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DB Realty
Take me higher
Event
DB Realty focuses on high-value developments spread across the island city
and suburbs of Mumbai. The developer has a proven track record in the
redevelopment of old (typically dilapidated) buildings in Mumbai. The
promoter group has a history of more than 14m sqf of development. The
company has a strong project pipeline with more than 20m sqf of ongoing
projects and more than 40m sqf of planned projects.
Impact
Strong project pipeline: DB Realty has a pipeline of more than 60m sqf of
ongoing and planned projects. Importantly, many of these projects are
concentrated in areas in and around the key areas of Mumbai. The company
also expects large additions to this pipeline through old tenant or government
building rehab projects in important suburbs, such as Bandra and Goregaon.
Competitive advantage: DB Realty’s competitive advantage has been its
ability to identify tenant rehabilitation projects, convincing tenants to pursue
these and getting relevant approvals. The release of a Floor Space Index
(FSI) in these projects causes project land cost to fall dramatically. This can
prove to be a ‘game changer’ in cities such as Mumbai, where land cost is
often more than 60% of the overall project cost. The resulting headroom
allows DB Realty to earn above-average margins. While we expect Mumbai
prices to fall (this is built into our NAV estimates), this margin cushion allows
DB Realty to continue earning healthy ROEs.
Solid balance sheet: DB Realty has a near zero-debt balance sheet –
notably after the IPO and pickup in sales in Mumbai in the last 12–18 months.
This is likely to rise due to upfront costs related to rehab projects. However,
as in the past, we expect DB Realty to be able to attract private equity for its
projects, which helps avoid strain on the balance sheet and keeps news flow
buoyant.
Action and recommendation
We have an Outperform rating with a target price of Rs409. We expect the
stock to trade at a 30% NAV discount once near-term issues are resolved.
DB Realty Aide Memoire
Operational issues
1. What is your outlook on residential prices and volumes in the island city of Mumbai and in the suburbs of Mumbai?
2. Which product types (residential-mass/luxury, commercial and retail) are likely to see the most action in the next 12 months
and the next three to five years?
3. Please throw some light on your upcoming projects over the next two to three years?
4. What has been the response for the projects launched already?
5. What do you think could be bottlenecks in achieving planned expansion in terms of material supply, capacity and capital?
Financial issues
1. Please share some thoughts on the capital requirement for your planned expansion. Do you have any fundraising plans?
2. Please throw some light on your targeted cash flow from operations in the next 12 months.
Regulatory issues
1. What would you think are the biggest risks facing the company? Do you think there are any regulatory/policy risks?
2. What are the regulatory and policy risks the sector and company facing?
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DB Realty
Take me higher
Event
DB Realty focuses on high-value developments spread across the island city
and suburbs of Mumbai. The developer has a proven track record in the
redevelopment of old (typically dilapidated) buildings in Mumbai. The
promoter group has a history of more than 14m sqf of development. The
company has a strong project pipeline with more than 20m sqf of ongoing
projects and more than 40m sqf of planned projects.
Impact
Strong project pipeline: DB Realty has a pipeline of more than 60m sqf of
ongoing and planned projects. Importantly, many of these projects are
concentrated in areas in and around the key areas of Mumbai. The company
also expects large additions to this pipeline through old tenant or government
building rehab projects in important suburbs, such as Bandra and Goregaon.
Competitive advantage: DB Realty’s competitive advantage has been its
ability to identify tenant rehabilitation projects, convincing tenants to pursue
these and getting relevant approvals. The release of a Floor Space Index
(FSI) in these projects causes project land cost to fall dramatically. This can
prove to be a ‘game changer’ in cities such as Mumbai, where land cost is
often more than 60% of the overall project cost. The resulting headroom
allows DB Realty to earn above-average margins. While we expect Mumbai
prices to fall (this is built into our NAV estimates), this margin cushion allows
DB Realty to continue earning healthy ROEs.
Solid balance sheet: DB Realty has a near zero-debt balance sheet –
notably after the IPO and pickup in sales in Mumbai in the last 12–18 months.
This is likely to rise due to upfront costs related to rehab projects. However,
as in the past, we expect DB Realty to be able to attract private equity for its
projects, which helps avoid strain on the balance sheet and keeps news flow
buoyant.
Action and recommendation
We have an Outperform rating with a target price of Rs409. We expect the
stock to trade at a 30% NAV discount once near-term issues are resolved.
DB Realty Aide Memoire
Operational issues
1. What is your outlook on residential prices and volumes in the island city of Mumbai and in the suburbs of Mumbai?
2. Which product types (residential-mass/luxury, commercial and retail) are likely to see the most action in the next 12 months
and the next three to five years?
3. Please throw some light on your upcoming projects over the next two to three years?
4. What has been the response for the projects launched already?
5. What do you think could be bottlenecks in achieving planned expansion in terms of material supply, capacity and capital?
Financial issues
1. Please share some thoughts on the capital requirement for your planned expansion. Do you have any fundraising plans?
2. Please throw some light on your targeted cash flow from operations in the next 12 months.
Regulatory issues
1. What would you think are the biggest risks facing the company? Do you think there are any regulatory/policy risks?
2. What are the regulatory and policy risks the sector and company facing?
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