crisil-segment wise research real estate.pdf

CRISIL CRBCustomised Research Bulletin

May 2012

Sector Focus: Real Estate

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CRISIL Customised Research BulletinCRB

Foreword

In this edition of Customised Research Bulletin, we present our views

on ‘Real Estate’ sector.

Sluggish growth in the economy, high interest rates and rising input

costs have taken a toll on many sectors in India. The real estate sector,

which has also borne the brunt of the macroeconomic scenario, has

seen a slowdown in demand and fall in transactions over the past 18

months. In the ‘Opinion’ section, we have analysed the performance of

this sector and its various segments viz. residential, commercial office

space, organised retail and hospitality.

This edition also features interview of our Real Estate sector expert, Mrs

Binaifer Jehani, Director – CRISIL Research

The sector insights draw upon our rich and extensive experience and

knowledge base built over the last 20 years.

We are confident that you will find this report highly informative and

useful.

Prasad KoparkarSenior Director CRISIL Research

Opinion Segment-wise review of the Indian real estate market 01

InterviewMrs Binaifer Jehani, Director – CRISIL Research 05

Economic Overview – June 2012 08

Industry Overview Educational services 09 Hospitals 12 Hotels 16 Retailing 19

Independent Equity Research Report Ashiana Housing Ltd 22

Customised Research Services Real Estate 23

Media Coverage 24

Contents

CRISIL CRB Customised Research Bulletin

1

1. Residential Real Estate Muted growth in capital values as macro-economic factors continued to weigh down demand

The period between January 2011 and March 2012

proved to be a relatively difficult time for the Indian real

estate market with both, developers and potential

buyers reeling under adverse macro-economic

conditions. An inflationary environment coupled with

high interest rates dealt a double whammy to the

developers due to the rising cost of construction and

difficulty in servicing debt. In the residential segment,

transactions declined, especially during the latter half of

2011, as buyers became increasingly wary of rising

interest rates, which were increased 8 times during the

period between Jan 2011 and March 2012. As a result,

average capital values ended up flat during the second

half of 2011 vis-à-vis the first half and increased just

marginally during the first quarter of 2012.

Capital Value Index (for 10 major cities)

Note: Indexed to 2005

Source: CRISIL Research

Mumbai and NCR to account for nearly 55 per cent of the total estimated supply during 2012-2014

As far as residential supply in the 10 major cities is

concerned, CRISIL Research expects nearly 70 per

cent or around 1.4 billion sq ft. of the total planned

supply of 2.0 billion sq ft. to come up by 2014 against

an expected demand of around 0.9 billion sq ft. during

the same period. Mumbai and NCR alone are expected

to account for nearly 55 per cent of the estimated

supply. In terms of configuration, 2 and 3 BHK

apartments constitute almost 75 per cent of the total

planned supply. Value-wise, almost 60 per cent of the

planned supply is priced between Rs 2-6 million,

signifying a shift towards a relatively affordable

segment.

Planned v/s CRISIL Research's Estimated Supply

(2012-14)


2. Commercial Office Space Rentals in 90 per cent of the micro-markets across 10 major cities still lower than their 2008 peaks

During the economic slowdown of 2008-09, demand for

commercial office space especially from the IT/ITeS

and BFSI sectors plummeted leading to a sharp

100

120

140

160

180

200

2005

2006

2007

H1

2008

H2

2008

H1

2009

H2

2009

H1

2010

H2

2010

H1

2011

H2

2011

Mar

-12

Capital Value Index

21

39

71

100

99

66

121

138

182

590

31

59

115

125

126

134

161

169

303

825

Kochi

Chandigarh Tricity

Ahmedabad

Kolkata

Chennai

Hyderabad

Bengaluru

Pune

Mumbai - MMR

NCR

Planned Supply (mn sq ft.)

CRISIL Research's Estimated Supply (2012-14) (mn sq ft.)

Opinion Segment-wise review of the Indian real estate market

2


correction in lease rentals. Between the first half of

2008 and the second half of 2009, average lease

rentals corrected by almost 30-35 per cent. The

subsequent period has seen a rather sideward

movement in average lease rentals in the 10 major

cities barring a few areas which have witnessed either

an uptrend or a downtrend. During this period, demand

gained momentum briefly in the first half of 2011, but

the existing vacancy levels prevented any major

appreciation in lease rentals. A lean demand scenario

has also adversely impacted the execution of many

projects. Currently, lease rentals in almost 90 per cent

of the micro-markets in the 10 major cities are nearly

20-25 per cent short of their peak levels seen in the first

half of 2008.

Lease Rental Index (for commercial office spaces in

10 major cities)

Note: Indexed to 2005 Source: CRISIL Research

Top 10 cities account for 70-75 per cent of the total supply of office space planned till 2014

In terms of supply, CRISIL Research expects around

229 million square feet of office space of the total

supply of 607 million sq ft. planned in 10 major cities

(Mumbai, NCR, Bengaluru, Kolkata, Chennai,

Hyderabad, Pune, Ahmedabad, Chandigarh and Kochi)

to come up during 2012-14. Expected demand during

the same period is 107 million sq ft. Although

Hyderabad has the largest planned supply, only 24 per

cent of that would materialise during 2012-14 as

political uncertainty continues to hamper development.

Supply in the top 10 cities account for approximately

70-75 per cent of the total supply of office space

planned to come up by 2014.


(2012-14)


3. Organised Retail Vacancy levels continue to impact rentals growth

In the post 2008-09 era, the organised retail real estate

segment has struggled to gain traction due to an

oversupply situation. In the period since the first half of

2010, lease rentals have remained flat in most micro-

markets across the 10 major cities in India due to high

vacancy levels. Lease rentals have not breached the

peak levels observed during the first half of 2008 in any

of the micro-markets of the 10 major cities. The market,

however, appears to have bottomed out with the lease

rentals remaining largely stable since the beginning of

2011. The year FY12 also proved to be a difficult year

for organised retailers as the revenue growth of most

players dipped sharply on account of weak demand,

rising apparel prices and higher excise duty levies.

100110120130140150160170180190

2005

2006

2007

H1

2008

H2

2008

H1

2009

H2

2009

H1

2010

H2

2010

H1

2011

H2

2011

P

Mar

-12

Lease Rental Index

3

7

25

6

26

23

34

26

51

27

7

25

36

48

49

66

70

79

111

115

Chandigarh Tricity

Ahmedabad

Kolkata

Kochi

Mumbai - MMR

Pune

Chennai

Bengaluru

NCR

Hyderabad

Planned supply (mn sq ft.)

CRISIL Research expected supply (2012-14) (mn sq ft.)

3

Lease Rental Index (for retail spaces in 10 major

cities)

Note: Indexed to 2005


NCR to see maximum additions in mall space during 2012 to 2014

The total planned supply across 10 major cities

(constituting 75 per cent of the pan-Indian market) is 81

million sq ft., of which CRISIL Research estimates

around 44 million sq ft. to come up during the 2012-

2014 period. In number terms, CRISIL Research

expects around 145 malls out of the total planned 210

malls to come up by 2014, of which 36 malls are

expected to come up in NCR.


(2012-14)


4. Hospitality

The hotels market including the premium segment

hotels grew at a robust pace of over 35 per cent CAGR

between 2005-06 and 2007-08. However, the

economic crisis which started in the latter half of 2008-

09 led to a slowdown in room demand in 2008-09 and

2009-10. This situation was exacerbated by large

supply additions, which forced players to reduce ARRs

(average room rates). Recovery in the macro economic

situation in 2010-11 led to a revival in room demand in

India. According to CRISIL Research estimates, the

overall hotels market grew by 13 per cent to reach Rs

318 billion in 2011-12. During the year, the market for

premium segment hotels is expected to grow faster at

16 per cent to Rs 184 billion.

Hotel industry market size


100

120

140

160

180

200

220

2005

2006

2007

2008

H1

2008

H2

H1

2009

H2

2009

H1

2010

H2

2010

H1

2011

H2

2011

P

Mar

-12

Lease Rental Index

8

5

8

13

11

12

14

22

16

36

8

10

13

17

18

21

22

24

30

47

Kolkata

Kochi

Chennai

Chandigarh Tri-City

Bengaluru

Mumbai

Pune

Ahmedabad

Hyderabad

NCR

Planned malls

CRISIL Research's estimated supply of malls (2012-2014)

(No. of units)

-25.0

0.0

25.0

50.0

75.0

0

80

160

240

320

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

E

(per cent)

5 D/5 star market size (Rs. billion)Total market size (Rs. billion)Premium growth (per cent)

(Rs. billion)

4


Hotel Industry market size (Number of rooms)


Supply additions restrict growth in ORs and ARRs

Room demand in the premium segment hotels

increased by 13 per cent (y-o-y) in 2011-12. Foreign

tourist arrivals (FTAs), which are a key demand driver

for premium segment hotels rose by 10 per cent (y-o-y)

during the year. However, supply of rooms in the

premium category during this period also rose by 13 per

cent (y-o-y). As a result, occupancy rates (ORs) and

average room rates (ARRs) remained stable at around

62 per cent and Rs 7,900 respectively in 2011-12.

Consequently, revenue per available room (RevPAR)

remained range bound at Rs 4,900.

025,00050,00075,000

100,000125,000150,000175,000

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

E5D/5 star segment Total market

5

Binaifer F. Jehani, Director, CRISIL Research,

Binaifer leads the research function on the real estate

sector at CRISIL Research. She is responsible for

overseeing a large team of analysts, offering

comprehensive research coverage on real estate,

spanning residential, commercial and retail space. Her

areas of expertise also comprise healthcare delivery,

hospitality and housing finance.

In addition, Binaifer manages customised assignments,

which involve gauging the feasibility, underlying market

potential, etc of prospective business models for

developers, private equity firms, investment bankers

and banks. Research findings of such bespoke

assignments empower these players to make informed

and effective investment decisions.

Binaifer joined CRISIL in 2004. During the course of her

eight-year stint, she has successfully handled several

projects, involving estimation of market and financial

feasibility. These projects have driven critical business

activities in areas of expansion, capacity building, etc.

She has been an active participant at real estate

forums, where she proffered valuable insights and

opinions on vital sectoral issues.

In 2008, Binaifer pioneered the product called ‘City

Reality’, which determined underlying potential in the

top ten cities of India. Further, in 2011, she was

instrumental in conceptualising the ‘Reality Next’ report,

covering the newly emerging cities, by going beyond

the conventional top ten Indian cities.

Binaifer is a Qualified Chartered Accountant and holds

a Post Graduate Diploma in Business Administration

with specialisation in finance from Symbiosis Institute of

Business Management in Pune.

What is your outlook on prices in the residential, commercial office space and retail segments of the Indian real estate market?

As far as the residential segment in the 10 major cities

(Ahmedabad, Bengaluru, Chennai, Chandigarh,

Hyderabad, Kochi, Kolkata, Mumbai, NCR and Pune) is

concerned, macro-economic factors such as high

interest rates, sticky inflation, weak IIP numbers, etc

coupled with apprehensions about the repercussions of

the ongoing economic turmoil in Europe on the Indian

economy have continued to keep buyers in a wait-and-

watch mode, in effect creating latent demand. CRISIL

Research expects this pent-up demand to propel capital

values by 5-6 per cent y-o-y in 2013 after remaining

largely stable in 2012. Pune, Ahmedabad and Mumbai

are expected to see maximum appreciation in 2013 with

capital values in these three cities projected to grow by

6-7 per cent during the year.

The current economic uncertainty has also affected

demand in the commercial office space and retail

segments in the 10 major cities, with corporate majors

putting expansion plans on the backburner. However,

with the overall economy expected to fare better in

2013, CRISIL Research expects office space rentals to

appreciate by 5-6 per cent after ending relatively flat in

2012. Lease rentals for retail spaces are expected to

Interview Binaifer F. Jehani Director, CRISIL Research

6


increase as well, rising by 4-5 per cent in 2013, after

charting a largely flat trajectory in 2012. With the

frequency of new mall launches decreasing, vacancy

levels are also expected to fall. As lease rentals are

believed to have bottomed out in both the commercial

office space and retail segments, a decline from current

levels is probably a far cry.

In the residential segment, which of the 10 major cities in India have performed relatively better post the slowdown of 2008-2009?

Of the 10 major cities, Pune and Chennai are the only

two where capital values in all the micro-markets have

breached the peak levels reached during the first half of

2008. The demand for residential units in these two

cities is driven primarily by the end-user segment. Even

during the economic slowdown, the decline in capital

values in these cities were on the lower side as

compared to most of the other major cities. Between the

first half of 2008 and first half of 2009, the average

capital values in Pune and Chennai declined by 20 per

cent and 15 per cent, respectively. During the same

period, capital values fell more steeply in cities such as

Bengaluru, Kolkata, the NCR and Mumbai, with Kolkata

and Bengaluru correcting by up to 25-30 per cent.

Between 2009 and 2011, capital values in Pune and

Chennai posted CAGRs of 14 per cent and 11 per cent,

respectively, next only to Mumbai, which grew by 19 per

cent CAGR during the same period. The fact that during

the brief recovery period of 2010 these cities did not

see the kind of run-up in capital values that was evident

in Mumbai actually helped affordability levels and

demand conditions remain relatively better. Apart from

the easily discernible quantitative factors, softer ones

like the Pune and Chennai markets being dominated by

regional players rather than national players with

exposure to several markets also makes the two cities

relatively insulated to the contagion effect wherein the

poor performance of one market spreads to other

markets.

Taking off from the previous question, how do you expect Pune and Chennai’s residential market to perform in times to come?

As far as growth in capital values is concerned, CRISIL

Research expects Pune to grow at about 8 per cent y-o-

y during 2012 to 2013, while Chennai is expected to

grow at nearly 4 per cent over the same period.

Chennai’s relatively subdued growth can be explained

by the fact that only one micro-market accounts for

almost 45 per cent of the total planned supply,

consequently exerting pressure on the capital values. In

terms of supply, CRISIL Research expects nearly 80

per cent or almost 237 million sq ft of the total planned

supply in these two cities to come up by 2014. This

estimated supply, as a proportion of the total planned

supply, in these two cities is higher than the overall

proportion (nearly 70 per cent), which signifies healthy

pace of construction, shorter delays and fewer

postponements.

How is the Indian hospitality sector expected to perform in the longer run?

CRISIL Research believes that increase in Foreign

Tourist Arrivals (FTAs) and recovery in business-related

travel expenditure will translate into a 9 per cent

increase (CAGR) in demand for premium segment hotel

rooms across the 12 cities (Agra, Ahmedabad,

Bengaluru, Chennai, Goa, Hyderabad, Jaipur, Kolkata,

Mumbai, NCR, Pune, Kerala: Kochi, Trivandrum,

Kovalum) tracked during 2012-13 to 2015-16. Supply

during the same period is likely to grow by 10 per cent

CAGR. Due to a supply overhang, Occupancy Rates

(ORs) are expected to decline marginally while Average

Room Rentals (ARRs) would remain flat. As a result,

average Revenue Per Available Room (RevPARs) will

remain stable at Rs 4,900.

Among the business destinations, during the next 4

years, the NCR is likely to record the highest addition to

supply at around 6,000 rooms. Due to a decline in

7

ARRs and ORs on account of large supply additions,

RevPARs across most business destinations are

expected to decline over the next 4 years. Considerable

supply is also expected in leisure destinations such as

Jaipur and Kerala. As a result, RevPARs in Kerala and

Jaipur are expected to decline by 1-4 per cent CAGR

over the same period. On the other hand, RevPARs in

Agra and Goa will increase marginally due to relatively

low supply additions in the two regions.

8


Indian Economy Economic Overview – June 2012

Macroeconomic Indicators - Forecast

Low ThreatHigh Threat Medium Threat

Inflation Industrial production growth Trade growth Interest rates

Sectoral inflation Currency Foreign inflow (US$ bn) Credit growth

-2

8

18

May

-10

Sep

-10

Jan-

11

May

-11

Sep

-11

Jan-

12

May

-12

WPI CPI-IW

-40

0

40

80

Apr

-10

Aug

-10

Dec

-10

Apr

-11

Aug

-11

Dec

-11

Apr

-12

Exports Imports

2

6

10

May

-10

Sep

-10

Jan-

11

May

-11

Sep

-11

Jan-

12

May

-12

1 Yr 10 Yr

-15

5

25

Apr

-10

Aug

-10

Dec

-10

Apr

-11

Aug

-11

Dec

-11

Apr

-12

PrimaryFuelManufacturing

-2

3

8M

ay-1

0

Sep

-10

Jan-

11

May

-11

Sep

-11

Jan-

12

May

-12

FDI+ECBs Net FII flows

10

15

20

25

May

-10

Sep

-10

Jan-

11

May

-11

Sep

-11

Jan-

12

May

-12

-5

-1

3

7

11

15M

ar-1

0

Sep

-10

Mar

-11

Sep

-11

Mar

-12

Mfg

40

45

50

55

60

May

-10

Sep

-10

Jan-

11

May

-11

Sep

-11

Jan-

12

Ma y

-12

Avg Rs per US$

2012-13 F Rationale for 2012-13 forecast

GDP (y-o-y %) 6.5 Rising uncertainty in the Eurozone, muted investment demand, and policy logjam, w ill keep GDPgrow th at 6.5 per cent. Services grow th is revised dow nw ards to ref lect the sluggish grow th inIT/ITES as a result of slow ing export demand from the Eurozone, and slow er-than-earlier-anticipated grow th of the hotels, trade and transport sector due to moderation in privateconsumption grow th. Although industry may benefit from expansion of the mining sector on a lowbase, manufacturing and construction grow th w ill remain w eak due to limited scope for reductionin interest rates, and w eak investment demand. Sub-normal monsoons and a further w orseningof the Eurozone situation can create dow nside risks to our tepid grow th forecast of 6.5 per centfor 2012-13.

WPI inflation (average, %) 7.0 WPI inflation forecast is revised upw ards to 7.0 per cent ref lecting the higher-than-anticipatedincrease in food inf lation, and the impact of the w eak currency. The w eak rupee is offsetting thegains from low er global crude oil and commodity prices, and w ill keep the cost of imported itemshigh.

10-year G-sec (%, March-end)

8.0-8.2 A higher f iscal def icit w ould increase the government’s borrow ing requirement and push the 10-year G-sec yield higher than our earlier projection. Even if the repo rate is cut further, thedow nside to 10-year G-sec yield below 8.0-8.2 per cent is limited, given the size of thegovernment borrow ings.

Exchange Rate (`per US$ March-end)

50.0 The rupee is expected to settle around 50 per US$ by March-end 2013 in the base case scenario. An appreciation of the rupee from the current level w ould be supported by a slight easing of thecurrent account deficit in 2012-13 and return of foreign capital inf low s tow ards the last quarterof the fiscal year. This assumes some improvement in the Eurozone situation by early next yearw hich w ill improve the risk appetite of foreign investors.

Fiscal Deficit (% of GDP) 5.8 With slow er GDP grow th compared to the earlier projection, government revenue grow th w ill below er than estimated earlier. Coupled w ith huge government borrow ings, the fiscal def icit is nowprojected to be at 5.8 per cent of GDP.

F: Forecasted


9

Industry Overview Educational services: B-Schools

High demand …but shortage of quality supply

The decreasing return on investment and increasing

awareness amongst students about quality of education

provided across business schools has significantly

dimmed the allure of management education for

students. Consequently, the utilisation of intake

capacity has been falling, particularly in tier-4 B-

schools. CRISIL Research estimates the average

capacity utilisation across B-schools to be around 65

per cent in 2011-12. This trend can be attributed to

significant increase in number of seats offered over the

years, shortage of quality faculty, absence of industry

link ups, and several companies increasingly preferring

to recruit graduates and train them. As a result, we

foresee a number of B-schools either closing down or

changing hands over the next couple of years. B-

schools that focus on imparting quality education,

developing the all-round skill sets of students and

forging relevant partnerships with industry, however,

would continue to thrive owing to the strong demand for

quality education.

Significant increase in number of seats

According to CRISIL Research, there are around 3,500-

4,000 B-schools in the country, offering over 4 lakhs

seats. With the increasing demand for management

education, there have been several institutes

mushrooming all over the country. This is reflected in

the fact that the number of AICTE-approved institutes

has grown by more than 16 times since 1988.

Number of institutes affiliated to AICTE

Source: AICTE, CRISIL Research

Of the total institutes operating in the country, we

estimate around 82 per cent to be either affiliated to

AICTE or to be state universities in India. The remaining

18 per cent constitute autonomous institutes, which are

private colleges not affiliated to AICTE or any other

university, and deemed universities. Despite being

affiliated with AICTE, however, most colleges in India

fall under the tier-3 and tier-4 bucket.

Over one-third of seats in tier-4 colleges

According to CRISIL Research, in terms of intake

capacity, around 36 per cent of the B-schools fall under

the tier-4 category; around 52 per cent under the tier-3

category and the remaining 12 per cent fall under the

tier-1 and tier-2 category. The key differentiators

between colleges are quality of infrastructure and

faculty and opportunities for self development offered to

students, which ultimately manifests in higher

placements and salaries for students.

15231940

2262 2385

1.50 1.80

2.78

3.53

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0

500

1,000

1,500

2,000

2,500

3,000

2008 2009 2010 2011AICTE approved no of institution (LHS)Intake (in lakhs) (RHS)

10


Proportion of colleges according to intake capacity


Categorisation of B-schools*

Utilisation levels have dipped…

CRISIL Research estimates the average utilisation

rates has declined over the years, and was at around

65 per cent in 2011-12. Tier-3 B-schools have a

capacity utilisation rate of 70 per cent, which is slightly

higher than the industry average. On the other hand,

tier-4 B-schools have the lowest capacity utilization rate

of 50 per cent. This can be attributed to decreasing

return on investment for students joining tier-4 B-

schools (owing to lower salaries received as opposed to

fees charged by schools) and increasing awareness

amongst students about the quality of education offered

by different institutes. B-schools with low utilisation

rates are also found to be wanting in respect of

infrastructure and faculty, as well as industry link ups.

Capacity utilisation levels across buckets


…despite strong demand for management education

The demand for seats in tier-1 and tier-2 B-schools

continues to remain strong despite the fact that the fees

charged by these colleges has increased sharply over

the last few years. This is primarily on account of

students being increasingly alert and conscious about

quality education. Also, the number of B-school

aspirants, as reflected in CAT entrance exam takers, is

higher as compared to total enrollments across

business schools in the country.

Rationale for poor utilization

Decreasing RoI - Students are getting

increasingly aware about the merits of quality

education. This alertness has helped them

recognise the inadequate return on investment

they get after passing out from a tier-4 college.

Shortage of quality faculty - The lack of

adequate faculty members is the key challenge for

most B-schools in India. Consequently, it is difficult

to impart quality education. According to our

interaction with industry sources, at least 25 per

Tier-12

Tier-210

Tier-352

Tier-436

(Per cent)

BucketsCapacity utilisation

Number of students placed (2010)

Average salary offered (2010)

Tier-1 95-100 per cen 98-100 per cent > Rs 9 lakhs

Tier-2 80-95 per cent 80-98 per cent Rs 5-9 lakhs

Tier-3 70-80 per cent 60-80 per cent Rs 3-5 lakhs

Tier-4 <70 per cent <60 per cent <Rs 3 lakhs


*Business schools have to fulf ill the requisite criteria for all three parameters considered-capacity utilisation, average salary offered to students and percentage of students placed- to fall in a particular bucket. For instance, for a business school w ith the capacity utilisation rate of 98 per cent, w ith 100 per cent of the students placed but w ith an annual average salary to students of Rs 7 lakhs w ould classify as a tier-2 college and not a tier-1 college.

97%

85%

70%

50%

65%

Tier-1 college

Tier-2 college

Tier-3 college

Tier-4 college

Industry

11

cent additional faculty is required at B-schools in

India, indicating the shortage of permanent faculty

members with business schools. Also, a lot of

lower rung colleges do not have a strong

curriculum aimed at developing the overall skill set

of students.

Absence of industry link ups - Most of the

smaller rung B-schools do not have sufficient

industry tie-ups to give students practical

experiences and thus develop their skill sets. As a

result, a number of corporates have started their

own professional courses in order to attract

students and train them accordingly. A large

number of top companies increasingly prefer to

recruit graduates and train them for the job, rather

than recruit post graduates. This has diminished

the attraction of management courses for students,

particularly from small towns. In some cases,

salaries of graduate students are equivalent to that

of management graduates.

Outlook

The increasing proportion of working age population

together with economic growth is expected to lead to

increasing demand for management education in India.

B-schools that focus on imparting quality education,

developing the all round skill sets of students and

forging relevant partnerships with industry would

therefore, continue to be in demand. On the other hand,

B-schools that do not improve the quality of education

provided are either expected to close down or change

hands, as students increasingly become aware of the

quality of education being imparted and the likely return

on investments.

12


Industry Overview Hospitals

India fares poorly on healthcare indicators and universal

health coverage still appears to be a distant goal. Not

only is public spending on health as a percentage of

GDP far below that of other nations, both physical and

human infrastructure is severely inadequate. The

healthcare sector needs Rs 6 trillion in investments to

achieve the global median of 24 beds per 10,000

population. The private sector can be tapped for this

purpose, but increased participation from private

players will clearly be contingent on government

policies that attract such investments. We believe that

the government should draw appropriate lessons from

its “PPP model” successes in sectors such as airport

and roads and adopt similar approaches in healthcare.

The government can also learn from the experience of

other countries where the PPP model is well

established and has enabled greater investment flows

into the healthcare sector.

The economic and social well-being of its people is the

raison d’etre for any government, be it developed or

developing, and achieving universal health coverage is

central to the achievement of that objective. The

importance of having in place adequate, top-notch,

efficient health infrastructure, thus, cannot but be

overemphasised. In recent years, both China and the

US have been radically transforming their healthcare

infrastructure and delivery systems in pursuance of that

vision, and are widely acknowledged to have made

impressive progress.

As a developing country, India too has made great

strides in healthcare since Independence. According to

the first annual report on health released by the

government in September 2010, despite vast inequity

across states, the average life expectancy has nearly

doubled since Independence to around 64 years. There

has also been an appreciable decline in both the infant

mortality rate and the maternal mortality ratio (IMR has

more than halved from 129 per 1,000 live births in 1971

to 53 in 2008, while MMR has fallen from 460 per

100,000 live births in 1984 to 254 in 2004-06).

India fares poorly on health indicators compared with other nations

Notwithstanding the progress made by the country over

the years, India fares poorly compared to most

countries, including developing ones such as China,

Thailand, and Vietnam, on almost every key health

indicator, some of which are illustrated below. Even

existing public infrastructure facilities (i.e. hospital

buildings, equipment, laboratories, diagnostics, and

pharmacies) are ineffectively managed due to resource

constraints.

Global human and physical infrastructure

Primary factors for this are the abysmally low share of

the government in total healthcare expenditure (around

Countries Nurses Physicians beds

Germany 108 35 82

UK 103 21 34

Canada 101 19 34

USA 98 27 31

Australia 96 30 38

Russia 85 43 97

Brazil 65 17 24

Italy 65 42 37

South Africa 41 8 28

Sri Lanka 19 5 31

Thailand 15 3 22

China 14 14 41

India 13 6 9

Vietnam 10 12 29

Global median 28 12 24

Source: WHO statistics, CRISIL Research

per 10,000 population

13

32 per cent), compounded by the lack of skilled human

resources. For instance, the overall ratio of doctors per

bed is 0.6 and ratio of nurses per bed is 1.4. In private

hospitals, the ratio of doctors to bed is 0.6 and that of

nurses to bed is 2.3, but these ratios are far lower in

government hospitals, indicating an acute shortage of

manpower. Government hospitals find it difficult to

attract talent because, on an average, salaries are 25

per cent lower compared with those offered by private

players.

Sector needs Rs 6 trillion in investments to meet the global median

One key vision articulated in the XI Plan document was

to transform public healthcare into “an accountable,

accessible and affordable system of quality services.”

Central to this objective was steeply increasing public

spending on health to 2-3 per cent of GDP from around

0.9 per cent of GDP in the previous plan. But this has

failed to materialise, and government estimates suggest

that it is only around 1.1 per cent of GDP.

Health expenditure /GDP

Source: WHO statistics, CRISIL Research

As the graph above indicates, India’s total healthcare

expenditure as a percentage of GDP too is far lower

than the global median. Not only is the healthcare

spend/GDP ratio close to 10 per cent or above for most

developed western countries, even BRICS nations such

as Brazil and South Africa are far superior to India on

this score. It is evident that even if public spending

increases further in the next few years, a lot more

resources will need to be raised through other avenues

to bridge this gap.

There has been an notable increase in public spending

since the launch of the National Rural Health Mission in

2005 (according to government statistics, with the

launch of NRHM, the level of public spending on health

has risen nearly 2.6 times between 2004-05 and 2009-

10. The overall growth rate for states during 2000-01 to

2008-09 was 12.8 per cent CAGR, but if one breaks it

up into pre-NRHM and post-NRHM phases, it stands at

5.7 per cent and 18.4 per cent respectively).

During 2006-07 to 2010-11, the total number of beds

increased at a CAGR of 2 per cent to reach 1.1 million.

Over the next 5 years, CRISIL Research estimates the

number of beds to increase at a CAGR of 4 per cent to

reach 1.4 million by 2015-16. Assuming an average

capital expenditure of Rs 3.4 million per bed excluding

land cost, CRISIL Research estimates investments of

Rs 842 billion during 2011-12 and 2015-16.

We anticipate that the sector needs nearly Rs 6 trillion

to attain the global median of 24 beds per 10,000

persons. We believe that enhanced private sector

participation and novel methods of financing, similar to

that seen in sectors such as roads, power, ports,

airports etc, will be necessary to bridge the resultant

estimated shortfall of nearly Rs 5 trillion.

PPP model the way forward; win-win for all stakeholders

Innovative modes of financing, whether through Budget

or off-Budget, will be critical to meet this objective.

Gabon, a tiny nation in Africa, for instance, levies a

cess on mobile phone use to raise resources for

healthcare. In this context, the success that the Indian

government has achieved over the last decade in the

4.1 4.1 4.2 4.3 4.8

6.1 7.2

8.28.4 8.5 8.78.7

9.8 10.5

15.2

ThailandSri Lanka

IndiaChina

RussiaGlobal median

VietnamSouth Africa

BrazilAustralia

ItalyUK

CanadaGermany

USA

14


roads and airports sectors through innovative ways of

financing and public private partnerships should provide

important lessons for government policymakers. We

believe that, based on the evidence from other

countries, similar methods can be replicated

successfully in the healthcare sector in India as well.

Variants of the PPP model are already in operation in

certain parts of the country. One such is the contract

system wherein state governments contract out the

management of primary healthcare centres in rural

areas to NGOs. This system is in vogue in many states.

Yet another model that is slowly becoming popular is

the DBFOT (Design – Build-Finance-Operate-Transfer)

model, under which the government enters into a

partnership with private players to build hospitals,

wherein a certain percentage of beds are reserved for

the poor patients. The beds are reserved to provide

healthcare services to the poor, free of cost. This model

is already operational in a few states such as

Maharashtra, Delhi, Punjab, Karnataka, Chhattisgarh,

and Uttarakhand.

This mode is a win-win for both the government and the

private player, because land cost is a major component

of capital cost for constructing hospitals, and rising land

prices are discouraging expansion. Therefore, private

players are also interested in such an arrangement,

where the government provides land either at a nominal

price or free of cost and the private party has to bear

only the construction and equipment cost.

We believe that given the existing constraints on both

financial and human resources, this PPP model is the

way forward for India. But for it to succeed and radically

transform healthcare coverage, there are challenges

that need to be overcome. For instance, there is

currently no standard policy framework for PPP in

healthcare in the country. A standard policy framework

on various parameters like extent of grant or revenue

share, computation of user fee, operating and

maintenance of a hospital, monitoring and supervision

etc can help provide clarity and in turn help enhance

private sector participation.

The key objective of a PPP in healthcare is to provide

quality healthcare facilities to poor patients. To achieve

this, the government typically reserves a certain

percentage of beds for poor patients in every PPP

hospital project. However, a monitoring body is

essential to supervise the utilisation of beds reserved

for poor patients as there have been instances where

the reserved beds have been used for commercial

purpose.

For successful and timely implementation of PPP

projects, speedy decisions and fast execution of

processes such as selection of private players,

preparation of project agreement is crucial.

What is fairly clear from our analysis is that the project

economics is attractive. CRISIL Research estimates the

equity IRRs generated by a multi-specialty hospital

under a DBFOT model located in a metro to be in the

range of 15 per cent vis-à-vis 11 per cent generated by

a similar hospital located in a tier-II city.

As the returns generated by a multi-specialty hospital

under the DBFOT 'patient fee' model are lower in tier-II

cities, CRISIL Research believes that the DBFOT

'annuity model' can be adopted to enhance private

sector participation in tier-II cities as the annuity

payment model ensures the private player a fixed

income on an annual basis. Globally too, the DBFOT

model is popular, as indicated below.

15

Instances of PPP in healthcare in other countries

UK: The Birmingham Hospital – an acute and

psychiatric hospital in UK – operates on a DBFOT

annuity model. It has a capacity of 1,213 beds with

project a cost of £619 million. For this contract, the

private concessionaire receives annual payments

of £67 million over a period of concession of 40

years. The Barts Royal and London Hospital, a

tertiary hospital, is another PPP project that is

currently under construction. The project cost is £1

billion and the annuity to be paid to the private

player amounts to £97 million every year post

completion, over a period of 42 years.

Canada: The Abbotsford Regional Hospital and

Cancer Centre was built on a DBFOT annuity

model at a project cost of $355 million for a

concession period of 33 years. The private player

receives annual payments from the government.

Another Canadian hospital Royal Jubilee was built

on a DBFOT annuity model at a project cost of

$283 million. Annuity payments of $23 million per

year were paid to the private party over the

concession period of 32 years.

Italy: The New Mestre Hospital, a multi specialty

hospital, was built on the DBFOT 'patient fee'

model for a project cost of €236 million. The Italian

government provided a grant of €105 million, which

covered 45 per cent of the project cost. The

concession period for the project was 29 years.

South Africa: The 846-bed Inkosi Albert Luthuli

Hospital, a tertiary hospital, was built on a DBFOT

'annuity' model at a project cost of R 1,650 million

for a concession period of 15 years. The private

party received annual payments of R 304 million

from the government.

Australia: The Royal Women's Hospital

Redevelopment Project was built under the

DBFOT model, with a capacity of 160 beds and a

project cost of $364 million. The private party

received annuity payments from the government

over a period of 25 years. Another hospital – the

New Royal Adelaide Hospital – is to be built in a

span of 5 years on the DBFOT 'annuity' model.

The private party will receive annuities of $ 397

million from the government over the period of

concession of 35 years.

16


Industry Overview Hotels

The average occupancy rates (ORs) of premium

segment hotels in India will touch a 5-year low of 60 per

cent in 2011-12 before sliding to 56 per cent in 2012-13

– the net impact of demand slowdown coinciding with

huge supply additions. While the incremental supply

over the next 2 years is expected to be around 14,400

rooms, demand will be limited to 5,300 rooms. The

mismatch will leave over 23 per cent of the existing

inventories vacant and precipitate a fall in the industry’s

RevPAR. Both large and small business destinations

including NCR, Bengaluru, Chennai, Hyderabad and

Ahmedabad will see a dip in their ORs. In contrast,

Mumbai, due to its limited planned additions, is

expected to remain resilient to the downtrend. Among

leisure destinations, Jaipur and Kerala will witness the

steepest fall in occupancy rates.

Growth in room demand will nearly halve to 9-10 per cent over the next 2 years…

After a year of high growth (18 per cent) in 2010-11,

growth in room demand is expected to nearly halve to

9-10 per cent (CAGR) over the next 2 years. The

setback in growth will primarily be on account of the

looming global economic slowdown.

Demand growth is expected to slow down

F: Forecast; Source: CRISIL Research

….as domestic passenger traffic and FTAs are expected to weaken

The shrinking corporate budget for travel expenses,

affected by the sluggish macro-economic climate, and a

drop in domestic leisure travel are expected to hurt

domestic passenger traffic over the next 2 years.

Foreign tourist arrivals (FTAs) in India – nearly 50-60

per cent of which is from the USA and Europe – is also

expected to slow down in 2011-12 and 2012-13

following deterioration in the global economic health. In

November 2011, y-o-y growth in arrivals was lower at 5

per cent as compared to the 12 per cent growth seen in

November 2010.

The demand dip will coincide with a 17 per cent annual increase in room inventories…

Supply growth will outpace demand growth

F: Forecast


Supplies will grow at 17 per cent CAGR over the next 2

years, vis-à-vis a demand growth of 9-10 per cent. This

will aggravate the prevailing demand-supply imbalance

further. Total room additions over the next 2 years are -10%

-5%

0%

5%

10%

15%

20%

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

F

2012

-13

F

24,4

85

26,7

62

29,8

13

39,3

40

44,8

12

53,7

27

2010-11 2011-12 F 2012-13 F

Demand (nos.) Supply (nos.)

17

expected to be around 37 per cent of total inventories in

2010-11.

Supply in business destinations will grow the

fastest

F: Forecast


…that will widen the demand-supply gap further, causing ORs to dip to a 5-year low

Pan-India: Incremental supply will far exceed

demand

F: Forecast Note: ORs are calculated on total demand and supplies.


Occupancy in both business and leisure

destinations will dip

F: Forecast Note: ORs are calculated on total demand and supplies Source: CRISIL Research

The incremental supply over the next 2 years will be

around 14,400 rooms, whereas demand is expected to

be only around 5,300 rooms, which will leave around

9,000 rooms or 23 per cent of the existing inventories

vacant during this period. The skew in total supplies will

cause the occupancy rates to fall from 62 per cent in

2010-11 to 60 per cent in 2011-12 – the lowest since

2007-08 – and further down to 56 per cent in 2012-13.

… and ARRs and RevPAR to slide down

Average room rentals (ARRs) will dip by about 1 per

cent over the next 2 years. The Revenue per available

room (RevPAR), which takes into account the ARR and

ORs, will dip by around 7 per cent. At Rs 4,331, the

RevPAR in 2012-13 will be the lowest in the 6 years

since 2007-08.

30,433 34,624

42,208

8,907 10,188 11,520

2010

-11

2011

-12

F

2012

-13

F

2010

-11

2011

-12

F

2012

-13

F

17.8% CAGR

13.7% CAGR

Demand (nos.) Supply (nos.)

Business destinations Lesiure destinations

72%64% 61% 62% 60% 56%

-2,000

0

2,000

4,000

6,000

8,000

10,000

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

F

2012

-13

F

(Nos.)

Incremental demand Incremental supplyOccupancy rate (OR)

62%60%

57%

62%

59%56%

50%

55%

60%

65%

70%

75%

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

F

2012

-13

F

Business destinations Leisure destinations

18


RevPAR will hit the lowest in 6 years

F: Forecast


Foreign exchange earnings contribute to nearly 35 per

cent of hotel revenues. About one-third of the industry’s

revenues are thus vulnerable to the risk of currency

fluctuations.

9,627 9,565

7,739 7,964 7,885 7,806 6,948

6,080

4,692 4,957 4,709 4,331

2007-08 2008-09 2009-10 2010-11 2011-12 F 2012-13 F

Average room rate (ARR) (Rs per day)

RevPAR (Rs per day)

19

Industry Overview Retailing

The near-term growth of organised retail is expected to

be moderate on account of weak consumer sentiment,

which will be offset to a certain extent by the ongoing

store expansions by organised retailers. In the long

term, however, the outlook for organised retail remains

bright, with penetration set to cross 10 per cent by

2016-17.

Uncertain macroeconomic environment to moderate growth in near term

After a strong showing in 2010-11, organised retailers

experienced a disappointing year in 2011-12. Revenue

growth of most players was dented by weak consumer

sentiment. Prices of apparel (which accounts for one-

third of organised retail) also surged concomitantly with

the increase in cotton prices and the levy of excise duty

on branded apparel. This resulted in flat-to-negative

volume growth in apparels, and slowed same store

sales growth.

Same store sales growth slows down

Note: Companies considered are Shoppers Stop and Pantaloon Retail (Value and Lifestyle segments)

Source: Company reports, CRISIL Research

Store expansions to drive revenue growth in 2012-13

However, subdued consumer sentiment did not appear

to dampen the spirits of organised retailers much, as

was evident in the continued store expansions of many

players in 2011-12. In the near term, we expect this

trend to continue, and be the main driver of revenue

growth. Same store sales growth is also expected to

recover in the second half of 2012-13, as apparel prices

are not expected to rise further due to the anticipated

fall in cotton prices. Moreover, organised retailers are

lowering price points to drive apparel volumes. We

believe that organised retail will grow at 19 per cent in

2012-13.

Expansion plans announced by key retailers

Retail consumption growth to remain strong

Notwithstanding short-term blips, we believe that the

retail story will play out strongly in India in the long term,

propelled by rising income, favourable demographics,

and increasing urbanisation and nuclearisation of

families. Thus, the overall retail market (organised and

unorganised) is likely to grow at a healthy compounded

rate of 15 per cent from Rs 23 trillion in 2011-12 to Rs

47 trillion in 2016-17.

0

5

10

15

20

25

2010

-11

Q1

2010

-11

Q2

2010

-11

Q3

2010

-11

Q4

2011

-12

Q1

2011

-12

Q2

2011

-12

Q3

2011

-12

Q4

(Per cent)

Player Current

area

Net area added in

FY 12 (9M)Expansion

plan By

(Mn sq ft) (Mn sq ft) (Mn sq ft)

Shoppers Stop 4.0 0.9 0.4-0.5 2013

Pantaloon Retail 16.0 2.2 ~1.2-1.4 2013

Trent 2.6 0.3 ~1.5-2.0 2016

Spencer’s Retail 1.0 n.a. ~1 2014

Aditya Birla Retail 2.0 0.0 ~1.0-1.5 2014

Bharti Retail 1.5 1.4 ~0.5-1.0 2013

9M - 9 Months (April-December 2011)

Source: Media reports, CRISIL Research

20


Overall retail growth in India

E: Estimate, P: Projected


Organised retail penetration to cross 10 per cent by 2016-17

Even as the overall retail pie grows, the share of

organised retail in it is set to rise steadily in the long

term. Organised retail growth is expected to remain

robust, and grow at an annual average rate of 23 per

cent to Rs 4.7 trillion in 2016-17 from Rs 1.7 trillion in

2011-12. This growth will be fuelled by rising affluence

among urban consumers, growing preference for

branded products and greater aspirations among youth.

On the supply side, this growth will be supported by

expansion plans of existing players and the entry of

new players. Consequently, organised retail

penetration is likely to rise to 10.1 per cent in 2016-17

from 7.1 per cent in 2010-11.

Organised retail in India took off by leaps and bounds

primarily in the last decade. Vibrant economic growth

had buoyed growth in organised retail from 2004-05 to

2007-08; at 28 per cent, growth in the organised retail

industry was more than double the growth rate of the

total retail industry (12-14 per cent). However, due to

the economic downturn that followed the global financial

crisis of 2008, consumer sentiment was hit and new

store rollouts decreased, adversely impacting organised

retail revenues. Consequently, the segment grew at a

modest 10 per cent during 2008-09. This was followed

by two extremely good years, following the economic

rebound, which resulted in organised retail expanding at

a compounded rate of 24 per cent in 2009-10 and 2010-

11.

Organised retail growth in India

ORP- Organised Retail Penetration (Per cent) Source: CRISIL Research

Food and grocery offers the biggest potential

Food and grocery accounts for more than two-thirds of

the overall retail in India, but organised retail

penetration (ORP) in this vertical is the lowest at 2.2 per

cent. This vertical is dominated by kirana stores (mom

and pop stores), cart vendors and wet markets in the

unorganised space. These unorganised players have

extremely low overheads (stores, if applicable, are self-

owned and self-managed) and offer stiff competition to

organised players in terms of convenience (home

delivery facilities, credit facilities, locational advantage

etc). The low ORP indicates the extent of the

opportunity available, but the challenge for organised

retailers lies in achieving economies of scale and

managing the supply chain to ensure profitability.

The apparel vertical has the highest share in organised

retail and is also well-penetrated in the organised space

with an ORP of around 20 per cent. This relatively high

ORP is due to factors such as preference for brands

12

23

47

-5

10

15 20

25

30 35

40

45 50

2006-07 (A) 2011-12 (E) 2016-17 (P)

(Rs trillion)

14.5% CAGR

15% CAGR

0.6

1.7

4.8

0

1

2

3

4

5

2006-07 2011-12 2016-17

ORP

21% CAGR

23% CAGR

5.4 7.1 10.1

(Rs trillion)

21

and the ability to differentiate products on the basis of

cuts, styles, colour, fabric etc. Consumer durables,

mobiles, and IT and footwear are the other verticals

where organised retail has a relatively strong presence.

Share of verticals in overall and organised retail

Food and grocery, and beauty products to grow faster

We expect strong growth in the long term in verticals

such as food and grocery, and beauty products (which

includes jewellery, watches, eyecare, accessories, etc).

Under-penetration and the huge latent potential have

made the food & grocery vertical 'too big to ignore' for

organised retailers, who intend to gain a share of this

pie by rolling out convenience stores, supermarkets,

and hypermarkets. The growth of the beauty products

vertical will be supported by increasing affluence and

aspirations among the youth.

Slower growth expected in books, home decor and consumer durables

Verticals such as books and music, consumer durables,

mobiles and IT and home decor and furnishings are

expected to grow at a slower pace compared with the

other verticals. In the case of books and music, the

online retailing model has more advantages in terms of

the variety available and price discounts that are

offered. As a result, we do not anticipate large

expansions by existing players or the entry of new

players in the retailing of books through offline stores.

The current trend among existing book retailers is to

diversify their product mix to include games, stationery,

gift items and accessories, which offer higher margins.

Consumer durables and home decor and furnishings

are challenging businesses, where we expect players to

focus on profitability, rather than expansion. In

consumer durables, the gross margin of a multi-brand

retailer is typically 10-12 per cent. Sustaining a modern

retail format on such low gross margins is a difficult

proposition. Similarly, the home decor and furnishings

vertical is challenging on account of significant

investment required in working capital.

Verticals

Market Size Share Market Size Share ORP

Rs. billion in total Rs. billion in total

Food & Grocery 16,342 70% 363 22% 2.2%

Apparel 2,727 12% 543 33% 19.9%

Consumer durables, Mobile and IT

1,358 6% 312 19% 23.0%

Home décor & furnishing

1,014 4% 54 3% 5.3%

Beauty, personal and health care (products)

1,238 5% 144 9% 11.6%

Pharmacy 298 1% 20 1% 6.7%

Jewellery, watches,eyecare and others

940 4% 124 7% 13.2%

Footw ear 605 3% 94 6% 15.5%

Books,music 149 1% 13 1% 8.6%

Total 23,433 100% 1,667 100% 7.1%

Source: PFCE, CRISIL Research

Total Retail (2011-12) Organised Retail (2011-12)

22


Ashiana Housing Ltd’s (Ashiana’s) Q4FY12 results significantly exceeded CRISIL Research’s expectations on higher-than-expected revenues andoperating margin. Driven by growth in revenues, earnings beat our estimates and grew 57% y-o-y to Rs 267 mn. We may revise our earnings estimates post discussion with the management. We continue to remain positive on Ashiana given its strong brand in the affordable housing segment and maintain our fundamental grade of 4/5.

Q4FY12 and FY12 consolidated result analysis Q4FY12 revenues grew 68% y-o-y and q-o-q to Rs 903 mn and beat our

expectations of Rs 532 mn. The growth was driven by revenue recognition in some of the key projects such as Rangoli Gardens, Jaipur and Ashiana Aangan, Bhiwadi. Bookings during the quarter remained strong at 0.5 mn sq.ft. - highest quarterly run-rate till date - vs. 0.42 mn sq.ft. in Q3FY12 and 0.38 mn sq.ft. in Q4FY11. Average realisation grew 15% y-o-y and 5% q-o-q to Rs 2,302 per sq.ft. in Q4FY12. FY12 revenues grew 62% y-o-y to Rs 2,431 mn.

Despite increase in realisations, EBITDA margin declined 630 bps y-o-y to 36.2% in Q4FY12 mainly due to increase in raw material costs. However, it was above our expectations of 34.5%. On a q-o-q basis, EBITDA margin improved 390 bps due to increase in contribution from high-margin projects such as Lavasa, Pune and Rangoli Gardens, Jaipur. For FY12, EBITDA margins declined 180 bps y-o-y to 34.5%.

Despite a decline in EBITDA margin, PAT registered strong growth of 57% y-o-y to Rs 267 mn due to lower tax expenses. EPS was reported at Rs 14.3 vs. Rs 9.1 in Q4FY11. FY12 PAT grew 59% y-o-y to Rs 696 mn.

Analysis of FY12 standalone results Revenues grew 51% y-o-y to Rs 2,180 mn in FY12. EBITDA margin

improved slightly by 40 bps y-o-y to 38.1%. PAT grew 62% y-o-y to Rs 687 mn driven by revenue growth and

improvement in EBITDA margin.

Change in accounting policy from FY12 onwards The company will transition to the contract completion method of accounting from FY12 onwards vs. the current percentage completion methodology. Owing to this, revenue recognition in the projects launched after April 2012 will undergo a change but there will be no impact on cash inflows. We will provide further clarity on the same and incorporate changes in the earnings estimates, if any, post discussion with the management.

Valuations: Current market price has upside We continue to value Ashiana by the net asset value method. Our fair value is Rs 205 per share. We may revise it post interaction with the management. At the current market price of Rs 173, the valuation grade is 4/5.

Key Forecast (Consolidated)(Rs mn) FY09 FY10 FY11 FY12# FY13EOperating income 918 1,139 1,396 2,431 2,223EBITDA 222 398 441 838 767Adj Net income 286 363 429 696 548Adj EPS-Rs 15.8 20.1 23.1 37.4 29.5EPS grow th (%) -26.1 26.8 15 62 -21.2Dividend Yield (%) - 1 1.2 1.6 1.2RoCE (%) 24.7 32.6 26.9 36.9 26.1RoE (%) 34.9 32.1 28.2 33.6 20.8PE (x) 10.9 8.6 7.5 4.6 5.9P/BV (x) 3.2 2.4 1.8 1.3 1.1EV/EBITDA (x) 13.6 7.7 6.2 3.6 3.8NM: Not meaningful; CMP: Current market price#Abridged f inancials

Source: Company, CRISIL Research estimates

CFV matrix

Shareholding pattern

Performance vis-à-vis market

1

2

3

4

5

1 2 3 4 5

Valuation Grade

Fu

nd

amen

tal G

rad

e

Poor

Excellent

Str

on

gD

ow

nsi

de

Str

on

gU

psi

de

Key stock statisticsNifty/Sensex 4951/16312NSE/BSE ticker ASHIANA/ASHIHOUFace Value (Rs per share) 10Shares outstanding (mn) 18.6

Market cap (Rs mn)/(USD mn) 3,220/57Enterprise value (Rs mn) 2,891/5152-w eek range (Rs) (H/L) 185/112Beta 1.4Free float (%) 33.5%Avg daily volumes (30-days) 135,285 Avg daily value (30-days) (Rs mn) 4.07

66.1% 66.1% 66.1% 66.1%

0.2% 0.2% 0.2% 0.4%0.8% 0.0% 0.0% 0.0%

32.9% 33.7% 33.7% 33.5%

0%

20%

40%

60%

80%

100%

Jun-11 Sep-11 Dec-11 Mar-12

Promoter FII DII Others

1-m 3-m 6-m 12-m

ASHIANA -1% 2% 14% 33%

NIFTY -6% -8% 2% -10%

Returns

Independent Equity Research Report Ashiana Housing Ltd

May 31, 2012

23

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