24 November 2008
India Property
Fundamentally worse off, but
value emerging
Abhay Shanbhag
Research Analyst
(91) 22 6658 4035
abhay.shanbhag@db.com
Prakash Agarwal
Research Associate
(91) 22 6658 4031
prakash.agarwal@db.com
SE Asia developers begin aggressive price cuts, when will Indians follow?
Despite the hype, interims now reflect the deteriorating outlook for P&L and
balance sheet (B/S). The sub-prime has further constrained demand and liquidity.
Despite their strengths (help from authorities and strong B/S), SE Asian developers
finally cut property prices after the sharp volume drop. However Indian developers
are yet to come to terms to this reality. We slash estimates and TPs and maintain
our underweight. However significant underperformance vs the market and the
region indicates a favourable risk-reward scenario for long-term investors.
Deutsche Bank AG/Hong Kong
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Industry Update
Top picks
Indiabulls Real Estate (INRL.BO),INR99.75 Buy
DLF (DLF.BO),INR198.20 Hold
Puravankara Projects (PPRO.BO),INR42.85 Hold
Unitech (UNTE.BO),INR31.85 Hold
Sobha Developers (SOBH.BO),INR88.50 Sell
Companies featured
DLF (DLF.BO),INR198.20 Hold
2008A 2009E 2010E
P/E(x) 17.5 4.4 4.7
EV/EBITDA(x) 14.3 3.7 3.8
Price/book(x) 5.6 1.3 1.1
Unitech (UNTE.BO),INR31.85 Hold
2008A 2009E 2010E
P/E(x) 31.1 4.0 4.5
EV/EBITDA(x) 26.1 6.0 6.8
Price/book(x) 12.5 1.1 0.9
Indiabulls Real Estate (INRL.BO),INR99.75 Buy
2008A 2009E 2010E
P/E(x) 34.7 14.5 13.3
EV/EBITDA(x) 34.0 18.3 30.8
Price/book(x) 2.6 0.5 0.6
Puravankara Projects (PPRO.BO),INR42.85 Hold
2008A 2009E 2010E
P/E(x) 34.4 4.9 5.6
EV/EBITDA(x) 41.5 8.9 11.2
Price/book(x) 4.2 0.6 0.6
Sobha Developers (SOBH.BO),INR88.50 Sell
2008A 2009E 2010E
P/E(x) 26.8 3.7 4.1
EV/EBITDA(x) 21.9 7.8 8.6
Price/book(x) 4.4 0.6 0.5
Valuations & Ratings
Company featured NAV TP/ CMP Rating
IBREL 268 200/ 100 Buy
DLF 359 225/ 198 Hold
Puravankara 115 50/ 43 Hold
Unitech 147 45/ 32 Hold
Sobha 495 75/ 89 Sell
Change in TP
Company featured Old TP New TP % Chg
IBREL 274 200 -27%
DLF 350 225 -36%
Puravankara 135 50 -63%
Unitech 102 45 -56%
Sobha 125 75 -40%
SE Asia Property relative to Market
Price performance (ytd) Property Market Relative
China -70% -63% -7%
Hong Kong -65% -54% -11%
Singapore -61% -52% -9%
India -87% -56% -31%
Related recent research Date
India Property - Recipe for the perfect storm; maintain
Underweight - Abhay Shanbhag/ Prakash Agarwal
2 Sept 2008
India Property - Sub-prime accelerates the downcycle;
maintain UW - Abhay Shanbhag/ Prakash Agarwal
1 Oct 2008
Global Markets Research Company
Intensifying downcycle is now visible in P&L and asset liability mismatches
Finally, despite the developers putting on a brave face, changing accounting
policies and showing inflated revenues, their financials are now reflecting the
deteriorating outlook with declines in revenues (qoq and yoy), margins and profits.
Net gearing remains quite high (~150%+ for aggressive companies) with a
significant amount of debt repayable in the next 12 months in the current tight
financial environment. Thus, developers are cornered with falling demand and
significant financial commitments amidst tightening financial markets.
Unlike SE Asian developers, Indians yet to come to terms with this reality
While there is a small pick-up in mortgages and a fall in interest rates, we believe
these are too small to have a meaningful impact on the glut in the sector. Indian
developers are only de-leveraging now by downsizing manpower, land bank and
operating expenses and trying to encash every asset block. Despite help from the
government and their strong balance sheets (net gearing of 36%, 17% and 38% in
China, HK and Singapore respectively), the collapse in demand (by 27%, 47% and
55%, respectively in 3QCY08) has forced developers to begin cutting property
prices in these markets. We believe that Indian developers (with their ~150%+
gearing and little possibility of further help from the government/RBI) should start
slashing property prices to kick-start demand.
Cut estimates, TP; maintain underweight but a long-term entry opportunity
We cut property price assumptions by ~15-25% on delays to current projects and
increase discounts to our DCF-based GAVs to arrive at our new TPs. We believe
that while downside risk remains, it is largely built into the sharp fall in stock prices
(~87% YTD). While regional property stocks largely moved in line with the broad
markets, India property significantly underperformed the market and regional
peers. Stocks are trading at a major discount to their book values and their market
caps are far below the equity raised in the last two years. We believe that this riskreward
scenario provides an entry opportunity for long-term investors. We
maintain Buy on IBREL (stock down 27% in the last month as against 17% for the
market) and Hold on DLF (31%), while upgrading Unitech (60%) and Puravankara
(56%) to Hold. We maintain Sell on Sobha (29%). Risks are the macro
environment and financial liquidity. While liquidity constraints for Unitech and
Sobha remain, this is partly reflected in the market ascribing negligible value to
their real estate businesses.

Table of Contents
Intensifying downcycle..................................................................... 3
Indian developers yet to come to terms with this reality.............. 8
Cut estimates and TPs .................................................................... 15
Are risks captured in the underperformance?; Risks ................... 17
Indiabulls Real Estate...................................................................... 20
DLF.................................................................................................... 26
Puravankara Projects....................................................................... 32
Unitech ............................................................................................. 38
Sobha Developers............................................................................ 44