Feb 02, 2008 KRC Investment Ideas
Parsvnath Developers Ltd.
(BSE CODE: 532780)
6 Months Target
The Real Estate sector in India has a growing importance with the liberalisation of the economy The consequent increase in business opportunities and migration of the labour force to towns and cities has, in turn, increased the demand for commercial and housing space. Developments in the Real Estate ector are being influenced by the developments in the retail, hospitality and entertainment industries (e.g. hotels, resorts, cinema halls), community services (e.g., hospitals, schools) and IT / ITES (e.g., BPO centers), etc. and vice versa as well as owing to the fact that quality Real Estate development prompts raising of standards of retail, hospitality, etc
Buoyant demand from the corporate world and the interest of private equity and venture capital firms to the Real Estate sector have led to firming of values across Tier I and Tier II cities. Another major booster for the growth of the Real Estate sector is the growing demand for office space in the booming IT and ITES sectors, especially the BPO sector. These sectors have benefited from the growing international trend towards off-shoring activities which has resulted in higher demand for skilled, low cost, english speaking workers. India's competitiveness in this sector has been aided by substantial investment in telecommunications, infrastructure and the phased liberalisation of the communication sector. Consequently, the growth in the sector will translate into substantially higher demand for commercial space, adding to the overall investment in Real Estate activities. The announcement of the Special Economic Zones Rules in February 2006 by the Government for setting up of Special Economic Zones (SEZs) has led to several corporates planning the same which will further boost demand in the Real Estate sector
Parsvnath Developers currently has 17 SEZ projects in hand, in various segments like, IT& ITes, bio technology, gems and jewellery, handicrafts, leather, food processing and automotive sector apart from multi-product SEZ's, which are in different stages for development. With the notification received for this SEZ, PSL in its portfolio has four notified SEZs in Indore, Gurgaon, Dehradun and Nanded
In the latest development Parsvnath Developers has announced that in pursuance to development of SEZs, Parsvnath SEZ (PSL), a subsidiary of the company has been will develop a Pharmaceutical Special Economic Zone (SEZ) at Nanded in Maharashtra. The company has received LoI from Maharashtra Industrial Development Corporation (MIDC), a Maharashtra Govt. Undertaking for development of pharma SEZ project in Krushnoor industrial area of Nanded which is in close proximity to the SH-6 connecting Nanded and Secunderabad. Spread over a total area of 370 acres, the Parsvnath SEZ Ltd will float a special purpose company jointly with MIDC to implement the project. PSL will hold 74% stake in the joint Venture with MIDC holding balance 26%. The Nanded pharma SEZ has already been approved and notified by the Government of India. MIDC has also Identified an anchor unit for 20 hectares.
Real Estate is the second largest employment driver, next only to agriculture. This is because of the chain of backward and forward linkages that the sector has with other sectors of the economy. About 250 ancillary industries such as cement, steel, brick, timber, building material, etc. are dependent on the Real Estate industry. A unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as five times. If the economy grows at the rate of 10%, the housing sector has the capacity to grow at 14% and generate 3.2 million new jobs over the next 10 years. New growth concentrations are being seen across Tier II and Tier III cities, besides suburban and eripheral areas in established markets. The construction activity in residential, commercial and retail segments of Real Estate, which until recently was focused on the four metres, is spreading to Tier II and Tier III cities as well. Also, within the established markets, Real Estate activities are moving into suburban business districts from central districts to take advantage of lower Real Estate prices and higher availability of space, which provide built-to-suit larger centralised office space
The company is developing a mall on 18,632 sq mt of land at sector Delta-II in Greater Noida would have around 3.6 lakh saleable area on completion. The estimated cost of this project including the land would be Rs 160 crore. The realty major expects revenue of over Rs 300 crore from the project to be spread over the next three financial years, which would add to company's topline and bottomline. Construction on the project would be initiated after the company bags the necessary approvals from the authorities concerned. The company is already developing 23 commercial projects such as shopping malls and multiplexes in the country. Also, it already has a commercial project named Parsvnath Bibhab Plaza running successfully in Greater Noida.
In a commendable development, Parsvnath Developers has obtained the completion and occupancy certificate from director, Town and Country Planning, Haryana for 228 units of Parsvnath Greenville, the residential project located on Main Gurgaon Sohna Road. The units for which the completion certificate has been received are categorized as 2BR and 3BR apartments in low-rise building.
Parsvnath Developers has been awarded the construction contract of Sai Ashram at Shirdi in Maharashtra. The work has been awarded by Shirdi Sai Trust, Chennai. With an approximate contract value of Rs 90 crore, the company will construct dormitories blocks, residential blocks and an open air theatre restaurant blocks, security rooms in the ashram which is spread over a built up area of approximately 10 lakh sq. ft. The project will be initiated within the month of January 2008 and the work will be completed within 21 months from the date of commencement of construction. The company is already developing a 3-star hotel at Shirdi spread over a total area of 50,000 sq. feet, which will have 58 rooms on offer.
For the quarter ended Sep'07 PDL have reported 36% rise in net sales to Rs 397.24 crore. As a percentage of sales staff cost and other expenditure has increased to 2.58% and 4.5%. (Last year: 1.12% and 4.42%). However as a percentage of sales Cost of construction & development have decreased to 54.43% from 68.29% in corresponding quarter in previous year. Thus OPM of the company has improved by massive 1230 basis points to 38.5%. Surge in revenues coupled with improvement in margins have led to 101% growth in operating profits to Rs 152.92 crore. Other income of the company has zoomed by 431% to Rs 10.48 crore as company has temporarily invested unutilised money from IPO in short-term investments.
Parsvnath Developers is close to tying up with JW Marriott, Starwood, Intercontinental and ITC for several hotels it plans to build. Parsvnath plans to own 75-100 hotels in the next five years. It is also exploring the inorganic route to achieve this target. They have plans to have hotels in all locations of tourist and religious attraction. At present the company is implementing 17 hotel projects, involving 2,600 rooms spread across 13 cities. These projects include nine five-star hotels and three four-star hotels. Most of the 17 hotels are coming up in state capitals or tourist locations.
Parsvnath Developers has announced the launch of its premium commercial project, Parsvnath Highway Mall, in the city of Rajpura, Punjab. The project will enhance the travelers' joy by combining comfort and leisure. The project is specifically designed to offer commercial space to house large format stores showcasing range of aspirational brands to customers and will have a total saleable area of approximately 2.30 lac sq. ft. The project is a part of Parsvnath King City, a mega township project consisting of independent plots, villas, group housing, schools, landscaped gardens etc with total sale worth of Rs 250 crore approximately.
Parsvnath Developers has also announced the signing of Memorandum of Understanding (MoU) by the company's subsidiary viz. Parsvnath SEZ L(PSL), with Government of Rajasthan to develop 112 acres SEZ in Jaipur. The SEZ envisage an investment of Rs 1400 crore and will focus on giving a further boost to gems and jewellery industry. The MoU entails that the State will provide necessary support for infrastructure facilities in SEZ. The agreement will also ensure smooth implementation towards the development of the SEZ by providing single Window Service through the Bureau of Investment Promotion (BIP). It will also help PSL to avail various incentives and facilities under various schemes announced by the State / Central Government, which will ensure that its development remains on the fast track. Thus, we recommend investors to Buy the stock for further appreciation.