Financial Analysis of Real Estate Sector

Introduction of Real Estate Sector in India

Real Estate Industry is 2nd largest employer after agriculture and contribute to 5% to the countrys GDP The construction sector has grown at an average of 9.85% highest being 16.2% Investor interest, infrastructure activities undertaken by government and Indian economy growth has contributed to the growth of the sector The growth in service sector and manufacturing sector resulted in increase demand for commercial and industrial real estate. Commercial real estate boom is attributable to Indian Corporates and MNCS

Future Growth Drivers for the Industry

SEZ Government incentives for developers of SEZ International Tourism growing in India Hospitality industry expected to rise in future Medical Tourism expected to grow in India being low cost country and having high quality Retail Industry Urbanization Development India has only 28% people urbanized compared to Asia 36% and USA 77.2% Service Sector industry accounts more than 50% of India GDP with India expected to grow at 8-9% will be major contributor for commercial real estate. Dual Income people group rising in India

Key Factors affecting the Real Estate industry in India

Rising Interest rates Political involvement in the project Regulatory issues Unclear titles Time Consuming Approval Relaxed FDI rules in India implemented by India will invite high investment in India

Swot

Real Estate Sector Analysis

Weaknesses : Mutual funds shun sector on rising interest rates 691.55 crore

Strengths: PE Investment soars in reality $1656 million (Yr 2011) (75% change) $944 Million (yr 2010) Demand for the office space continues to be higher side for IT/ITES Sector

(63.6% Change) 1983 crore Sluggish Demand Regulatory Issue Deleveraging Threats: Margin Pressure Liquidity Pressure Demand for the retails commercial Spaces is expected to be low in 2012

Opportunities: Improved Macro Economic Condition Improve Capital Structure

Sluggish demand to Continue

Intro of DLF and Unitech and why these two sectors

Ratio Analysis
Quick Ratio
4.00 3.50 3.00 2.50 2.00 1.50 1.00 1.00 0.50 0.00 0.00 2009 2010 2011 2009 2010 2011 7.00 6.00 5.00 4.00 3.00 2.00

Current Ratio

Operating Margin ratio

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2009 2010 2011 2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0

Debt to Equity Ratio

2009

2010

2011

ROCE Ratio
12% 10% 8% 6% 4% 2%

Price Earning Ratio

4.50 4.00 3.50

3.00
2.50 2.00 1.50 1.00 0.50 0.00
2009 2010 2011

0%

2009

2010

2011

Earning Per Share

60.00 50.00 40.00 30.00 20.00 10.00 0.00 2009 2010 2011

Sales to Capital Ratio

0.18 0.16 0.14 0.12 0.10 0.08 0.06 0.04 0.02 0.00 2009 2010 2011

Findings from the Research Report

Unitech's asset value is strong but has to focus on reducing debt Non-core assets for sale will help improve cash inflow and strengthen the business PINC - Unitech maintain 'BUY' with a reduced target price of Rs 45 (from Rs55) .Unitech Infra listing and new launches from the company are likely to be key triggers going forward. DLF to reduce debt through sale of non -core assets and faster cash generation through sale of plotted development. It is planning to sell its 100% hotel subsidiary (DLF Hotels and Hospitality) to Kolkata based Square Four Housing & Infrastructure for Rs5.5bn PINC- DLF 'BUY' rating with a target price of Rs315. DLF is likely to reduce debt and accelerate cash flows through plot sale and noncore assets sale that will act positively for the stock

DLF or Unitech ?
We recommend Unitech for long-term BUY for the following reasons: EBIDTA margins have improved sequentially by and going forward we expect margins to improve further as contribution of older projects reduces. Unitech's asset value is strong but management has to focus on certain key decisions such as: 1) reducing debt level further with some large asset sale or creating a basket of non-core assets for sale that will help improve cash inflow and strengthen the business, (2) Increasing the work force further to improve the execution level which is likely to help saving both financial cost and generate cash flows faster. (3) approval of court decision for listing of Unitech Infra.