praveen
31-12-2007, 07:20 AM
Parsvnath Developers Ltd., a leading real estate developer in India, has a PAN-India presence and proven execution capabilities in residential and commercial real estate construction. With a presence in 48 cities and 17 states across India, it is the most diversified and widespread real estate developer in India. It has 115 ongoing projects with a developable area of over 191.08 million sq ft which includes 56.96 million sq ft in 6 Special Economic Zones (SEZs). Most of the land is already in the company’s possession, falls under the approved use zone and hence has a clear title. Further, the cost of its land under development is about Rs. 215/sq ft, which is amongst the lowest, and hence will significantly add to its bottom line and help it maintain high margins over the long term. The company has diversified into developing hotels, multiplexes, SEZs, etc. It has bagged 13 contracts from Delhi Metro Rail Corp. on BOT basis which are likely to yield annual cash flows of about Rs. 325cr, FY11 onwards. All this and the company’s plans to foray into AMC business are likely to add much needed stability to its business model and revenue streams making it an attractive opportunity to invest over the long term.
Industry
Real Estate: The growth in the residential real estate market in India over the last 3-4 years has been largely driven by rising disposable incomes, a rapidly growing middle class, low interest rates, fiscal incentives on both interest payments and principal re-payments for housing loans and heightened customer expectations. Increased urbanization and increasing concept of nuclear families has also aided the growth. However, India’s housing shortage has still increased from 19.4 million units in 2004 to 22.4 million units in 2005-2006 and is expected to rise further as demand outpaces supply in the future. The number of households with annual incomes between Rs. 20 lacs and Rs. 50 lacs per year, Rs. 50 lacs and Rs. 1 crore per year and in excess of Rs. 1 crore per year is expected to increase by 23%, 26% and 28%, respectively, between fiscal 2002 and fiscal 2010. This is likely to keep up the demand for residential accommodations in the future. According to Cushman & Wakefield there is scope for 400 township projects over the next five years, spread across 30 to 35 cities, and that the total project value dedicated to low and middle income housing in the next seven years is estimated at US$40 billion. The recent growth of the commercial real estate sector in India has been fuelled, in large parts, by the boom in the services business, particularly in the IT and ITeS sectors. Despite the recent shocks in the form of an appreciating rupee, rising wages and sub-prime crisis in the USA, IT and ITeS sectors are still expected to grow at about 20- 25% p.a. Thus demand for commercial real estate from these sectors is expected to remain robust in the foreseeable future. Growth in organized retail has been another factor driving growth in commercial real estate. CRIS INFAC estimates that the organized retail segment in India is expected to grow at a rate of 25% to 30% over the next five years. This retail boom is likely to spruce up demand for quality retail space over the next few years.
Hotels: CRIS INFAC estimates that investments in the hotel industry will be approx. Rs. 9,000cr over the next five years. With increasing demand and limited availability of quality accommodation, the average room rates in metropolitan cities have shown significant growth in 2006 including 36.7% in Hyderabad, 32.5% in Delhi, 24.7% in Mumbai and 24.0% in Bangalore. This growth is expected to continue going forward on the back of strong growth in business, leisure and medical travel and tourism in India.
SEZ: According to the Ministry of Commerce and Industry, 61 SEZs are currently approved and under establishment. As of March 31, 2005, there were eight functional SEZs operating in India comprising 811 units and employing over a 100,000 people. Investment per SEZ is approximately Rs. 1,800cr.
Company
Parsvnath Developers, incorporated in 1990, is one of the leading players in the real estate industry in India. From being a company engaged in marketing real estate, it has forayed into construction of residential projects and currently has operations across 47 cities in 17 states. Parsvnath has in-house material purchase and construction capabilities with no third-party dependence. Over the years, the company has gradually reduced its dependence on residential projects by diversifying into commercial, integrated township and SEZ space. Presently, the company has a land bank of 191.08 million sq ft which is spread over 35 residential projects (35.43 million sq ft), 23 commercial projects (4.78 million sq ft), 18 integrated townships (80.20 million sq ft), 7 DMRC (BOT) projects (1.98 million sq ft), 17 Hotel projects (2.27 million sq ft), 6 SEZs (56.96 million sq ft) and 5 IT parks (9.46 million sq ft). We believe the company will be able to withstand a downturn in any segment by having presence in all the segments.
Parsvnath is the first real estate developer to be graded by credit rating agency ICRA-NAREDCO, receiving a rating of DR2- which indicates strong project development capacity. It has also been awarded the ISO 9001:2000, 14001:2004 and OHSAS 18001:1999 certifications highlighting strong designing, development, construction
and marketing capabilities of the company.
Parsvnath has become a strong brand in the residential segment. The company has acquired the necessary expertise and specialization in constructing high-rise apartments and row houses. It is developing 32 residential projects which, on completion, would translate into 33 million sq ft of saleable area. This is expected to fetch the company revenues to the tune of Rs 8,000 crore spread over next 4-5 years.
Key Investment Arguments
Parsvnath has a market cap of Rs. 8449.1cr, average daily volume of 474671 shares for the last six months and net sales of Rs. 1441.3cr during the trailing twelve months ended Sept 30, 2007.
It’s EBITDA and Net profit margins were amongst the highest in the industry coming in at 32.3% and 22.0% resp. in FY07 and at 38.7% and 24.9% resp. in the 1st half of FY08.
The company has achieved a 5-year CAGR of 114.5% in revenues, 151.7% in EBITDA and 141% in Net Profits.
Parsvnath trades at a PE multiple of 22.8 based on trailing twelve month (TTM) earnings, Price to Book ratio of 5.8 on FY07 bookvalue and Price to Sales ratio of 5.9 based on TTM net sales.
Debt-equity ratio of Parsvnath was at 0.75 in FY07. The company has aggressively raised funds in FY07 to finance its expansion plans. The debt equity ratio however declined over that in FY06 as its Networth grew at a faster pace on the back of its IPO in FY07 which was at a premium of Rs. 290 per share to its face value. A robust growth in net profits also aided growth in net worth in FY07. Parsvnath’s interest coverage ratio stands at a comfortable 7.2 in FY07.
Parsvnath’s has a land bank of 191.08 million sq ft which is mostly fully paid up. Most of the land is already in the company’s possession and falls under the govt. approved use zone and hence has a clear title. Further, the cost of its land under development is about Rs. 215/sq ft, which is amongst the lowest, and hence will significantly add to its bottom line and help it maintain high margins over a long period of time.
DMRC projects: Parsvnath has entered into concession agreements to develop shopping malls on 13 stations owned by the Delhi Metro Rail Corporation (DMRC) on a Build-Operate- Transfer (BOT) basis. Till date Parsvnath has executed 6 DMRC projects. These projects will yield a regular annuity income for a period of either 12 or 30 years and pay back period is + 3 years after completion. Parsvnath would be generating around Rs. 325cr of Annual lease rental from these properties from FY11 onwards. Cash flows from these rentals will provide much needed stability to the company. Despite the projects being relatively smaller in size, we believe they are valuable because the proximity of railway stations and depots guarantees footfall. There is also very little risk of competition from other malls, as these projects are in the heart of the city where open land is otherwise not available for development.
Hotel Projects: Parsvnath will be developing hotels under its subsidiary Parsvnath Hotels Limited. It has plans to develop 17 hotels (2396rooms) in 2.27mn.sq.ft area at a cost of Rs. 750cr.
Multiplex Project: Parsvnath is developing 114 Multiplex screens all over India. It has finalized the MoU with M/s Movietime Cineplex Pvt. Ltd. for leasing all their Multiplex Screens in existing and future projects at a rental of Rs. 48.50 per sq. ft. with a 15% increase every third year. The screens are to be given on lease initially for a period of 9 years. Rentals from the above are estimated at Rs. 43cr p.a.
Special Economic Zone (SEZs): Parsvnath has received approval for 12 of its SEZ projects from Ministry of Commerce whereas approvals for 5 SEZ’s are awaited. Land for Indore, Gurgaon, Dehradun, Kochi, Hyderabad, Nandad, Pallakad and Mysore SEZs has already been acquired. MoUs have been signed with the Governments of Madhya Pradesh and Rajasthan for their committed support to the SEZ Projects. Land for Kundli, Agra, Moradabad, Jaipur, Pune, Ajmer, Bangalore and Kancheepuram SEZs is under acquisition. These SEZ projects will cover an area of 4540 acres and a built-up area of around 377 million sq ft.
AMC business: Parsvnath has plans to enter the asset management business. It has already incorporated a subsidiary named ‘PDL Assets Ltd’ to carry on the asset management and asset holding business.
Forays in other high growth sectors: Parsvnath plans to foray into the telecom services and organized retail businesses, both of which are high growth areas. It has applied for providing Unified Access Services (telecom services) in 22 telecom circles across the country. It has also formed a subsidiary “Parsvnath Retail Ltd.” to develop large format malls and explore feasibilities of Highway Malls. Parsvnath is also exploring opportunities for taking up real estate projects outside India and has signed an MoU with “Al- Hassan Group of Companies” of Muscat, Sultanate of Oman for joint development of Real Estate Projects in Sultanate of Oman.
Key Concerns
Parsvnath aggressive real estate development activity faces significant execution challenges. In the next 3-4 years, the company plans to develop property that is about 10 times what it has done so far.
Any further increase in interest rates might affect residential and commercial real estate demand and also increase the funding cost for the projects. This could squeeze margins and also put pressure on the company’s balance sheet.
Any changes in local land laws or regulations governing the real estate sector could adversely affect the company. For instance, the withdrawal of tax benefits to real estate developers in the recent budget. Political changes could also disrupt the company's plans.
The company is foraying into hitherto unrelated capital intensive businesses such as telecom services and organized retail without having the necessary management expertise and experience. These adventures can be detrimental to the company’s prospects in the long run, if not managed properly.
Latest Developments
Parsvnath Developers has come up with its maiden project in Jammu. The company on 20 December 2007 announced the launch of residential project ‘Parsvnath Passion’ with an approximate realization value of over Rs. 100cr in next 3 years including this financial year. Parsvnath Passion is the first integrated group housing project being developed in Jammu by a national real estate player. It is situated over 11 acres of area with saleable area of over 7 lakh sq ft.
Parsvnath Developers Ltd has announced the launch of Parsvnath Preston, a high-end group housing residential project, in Sonepat, Haryana. The expected realization from the project is over Rs. 450cr in next 3 years including this financial year.
The Company has won the bid to develop a commercial project on 18632 sq. mt. of land at Sector Delta-II in Greater Noida. The estimated cost of the project including land would be Rs. 160cr. The saleable area would be approximately 3.6 lakh sq ft. with expected revenues of over Rs. 300cr spread over next 3 financial years.
Conclusion
On the basis of our research, we feel that this is a good stock to buy at the current market price of Rs. 457.45. If everything goes well, the price is likely to appreciate to Rs. 702.0, within 12 months, translating into a gain of about 53%.
Source : BC
Industry
Real Estate: The growth in the residential real estate market in India over the last 3-4 years has been largely driven by rising disposable incomes, a rapidly growing middle class, low interest rates, fiscal incentives on both interest payments and principal re-payments for housing loans and heightened customer expectations. Increased urbanization and increasing concept of nuclear families has also aided the growth. However, India’s housing shortage has still increased from 19.4 million units in 2004 to 22.4 million units in 2005-2006 and is expected to rise further as demand outpaces supply in the future. The number of households with annual incomes between Rs. 20 lacs and Rs. 50 lacs per year, Rs. 50 lacs and Rs. 1 crore per year and in excess of Rs. 1 crore per year is expected to increase by 23%, 26% and 28%, respectively, between fiscal 2002 and fiscal 2010. This is likely to keep up the demand for residential accommodations in the future. According to Cushman & Wakefield there is scope for 400 township projects over the next five years, spread across 30 to 35 cities, and that the total project value dedicated to low and middle income housing in the next seven years is estimated at US$40 billion. The recent growth of the commercial real estate sector in India has been fuelled, in large parts, by the boom in the services business, particularly in the IT and ITeS sectors. Despite the recent shocks in the form of an appreciating rupee, rising wages and sub-prime crisis in the USA, IT and ITeS sectors are still expected to grow at about 20- 25% p.a. Thus demand for commercial real estate from these sectors is expected to remain robust in the foreseeable future. Growth in organized retail has been another factor driving growth in commercial real estate. CRIS INFAC estimates that the organized retail segment in India is expected to grow at a rate of 25% to 30% over the next five years. This retail boom is likely to spruce up demand for quality retail space over the next few years.
Hotels: CRIS INFAC estimates that investments in the hotel industry will be approx. Rs. 9,000cr over the next five years. With increasing demand and limited availability of quality accommodation, the average room rates in metropolitan cities have shown significant growth in 2006 including 36.7% in Hyderabad, 32.5% in Delhi, 24.7% in Mumbai and 24.0% in Bangalore. This growth is expected to continue going forward on the back of strong growth in business, leisure and medical travel and tourism in India.
SEZ: According to the Ministry of Commerce and Industry, 61 SEZs are currently approved and under establishment. As of March 31, 2005, there were eight functional SEZs operating in India comprising 811 units and employing over a 100,000 people. Investment per SEZ is approximately Rs. 1,800cr.
Company
Parsvnath Developers, incorporated in 1990, is one of the leading players in the real estate industry in India. From being a company engaged in marketing real estate, it has forayed into construction of residential projects and currently has operations across 47 cities in 17 states. Parsvnath has in-house material purchase and construction capabilities with no third-party dependence. Over the years, the company has gradually reduced its dependence on residential projects by diversifying into commercial, integrated township and SEZ space. Presently, the company has a land bank of 191.08 million sq ft which is spread over 35 residential projects (35.43 million sq ft), 23 commercial projects (4.78 million sq ft), 18 integrated townships (80.20 million sq ft), 7 DMRC (BOT) projects (1.98 million sq ft), 17 Hotel projects (2.27 million sq ft), 6 SEZs (56.96 million sq ft) and 5 IT parks (9.46 million sq ft). We believe the company will be able to withstand a downturn in any segment by having presence in all the segments.
Parsvnath is the first real estate developer to be graded by credit rating agency ICRA-NAREDCO, receiving a rating of DR2- which indicates strong project development capacity. It has also been awarded the ISO 9001:2000, 14001:2004 and OHSAS 18001:1999 certifications highlighting strong designing, development, construction
and marketing capabilities of the company.
Parsvnath has become a strong brand in the residential segment. The company has acquired the necessary expertise and specialization in constructing high-rise apartments and row houses. It is developing 32 residential projects which, on completion, would translate into 33 million sq ft of saleable area. This is expected to fetch the company revenues to the tune of Rs 8,000 crore spread over next 4-5 years.
Key Investment Arguments
Parsvnath has a market cap of Rs. 8449.1cr, average daily volume of 474671 shares for the last six months and net sales of Rs. 1441.3cr during the trailing twelve months ended Sept 30, 2007.
It’s EBITDA and Net profit margins were amongst the highest in the industry coming in at 32.3% and 22.0% resp. in FY07 and at 38.7% and 24.9% resp. in the 1st half of FY08.
The company has achieved a 5-year CAGR of 114.5% in revenues, 151.7% in EBITDA and 141% in Net Profits.
Parsvnath trades at a PE multiple of 22.8 based on trailing twelve month (TTM) earnings, Price to Book ratio of 5.8 on FY07 bookvalue and Price to Sales ratio of 5.9 based on TTM net sales.
Debt-equity ratio of Parsvnath was at 0.75 in FY07. The company has aggressively raised funds in FY07 to finance its expansion plans. The debt equity ratio however declined over that in FY06 as its Networth grew at a faster pace on the back of its IPO in FY07 which was at a premium of Rs. 290 per share to its face value. A robust growth in net profits also aided growth in net worth in FY07. Parsvnath’s interest coverage ratio stands at a comfortable 7.2 in FY07.
Parsvnath’s has a land bank of 191.08 million sq ft which is mostly fully paid up. Most of the land is already in the company’s possession and falls under the govt. approved use zone and hence has a clear title. Further, the cost of its land under development is about Rs. 215/sq ft, which is amongst the lowest, and hence will significantly add to its bottom line and help it maintain high margins over a long period of time.
DMRC projects: Parsvnath has entered into concession agreements to develop shopping malls on 13 stations owned by the Delhi Metro Rail Corporation (DMRC) on a Build-Operate- Transfer (BOT) basis. Till date Parsvnath has executed 6 DMRC projects. These projects will yield a regular annuity income for a period of either 12 or 30 years and pay back period is + 3 years after completion. Parsvnath would be generating around Rs. 325cr of Annual lease rental from these properties from FY11 onwards. Cash flows from these rentals will provide much needed stability to the company. Despite the projects being relatively smaller in size, we believe they are valuable because the proximity of railway stations and depots guarantees footfall. There is also very little risk of competition from other malls, as these projects are in the heart of the city where open land is otherwise not available for development.
Hotel Projects: Parsvnath will be developing hotels under its subsidiary Parsvnath Hotels Limited. It has plans to develop 17 hotels (2396rooms) in 2.27mn.sq.ft area at a cost of Rs. 750cr.
Multiplex Project: Parsvnath is developing 114 Multiplex screens all over India. It has finalized the MoU with M/s Movietime Cineplex Pvt. Ltd. for leasing all their Multiplex Screens in existing and future projects at a rental of Rs. 48.50 per sq. ft. with a 15% increase every third year. The screens are to be given on lease initially for a period of 9 years. Rentals from the above are estimated at Rs. 43cr p.a.
Special Economic Zone (SEZs): Parsvnath has received approval for 12 of its SEZ projects from Ministry of Commerce whereas approvals for 5 SEZ’s are awaited. Land for Indore, Gurgaon, Dehradun, Kochi, Hyderabad, Nandad, Pallakad and Mysore SEZs has already been acquired. MoUs have been signed with the Governments of Madhya Pradesh and Rajasthan for their committed support to the SEZ Projects. Land for Kundli, Agra, Moradabad, Jaipur, Pune, Ajmer, Bangalore and Kancheepuram SEZs is under acquisition. These SEZ projects will cover an area of 4540 acres and a built-up area of around 377 million sq ft.
AMC business: Parsvnath has plans to enter the asset management business. It has already incorporated a subsidiary named ‘PDL Assets Ltd’ to carry on the asset management and asset holding business.
Forays in other high growth sectors: Parsvnath plans to foray into the telecom services and organized retail businesses, both of which are high growth areas. It has applied for providing Unified Access Services (telecom services) in 22 telecom circles across the country. It has also formed a subsidiary “Parsvnath Retail Ltd.” to develop large format malls and explore feasibilities of Highway Malls. Parsvnath is also exploring opportunities for taking up real estate projects outside India and has signed an MoU with “Al- Hassan Group of Companies” of Muscat, Sultanate of Oman for joint development of Real Estate Projects in Sultanate of Oman.
Key Concerns
Parsvnath aggressive real estate development activity faces significant execution challenges. In the next 3-4 years, the company plans to develop property that is about 10 times what it has done so far.
Any further increase in interest rates might affect residential and commercial real estate demand and also increase the funding cost for the projects. This could squeeze margins and also put pressure on the company’s balance sheet.
Any changes in local land laws or regulations governing the real estate sector could adversely affect the company. For instance, the withdrawal of tax benefits to real estate developers in the recent budget. Political changes could also disrupt the company's plans.
The company is foraying into hitherto unrelated capital intensive businesses such as telecom services and organized retail without having the necessary management expertise and experience. These adventures can be detrimental to the company’s prospects in the long run, if not managed properly.
Latest Developments
Parsvnath Developers has come up with its maiden project in Jammu. The company on 20 December 2007 announced the launch of residential project ‘Parsvnath Passion’ with an approximate realization value of over Rs. 100cr in next 3 years including this financial year. Parsvnath Passion is the first integrated group housing project being developed in Jammu by a national real estate player. It is situated over 11 acres of area with saleable area of over 7 lakh sq ft.
Parsvnath Developers Ltd has announced the launch of Parsvnath Preston, a high-end group housing residential project, in Sonepat, Haryana. The expected realization from the project is over Rs. 450cr in next 3 years including this financial year.
The Company has won the bid to develop a commercial project on 18632 sq. mt. of land at Sector Delta-II in Greater Noida. The estimated cost of the project including land would be Rs. 160cr. The saleable area would be approximately 3.6 lakh sq ft. with expected revenues of over Rs. 300cr spread over next 3 financial years.
Conclusion
On the basis of our research, we feel that this is a good stock to buy at the current market price of Rs. 457.45. If everything goes well, the price is likely to appreciate to Rs. 702.0, within 12 months, translating into a gain of about 53%.
Source : BC