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UBS Investment Research
India Real Estate
Key takeaways from NCR visit
„ Key trends across NCR property market
1) Gurgaon, Delhi most sought after resi markets while Noida/Gr. Noida are
investment markets; 2) demand more price sensitive, but still healthy; 3) leasing
visibility best in Gurgaon, but rentals in check; 4) construction underway across
Gurgaon, Delhi, but slow in Noida belt; 5) many launches around upcoming infra
projects in NCR; and 6) most developers seemed well balanced on cash flows and
debt maturity, while some highlighted higher debt cost by 200bps to 15-16%;.
„ DLF launches to ramp up, healthy leasing; but leverage still high
Focus on launches in Q4, 3msf done so far; more in Mar’11 post a few approvals;
plot/mid-income/luxury pre-sales to help achieve target of 10-12msf in FY11E.
Channel checks, visits suggest good progress on construction. Healthy leasing runrate of ~5msf pa to continue. Leverage high, but not worried; Ownership
restructuring in DLF Cybercity sub in pipeline, expect more clarity in 1HFY12.
„ Unitech seems comfortable on cash flows, but news flow an overhang
With target pre-sales of 10msf pa and net debt of Rs46.2bn, no worries on cash
flows; even though ramp-up in construction is still slow. News flow on high pledge
of 32% of equity and telecom investigations may however remain an overhang;
„ Valuations compelling – at deep disc to NAVs
With NCR stocks down 26%-49% over last 3mths, demand outlook still healthy
across key NCR market and valuations at 54-63% disc to NAV – we see attractive
risk-reward. Quite a few tier-II developers we met see this correction as an
opportunity and are looking to buy-back from open market as well.
Key takeaways
DLF
Q DLF has launched ~3msf (of projected 8msf) in Q4 at Panchkula, Kochi and
Gurgaon. DLF believes it could reach ~10msf of residential sales in FY11;
Going forward DLF plans to do a mix of plots, mid-income, city centre
launches with plot sales being concentrated in few markets of Chandigarh,
Gurgaon, Jaipur, Indore, Chennai and Kochi.
Q Capital Greens – good construction progress on a YoY basis. Commercial
property for sale in same location has also seen good construction progress
(structure nearing completion)
Q Leasing environment remains good; expects to end FY11 with net-leasing of
~5.5msf (vs.4msf target); and believes it would have 4-5msf of target for
FY12 as well.
Q On ready leasable inventory: DLF presently has <1msf of ready inventory;
and given the improving visibility, the company is starting to invest capex on
ramping up construction of commercial property (which has been on hold for
a while now).
Q DLF does not foresee any re-financing required in FY12, all long maturity
debt. It does not foresee any risk of debt/interest default. Mgmt believes the
large part of debt repayment will happen from internal cash flows from
operations
Q DLF targets non core asset sales of Rs16bn in FY12 which can help lower its
total debt.
Q DLF acquired new land for Rs3bn in Q3, and expects quarterly capex of
Rs5bn – for land acquisition and capex on commercial lease assets.
Q The potential final stage of restructuring of DLF and its subsidiary DCCDL
will most likely happen in 1HFY12, more clarity to emerge on this in
1QFY12.
Unitech
Q Launched 7 projects in Gurgaon, Noida, Chandigarh in Q4 so far – received
good response for its Gurgaon premium launch - Espace Premier launched
villas in Feb 11 (so far 25 bookings of Rs 22 mn each). Another 10msf
planned for launches in Gurgaon, Noida, Chandigarh, Chennai, Bangalore,
Ambala, Rewadi & Kolkata and Hyderabad
Q Unitech expects to deliver 4-5 msf in FY11 (Delivered ~3msf as of 9mFY11)
In the next 6 months, Unitech expects to deliver 7-8msf.
Q Unitech’s Mumbai project ‘Golibar’ project (potential 12-18msf) continues
to await slum clearance. 1msf sold so far; but the project is seeing delays due
to slum tenants creating issues
Q Construction progress on past projects of 13msf – need to spend Rs1.5 bn on
completion for Gurgaon, Gr.Noida projects. On the new 20msf of sales post
Mar’09 – 15.9msf under constructions (of which 4msf is non-residential)
expects to receive Rs20 bn in FY12 (from Rs60 bn sales in FY10), and 20%
on new sales (Rs17 bn from Rs 30 bn sales
Q Unitech acquired land in Q3 for Rs 5.5 bn (on Greater Noida expressway);
on a deferred payment basis for 7-8yrs. Total land payments outstanding now
Rs23.44bn. Company expects land acquisition costs of Rs 1-1.5 bn per
quarter, and believes its internal cash flows are sufficient to fund the same.
Q Gross debt at Rs58.5bn as of Dec’10 increased due to telecom holding
restructuring debt of Rs5.35bn in Sept’10. However this will eventually pass
on to the infra venture when demerged. Avg cost of borrowing at 12.5%.
Total FY12 debt repayment due is Rs10 bn – comfortable on liquidity.
Q The pledge stands at 32% of total equity; and 68% of promoter holding; 35-
40% of the pledge is for the company’s borrowing, Mgmt believes the risk of
sell-off is low given co-founders are well positioned to provide additional
collateral.
Q On telecom investigations – the mgmt reiterated the company has applied for
the telecom licence by abiding to all the govt policy and regulations; Unitech
does not foresee any significant liability accruing to Unitech from ongoing
investigations. On the press article of Unitech recd Rs17bn from Tata Realty,
mentioned this was in course of normal real estate business, wherein Unitech
sold a land parcel to Tata Realty for the same consideration.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
India Real Estate
Key takeaways from NCR visit
„ Key trends across NCR property market
1) Gurgaon, Delhi most sought after resi markets while Noida/Gr. Noida are
investment markets; 2) demand more price sensitive, but still healthy; 3) leasing
visibility best in Gurgaon, but rentals in check; 4) construction underway across
Gurgaon, Delhi, but slow in Noida belt; 5) many launches around upcoming infra
projects in NCR; and 6) most developers seemed well balanced on cash flows and
debt maturity, while some highlighted higher debt cost by 200bps to 15-16%;.
„ DLF launches to ramp up, healthy leasing; but leverage still high
Focus on launches in Q4, 3msf done so far; more in Mar’11 post a few approvals;
plot/mid-income/luxury pre-sales to help achieve target of 10-12msf in FY11E.
Channel checks, visits suggest good progress on construction. Healthy leasing runrate of ~5msf pa to continue. Leverage high, but not worried; Ownership
restructuring in DLF Cybercity sub in pipeline, expect more clarity in 1HFY12.
„ Unitech seems comfortable on cash flows, but news flow an overhang
With target pre-sales of 10msf pa and net debt of Rs46.2bn, no worries on cash
flows; even though ramp-up in construction is still slow. News flow on high pledge
of 32% of equity and telecom investigations may however remain an overhang;
„ Valuations compelling – at deep disc to NAVs
With NCR stocks down 26%-49% over last 3mths, demand outlook still healthy
across key NCR market and valuations at 54-63% disc to NAV – we see attractive
risk-reward. Quite a few tier-II developers we met see this correction as an
opportunity and are looking to buy-back from open market as well.
Key takeaways
DLF
Q DLF has launched ~3msf (of projected 8msf) in Q4 at Panchkula, Kochi and
Gurgaon. DLF believes it could reach ~10msf of residential sales in FY11;
Going forward DLF plans to do a mix of plots, mid-income, city centre
launches with plot sales being concentrated in few markets of Chandigarh,
Gurgaon, Jaipur, Indore, Chennai and Kochi.
Q Capital Greens – good construction progress on a YoY basis. Commercial
property for sale in same location has also seen good construction progress
(structure nearing completion)
Q Leasing environment remains good; expects to end FY11 with net-leasing of
~5.5msf (vs.4msf target); and believes it would have 4-5msf of target for
FY12 as well.
Q On ready leasable inventory: DLF presently has <1msf of ready inventory;
and given the improving visibility, the company is starting to invest capex on
ramping up construction of commercial property (which has been on hold for
a while now).
Q DLF does not foresee any re-financing required in FY12, all long maturity
debt. It does not foresee any risk of debt/interest default. Mgmt believes the
large part of debt repayment will happen from internal cash flows from
operations
Q DLF targets non core asset sales of Rs16bn in FY12 which can help lower its
total debt.
Q DLF acquired new land for Rs3bn in Q3, and expects quarterly capex of
Rs5bn – for land acquisition and capex on commercial lease assets.
Q The potential final stage of restructuring of DLF and its subsidiary DCCDL
will most likely happen in 1HFY12, more clarity to emerge on this in
1QFY12.
Unitech
Q Launched 7 projects in Gurgaon, Noida, Chandigarh in Q4 so far – received
good response for its Gurgaon premium launch - Espace Premier launched
villas in Feb 11 (so far 25 bookings of Rs 22 mn each). Another 10msf
planned for launches in Gurgaon, Noida, Chandigarh, Chennai, Bangalore,
Ambala, Rewadi & Kolkata and Hyderabad
Q Unitech expects to deliver 4-5 msf in FY11 (Delivered ~3msf as of 9mFY11)
In the next 6 months, Unitech expects to deliver 7-8msf.
Q Unitech’s Mumbai project ‘Golibar’ project (potential 12-18msf) continues
to await slum clearance. 1msf sold so far; but the project is seeing delays due
to slum tenants creating issues
Q Construction progress on past projects of 13msf – need to spend Rs1.5 bn on
completion for Gurgaon, Gr.Noida projects. On the new 20msf of sales post
Mar’09 – 15.9msf under constructions (of which 4msf is non-residential)
expects to receive Rs20 bn in FY12 (from Rs60 bn sales in FY10), and 20%
on new sales (Rs17 bn from Rs 30 bn sales
Q Unitech acquired land in Q3 for Rs 5.5 bn (on Greater Noida expressway);
on a deferred payment basis for 7-8yrs. Total land payments outstanding now
Rs23.44bn. Company expects land acquisition costs of Rs 1-1.5 bn per
quarter, and believes its internal cash flows are sufficient to fund the same.
Q Gross debt at Rs58.5bn as of Dec’10 increased due to telecom holding
restructuring debt of Rs5.35bn in Sept’10. However this will eventually pass
on to the infra venture when demerged. Avg cost of borrowing at 12.5%.
Total FY12 debt repayment due is Rs10 bn – comfortable on liquidity.
Q The pledge stands at 32% of total equity; and 68% of promoter holding; 35-
40% of the pledge is for the company’s borrowing, Mgmt believes the risk of
sell-off is low given co-founders are well positioned to provide additional
collateral.
Q On telecom investigations – the mgmt reiterated the company has applied for
the telecom licence by abiding to all the govt policy and regulations; Unitech
does not foresee any significant liability accruing to Unitech from ongoing
investigations. On the press article of Unitech recd Rs17bn from Tata Realty,
mentioned this was in course of normal real estate business, wherein Unitech
sold a land parcel to Tata Realty for the same consideration.
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