Kolte Patil Developers

Stock Opportunities
75

Key Notes from Annual Report:

Business Performance:

  • Present in Pune (highest market share), Bangalore and Mumbai

  • CRISIL A+ / Stable rating over 5 years (highest rated residential real estate developer in the CRISIL universe) despite sectoral turbulence and economic sluggishness

  • Prominent global investment firms - KKR committed H193 crore in R1 sector of Life Republic, Pune; the Company entered into H120 crore agreement with an affiliate of J.P. Morgan Asset Management for its redevelopment Jay-Vijay Society project in Ville Parle (E), Mumbai

  • Revenues grew 46% Y-o-Y to Rs 1,403 crore compared to Rs 964 crore in 2016-17

  • EBITDA grew 27% Y-o-Y to Rs 303 crore compared to Rs 238 crore in 2016-17

  • PAT (pre-minority interest) higher by 81% Y-o-Y to Rs 154 crore compared to Rs 85 crore in 2016-17

  • PAT (post-minority interest) higher by 39% Y-o-Y to Rs 121 crore compared to Rs 87 crore in 2016-17

  • When adjusted for the strategic Rs 182 crore divestment in Wakad, revenue grew 27% Y-o-Y to Rs 1,221 crore, EBITDA grew 28% to Rs 305 crore, EBITDA margins were stable at 25%, PAT (pre-minority interest) increased 83% Y-o-Y to Rs 154 crore and PAT margin (post-minority interest) was up 110 bps Y-o-Y to 10.1%

  • The Board recommended a dividend of Rs2 per share

  • ROCE up from 14.5% to 18.4%

  • New sales bookings of 2.08 msf compared to 2.09 msf in 2016-17

  • Value of area sold at Rs 1,198 crore compared to Rs 1,220 crore in 2016-17

  • Collections were higher by 15 % Y-o-Y at Rs 1,109 crore compared to Rs 965 crore in 2016-17

  • Debt down from Rs 499(0.53 debt equity) crore to Rs 288 crore (.29 debt equity)

  • Average debt cost down from 12.1% to 10.4%

  • 2.09 msq feet apartment sales against 2.07 msq feet in a touch and challenging year

  • Cash inflow up from Rs 965 Cr to Rs 1109 Cr

  • DMA, 4% 24K/Luxury, 24% Township, 15% MIG, 58%

  • Luxury >H1.5 Cr

  • HIG Rs 1 to 1.5 Cr

  • MIG Township / Non Township: Rs 50 lacs to 1 Cr

  • Affordable homes: < Rs 50 Lakh

Mumbai:

  • KPDL’s Mumbai entry was timed with changes in Development Control Rules, 2013 (DCR, Section 79 A), making it a level-playing field for all developers
  • Synergies to existing Pune business
  • Facilitates margins expansion
  • Reduces working capital cycle
  • Geographical diversification - establish strong brand in Mumbai
  • Signed 14 redevelopment projects till date with total saleable area of ~1.4 msf spread across premium locations in western suburbs

Bengaluru:

  • Bengaluru city’s residential demand is dominated by an immigrant salaried employee class and a strong end-user market with stable market
  • KPDL’s presence in the Bengaluru market provides geographical diversification in another volume driven market § Increased traction to expand Bengaluru share in the KPDL portfolio
  • Ongoing/planned projects to the tune of over 2.0 msf at prime locations like Hennur Road, Koramangala, Horamavu and Hosur Road
  • Strategic objective to enhance presence in Bengaluru, thereby further deleveraging the portfolio concentration

Business Outlook and Next Year Goals:

  • 5 msf in acquisitions, 4 msf in launches and 3 msf in sales in 2018-19
  • We expect to launch ~4.4 msf of properties across Pune, Bengaluru and Mumbai in FY19
  • We believe that we possess attractive projects visibility to grow our Mumbai and Bengaluru revenues from 11% in 2017-18 to ~25% of our revenues by 2020, broadbasing our geographic footprint and business stability.
  • During the current financial year, we expect to launch nearly 4 msf of projects, supported by growth capital from strategic financial partners and our robust Balance Sheet. We see a gradual improvement in consumer confidence, a RERA-compliant environment creating traction for established brands, low home loan interest rates and a general growth in personal incomes cum aspirations. Kolte-Patil expects to build substantially and sustainably from this point: we expect to grow at an average of 20-25 per cent in the foreseeable future.
  • In the past, the Company entered into associations with marquee brands like ICICI Ventures, IL&FS, ASK Investment Managers and Portman Holdings (USA) that enabled us to mobilise higher net worth. In 2015-16, the Company had entered into H120 crore agreement with a J.P. Morgan Asset Management affiliate for the Jay-Vijay Society redevelopment project in Vile Parle (E), Mumbai. In December 2017, the prominent global investment firm of Kohlberg Kravis Roberts (KKR) committed H193 crore in the R1 segment of our flagship Life Republic in Pune, which helped the project attain financial closure, address working capital requirements and reduce the overall cost of outstanding debt attributable to that project’s development.
  • Consolidating dominant presence in Pune: Accelerating launch of subsequent phases of ongoing projects
  • Sector consolidation: RERA and GST graduated to organised, execution-focused developers like KPDL
  • Strong Mumbai pipeline: 1.4 msf across 14 redevelopment projects in Mumbai requiring low capital deployment, synergic with Pune leadership, facilitating PAT and ROCE expansion
  • Bengaluru an additional growth engine: Launched Exente, Hosur Road; Koramangala project to be launched in H2 2017-18
  • Expansion in Affordable Housing projects: ~3 msf in subsequent phases of existing projects like Life Republic and Ivy Estate
  • Business development initiatives: Potential acquisition of 10-12 msf additional land banks through outright purchases/joint development with land owners – ~1.5 msf for luxury projects, ~3.5 -4 msf for affordable housing, remaining for MIG housing
  • Focus on execution, collections and cash flows: Asset-light growth based around Balance Sheet to drive profitable growth
  • Fund-raising: The Board passed an enabling resolution for raising up to H500 crore through various modes
  • We possess a strong 1.4 msf pipeline in Mumbai across 14 redevelopment projects warranting low capital deployment. In Bengaluru, we launched one project (Exente on Hosur Road) and are poised to launch another project (Koramangala).
  • We are evaluating acquisitions and partnerships across the MIG, affordable housing and luxury project categories.
  • We planned projects to the tune of over 2.0 msf of projects at prime locations (Hennur Road, Koramangala, Horamavu and Hosur Road). The result is that Mumbai and Bengaluru will be our additional growth engines going forward, increasing their aggregate revenues from ~10% of our total revenues in 2016-17 to ~25% by 2020 through the redevelopment route.

Management Commentary:

  • The size of the country’s real estate market is expected to grow from around USD 126 billion in 2015 to a projected USD 180 billion by 2020, according to a report by CREDAI and JLL India. The housing sector alone is expected to contribute approximately 11% to the country’s GDP by 2020.

  • Recent studies by various agencies have suggested that close to 31,500 real estate projects have been registered under RERA. Maharashtra accounted for 54% (17,125 projects) of these registrations.

  • The Company grew its Bengaluru revenues from 3.6% of sales volume in 2016-17 to 12.9% of sales volumes in 2017-18; it recorded the highest-ever sales and collections in 2017-18. We expect Mumbai projects to pick up in FY19 following the government’s initiatives to resolve dumping ground issues and announcement of Development Plan 2034 leading to improving projects and revenue visibility for our company. The Company reported significant 61% Y-o-Y growth in collections to H156 crore in Mumbai, accounting for 14% of our overall collections in 2017-18

  • Even though we have recently been in Mumbai, we have established ourselves as one of the largest redevelopment developers. Our timing of entry was fortuitous: a change in Development Control Rules, 2013 (DCR, Section 79 A) made it a level playing field for all developers. Besides, our Mumbai business is synergic with our Pune business, diversified across prime in-city locations, optimally-sized projects, low capital commitment (payment of corpus fund and rental to tenants that are linked to approvals), moderate working capital cycle and strong ROCE

  • Our latest completed, ongoing and prospective projects:

  • These covered a saleable area of ~15 msf.

  • The Company owns a land bank of ~30 msf

  • The Company is expanding its presence in the affordable housing space

  • The Company is appraising acquisition of 10-12 msf land (purchase/ joint development agreement JDA)

Other Observations:
• Promoter holding from 74.54% to 74.51%
• FIIs holding 10.39% to 12.35%
• Management remuneration around Rs 7 cr against 16 cr limit
• The number of permanent employees on the rolls of the Company as of 31 March 2018 and 31 March 2017 was 563 and 538 respectively.
• The aggregate remuneration of employee excluding WTD increased by 7% over the previous fiscal
• CEO salary up by 236%
• Deloitte is the auditor

Personal View:
Company has done relatively well compared to peers in worst of the time and not only retained business but improved on most of financial metric, be it leverage, return on capital etc. After 3-4 years of hiatus, looks like company is ready to cross the bottleneck of 2 million sq feet of annual sales with much stronger balance sheet and financial metrics.

Disc : Invested since 2 years and accumulating on corrections

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