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Emaar MGF Land

VIEWS: 120 PAGES: 7

									February 4, 2008| Real Estate

IPO FLASH

Emaar MGF Land
Huge land reserves
Emaar MGF Land (EMLL) is a joint venture (JV) between Emaar Properties PJSC of Dubai and MGF Development of India (MGF). The company develops properties in the residential, commercial, retail and hospitality sectors across India.

Issue Opens Feb 1, 2007

Issue Closes Feb 6, 2007

Price Band Rs 540 - 630

Analysts’ Names
Rupesh Sankhe rupesh.sankhe@icicidirect.com Sheetal Malpani sheetal.malpani@icicidirect.com

Diversified business model
The company’s land reserves are located in over 26 cities in 16 states in India. It has commenced projects in eight cities in seven states. These projects are spread over eight residential properties, including plots, villas, townhouses and apartments, one retail property and five hospitality properties.

Fact sheet Pre issue 883 95.3 4.7 Post issue 985 85.38 11.5 3.1

Huge Land Reserves
As on Dec 31, 2007, the company’s land reserves amounted to 13,024 acres. It has firmed up development plans for approximately 12,028 acres which is expected to translate into an area of ~ 588 million square feet and saleable area of 566 million square feet.

Equity capital (Rs cr) Promoters (%) Others (%) Public (%)

Most land reserves fully paid-up
Of the land reserve, higher proportion (89%) is fully paid. The balance is largely revenue share and not payable upfront. About 51.8% (acreage) and 67.3% (saleable area) is either directly or indirectly owned. Besides the National Capital Region (NCR), the company has substantial land reserve in Hyderabad, Chennai and Bangalore. Issue details Issue size (Rs crore) No of shares on offer QIB (%) Non institutional (%) Retail (%) Minimum Lot Size Market Cap post issue (Rs cr) 5538-6461 102570623 60 10 30 10 shares 47,701-62,113

Concerns
Emaar MGF is a recently-formed company with limited operating history. It has no fully-completed projects and registered operating losses in FY07.

Valuations
The company plans to develop more than 566 million sq ft. With its strong execution skills, we expect the company to generate huge cash flows which will in turn help it to boost its NAV by acquiring more land for purposes. At the higher price band Rs 630, the stock is valued at par to its NAV.

Exhibit 1: Key Financials Year to March Total Income EBITDA Net Profit EPS (Rs) RoNW (%) RoCE (%)

(Rs crore)

Comparative return metrics Stock return 3M DLF 8.85 Unitech 27.12 Parsvnath Dev -14.13

6M 48.33 54.37 -20.30

12M NA 89.59 -29.02

FY07 16.8 -67.7 -43.2 -

Sep07 501.7 200.4 129.8 0.72 2.78 2.00

Source: ICICIdirect Research

ICICIdirect | Equity Research

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Company Background
Emaar MGF Land is a joint venture between Emaar Properties PJSC of Dubai and MGF Development of India. Emaar is one of the world’s leading real estate companies having developed approximately 50 million square feet of real estate across residential, commercial and other business segments and with operations in 16 countries, as of Dec 31, 2007. MGF has over the last 10 years established itself as one of the key players in retail real estate development in northern India. The company commenced operations in India in February 2005. Primary business is the development of properties in the residential, commercial, retail and hospitality sectors. In addition, company has also identified healthcare, education and infrastructure as business lines for future growth.

Objects of the issue
•
Part-payment towards the acquisition of land and land development rights and related approvals for ongoing and planned projects Development and construction costs for project Palm Drive Repayment of loans.

• •

Particulars Acquisition of land & development Construction cost Repayment of loans Total

Amount (Rs crore) 2560.5 775.5 1449.6 4785.6

Exhibit 2: Business Model

Business Model

Commercial

Residential

Retails/Offices

Hospitality

Source: Company, ICICIdirect Research

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INVESTMENT RATIONALE
Robust real estate market in India
India’s housing shortage increased from 19.4 million units in FY04 to 22.4 million units in FY06 and is expected to rise further. The retail market for mortgages is expected to increase at a 17% CAGE from US$16 billion in FY06 to US$30 billion in FY09. Cushman & Wakefield have noted that there is scope for 400 township projects over the next five years spread across 30 to 35 cities, each having a population of more than 0.5 million and that the total project value dedicated to low and middle income housing in the next seven years is estimated at US$40 billion. Increased incomes to drive residential real estate market According to NCAER’s 2005 report 'The Great Indian Middle Class', the number of households with annual incomes of between Rs 2,000,000 and Rs 5,000,000 per year, Rs 5,000,000 and Rs 10,000,000 per year and in excess of Rs 10,000,000 per year is expected to increase by 23%, 26% and 28%, respectively, between FY02 and FY10. These high-income households will be target customers for mid to luxury residential developments offered by premium residential property developers. Service sector companies to propel commercial real estate The recent growth of the commercial real estate sector in India has been fuelled in large part by increased revenues of companies in the services business, particularly in the IT and ITES sectors. The IT/ITES sector continues to continue to grow and generate additional employment, which is expected to result in increased demand for commercial space. Going forward, revenue from ITES is expected to grow at a 30% CAGR to US$19.7 billion in FY10, while that from IT services is expected to rise at 26% CAGR to reach US$28.5 billion by FY10. Retail to boom CRIS INFAC estimates that retail spending in India in FY05 was Rs 9.9 lac crore, of which organised retail accounted for Rs 35,000 crore, or approximately 3.5%. The organised retail segment in India is expected to grow at a rate of 25% to 30% over the next five fiscal years till FY12. Hospitality development Room demand is expected to rise at a 10% CAGR over the next five years (FY06-12). This is expected to be accompanied by increases in average room rates of 20% and 10% in FY07 and FY08 respectively. It is expected that the growth in occupancy rates will be assisted by factors such as the 10% CAGR in the number of incoming travellers to India over the next five years.

Strong parentage
Emaar MGF Land is a joint venture (JV) between Emaar Properties PJSC of Dubai and MGF Development of India (MGF). Emaar Properties PJSC of Dubai, one of the promoters, is among the world’s leading real-estate companies, with development of about 50 million square feet (sq ft) of residential, commercial and other business segments and operations in 16 countries end December 2007. Over the last 10 years, MGF has become one of the key players in retail real-estate development in north India.

Huge land reserves
It had land reserve of 13,024 acres end December 2007. The land reserves are spread over 26 cities in 16 states. The company has commenced projects in eight cities in seven states. THe land reserve will provide a proposed saleable area of approximately 136.5 million sq ft of plotted residential development (including built-up villas); 318.8 million sq ft of built-up residential properties; 88.9 million sq ft of commercial properties; 18 million sq ft of retail properties; and 4,960 keys in hospitality properties.

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Exhibit 3: Land reserves are geographically well-diversified

Source: Company

The company’s current residential projects consist of 385.9 acres of land under development with a proposed Saleable Area of 17.3 million square feet, comprising of 6,640 units in five locations, as of December 31, 2007. Current retail project consists of 15.6 acres of land under development with a proposed saleable Area of 0.5 million square feet comprising 280 units in one location, as of December 31, 2007. Its current hospitality projects are in four locations and are intended to have 1,135 keys, as of December 31, 2007.

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KEY CONCERNS
Part of land reserves under litigation
The company's land amounted to 13,024 acres as on December 31, 2007. Out of this, approximately 760.26 acres are subject to litigation proceedings. These include proceedings initiated by company in respect of approximately 374.81 acres, proceedings initiated against company in respect of approximately 197.83 acres and proceedings involving sole/joint development partners in respect of approximately 187.62 acres.

80% of land reserves comprise agricultural land
Of its total land reserves, approximately 80% is agricultural land for which sole/joint development partners have not yet obtained a certificate of change of land use. The company is currently in the process of converting 10% of the total land reserves into non-agricultural land for which applications are pending with relevant authorities.

The company was incorporated on February 18, 2005, and has financial statements for only two full fiscal years and for the six months ended September 30, 2007. As a result of short operating history, company does not have any completed projects and prospective investors will have limited information with which to evaluate the quality of projects and current or future prospects and on which to base their investment decision.

Limited operating history

Negative cash flows in prior periods
On a consolidated basis, the company registered negative cash flows from operating activities and investing activities of Rs 36.02 billion and Rs 6.63 billion in FY07 and H1FY08 respectively. Any negative cash flows in the future could adversely affect the company's operations and financial condition.

FINANCIALS
For the six months ended September 30, 2007, the company's consolidated total income was Rs 501.7 crore and consolidated net profit was Rs 129.8 crore. For the year ended March 31, 2007, consolidated total income was Rs 16.8 crore and consolidated net loss was Rs 47.3 crore.

Since ICICI Securities Limited is a syndicate member for the issue no recommendation has been made.

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FINANCIAL SUMMARY
Profit & Loss
Year to March Net Sales Other & Mgmt Income Total Expenditure Operating Profit Interest Depreciation Prior period items Profit Before Tax Tax Net Profit Operating Margin (%) Profit Margin (%) FY07 16.8 75.8 -59.0 4.6 4.1 5.0 -62.7 -19.5 -43.2 (Rs crore)

H1FY08 472.7 29.0 287.3 237.1 9.4 3.6 0.9 200.4 71.5 128.9 47.25 25.69

Balance Sheet
Year to March Equity Share Capital Reserves & Surplus Secured Loans Unsecured Loans Current Liability Minority Interest Total Liabilities Net Block Capital Work in Progress Investments Net Current Assets Deferred tax asset Total Assets

(Rs crore)

FY07 1028.5 3184.7 269.5 2247.1 776.3 0.12 7962.1 735.2 73.6 26.0 7102.2 25.0 7962.1

H1FY08 1794.5 3044.2 1045.0 3112.6 965.0 0 9961.6 858.0 199.5 55.6 8845.3 2.94 9961.6

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Harendra Kumar

Head - Research & Advisory ICICIdirect Research Desk, ICICI Securities Limited, Mafatlal House, Ground Floor, 163, H T Parekh Marg, Churchgate, Mumbai – 400 020 research@icicidirect.com

harendra.kumar@icicidirect.com

Disclaimer
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities Ltd (I-Sec). The author of the report does not hold any investment in any of the companies mentioned in this report. I-Sec may be holding a small number of shares/position in the above-referred companies as on date of release of this report. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This report may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Actual results may differ materially from those set forth in projections. I-Sec may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject I-Sec and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

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