15% is expectation from an active equity investment (vs. index). 5% additional is what may be considered for risk of further delays, promoter risk and real estate price risk. It could be higher depending on the risks.
Well there are three inputs if you are looking at calculating the discount rate. The amount of cash flows, the timing of cashflows and the certainty of the cash flows. The amount of cash flows depends upon the realization rate achieved finally. The timing depends upon the execution progress and the certainty is a given if the first two are on track.
The main thing is the sellout status. If the project is sold out quickly then execution is certain to happen and execution happens so will be the payout. The sales numbers as i have pointed out earlier look encouraging so i am reasonably convinced about the rest of the moving parts.
I don’t think discount rate (what one uses to calculate NPV) has anything to do with amount or timing of cash flows. It is however highly dependent on certainty of cash flows (eg. a GOI bond will have the lowest discount rate as certainty is guaranteed).
Project sell out status is a good indicator of de-risking as once customers have bought the property they potentially cannot walk away. However, most builders tend to over sell the ‘sell out’ status. For instance the collection against the residential sale looks like 5L/apartment. This might only be an advance with no agreement in place yet and can be achieved by aggressive marketing. Also in this project the bigger piece looks like the commercial piece and any info on the extent of sale concluded on commercial piece will be useful. Another variable to figure out is if Binny and developer are marketing their products together and if that is the case is there a waterfall in place for proceeds.
There are now strict regulations in place in the form of RERA for unscrupulous marketing practices. However TN has not yet notified the rules so that is a risk.
Binny is a landowner and i dont think will be involved in the sales & marketing of the project but it needs to be verified.
Agreements are mandatory within a defined time period after booking and no developer nowadays takes the risk of concluding a sale without an agreement in place. Real estate practices are going through a seismic shift in India and the bad developers & customers will be weeded out in time.
Different investors have different views about discount rates - in the end its the inherent risk that you sense in the investment that determines the expected return. I apply 13% for low risk opportunities.
If you are applying say 15% or more it indicates that you perceive the opportunity as risky and then you shouldn’t be in the stock in the first place regardless of the risk reward ratio!
I am not talking of the builder being unscrupulous - simply don’t have enough info to make that claim! All I am saying is that getting 20crs in booking @ 5L per booking does not mean much. These are not sale agreements, these are just booking advances and conversion into agreement can take time - in which process some of these bookings may not be confirmed. As pointed out by others, the area has other competing projects (such as Arihant-PVP North town) which is way advanced in construction today, and has lot of unsold inventory so selling here would not be that easy.
Is there any info on the traction in commercial sales?
Any info on promoter behavior/governance standards?
From my ground checks the commercial component is doing well.
The promoter spr has a decent reputation but he was in controversy some years ago- the details of which have been enumerated in the earlier posts. You could go through them to get a sense.
Also doing real estate development in india is a tough business but becomes easy if you have approvals in place and a solid location which appeals to the target segment.
Any idea about promoter of Binny who will ultimately control if any cash is distributed to shareholders? What promoter intends to do with the proceeds is very important as the thesis will only work if promoter returns the cash to shareholders. Any other use will be massively value destructive.
Market Of India - Update
1500+ Bookings | 5000+ Visitors | 700 Cr Revenue | 6 weeks.
Also watch this video https://youtu.be/MSdis2xmz74
Conversion rate is great. Out of every 3+ visitor, one visitor booked a space.
Encouraging news. However i would wait for the TN RERA rules to be notified. Ultimately real estate is a state subject. One must be cognizant of the risks involved in real estate execution. Executing a project is far more difficult than selling it. RERA was enacted specifically for that - to protect consumers from risks of non execution.
However, if execution is on track - the valuation gap is for all to see.
I must say the the underlying message in the youtube video posted above sums it up neatly. It is a strong call to action for traders.
Disc - invested and looking to add more based on TN RERA updates.
On part b) - How confident can one be in Binny management to dividend out the proceeds and not utilize it in some value destroying activity?
As this goes to promoter mentality, a good proxy is basic governance standards which do not seem to be very high in this case. In a recent example, two independent directors resigned on 20th May 2017 (both citing busy schedules) and the company has used this to seek time to move its annual results out by 2 months. These two gentlemen were incidentally appointed on the same date 27 Mar 2015! Without commenting about them being independent w.r.t. the company they certainly do not seem to be independent to each other!! Unless there is a very good reason why independent directors come and leave together, it is something worth being worried about.
From the article
"…Branded the Market of India, the developers hope to spread the concept to multiple towns and cities…"
Wonder if Binny will be part of it if they were to spread the concept to other cities.
My views may be biased since invested.
The jv has been a success which means that there needs to be a change in the directorship with fresh faces coming in. I think the new appointments will be influenced by the major stakeholders in the project due to RERA. The RERA holds the mgt of the land owner as equally responsible if any promises to customers are violated. In this backdrop it is natural that the independent directors in the pre rera phase would want to exit. Countrywide mgts are being restructured in real estate companies. Binny is no exception.
Secondly the main thesis for investing in the company is the valuation gap and as long as the valuations continue their attempt to fillout this gap shareholders should have little cause to complain
With the same joining and leaving dates, the independent directors do not look so independent, and that’s why management’s claim that these directors sprung a surprise on them by quitting abruptly is tough to understand. In any case RERA is not an over-night regulatory change that will lead them to quit abruptly.
Valuation gap thesis will be challenged if we use appropriate discount rate (20% in my calc). The input for that discount rate is not just commercial prospects of the company but also management behavior, which looks poor. Question is what is the appropriate discount rate
Through HDFC Securities, I am not able to do any transactions for Binny Ltd. I called their customer care and they said that Binny Ltd is on their suspended list. They did not give any further information.
I have written a mail as well, awaiting the written response.
Anyone know of any past issue because of which this might be the case?
Binny i think has hit its quarterly upper circuit limit of 252 and trading in it is no longer possible unless of course it corrects or limits are enhanced from 30th June 2017.
“Suspended” may be a misnomer. Likely they do not trade in XC category scrips online. Effectively I wish to state: it may not be an individually BINNY issue, but an HDFC issue in placing filters on what scrips to
@bheeshma : Last BINNY hit a quarterly limit @ around 185/- it was stuck there for a few days with no trading/minimal trading @185 itself; then the price began to decline. This was before the soft launch/ before
2016 Diwali when the news of launch made it to press.
This was before it reached the upper circuit. Usually if it is a circuit
thing, you are able to at least select the script and then some message is
In this case, I am not able to even select in it from the list!
BINNY took 20% jump today. No idea what happened in term of circuit filters etc.