parsvnath deveopers --strong buy



Feb 02, 2008   KRC Investment Ideas

Parsvnath Developers Ltd.

(BSE CODE: 532780)

CMP

6 Months Target

Recommendation

Rs. 271

Rs. 350

Buy

 

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.