.mathew@sbicapsec.com I anshul.agrawal@sbicapsec.com December 14, 2017 | 5

500,000 25% 22% 40%

Source: Census 2011, Propequity, SSLe

Weak demand and high supply have kept a lid on prices

Source: Propequity, SSLe

sandeep.mathew@sbicapsec.com I anshul.agrawal@sbicapsec.com December 14, 2017 | 6

Listed developers primarily focus on premium segment of

Building scale in residential segment outside of core markets has

sandeep.mathew@sbicapsec.com I anshul.agrawal@sbicapsec.com December 14, 2017 | 7

Office/retail exposure is high

Residential GAV Office / Retail GAV Others

Office market cycle improving but largely dependent on fortunes of IT/ITES

A decline in vacancies (or increase in occupancies) is a strong indicator of rental reversion

sandeep.mathew@sbicapsec.com I anshul.agrawal@sbicapsec.com December 14, 2017 | 8

Rent outlook Vacancies Supply pipeline (3 years)

sandeep.mathew@sbicapsec.com I anshul.agrawal@sbicapsec.com December 14, 2017 | 9

Recent reforms to hit non-mortgage demand (investor demand)

Non-mortgage demand (investor) high in key metros

450,000 6.1% 6.0%

Source: RBI BSR data, SSLe

Increase in SCB accounts during FY13-16 108,849

sandeep.mathew@sbicapsec.com I anshul.agrawal@sbicapsec.com December 14, 2017 | 10

Unsold inventory of ~310,000 in just nine cities vs. annual market

Source: RBI BSR data, Propequity, SSLe

Bangalore, Pune and Noida/Greater Noida contribute to bulk of

sandeep.mathew@sbicapsec.com I anshul.agrawal@sbicapsec.com December 14, 2017 | 11

Mortgage addition in key metros has been slowing down since

sandeep.mathew@sbicapsec.com I anshul.agrawal@sbicapsec.com December 14, 2017 | 12

Exhibit 26: Key Structural Changes in Real Estate in India

• Easing of FDI norms to • Establishes a regulatory

We believe investor-demand is likely to be hurt due to higher compliance costs (such as

Exhibit 27: Key Structural Changes in Real Estate in India

sandeep.mathew@sbicapsec.com I anshul.agrawal@sbicapsec.com December 14, 2017 | 13

sandeep.mathew@sbicapsec.com I anshul.agrawal@sbicapsec.com December 14, 2017 | 14

• Enquiries / new bookings declined 50-60% across markets