Puravankara Projects: BUY :: Business Line

Puravankara Projects: 3QFY12 earnings in line; cash flow to improve: Nomura research,

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Puravankara reported 3QFY12 results that were ahead of our estimates
on the top line, below on margins and in line in terms of earnings.
However, operationally, the quarter was weak, with sales volumes -21%
and sales value -20% q-q due to the lack of new launches, while sales in
older projects remain slow. The situation in 4QFY12 is expected to be
better though as the company has launched Provident Harmony in
Bangalore and plans to launch Purva Seasons soon in Bangalore too.
We remain positive on the company given our expectation of an
improvement in cash flows over the next 18 months and cheap
valuations at a 53% discount to NAV.

Kotak Sec:: PDF link: DLF, Essar Oil, Tata Power, IDFC, RCom, Shriram Transport Finance, Reliance Capital, Eros, MTNL, Puravankara, JSW steel, Sun TV, Tata Steel, IndusInd Bank,

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily13022012.pdf


Daily Alerts
Results
DLF: Right course but still in rough waters
Oil India: Country cousin steals a march
Tata Power: Coal production ramps up, low cost coal gives Mundra hope
IDFC: Growth strong, core in line
Reliance Communications: Weak results but do they matter?
Shriram Transport: A flat quarter
Reliance Capital: A mixed quarter
Eros International: Growing up
MTNL: Operational strife continues
Puravankara Projects: In-line results, poor sales


Results, Change in Reco
JSW Steel: Reports consolidated loss; stock expensive
Sun TV Network: A rainy quarter; Sun hides behind the clouds
Change in Reco
Tata Steel: Negatives out of the way
IndusInd Bank: Limited risks to business; valuations cap returns in the near
term


Sector
Consumer products: Hale and hearty, for now
Economy
Economy: IIP growth likely to be near the bottom

Puravankara Projects PVKP IN -- BUY : Nomura Research

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Puravankara’s 2QFY12 PAT at INR265mn (-26%y-y & -15%q-q) missed both our own as well as consensus estimates by 28% and 13% respectively, on account of lower-than-expected revenue, higher interest /tax expense & loss from associates. We expect a negative reaction to this set of headline numbers on the back of an operationally weak quarter, lower-than-expected profits and rise in gearing. However, we expect cash flow visibility to improve in FY12/13F as the company will be launching ~4.6mn sq ft in Bangalore, where absorption has remained stable in the current macro environment. Maintain BUY.

Puravankara Projects: Downgrade as stock soars but sales remain sluggish ::Kotak Sec

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Puravankara Projects (PVKP)
Property
Downgrade as stock soars but sales remain sluggish. PVKP’s sales declined 43%
yoy and 22% qoq despite the broad Bengaluru market reporting healthy sales. 2QFY12
financials were in line with revenues and EBITDA of Rs2 bn (+28% yoy, +4% qoq) and
Rs0.5 bn (+21% yoy, +3% qoq), respectively, though with 1HFY12 sales of 1.3 mn sq.
ft, it is less likely that PVKP will meet its FY2012E target of 3.5 mn sq. ft. PVKP stock has
gone up 22% since low in August 2011 and noting marginal upside, we downgrade to
REDUCE with an unchanged target price of Rs80/share.

Puravankara Projects Ltd High debt with falling volumes; downgrade to Underperform 􀂄 BofA Merrill Lynch,

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P uravankara Projects Ltd
High debt with falling volumes;
downgrade to Underperform
􀂄 Increasing debt worrisome; PO lowered to Rs60
We downgrade Puravankara’s rating to Underperform with a reduced PO of Rs60
(cut from Rs125) – implying 10% downside from the current levels. Our PO is
based on a 30% discount to NAV due to rising debt and poor earnings
momentum. We have lowered our NAV estimate as we have valued the land
bank, unlikely to be launched over the next five years, at cost price, while we have
reduced our volume and pricing assumptions based on our Bangalore residential
market view. We expect Puravankara to disappoint on sales volume in FY12 as
competition intensifies in Bangalore while high mortgage rates reduce demand.
Debt level to increase further on poor cash flows
Puravankara has seen negative operational cash flows consistently in the past
two years though it has not invested aggressively in land additions. We believe the
rising debt and flattening sales will continue to pressure cash flow, leaving debt level
elevated over the next 12 months. The high debt will also impact its earnings.
New launches likely to be delayed
Puravankara has aggressive launch plans of over 20mn sq ft over the next 18
months even though the average annual sales run rate is around 3mn sq ft. We
believe management will disappoint on its launch guidance.
Expect consensus earnings to be cut sharply
We have lowered our earnings estimate sharply by 21% for FY12 led by 10%
reduction in sales revenue and compression in EBIDTA margin as prices correct
in Bangalore. Also our earnings estimate for Puravankara are now 27% and 36%
lower than the consensus for FY12/13. We expect market to cut estimate sharply
as new project launches get delayed with a poor off take in Bangalore.

For complete sector report and details on other companies click link below

Real Estate/Property - India Fallen Angels: bottom fish selectively �� BofA Merrill Lynch

Puravankara Projects: Better than expected::Kotak Sec,

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Puravankara Projects (PVKP)
Property
Better than expected. PVKP reported 1QFY12 revenues of Rs1.9 bn (+64% yoy, 10%
above estimates) and EBITDA of Rs455 mn (+16% yoy, 19% above estimates). PVKP
has sold 0.7 mn sq. ft in 1QFY12 versus 0.3 mn sq. ft in 1QFY11. Stock has corrected
40% in the past three months, underperformed the BSE Realty Index by 26% and is
now trading at 0.9X FY2011 BV and 0.8XFY12E BV. We will review our
recommendation, NAV and earnings estimates post the earnings call.


Financial performance better than expected
PVKP reported 1QFY12 revenues of Rs1.9 bn (+64% yoy, +23% qoq and 10% above KIE
estimates), EBITDA of Rs455 mn (+16% yoy, +65% qoq and 19% above KIE estimate) and PAT of
Rs311 mn (-15% yoy, +84% qoq and 9% above KIE estimate). EBITDA margin expanded 609 bps
qoq (though declined 970 bps yoy) led by (1) likely higher proportion of revenues from
Puravankara (versus Provident) which is higher margin and (2) some part of the 300 bps margin
decline in 4QFY11 was lumping together of cost over-runs. While PBT was up 10% yoy, PAT was
down 15% yoy as tax rate moved to a more sustainable 29.5% versus 8.6% on lack of 80-IB
projects which are tax exempt.
Sales remain flattish qoq; launches two new projects
Puravankara (along with Provident) sold 0.73 mn sq. ft in 1QFY12 versus 0.78 mn sq. ft in 4QFY11
and 0.34 mn sq. ft in 1QFY11. Key projects in Puravankara from which PVKP derived sales are (1)
Windermere (0.3 mn sq. ft), (2) Purva Venezia (0.08), (3) Purva Bluemont (0.08 mn sq. ft) and (4)
Purva Skywood (0.07 mn sq. ft) and Cosmo City contributed 0.17 mn sq. ft. Sales realizations
improved qoq in Puravankara (Rs3,922/sq. ft versus Rs3,437/sq. ft in 4QFY11) and also in
Provident (Rs2,388/sq. ft versus Rs2,027/sq. ft in 4QFY11) with overall realizations improving qoq
to Rs3,677/sq. ft from Rs2,945/sq. ft in 4QFY11. PVKP currently has 19.8 mn sq. ft of projects
under execution including 15 residential projects (14.9 mn sq. ft), two affordable housing projects
(4.5 mn sq. ft) and three commercial projects (0.5 mn sq. ft).
In 1QFY12, PVKP launched 1 mn sq. ft across two new projects - (1) Purva Bluemont (residential,
0.8 mn sq. ft) and (2) Gainz (commercial, 0.2 mn sq. ft) and launched additional area in (1) Purva
Eternity (0.16 mn sq. ft), (2) Cosmo City (0.55 mn sq. ft) and (3) Wellworth City (0.8 mn sq. ft).
The company is set to launch a new luxury project in CV Raman Nagar (1.08 mn sq. ft) from which
it expects to realize Rs5 bn. In total, PVKP plans to launch 4.6 mn sq. ft saleable area in
Puravankara and 11.3 mn sq. ft in Provident in FY2012E and another 2.1 mn sq. ft of saleable area
in Puravankara in FY2013E. PVKP’s land bank stands at 116.4 mn sq. ft of developable area (19.6
mn sq. ft in planned launches and 96.8 mn sq. in land) versus 118.2 mn sq. ft at end-4QFY11

Puravankara Projects -- Significant strengths but offset by concerns:: Deutsche Bank

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Puravankara Projects
Reuters: PPRO.BO Bloomberg: PVKP IN
Significant strengths but offset
by concerns
Considerable strengths but neutralised by liquidity and execution concerns
Puravankara Projects’ (PVKP) strengths (brand equity, strong B/S and disclosures
and a largely paid, low-cost land bank), coupled with a robust IT sector and
Bengaluru outlook, should drive its real estate demand. However, we are
concerned about the near-term, INR3.8bn debt repayment in 12 months and a
spike in projects under construction (>22msf in FY11 vs. <11msf in FY10) despite
a cumulative execution of only c.7msf. With macro headwinds, we cut FY12-13
estimates by up to 42% and reduce our target price to INR90; maintaining Hold.

Buy Puravankara Projects - Launches finally coming through; BofA Merrill Lynch

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Puravankara Projects Ltd
Launches finally coming
through; Maintain Buy
􀂄 Improving outlook, Maintain Buy
We maintain our Buy rating post our meeting with the management, with PO of
Rs125 offering 14% upside. The recent launches and steady Bangalore market
should lead to an exciting FY12 for Puravankara on volumes and cash flow. The
key triggers would be strong response to the recent launches and ramp up in
affordable housing segment. We have lowered our NAV estimate by 8% and EPS
estimate by 10-12% for FY12/13 to factor in flat prices in FY12 against our earlier
expectation of 10% increase. Our price objective is cut from Rs135 to Rs125.

Kotak Sec:: Puravankara Projects - Reduce target price on higher debt and cost over-runs

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Puravankara Projects (PVKP)
Property
Reduce target price on higher debt and cost over-runs. Puravankara’s debt has
increased for the fourth straight quarter in a row (now 0.7X D/E). Cost overruns in
Venezia and Puravankara’s low-cost housing model in a higher inflationary environment
raise concerns of similar overruns in other projects. We retain our REDUCE
recommendation and cut target price to Rs100/share based on these concerns and on
increasing our WACC assumption to 16% (from 14% earlier).

Buy Puravankara Projects-Margin disappoint but healthy volume; BofA ML

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Puravankara Projects Ltd -Margin disappoint but healthy volume; Maintain Buy 


„Margin disappoint in 3Q, Maintain Buy
Puravankara reported net profit of Rs287mn, down 19% QoQ and 30% lower than
our estimate. The disappointment was primarily due to a drop in EBIDTA margin
from 25% to 21% against our expectation of improvement in margin and higher
taxes. The higher costs recognized in the Venezia project primarily led to the
margin contraction. We have lowered our earnings estimate for FY11-13 by 10-
15% to factor in lower margin and sales recognition (delay in new launches). We
maintain our Buy rating and reduce our PO to Rs135 from Rs156 as we expect
volume growth to be sustained while upcoming launches help improve cash flows
in FY12.

Housing Scam -CBI investigation: BUY on HDIL, Orbit and Puravankara: Ambit

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The CBI investigation: Market over-reaction creates good entry points into select realty stocks; Reiterate BUY on HDIL, Orbit and Puravankara

Event: A CBI investigation into bribe taking at the highest echelons of  Public Sectors Banks (Central Bank of India, Punjab National Bank , Bank of India) and public sector financial institutions (LIC, LIC Housing Finance) has led to several arrests of senior management personnel. Though media reports suggest that the main beneficiary of the largesee of bribed senior management has been the real estate sector, the CBI has not named any real estate company as an accused

The allegation relate to corporates availing General Corporate Loans through Financial Intemediaries (FIs). A specifc  FI, Money Matters,  has allegedly bribed senior officials in these public sector financial institutions and thereby procured loans for corporates. Besides sanctioning the loans, the bribed senior officials are also alleged to have passed on confidential competitive information to corporate through the named FI.

Puravankara Projects - Demand pick-up visible. :: Kotak Sec

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Puravankara Projects (PVKP)
Property
Demand pick-up visible. PVKP reported 2QFY11 revenues of Rs1.5 bn (+132% yoy
adjusting for land sales in 2QFY10, +11% above estimates) but EBITDA of Rs387 mn
(+38% yoy) which is 10% lower than our estimate. PVKP has sold 1.1 mn sq. ft in
2QFY11 which is more than twice that of 1QFY11 and increases visibility of it achieving
its 3 mn sq. ft sales target for FY2011E. We maintain REDUCE with a target price Rs122
at a 20% discount to our estimated March 2012 NAV.

Puravankara Projects:2Q FY11 results: profit declines-Daiwa

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Puravankara Projects (PVKP IN) Rating:1
2Q FY11 results review: net profit declines QoQ due to higher expenses



What has changed?
• For 2Q FY11, Puravankara Projects’s (Puravankara) profit after tax (PAT)
declined by 3% QoQ, despite revenue rising by 33% QoQ, due to increases in
construction and selling expenses, and the tax rate for the quarter.

Puravankara Projects - Strong pre sales, Buy :: BofA ML

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Puravankara Projects Ltd
Strong pre sales, but margin
disappoint, Maintain Buy

􀂄 Margins disappoint, Maintain Buy
Puravankara reported net profit of Rs356mn, down 3% QoQ and 14% lower than
our estimate. The net profit disappointed primarily due to sharp drop in EBIDTA
margin from 34% to 25% as it started recognizing Chennai’s affordable housing
project and increased cost estimates for some of its projects. We expect the
margin to bounce back to a normalized level of 30% from 3Q. We reiterate our
Buy rating with PO of Rs156 (23% upside potential) as we expect pre sales to
surprise on the upside with strong cash flows from current projects in 2HFY11.
We have made minor adjustments to our estimates.

Upside risk to our presales estimate for FY11
PVKP reported strong pre sales of 1.1mn sq ft in 2Q at ASP of Rs2786/sq ft
against 0.43mn sq ft sold in 1Q. The sharply higher pre -sales in the quarter was
supported by new launch in Bangalore which contributed 0.38mn sq ft in 2Q. We
believe there is 10-15% upside risk to our sales estimate of 3mn sq ft for FY11 as
PVKP plans to aggressively launch new projects over next 6 months across
Bangalore, Chennai and Coimbatore.

Increasing debt a concern
We are concerned at consistent increase in debt from Rs8.1bn in Mar 09 to
Rs9.7bn even though leverage is still at comfortable levels of 0.6x. The debt has
increased as cash inflow from pre sales has not been sufficient to fund the
construction and interest expenditure while PVKP has also invested in new land
for Provident projects. But we do expect PVKP to start generating surplus cash as
sales improve in its nearing completion projects (over 90% construction
completed) like Venezia (24% inventory) and Highlands (40% inventory).

Puravankara Projects-Sep-Q results: Margins weak: JPMorgan

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Puravankara Projects Ltd Overweight
PPRO.BO, PVKP IN
Sep-Q results: Margins weak on account of cost
escalations in old projects. Operational performance is
encouraging



• 2QFY11 results in line with expectations: We assume coverage of
Puavankara with an OW rating and PT of Rs155. Puravankara reported
2QFY11 net income of Rs357MM (-3%Q/Q, -41%Y/Y) in line with our
expectations. While revenues of Rs1.5B were significantly ahead of our
estimate (Rs1.2B), EBITDA margins were surprisingly low at 25.7% (vs.
34.4% in 1Q) primarily on account of cost escalations in pre FY10 launched
projects. Provident accounted for 25% of 2QFY11 sales. Net debt increased
marginally during the Q by Rs700MM. More importantly, we are positively
surprised by disclosure levels in 2Q with company providing
comprehensive sales update for the first time.
• FY11 guidance of 3msf is comfortably achievable –During Sep-Q,
company sold 1.1msf/Rs3.1B (+175%QQ, +48%Y/Y) thereby taking
1HFY11 bookings to 1.5msf/Rs4.2B (up 15%Y/Y). Over 1HFY11, PVKP
has already achieved ~45% of our full year bookings estimate of Rs9.8B.
We believe that the company is on track to achieve or even surpass its full
year guidance of 3msf with (a) some scale up in 2H given seasonally strong
period; (b) Unsold inventory of ~3.4msf across its on-going projects and (b)
planned launches of 18msf over FY11/12.
• Operational performance has improved meaningfully- Sales under
Puravanakara brand have gained significant momentum with area sold in
Sep-Q being >3x of volumes in Jun-Q primarily driven by encouraging
response to its new launch (Skywood). Overall in 2Q, PVKP sold 0.7msf
under Puravankara brand as against 0.2msf sold in 1Q; while Provident
accounted for remaining 0.4msf of sales in 2Q (+77%Q/Q, -31%Y/Y).
Construction activity is also progressing well on its on going projects
(11.3msf) with 70% of the work already complete (vs. 63% in 1Q).
• Investment view– PVKP has underperfromed its closest peer (Sobha) over
the last 12 months by a meaningful 30% despite similar sales run rate and
relatively better funding position (Net D/E – 0.6x). While the stock has
started to catch up (up 35% YTD); we expect the trend to continue given its
robust sales momentum, improved disclosures and positive hiring/salary
trends in the IT sector. Maintain our OW rating.

Real Estate sector preview by Ambit for F2Q 2011 (September quarter)

Real Estate
 We expected our real estate coverage universe to report a mixed set of growth
numbers YoY while sequential performance is estimated to be muted across
companies. Good monsoons played a big impact on execution. We expect DLF
to report 9% YoY growth attributable to delay in approval of some key projects
and slower pace of leasing activity. Unitech is expected to deliver robust
growth of 59% on a smaller base though, sequentially, there could be a dip.
HDIL is expected to deliver 31% growth YoY and muted growth sequential.
TDR prices continue to remain robust though volume may get impacted due to
the monsoons. Orbit, with no new launches, is expected to report YoY decline
in sales of 13%.
 Inventory level is expected to reduce in the absence of new launches. With the
festive season up close, we would see a slew of new launches, most of this
however, already priced in the recent outperformance of the real estate stocks.
 EBIDTA margins continue to expand and companies focus on price led growth.
Net margins are expected to increase as deleveraging continues.
 We remain positive on the regional players and expect price correction of 10-
15% before recommending convincing re-rating. HDIL, Puravankara
Projects and Orbit Corporation remain our top picks in the sector.

BoA ML: Bangalore residential- Heading for long bull run

Bangalore residential- Heading for long bull run
The Bangalore developers are up (12-40%) in last six months, outperforming
Sensex and Realty index (up12%). We reiterate our Buy ratings on the Bangalore
developers -Sobha, Puravankara, and Brigade, and increase our PO on
residential focused developers -Sobha by 18% to Rs450 and for Puravankara by
10% to Rs156. Our positive stance on Bangalore residential segment is led by:1)
expected 10-15% increase in prices in the next 12 months as compared to 5%
earlier, 2) marked improvement in affordability, and 3) Bangalore’s resurgence as
preferred destination for IT firms leading to sustained demand growth for houses.
Residential: Prices to surprise positively
We expect the Street to be positively surprised by a 10-15% price increase with
sustained volume growth in Bangalore over the next 12 months. Key reasons for
strong trends are: 1) expected high-income growth for IT employees (50-60% of
demand) led by attrition and wage hikes, 2) falling inventory levels due to lower
launches and strong sales, and 3) four fold increase in IT/ITeS employees who
can afford houses in Bangalore in last four years. Residential real estate prices in
the city are still 10-15% below the 2007 peak vs Mumbai/NCR at over 10-25%.
Bangalore is back in vogue for IT firms
The demand for office space continues to show a strong uptrend in Bangalore,
with over 3.5mn sq ft committed in 1H 2010 vs just 4mn sq ft in 2009. The
improved infrastructure, large talent pool and competitive office rentals and land
rates have led to Bangalore’s resurgence. The big three Indian IT firms are
looking to set up campuses in the city while IBM continues to bank on Bangalore
with over 4m sq ft of leased space. The planned expansion of IT firms should
continue to support strong residential demand in Bangalore.
Sobha: Top pick among Bangalore developers
We expect Sobha to lead the growth among the three Bangalore developers, due
to its relatively better-located land bank, positioning in mid-to-premium housing
(this segment has the maximum price elasticity), and superior execution
capability. We have increased our PO to Rs450 from Rs380. Puravankara is
banking on affordable housing and we expect accelerated launches to be a key
trigger. We have raised our PO to Rs156 from Rs142. Brigade derives 54% of
NAV from office space, thus improved leasing in its properties over next six
months should help drive valuations.
Risks: IT/ITeS industry growth & runaway prices
IT/ITeS sector accounts for 70-80% of office demand while 50-60% of residential
sales are to IT professionals in Bangalore. With increased US backlash against
outsourcing in recent times, we think there remains a risk that the IT sector
recovery may not sustain going forward. Further, we believe there is a risk of
runaway prices (25-30% rise) in Bangalore, similar to that seen in Mumbai and
NCR markets denting demand.

BoA ML: Puravankara: Raise Price target to 156

Strong residential trends to support growth; Raise PO
We reiterate our Buy rating on Puravankara with an increased PO of Rs156
(higher by 10%) offering 22% potential upside to factor in higher volume and
pricing assumption for Bangalore. Key triggers would be increased launches
across Purva and Provident brands, improved cash flows from higher sale in
under construction projects and launch of low cost housing under Homex JV.
Expect launches to gain pace
We expect increased pace of launches by Puravankara across its premium and
affordable housing segments over next six months leading to 50% volume growth
in FY11. We believe higher visibility of launches will be a key trigger for the stock
as Puravankara has lagged behind its competitors in getting new projects of the
shelf. (0.8mn sq ft launched in 2010). The improved sales in older projects, which
are nearing completion, are expected to further boost cash flows. In many of the
projects, Puravankara is close to completion but with 30-35% unsold inventory.
Affordable housing to push volume
Puravankara is giving a big push to its affordable housing strategy and is planning
to expand aggressively beyond Bangalore to other Tier 2 & 3 towns in South
India. We expect 50% of its volume from FY12 to be contributed by the affordable
segment under the Provident brand, though at a lower margin of 23-25%. It is also
planning to launch house priced below Rs1.2mn under its joint venture with
Homex to target the low-income mass housing segment.
Key Risk: Execution, IT/ITeS industry
We believe execution would be critical for Puravankara as it is looking to give
major thrust on low margin affordable housing. Due to its high exposure to
Bangalore, growth in IT/ITeS industry would also be the key to drive demand.