Company background: The company is a JV between Emaar Properties PJSC of Dubai and MGF Development of India. It commenced operations in February 2005 and currently owns a land bank of 13,024 acres translating into a saleable area of 566 million sq.ft.
The company is diversified across various real estate segments including residential, commercial, retail and hospitality. Currently 78% of its land bank has been reserved for residential development. For future growth, it plans to venture into education, healthcare and infrastructure.
Having developed 50 million sq.ft. of real estate, Emaar Properties has vast experience across different real estate segments. On the other hand, MGF Development has established itself as a strong player in retail
development in Northern India over the last 10 years. Considering the varied experience of its partners, the company has in store certain unique development plans.
Within the residential segment, the company will be developing integrated master planned communities, while the commercial segment will focus on the built-to-suit model. Under the hospitality segment, the company will diversify itself across various price points in alliance with well known hotel partners.
Issue Details The company proposes to raise Rs62bn-Rs71bn by offering 102.6 million shares at a price band of Rs610-690. It plans to utilise the funds for part land payment and development, repayment of loans and construction of its Palm Drive project.
Background Emaar MGF was incorporated in February 2005 as a joint venture between Emaar Properties PJSC Dubai and MGF Development India. Emaar Properties is among the world’s leading real estate companies, having delivered more than 19,300 residential units and iconic structures like the Burj Tower, Dubai and King Abdullah Economic City in Saudi Arabia. MGF is a North India based real estate developer with concentration on shopping malls. It has delivered about two million sq.ft. retail space and is currently developing three million sq.ft. more.
Management Emaar MGF has an excellent management track record, with a blend of international and Indian executives, which enables it to understand the domestic market and employ its vast international experience gained over a decade. Emaar Properties brings in scalability, execution and technology, while MGF Development provides a better understanding of the domestic market and facilitates land acquisition.
Mohammed Ali Alabbar, Chairman of the company, is also the Chairman and founding member of Emaar Properties PJSC. Mr. Alabbar has over 10 years of experience in the real estate sector.
Shravan Gupta, a commerce graduate from Shriram College, has over 12 years of experience in real estate and financial services sectors. Mr. Gupta is currently the Executive Vice Chairman and Managing Director of the company.
Investment Rationale Diversified business segments The company’s land bank of 13,024 acres is diversified across segments residential, commercial, retail and hospitality. Its current focus is largely on residential projects with 75% of the land bank reserved for the same. The remaining is divided between commercial projects at 8%, retail at 2% and hospitality at 15%. Geographically, the company’s land bank has a northern bias with 76% of its land situated in that region, while 14% of its land bank is in the south, 9% in the west and 1% in the east.
Unique plans across business segments Residential: Under the residential segment, the company’s strategy is to develop integrated master plan communities for customers across mid to luxury segments. The focus is to provide quality infrastructure which would include healthcare, education, recreation and entertainment. The company currently has eight residential projects totalling 17.3 million sq.ft. under development, of which Emaar MGF has made 13.6 million sq.ft. available for sale. Of the total land bank, residential projects have been planned across 9,887 acres translating into a saleable area of 438.3 million sq.ft.
Commercial: The company has planned commercial development of over 991 acres translating into 88.6 million sq.ft. of saleable area. It is looking at developing commercial property of international standards on a built-to-suit basis. The estimated sale launch of these commercial properties is expected by end of 2009.
Retail: The company plans to undertake certain retail projects as part of its master planned communities, as separate retail destinations and as luxury malls as a part of the hotel developments. The company is currently working on a 0.5 million sq.ft. retail project in Mohali, Punjab. It has earmarked a total of 215 acres for retail projects, of which it has already planned projects on 153.2 acres.
Hospitality: Under this segment, the company plans to diversify itself across categories ranging from budget hotels to mid-market, up-market and luxury hotels. Emaar MGF has entered into alliances with Accor, Premier Inn, InterContinetal Hotel group, Marriott Hotels, Four Seasons and Hyatt to operate and manage their hotel projects. The company currently has five projects under execution totalling to 1135 keys. They have planned a total of 4,960 rooms, of which 3,025 will be luxury and the remaining will be up- market rooms.
Investment Concerns Early stage of development fraught with execution delays As the company is a new entrant in India, there is a possibility of delays in execution. Delays in the development schedule on account of non-receipt of regulatory approvals or on account of any other factors is also another possibility.
Downturn in real-estate prices A downturn in the real estate market could prove to be adverse for the company’s profitability. The company has strong focus towards north India. Any correction in the region could have a direct impact on he company’s earnings.
Financials & Valuation Emaar MGF started to book revenue from H1FY08. As of September 30, 2007, the company’s revenue stood at Rs4,727m. EBIDTA margin stood at 39%, while PAT is Rs1,289m. The company reported an EPS of Rs1.48 for 1H FY08.
As per our first cut estimates, the issue is reasonably priced. Our NAV based on development of current land bank over the next 10 years gives us a value of R649 per share. 52% of the NAV is contributed by residential projects, 24% by commercial projects, 15% by retail projects and 9% by hospitality projects. We expect the stock to trade at 10-15% premium to NAV
Recommendation: On account of a diversified land bank, along with its unique business plans and varied experience, we are optimistic about the company’s business prospects. We recommend SUBSCRIBE to the issue.
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