It looks like KPDL and Indiabulls have registered > 25% PAT growth in last quarter y-o-y, but remaining real estate players have still posted negative PAT growth y-o-y, so it may be some more time before real estate sector as a whole turns around which can last long.
With recent interest rate cuts being passed on to retail customers, things could change in next few quarters; and that would be good for KDPL.
We also need to keep a watch on its margins. They have improved in last quarter, but need to show consistency going forward.
Current P/E of 15 and P/B of 1.06 looks attractive as compared to other real estate players, who are enjoying higher P/B.
I am observing this business for some time, and feel that, this is one of the better valued stock in real estate sector even at current P/E and P/B.
Heard Kolte Patil’s radio ad (in Pune) advertising freebies to spur sales - upto 10L off, Rolex watches etc. Looks like slowdown is affecting them also.
Slowdown is affecting all the builders. And i feel that the home prices are going to be under pressure for sometime with a downward bias. I think the prime reason for drop in margins for the builders is the discount that they are offering to speed up the sales. Now instead of deducting discounts from revenue in the earnings side of BS i think they have been including it in the Sales and Promotion expenses. That i believe is the reason for drop in margins for almost all the builders.
KPDL margins last qtr had improved. We need to see if same is on sustainable basis.
Also other parameter to check is if increase in sales bookings is consistent or just a last qtr phenomenon.
As per Sobha and Ashiana press release they also had experienced increase in sales bookings for the last qtr.
Government focus on black money is one of strong reason for housing market to remain subdued.In the past, demand was artificial where investors were the buyers. You can clearly see that from rental market. While real estate prices were sky rocketing till 2013, rental cost were (and continue) to remain subdued due to abundant supply. Now due to government focus on black money (IT department started sending notices to anybody who has purchased apartments in last few years), only real buyers are left in the market, who are ready to play waiting game for prices to come down.
Hi not sure if any one else is still tracking the share, I have never invested in any real estate, however this is coming in my radar mainly due to
Current Price has factored in all the negative news.
The current market cap + Debt is less than the inventory of flats it has ,
Current Market Cap = 690+ Debt of 600 Cr, gives an EV value of 1290 Cr.
Inventory as per March Balance sheet is 1738 Cr,
It is expecting 200 Cr. of free cash this year and is repaying 100 Cr. of Debt during this financial year( it gives multiple of 6 based on cash flow to EV)
EBITDA margins have improved to 32% and it is expecting that to be the normal level
It has been able to maintain around 10% share of Pune Real Estate market
I also live in Pune and had booked a flat in one of their project, they seems to be on target in handing over the project and have been having very fair dealings
Much better corporate standards and among few real estate companies who give project wise status of revenue recognition and sale
I have spoken to some people who have worked in the company and management seems to be ethical and committed to grow the business
RERA will help bigger player to gain market share due to increased compliances
Cons for investment
Considering the current market situation, another 20% fall in the stock price can’t be ruled out
It may take time for the real estate market to come back
in last 4 years , the debt levels have gone up from 200 Cr, to 600 Cr and inventory has gone up from 982 Cr. to 1738 Cr, ( very drastic increase in the current market situation)
request others to please comment
Note: Not invested however seriously considering
[quote=“bheeshma, post:17, topic:263, full:true”]
one thing that caught my attention is that the Mcap of 1300 cr is less than the inventory cost of 1467 cr on books ( which accounts for ~70% of total assets) .
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This was my post some time ago. While the other numbers look interesting i can tell you right away that kolte patils market share is nowhere close to 10% it claims. its much much less. having said that however, its projects are situated in very good locations in Pune. All of them are these high population upper middle income type market expected to do well in the future
The fact that its market cap is below its valuable inventory level offers a margin of safety. However in Pune at least developers don’t have pricing power. There is severe competition with 3000+ projects in Pune. But its known to be fully professionalized and in my opinion its level of disclosure in AR is unusally high.
You are right and now the gap between the inventory and market cap had further increase as on 31st March 16 while the inventory is of 1767 cr the market cap is less than 700 cr.
I also stay in pune and you are right all the projects are in high end areas and have potential to provide value
The pattern you are talking about is inverted head n shoulder. Higher volume at the breakout is confirmation of the pattern. The targets are decided by adding the height of the head to the breakout line. So the targets are much lower than the stock has achieved. Also if you notice, the stock has witnessed higher top higher bottom after formation of the head. This is a bullish pattern which has moved stock to the much higher levels.
It is important to note that while affordable housing is good for customers it may not necessarily be good for the developers and by extension shareholders. The price realizations for the developer in affordable housing projects are much lower and it is certain to impact margins going forward.
Affordable housing is also now driven by tax subsidies to compensate developers for the lack of margin. However, despite tax subsidies developers will have to increasingly rely on external sources of finance to finish the project on time. This will increase interest costs. A double whammy. Kolte Patil operates in pune mumbai and bangalore. All highly urbanised areas and the cost of land for developers is quite high compared to the margins they are able to get.
I think Sunteck also announced plans for affordable housing.
The developers are doing so because of the benefits provided by Govt schemes.
However, i doubt it will be able to make big difference in profits anytime soon.
If a developer having revenue of 1000 cr , announces a project of 30-50 cr in affordable housing, he will not gain much in bottomline.
The affordable housing can be good for developers having cheap land at the outskirts of the city where the demand for MIG and HIG / luxury apartments is less.
I guess affordable housing is becoming new buzz word !!
As rightly pointed out, affordable housing is not easy since main component LAND should be cheap. Around the world affordable housing projects are based out of city where land is cheap and the projects are dependent on subsidies.
In Gurgaon, Government has waived off EDC charges, reduced taxes on the Builder and currently affordable housing projects enjoy service tax waive off and subsidized interest rates for people falling in that class.
In Singapore, Government subsidizes by providing rebate upto 40% of the cost of house, in Indonesia Government waives off taxes and provides cheaper land.
So it is not an easy proposition. But its a good way to monetize huge historical land bank for companies.
Though so many companies are venturing, only very few will be able to deliver and fewer will be able to create a profitable business model based on affordable housing. Its a tough game
Discussed this further with my developer friends last evening. Just jotting down the points quickly. Excuse me for poor style of writing…
“Good stable developers” will be manage to create a profitable model from this affordable housing boom.
Working capital requirements to start a housing project has become a headache for the developers post RERA, as one will need to register a project first with the authorities (and for that the developers must have 60-75% of the building cost in bank upfront). I need to double check the amount. So for instance, if a developer wants to do a 50 cr project, he must have almost 30-35 cr in bank upfront (in white, of course). Post that, if the project is approved, advances now would go to an escrow account with bank. Developer can only use that amount for construction of this particular project (ethical). I am not sure if banks are going to charge anything for this escrow amount and what are the criteria set for the fund usage …stage by stage.
So all in all, RERA will present an opportunity to strong breed of developers (ethical, financially strong, and with a good on time completion track record) ans is going to be a messy affair for small time developers.
Gradually we are going to see some building norms coming into force (i think there are already some like 5 year maintenance and stuff). So, good developers while trying to profit from this segment will try to find building products that are good but unbranded. RERA has transferred power in the hands of the customer so unethical practices from the developer will result in nightmares for him. Though we need to see how strictly these things get implemented.
I believe this is a very good situation for strong housing finance companies and LAP vendors like Indiabulls housing finance. Huge working capital loans would have to be taken to start the project, and there are lots of legalities on how to use those funds. So, basically, funds will be used in the right project, which is very good for lenders. What used to happen earlier was that post sanction of loan, there was no control on part of the lender as to where the builder is using the sanctioned funds. So this was resulting in NPAs and stuff.
The trend in the average realization psf for kolte patil is symptomatic of the stress in the overall real estate sector in general. Q1 presentation is awaited as that would throw further clarity. But on an overall basis realizations have dropped quite a bit esp in Mumbai which shows a steep decline.
Good set of numbers from Kolte Patil. Its projects in Hinjewadi, Wagholi and Wakad are doing well and Ivy Estate ( Wagholi), Life Republic ( Hinjewadi) , Western Avenue (Wakad) are driving revenue growth. The overall realization per sqft in Pune has increased from Rs 5514 psf in Q22017 to Rs 5701 psf in Q22018
Going forward the growth in Hinjewadi will play a major role in its growth as Life Republic accounts for 7.2 million sf of its 22.6 million sf future saleable area expected to come on board i.e 32%. Hinjewadi is the IT hub of West Pune and is seeing a boom in demand and supply. Life republic currently has a realization of Rs 4835 psf with very reasonable size configurations - 1 BHK at 600 Sqft and 2BHK at 900 sqft.
If you track the ads in Pune, Kolte Patil has messaging that appeals to the upper middle class affluent Maharashtrian crowd which populates West Pune predominantly where Wakad and Hinjewadi are located. Ground checks indicate that Western Avenue in Wakad has done exceedingly well. Wakad is shaping up really well as a micromarket.
Lots of action happening in the housing plays. Esp pure housing providers. Amongst the housing players I think that kolte is very attractive in relation to the size of opportunity available in Pune. Total value of unsold stock in Pune is about 50k Cr. Kolte market cap is about 1800cr. When you look at the marketcap of some Bangalore based players it appears very attractive. Bangalore market size is roughly equal to Pune.
Negatives
Clearances - Getting clearances from the govt is the Achilles heel of the real estate industry. Clearances take about 1.5 to 2 years to get for reasonably large projects.
Getting land at reasonable rates. This part basically drives the profitability of a real estate company. In a rising market land is often procured at a premium and needs to be monetized quickly. Land rates have come down in the recent past and now form about 20-25% of the revenue but there is no certainty of that going forward.
Working capital - Cement, Paint etc are all in the 28% GST bracket increasing the WC cost. Inefficient WC management can irreversibly impact profitability.
Contractor relations - Contractors have to be managed and once a contractor is finalized and work started the developer has the unenviable task of catering to contractor demands on an ongoing basis. The larger the contractor the more unpredictable the relationship.
Kolte had posted had good results for sept qtr. However, i was hoping for a good jump in qtr sales booking yoy. it was almost flat.
Now will check in Dec results.
Realty stocks are showing good strength in current market and had a good run recently.
@bheeshma cherry on the cake is Mumbai redevelopment housing opportunity . Asset light , higher margins, brand play and enough market size for kolte market cap. A good show can open up more opportunities there. Also, they may come up with something concrete on affordable housing by financial year end. Disc : invested from lower levels
