Kolte Patil Developers

Stock Opportunities
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Kolte-Patil Real Estate Private Limited is now 100% subsidiary of company
Kolte Patil Announcement.pdf (1.0 MB)

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Pabrai fund holding average price is much lower. They can very well afford to wait long without erosion of capital. The full effect of new account rule change is not yet fully discounted.We have to wait till the price gets into consolidation zone.

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How does the accounting rule change the valuation of the business or fundamentals of the business?

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Hi @karthik_kamath_

It changes the timing of earning recognition. If timing changes so do the valuations. ICAI has yet to come out with a guidance note on the impact of ind-as 115. The consensus as of now is that for real estate firms the revenue is to be recognized at a single point in time vs over time.

In general revenue recognition rules have changed worldwide for many sectors like telecom, media, construction etc which have complicated customer contracts with the adoption of these new standards

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Could it be that things become even more difficult for real estate developers as a result of this accounting rule change and hence, there are fewer companies left in the field. Kolte Patil, having a decent balance sheet, survives and benefits from the decreased competition

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Its business as usual for real estate developers. Nothing changes at an operating level as nothing has changed in the operating environment.

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This is precisely what i was thinking. These accounting changes dont affect the operations. For eg: advances frm customers will now come under borrowings. But these borrowings wont carry any interest rate with them (correct me if am wrong). So they will already have the cash , its just that they cant show it as profits until project completion. Since this doesn’t put any stress at operational level then why is the market discounting stock price. Is this not an oppurtunity to add more? Or am i missing something?

Disc :holding at 260

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In cos which do provisioning correctly , the earnings are equal to the fcf. If you shift the timing of the earnings by a couple of years into the future esp if the return ratios are not that great, it impacts the valuations meaningfully. In addition, real estate cos have run up a lot and with the general hammering happening in the stock market due to high valuations, the combined effect is negative for real estate cos from a valuation perspective. Rest all is fine and cos like kolte and others will grow their businesses better than average.

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My 2 cents…

I think Ashiana Housing is one company which changed to project completion method 2 years back, if I am not wrong, and it’s quarterly earnings are lumpy since then it is showing in the erratically stock movements since then.

so the investors do not have the patience to wait if companies suddenly start showing losses in their quarterly numbers or it’s very difficult to hold companies in ones portfolio especially mutual funds and HNI, if companies are in losses in the short to medium term as it will have impact on the overall Portfolio performance.

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And also you do not know how much profit they will make from the same project so real estate company can misguide u with wrong projections to boost up stock price and then come up with pathetic numbers. + as it is not consistent revenue and profits so hard to judge

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Excellent results
https://www.bseindia.com/corporates/anndet_new.aspx?newsid=1e3e6bea-4e4e-4ca0-a9e6-283d3ace0a4b

Loojs like after 2-3 years , they will break 2 million square foot jinx. July sales nos r also encouraging. Most of strong players which I track including Oberoi, ashiana, kolte, Sobha have been doing well from last 3 quarters

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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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This post is not about kolte. But about real estate in general. I couldn’t find any other thread. So posting here. Admin can delete it if its not appropriate.
If you look at the sequence of events, all real estate stocks had a big fall post demonetization. But they recovered very quickly. Even the quarterly number of all the companies was decent. ( I was actually surprised to see such good numbers from all players. I know real estate revenue recognition is complicated. May be its because of this. Not sure). When the price started going up, there were so many theories like unorganized to organized, RERA, affordable housing etc. Now a big fall. For ex. Kolte 47, Puravankara 64, Sobha 42, Dlf 42, Prestige 40, Godrej 35 , Brigade 42, Ashiana 38, Poddar 59 from the 52 week high.
What could be the reason? ( Apart from the market fall). Do these reflect things on ground?. Is it that bad? I am asking because its very difficult to assess the ground reality looking at the reported numbers in real estate sector.
Discl: Dont hold any of the above mentioned stock

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Reasons could be 1. Getting money from lander will be difficult or costlier due to squeezing of liquidity 2. Construction materials cost going up 3. Pricing pressure to sell inventory

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One main Reason could be this:

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Simple reason - they ran up too fast … Kolte patil went up from 88 Rs to near Rs 400 . There were no major change in short term fundamentals to justify such a move . Even after correction kolte patil is > Rs 200.

Now on theories Positive impact of RERA , reduction of black money are true for long term -

  1. There will reduction in launches by small builders ( >15000 builders currently exist ) - hence supply might reduce - leading to better price realisation

  2. More JV will formed between landowners and big organised builders - leading to reduction in capital & time required by organised builders to acquire land & build - Better ROCE and higher turnaround of properties

  3. Entry of large PE players & REITs - Additional option to finance projects and raise money for organised builders - Lesser dependence on money sharks and NBFCs

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Interim Dividend declared.

We wish to inform that the Board of Directors of the Company in there meeting held on 31 March 2019 has declared Interim Dividend of Rs. 1.40 per Equity Share for the Financial Year 2018-19.

The record date for purpose determining the shareholders entitled for payment of the interim dividend is Friday, 05 April 2019.

The interim dividend on equity shares as declared will be paid on Tuesday, 16 April 2019.

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Press Release

Kolte-Patil has announced the signing of three new projects in Pune under the development management (DM) model.
The projects are strategically located at Wagholi in East Pune and Kiwale and Ravet in West Pune and have saleable potential of -1.2 million square feet with over -1,250 units to be developed.

As the development manager, Kolte-Patil will lend its brand to these projects and jointly collaborate with the land owners to oversee product design, sales and marketing, project quality and cash flow management leading to time-bound handover to buyers. The company expects to earn DM fees of Rs. 60-65 crore from these projects over a period of 30-36 months. The project costs would continue to be borne by the respective projects.

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One would assume this would flow directly to EBITDA. On an FY19 EBTIDA of ~Rs 250 crores, this is a decent addition, assuming Rs 20 crores per year.

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Hi guys,

Today, Kolte Patil announced that have sold a portion of their land belonging to their Life Republic project (~5.42 acre) to a UK developer (Planet Smart City) at 91 cr. (16.8 cr./acre). This land can be converted into ~7.6 lakh sq.ft in terms of saleable area which can generate revenue ~ 0.076*5200(Rs./sq.ft) ~ 400 cr and earnings of 80 cr. (20% PAT margins).

The land for the Life Republic project (400 acres) was originally acquired at 340 cr. between FY06-FY11 (0.85 cr./acre). This means the management is getting a really sweet deal divesting and then jointly developing the land. Does anyone think that I am missing something obvious?

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