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Monday, December 31, 2012

Why RDB Realty & Infrastructure Ltd Looks Attractive?
RDB Realty and Infrastructure Ltd (RDBRIL), along with its subsidiaries and associates is developing Projects with an area of about  58 lakh sq.ft. RDB Reaty alone accounts for around 22 lakh sq. ft of which around 15 lakh sq.ft is accounted by government projects. The company is focusing more on the low--middle income segment, and has ventured into Tier--II and Tier--III cities.
The company believes in timely construction and execution of projects rather than building huge land banks. But still the company has a land bank of around 125+ acres as of 31st March, 2012. Now even if we consider Rs.2 Cr per acre then the value of the land alone comes around Rs.250 Cr, against a market cap of only Rs. 28.62 Cr and book value of Rs.64.33. The dividend  yield at 3.77% is also attractive on the CMP of Rs.26.50. The Company is one of the few approved companies of DG-Map Project, where the Company’s assessed capacity is 268.50 crores.
Headquartered in Kolkata, RDBRIL enjoys a pan--India presence, in Guwahati,  Haldia, Kharagpur , New Delhi, Surat, Hyderabad and  Jaipur.  The Company’s presence in five states validates its brand as a pan-India Company. The Company’s policy to concentrate on each city with a profit-centre approach allowed it to build its brand in each city and penetrate further. Moreover, its rich land bank in each of the cities allows it to build on its revenues and earn higher realizations. In other words: The Company progressively de-risked itself through a presence in all four zones – North Zone (Jaipur) & Delhi, East Zone (Kolkata, Guwahati, Kharagpur and Haldia), South Zone (Hyderabad) and West Zone (Surat).
The company entered into a JV with  the Legend Group and formed a subsidiary company which at present develops projects having a total built--up area of 29 lakh  sq.ft in  Hyderabad. It is one  of  the few real estate companies to be accredited with the ISO 9001: 2008 certification and is a prominent member of CREDAI Bengal. Besides, focus on government projects ensures that the Company has confirmed sales on its books, enhancing revenue visibility. The Company’s visionary approach resulted in moving into government projects in 2007. Starting with Rs.20 crores in 2007, the Company now has an order of around Rs.350 Cr. Presently, the Company’s revenue comprises a 70% share from its own projects and the rest from government projects. The Company is associated with government bodies such as Assam State Housing Board and Burdwan Municipality. The Company embarked on a residential project – Regent Paradise – in a joint venture with the Assam State Housing Board on 22 bighas of land. The Company has purchased land from Burdwan Municipality to develop Regent Crown with a
built-up area of more than 300,000 sq. ft.
Since the accounting of revenues is staggered (no revenues are booked until 20% of the project has been completed), there could be a danger of misinterpreting temporary declines in quarterly numbers as a sign of a weakening business, when the reason could well only be accounting. Hence, it would be not prudent to  calculate the EPS of FY13, based on H1, numbers. I am expecting an EPS of Rs.8-9, for FY13E, on standalone  basis. Its consolidated Basic & Diluted EPS after Extraordinary items  in FY 12 was Rs. 12.67. This actually gives much higher target for the scrip.
Sector Outlook:  (i) Increasing earnings and disposable income: The salary of bthe average Indian grew 12% in 2012, higher than most other global nations. India’s per capita income stood at Rs.60,972 in 2011-12 (Source: Deccan Herald). In line with economic growth, estimates suggest that PFCE is expected to scale from USD 790 bn in 2010 to USD 3.6 tn by 2020 (Source: ENAM).
(ii) Urbanisation: India is the fastest urbanising country; UN estimates that 40% of India’s population will be living in urban areas by 2030 (Source: Forbes India). Rising disposable income (FY08-11 CAGR of ~15%), growing middle-class and increasing urbanisation (currently ~30% of the population) will boost the demand for real estate.
(iii) The Indian real estate market size is expected to touch USD 180 billion by 2020. India is going to produce an estimated  two million new graduates from various Indian universities
during this year, creating demand for 100 million square feet of office and industrial space.
This sector is today witnessing residential, retail and commercial development in metro cities like Mumbai, Delhi and NCR, Kolkata and Chennai. Easier access to bank loans and higher earnings are some of the pivotal reasons behind the growing Indian real estate sector.
(iv) Nuclear families: The average increase in the number of middle-class nuclear families is estimated to be over 300 million. The average household size declined from 4.6 to 4.1 in the past decade; average dwelling sizes increased from 41 sq. m per unit to 48 sq. m and this is expected to sustain (Source: ENAM). 
(v) Rising urbanisation: Though urban India accounts for 37% of the population, it accounts for 70% of the total income. India is the world’s fastest urbanising country with the UN estimating 40% of India’s population to live in urban areas by 2030, primarily owing to improved employment prospects, rising income levels and growing nuclear families.
(vi) Rising proportion of the consumer class: The Indian  middle-class is projected to grow from 83 mn in 2010 to 114 mn by 2025, making it the largest middle-class population pool globally. The dependency ratio in Indian families decreased from 58% in 2005 to 55% in 2010 and is further expected to decline to 52% in 2015 and 49% in 2020 (Source: ENAM). 
Why India Real Estate Sector will grow?
It is basically due to rising Per Capita Income ( PCI): Per Capita Income increased from Rs.35,430 in 2007-08 to Rs.46,492 in 2009-10 and Rs.54,527 in 2010-11. India’s per capita income was estimated to have risen 14.3% to Rs.60,972 in 2011-12 (Source: Deccan Herald). In FY13E, we are likely to see the same pattern with PCI crossing Rs.64, 000.
Moreover, Private Final Consumption Expenditure (PFCE) is expected to scale up from USD 790 bn in 2010 to USD 3.6 tn by 2020 (Source: ENAM).  India’s per capita GDP will grow from USD 1,314 in 2010 to USD 2,609 in 2015.
Opportunities in the real estate industry:
There is a shortage of 12 million housing units in urban areas. There is scope for 400 township projects over the next 5 years spread across 30-35 cities, having a population of
0.5 million. Total project value dedicated to low and middle income
This is expected to give a push to the Indian Real Estate Sector in the coming days, especially in Indian Metros and Tier--I, II and III cities.
Real Estate Sector Outlook:
2013 promises to be an exciting year and property prices (esp. residential properties) are expected to remain firm. Let us look at some of the key drivers:
1. Demand for Affordable Housing
2. Growth in Tier II and Tier III Cities/Metro Suburbs
3. Interest Rate Movement in the reverse direction.
The company generated a cash profit of Rs.9.44 Cr and an EBIDTA Margin of 25. 57% in 2012 on a sales turnover of Rs.89.94 Cr in 2011-12.  It had a 48% CAGR growth in revenue in the last two year .The Company is almost debt free. Its strong receivables management team ensures that collections are received on time and working capital requirement is managed adequately. The Company enjoyed a debt-equity ratio of 0.99 as on 31st March 2012, reinforcing its profitability. The Company has been awarded 4 (four) new projects by HSCC, namely, AIIMS Delhi (Hostel Block), AIIMS Bhubaneswar (Hostel Block), RIMS Imphal (Hostel Block) and RIMS Imphal (OPD Block). There are 5 (five) projects which are scheduled to be completed in FY13. The Company had 11 (eleven) subsidiaries as on 31st March 2012.
The Company’s near debt free status certifies its financial credibility in an industry which mostly survives on external funding. The Company developed a profit-centre approach for its pan-India presence, allowing each project to be managed profitably. Presently your Company along-with its subsidiaries has 20 on going projects at various stages of planning and development on the available land bank. This includes housing projects, integrated townships, shopping malls and commercial complexes. A must buy at  Rs.26--Rs.26.50, for a target of Rs.42-44.