Puravankara Projects
Focused on south India
Significant ongoing projects with high proportion of pre-sales increase revenue visibility

Promoted by Ravi Puravankar, Puravankara Projects focuses on developing residential and commercial properties, primarily in south India (specially Bangalore). The company has completed 14 residential projects and one commercial project covering approximately 3.77 million square feet (sq ft) of saleable area.

Puravankara Projects had entered into a joint venture with Keppel Investment Mauritius Pvt, a subsidiary of the Singapore-based Keppel Land. The company holds 49% of the shares of Keppel Puravankara Development, which owns 0.86 million sq ft of land in Bangalore. In addition, it has executed a joint venture agreement with 36.26% economic interest for residential projects in Kolkata, aggregating approximately 1.08 million sq ft of land.

Strengths

• On 2 July 2007, had a land bank of 38.07 million sq ft, representing a 106.8 million sq ft of saleable area. Has plans to develop land bank over eight years. The land bank was acquired at Rs 98 per floor space index (FSI).

• Of the land bank, 11.42% (i.e., 12.2 million sq ft) is represented by ongoing projects. Has already sold 55% of its projects. Plans to complete ongoing projects in 2.5 years. Has booked revenue for 1.43 million sq ft (assuming an average realisations of Rs 2900 sq ft) in the year ending March 2007 (FY 2007). As the area under development represents 8.5 times the amounts booked and 55% of its projects have been sold, revenue visibility is high. The realisation target is Rs 3200 per sq. ft. The average cost of construction is Rs 1200-1500 per sq. ft. Moreover, of the saleable area, only 11% (i.e.1.31 million sq. ft) are new projects started in calendar year (CY) 2007.

• In addition to the land bank, has entered into memoranda of understanding (MOUs) for the purchase of lands or for execution of joint developments agreements on parcels of land located in and around Chennai, aggregating approximately 43.56 million sq ft.

• The Union government recently banned real-estate players and township developers from accessing external commercial borrowings (ECBs) to fund projects. The Reserve Bank of India (RBI) also earlier raised the risk weights on housing loan, followed by an increase in interest rate to curb the demand for real estate. Thus, real-estate companies are likely to face difficulties in funding projects (particularly for buying land). Their interest burden is also likely to increase.
• Over the past couple of years, there has been a significant increase in interest rate and prices of real estate. This has increased the equated monthly instalment (EMI) on housing loans. The increase in EMI as a proportion to disposable income of household has raised concern regarding affordability of properties. Real-estate prices are already showing signs of softening in some regions. A drop in prices could also result in customers adopting a wait-and-watch approach before booking new properties and existing customers deferring payments or cancelling bookings made earlier when prices were high. This would impact cash flows and could lead to a cash crunch. This could significantly impact ability to complete existing/start new projects.
• 1.57 million sq ft of land area is under dispute for claim of Rs 15.27 crore.

Valuation

Consolidated FY 2007 EPS on post-issue equity works out to Rs 6.1. At the offer price band of Rs 500 – Rs 525, the P/E range is 81.9-85.9, respectively. Comparable listed player according to size is HDIL, currently trading at 24.6 times its consolidated recurring FY 2007 earning. Nearest location-wise comparable company Sobha Developers is trading at 41.1 times its FY 2007 earning.