kb brings affordable single- family housing to india
TRANSCRIPT
KB Brings Affordable Single-Family Housing to India
Agenda
Company Overview/New ProductMode of EntryMarket Environment & Competitive AnalysisFinancesRisks
Company OverviewKB Home
One of the largest home builders in the United States (37,140 homes, $9.4 Billion in Revenue).French Subsidiary (Kaufman & Broad S.A.) builds American homes with a French twist.Operational Model, KBnxt, has been a success.Current US market conditions require diversification.
Survey
Develop NewCommunities
CustomDesign
CustomerService
Build
Company OverviewKB Home
One of the largest home builders in the United States (37,140 homes, $9.4 Billion in Revenue).French Subsidiary (Kaufman & Broad S.A.) builds American homes with a French twist.Operational Model, KBnxt, has been a success.Current US market conditions require diversification.
Survey
Develop NewCommunities
CustomDesign
CustomerService
Build
New Service ConceptDeliver custom built, American style homes to India.
Leverage catalog of American designs, add Indian customizations.Place KB Home Design Studios in popular retail locations.Used a phased approach to introduce ourselves to the market.
Phase 2(100 acres)
Phase 1(25 acres)
Phase 3Full Scale
18 mos. 30 mos.0 mos.
Mode of EntryForeign Direct Investment
Establish a joint-venture with local homebuilder.We supply capital and knowledge.Local homebuilder supplies land, knowledge of local market, building codes, and a resource pool.
Organizational StructureStart with a Project Structure and morph into a full Organization Structure.
KB Home, US CEO
Partner/Subcontracting Lead
Director of Finance and Strategy
Director of Building Operations
Director of Business Development
KB Home, India Project Lead
India US/French
Phase 1
KB Home, US CEO
Chief Operating Officer
Subcontracting Lead
Director of Finance and Strategy
Director of Building Operations
India Resource US/French Resource
Director of Marketing
Director of Business Development
KB Home, India CEO
Phase 2
KB Home, US CEO
Executive VP Chief Operating
Officer
Subcontracting Lead
Executive Vice President
Finance and Strategy
Director of Building Operations
India Resource
US/French Resource
Vice President, Marketing
Director of Business Development
KB Home, India CEO
Vice President, Human Resources
Phase 3
Market Environment & Competitive Analysis
Population Residents with Buying
Power
% Population under 20
Per Capita Income
GDP Growth
Rate
Housing Shortage Estimate
1.065 billion 300 million 58% $539 8% 22 million
India Demographics : Housing Shortage
Market Environment & Competitive Analysis
Type of Development
Required
Minimum Size of Development
Minimum Equity Investment
Prior to Feb 2005
(no reforms)
Integrated Townships
Only
100 acres $10 million individual, $5 million Joint Venture
Post Feb 2005
(post reforms)
Unlimited Categories
25 acres $10 million individual, $5 million Joint Venture
FDI Regulations : Feb 2005 Housing Reforms
Market Environment & Competitive Analysis
Economy Population Comments
Mumbai Commercial & Entertainment : Strong
16 million Land is premium as it is located on Salsette Island
Calcutta Manufacturing : Weak 13 million Economy in dire straits from closing plants
Delhi Financial & Commercial :
Very Strong
12 million Concern : Lack of Infrastructure
Chennai Automobile, Software & Technology : Very Strong
6 million Land is very expensive
Bangalore Technology : Very Strong 5 million $6460 per capita income; (Target Market)
Major Indian Cities Snapshot
Market Environment & Competitive Analysis
Style of Housing Development Locations
Year Est..
Website
Ansal Properties Township and Group Housing
All over India 1967 http://www.ansalspropertiesltd.com
DLF Universal All Styles Including Luxury Single Family
Primarily Delhi (Gurgaon)
1946 http://ww.dlf-group.com
Hiranandani Mixed Use Township Mumbai 1980 http://www.hiranandani.com
Prestige Apartment and Villa Styles
Bangalore 1956 http://www.prestigeconstruction.com
Major Builders In India
Market Environment & Competitive Analysis
Growing trend towards American Style housing fuelled by burgeoning middle class
Major ObstacleMissing Title Insurance
+ Corruption
= Higher Land Cost
Market Positioning & Competitive Strategy
Positioning: Perceptual Map
Market Positioning & Competitive Strategy
Positioning: Strategy Canvas vs. Other Housing Options
High
Low
DesignOptions
Quality
Time toMove
Cost
FinancingOptions
Warranty
Able toModifyLater
KB India
Multi-unitHousing
Apartments
+ - - - = + +
Market Positioning & Competitive Strategy
Target Market: The emerging fast-growing Middle Class
The Four P’s:
•Price: Close to the cost of Multi-family housing when HOAs are considered (Average $150,000)
•Place: Bangalore, India
•Product: Mass-Customized Single Family Homes
•Promotion: Internet, Traditional Advertising, Referral, Design Center
Market Positioning & Competitive Strategy
Growth Strategy
18 Months:
• 25 Acre Development Complete (Sold and Built)
• 100 Acre Development Started (Land Purchased)
30 Months:
• 100 Acre Development Complete (Sold and Built)
If Successful:
• New Infrastructure introduced for mass entry
• 1000 Acre Development Started
FinancesAssumptions Underlying the Scenarios for KB Homes India
Phase 1 – 1/1/07 to 6/30/08 (18 months) – Fiscal Year 2008
Product or Service Variable Most Likely Pessimistic
Scenario Scenario
New Home Construction
Construction Cost 75% of Sale Price 90% of Sale Price
(Land + Labor)
General Admin. Expense 12% of Sale Price 12% of Sale Price
Land Needed 25 acres 25 acres
Units to be Built 150 150
Units Sold at Full Price 150 120
Units Sold at Discount 0 30
Tax Rate 34% 34%
Effect on Income
Capital Required $20,000,000 $23,000,000
EBIT $2,850,000 ($1,350,000)
Retained Earnings $1,900,000 ($1,350,000)
Return on Equity 9.5% (5.9%)
FinancesAssumptions Underlying the Scenarios for KB Homes India
Phase 2 – 7/1/08 to 6/30/09 (12 months) – Fiscal Year 2009
Product or Service Variable Most Likely Pessimistic
Scenario Scenario
New Home Construction
Construction Cost 75% of Sale Price 90% of Sale Price
(Land + Labor)
General Admin. Expense 12% of Sale Price 12% of Sale Price
Land Needed 100 acres 100 acres
Units to be Built 600 600
Units Sold at Full Price 600 480
Units Sold at Discount 0 120
Tax Rate 34% 34%
Effect on Income
Capital Required $85,000,000 $101,500,000
EBIT $12,600,000 ($6,560,000)
Retained Earnings $8,316,000 ($6,560,000)
Return on Equity 9.8% (6.5%)
Finances Assumptions Underlying the Scenarios for KB Homes IndiaPhase 3 – 7/1/09 to 6/30/12 (36 months) – Fiscal Year 2010, 2011, 2012
Product or Service Variable Most Likely Pessimistic Scenario Scenario
New Home Construction Construction Cost 75% of Sale Price N/A (Land + Labor) General Admin. Expense 10% of Sale Price N/A Land Needed 1000 acres N/A Units to be Built 6000 N/A Units Sold at Full Price 6000 N/A Units Sold at Discount 0 N/A Tax Rate 34% N/A
Effect on Income Capital Required $886,000,000 EBIT $154,000,000 Retained Earnings $101,000,000 Return on Equity 11.4%
Finances Summary of Key Financial Metrics by Fiscal Calendar Year (Most Likely Scenario)
2008 2009 2010 2011 2012 5 Year TotalCapital Required $20M $85M $167M $351M $368M $991MRevenue Generated $22.5M $99M $198M $416M $437M $1,172MEBIT $2.5M $12.6M $29M $61M $64M $169MRetained Earnings $1.9M $8.3M $19M $40M $42M $111MReturn On Equity 9.5% 9.8% 11.4% 11.4% 11.4% 10.7%Units Sold 150 600 1200 2400 2400 6750
Summary of Key Financial Metrics by Fiscal Calendar Year (Pessimistic Scenario)
2008 2009 2010 2011 2012 2 Year TotalCapital Required $23M $102M N/A N/A N/A $125MRevenue Generated $21.6M $95M N/A N/A N/A $116.6MEBIT ($1.4M) ($7M) N/A N/A N/A ($8.4M)Retained Earnings ($1.4M) ($7M) N/A N/A N/A ($8.4M)Return On Equity (5.9%) (6.5%) N/A N/A N/A (6.7%)Units Sold 150 600 N/A N/A N/A 750
Risk Recognition & ReductionThreats Mitigation Strategy
Government/Tariff and Excise Tax
CEO of KB Home, India will need to have knowledge about how to handle foreign investment. FDI requires land improvement, which we will meet.
Property Market Transparency Risk
We will purchase already titled land from a developer’s inventory.
Lead time to Establish Business
We plan to have a lead time of 6 months, so we do not anticipate this to be a problem.
Infrastructure The private sector is becoming more involved with areas such as ports and roads. Our mitigation will be to choose our locations in areas where infrastructure is already established.
Building Codes Verify building partner has detailed experience and understanding of local building codes.
Summary
New Product Mass produced, affordable single-family homes in Bangalore, India
Why India?Shortage of housingGrowing middle classAvailable workforce
Summary
Mode of EntryPartnering with a local contractorPhased growth plan
FinancingUse of KB Home’s available cash reservesLoans for later phases if needed
ImplicationDiversification of investmentsLess reliance on shifting US Housing Market
Now is the Time
India is the Place