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Real Estate - A recovery is far away New launches and sales in the residential real estate sector have been steadily declining. RERA has fundamentally changed the nature of real estate development by pushing real estate project IRRs down and making developers delay project launches. Furthermore, from February 2018, we expect the Insolvency and Bankruptcy Code to trigger distressed sales of hard assets. This could trigger a fall in land prices, leading developers to launch cheaper properties. Such properties in a weak demand environment could lead to a hard landing for residential real estate. NBFCs/HFCs are highly exposed to this whilst a few well-managed real estate developers stand to benefit.

Residential Real Estate: A sector marred by slow growth As is well known, the combination of excess supply, high prices and weak demand has perpetuated a prolonged slowdown in residential real estate. Supply growth over the past few years has been muted as is evident from the fall in the number of properties sold and the drop in the number of projects launched. Residential launches in the top eight cities of the country declined by 41% YoY in 1HCY17, the lowest rate in seven years (see exhibit A). Now RERA and NCLT are combining to create a major disruption Our discussions with the top lawyers and leading real estate brokers suggest that the combination of RERA, NCLT and the black money squeeze is hitting the residential real estate sector further, both in terms of reducing the developers’ demand for land and reducing demand for flats. To be more specific, RERA and the NCLT process of bankruptcy and insolvency are making developers reluctant to launch projects due to: (a) punitive measures (fines, jail term) in the event of a delay; and (b) postponing of cash flows of projects (developers not allowed to do “soft launches” any more). On the other hand, the NDA Government’s crackdown on black money, GST and the squeeze on the job market are negatively impacting end-user demand (see exhibit B). A hard landing for residential real estate is the base case Our base case scenario is a hard landing for residential real estate in India driven by falling land prices (exhibit C). We expect demand for land from real estate developers to stay weak due to the factors mentioned above. The failed auctions for prime plots in Mumbai and Oberoi Realty’s discounted land purchase in Thane from GSK are proof of this dynamic. Furthermore, we expect the Insolvency and Bankruptcy Code to trigger distressed sales of hard assets in CY18. As land prices fall, real estate developers are likely to launch cheaper properties over CY19-20. As cheaper properties hit the market, developers who own the unsold inventory could enter financial distress. Furthermore, homeowners who are repaying mortgages which are far bigger than the prevalent prices of their property could start defaulting on their mortgages. Investment implications There is trouble ahead for NBFCs/HFCs since their ability to refinance or evergreen stressed developer loans will progressively get compromised as the downturn prolongs. The NBFCs with the highest exposure to real estate developer loans appear to be Piramal Enterprises, JM Financial and Edelweiss. Real estate developers with strong balance sheets and strong brands will benefit. We see Godrej Properties and Sobha Developers as being well-placed to gain share in the stressed sector which is consolidating pan-India around a dozen players who manage capital sensibly, can execute projects at speed and know how to manage the ecosytem.

THEMATIC November 01, 2017

Strategy

Exhibit A: Half yearly launches in the top eight cities have fallen in 1H2017

Source: Knight Frank Research

Exhibit B: Declining employment outlook is impacting real estate demand

Source: Manpower Group, Ambit Capital research

Exhibit C: A hard landing scenario for residential real estate is the base case

Source: Ambit Capital research

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Research Analysts

Ritika Mankar Mukherjee, CFA Tel: +91 22 3043 3175 [email protected]

Aditi Singh Tel: +91 22 3043 3284 [email protected]

https://goo.gl/4VZcUo

Strategy

November 01, 2017 Ambit Capital Pvt. Ltd.

CONTENTS

Section 1: Flashback to our July 2015 note ……………………………………..3

Section 2: The real estate slowdown ………………………………………………5

Section 3: What now for residential real estate? ……………………………….10

Section 4: Investment implications .………………………………………………20

Strategy


Section 1: Flashback to our July 2015 note In our July 2015 thematic, Real Estate : The unwind and its side effects, we made the point that there is a broad-based pullback underway in the real estate market with prices correcting in most tier 1 and tier 2 cities alongside sharp drops in transactions and new launch volumes. We highlighted that a mix of demand and supply side factors are responsible for this slowdown namely, Demand side factors The draconian Black Money Bill that went live on 1st July 2015 made High Net

Worth (HNW) families reluctant to invest in real estate; The 8% point gap between the gross rental yield and bank base rate highlighted

the unattractiveness of real estate for investors; and, Key state governments (like that of Maharashtra, West Bengal, Delhi) had hiked

“ready reckoner” rates sharply that year (i.e. CY15) and thus prevented prices from dropping to a market clearing level.

Supply side factors The banking system had turned the funding tap off for property developers, thus

compelling developers to either stop construction or cut prices; The NDA cut subsidies sharply (down 9% in FY16) and shifted subsidies onto the

Direct Benefit Transfer (DBT) platform, which restricted the ability of the politician-cum-builder nexus to pilfer subsidies to fund real estate construction; and,

The knowledge that there was many years’ worth of unsold real estate inventory in most of India’s tier-1 and tier-2 cities was causing investors to hold back further purchases.

We went on to say that the slide in real estate had caused the GDP to come under pressure directly because of the drop in investments and indirectly through pressure on wages. Furthermore, we highlighted that cement, paints, and lenders were the three sectors that were most likely to be adversely affected owing to these developments.

Exhibit 1: New launches had dropped by 40-80% YoY in Jan-Feb 2015

Source: Prop Equity, Mint and Ambit Capital research. * This excludes March 2015

Exhibit 2: The six-month moving average (MMA) for cement production had dropped to 0% in May 2015

Source: Office of the Economic Advisor, Ministry of Finance, Ambit Capital research

It is critical to note that the construction and real estate sector is of systemic importance in the Indian economy. It has traditionally been a major contributor to India’s GDP and has contributed an average of 23% to India’s GDP from FY12-16. Over the same period, it has contributed roughly 32% to gross capital formation.

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In our July 2015 thematic, we highlighted that a mix of demand and supply side factors responsible for slowdown in real estate market

We highlighted that cement, paints, and lenders were the three sectors that were most likely to be adversely affected owing to these developments

Construction and real estate sector is of systemic importance in the Indian economy

http://reports.ambitcapital.com/reports/Ambit_Economy_Thematic_RealEstate_14Jul2015.pdf

Strategy


Exhibit 3: The construction and real estate sector together account for a quarter of India GDP

Source: CSO, Ambit Capital research.

Exhibit 4: The construction and real estate sector together account for a third of India’s investments

Source: CSO, Ambit Capital research.

In fact, real estate coupled with construction contributes the highest amount (relative to any other sector) to India’s investments.

Even as employment growth in the sector slowed to 14% in over FY10-12 from 67% FY05-10, construction and real estate continue to be one of the largest employment creators in the non-agricultural category (see exhibits below).

Exhibit 5: Employment generated by the real estate and construction sector has slowed over FY10-12

Source: NSSO, Ambit Capital research. Note: This data series is available only till FY12.

Exhibit 6: The construction and real estate sector is still one of the largest contributors to employment

Source: NSSO, Ambit Capital research. Note: this data series is available latest as of FY12.

Given the centrality of the sector to the Indian economy, in this note, we take stock of the sector again. The focus in this note, like that of the July 2015 note, is residential real estate rather than commercial real estate as residential real estate accounts for nearly 80% of all the real estate developed in India.

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Strategy


Section 2: The real estate slowdown The onset of RERA has further exacerbated the slowdown in the real estate sector which was already reeling post demonetization. RERA’s pro-consumer stance and punitive measures for developers have incentivized developers to delay launches. With high inventory levels, developers are now focused on offloading inventory rather than trying to get new launches off the ground. The delays will postpone the cash flows of real estate projects and reduce real estate IRRs. This in turn has made developers reluctant to buy land and launch new projects, leading to a decline in demand for and prices of land. Section 2.1: The coming into force of RERA on July 1, 2017

The past few years have been a difficult period for Indian real estate both in terms of new launches (which have been steadily falling in number) and sales (which have also been steadily declining) across the major metros. In fact the value of stalled realty projects in India stood at Rs1.27tn i.e. an all-time high, with the stalling rate as a percentage of total projects under implementation at 13% which is also at an all-time high (refer to link for details) .

Exhibit 7: Value of stalled realty projects is at an all-time high…

Source: CMIE, Ambit Capital Research

Exhibit 8: …as is the stalling rate of realty projects

Source: CMIE, Ambit Capital Research. Note: The stalling rate is the value of stalled projects as a percentage of the value of projects under implementation.

Just when the real estate sector was recovering from the impacts of the Black Money Act, the sector was hit by a range of policy decisions including the demonetization decision announced in November 2017 and the Real Estate (Regulation and Development) Act 2016 which came into effect on 1 July 2017 which exacerbated the sector’s woes. RERA has fundamentally changed the nature of real estate developments by: (a) making it almost impossible for the developer to fund a project with payments collected for other projects; and (b) giving the buyer enormous power to take the developer to court in the event of a delay in construction or delivery and extracting from the developer all monies paid plus pending in the short term.

Exhibit 9: Key provisions of the Real Estate (Regulation and Development) Act, 2016 Developer can't make any changes to the plan without the written consent of the buyer.

Developer can’t accept any monies from the customer until the project and the construction plan are registered with the real estate regulator

The property will have to be sold to the buyers on the basis of carpet area (rather than built-up area) Registration is mandatory for all commercial and residential real estate projects where the land is over 500 square metres or includes eight apartments and which are under-construction

If the project gets delayed, the developer will have to pay penal interest on the amount paid by the buyer. The buyers can ask for their monies back with penal

interest in the event of a delay

It is compulsory for a state to establish a State Real Estate Regulatory Authority

Failing to register a property will attract penalty up to 10% of the project cost and a repeated violation could send the developer to jail

Every phase of the project will be considered a standalone real estate project and will need to obtain separate registration

The developer will have to place 70% of the money collected from a buyer in a separate escrow account to meet the construction cost of the project

If the buyer finds any shortcomings in the project, he can contact the developer in writing within one year of taking possession

Source: JLL, Ambit Capital Research

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RERA has fundamentally changed the nature of real estate developments

https://goo.gl/wByRjq

Strategy


A leading real estate lawyer in Mumbai told us that so far, the real estate regulator has been extremely pro-consumer. For example, in the event of a complaint about late delivery, the regulator has immediately pushed the developer to compensate the customer. This is particularly painful for developers who started building the project in the pre-RERA world but now have to comply with RERA. Given the backdrop described above, we were not surprised when we visited several real estate registry offices in Mumbai and Delhi over the course of October 2017 where the picture was one of desolation (see exhibit below).

Exhibit 10: A Mumbai registry office in Khar at 11 AM on a working day bears a picture of desolation


Exhibit 11: A Mumbai registry office in Fort at 1:45 PM paints a similar picture


In fact, registry officials made the point that the number of people registering properties was at its lowest since the 2008 Lehman Brothers crisis.

Section 2.2: How is RERA affecting supply in the real estate sector? The creation of a pro-consumer real estate regulatory authority has shaken the real estate market fairly adversely. The real estate broker, Jones Lang LaSalle (JLL), in a report published in July 2017 said that since 2014: Developers continue to focus on offloading unsold inventory rather than on

launching new projects. Consequently new launches across major cities over 1QCY14-1QCY17 have declined on an average YoY basis to the tune of ~30% (see exhibit below).

Residential sales have continued to dip over the last three years on the back of home buyers anticipating a price correction and have declined to the tune of ~35% over 1QCY16-1QCY17.

The period spanning CY12-15 saw a rise in unsold inventory due to shrinking demand. However, in 2016, unsold inventory recorded a slight dip due to a reduction in supply.

A leading real estate lawyer in Mumbai told us that so far the real estate regulator has been extremely pro-consumer

Developers continue to focus on offloading unsold inventory rather than launching new projects while residential sales have continued to dip over the last three years

Strategy


Exhibit 12: Residential real estate launches and units sold are steadily falling even as the inventory of unsold units remains elevated

Source: Real Estate Intelligence Service (JLL), 1QCY17, Ambit Capital research.

According to another real estate broker, Knight Frank, residential launches in the top eight cities of the country declined by 41% in 1HCY17 relative to 1HCY16, the lowest in seven years. Ahmedabad and NCR were the worst hit, with launches falling by 79% and 73% respectively. Except in Chennai, new projects dried up in all the remaining 7 cities. Sales decline, however, was not as severe. Sales declined by 11% in 1HCY17 relative to 1HCY16 (see exhibits below).

Exhibit 13: Except Chennai, new launches fell in all cities


Exhibit 14: Sales declined 11% in 1HCY17 relative to 1HCY16


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Residential launches in the top eight cities of the country declined by 41% in 1HCY17 relative to 1HCY16, the lowest in seven years

Strategy


Section 2.3: How is RERA affecting prices in the real estate sector? The combination of unsold inventory and the general state of the residential market has led to moderation in weighted average property prices.

Exhibit 15: RBI’s House Price Index indicates moderation in housing prices growth

Source: RBI, Ambit Capital research.

Price movements across top cities from 3QCY16 versus 3QCY17 reveal that the residential markets of Hyderabad, Bangalore and Pune have recorded a slight uptick in prices while the NCR, Mumbai Metropolitan Region (MMR), and Chennai have seen a downtrend in prices (see exhibit below). In fact, a leading residential real estate broker in Mumbai said that prime newly built flats are being offered at 15-20% discounts by developers desperate for some cash inflow. Exhibit 16: Residential price movements in tier 1 cities

Source: Anarock, Ambit Capital research. Note: NCR includes Gurgaon, Noida, Greater Noida, Ghaziabad, Faridabad & Delhi. MMR includes Mumbai, Thane & Navi Mumbai

Inventory overhang levels are high in most tier 1 cities with NCR and Mumbai leading the pack. Unsold inventory in NCR stands at approximately 2 lakh which will take 62 months to get absorbed while in MMR unsold inventory is at approximately 1.8 lakh and will take 52 months to get absorbed as per residential real estate broker, Anarock (see exhibit below).

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The combination of unsold inventory and the general state of the residential market has led to moderation in weighted average property prices

Residential markets of Hyderabad, Bangalore, and Pune have recorded a slight uptick in prices while the NCR, Mumbai Metropolitan Region (MMR), and Chennai have seen a downtrend in prices

NCR and MMR are leading the pack when it comes to unsold inventory accumulation

Strategy


Exhibit 17: The inventory overhang in NCR and MMR in 3QCY17 was high

Source: Anarock, Ambit Capital research. Note: NCR includes Gurgaon, Noida, Greater Noida, Ghaziabad, Faridabad & Delhi. MMR includes Mumbai, Thane & Navi Mumbai

The top real estate brokers say that the first big impact of RERA is on land demand and land prices. By postponing the cash flows of a real estate project in a muted demand environment, RERA has reduced real estate project IRRs from the low twenties to the mid-teens. Secondly, by further creating a pro-consumer regulator that immediately penalizes the developer for late construction delivery, RERA has made developers very reluctant to buy land and launch projects. In the words of a top real estate lawyer, “Every developer now wants to follow the Oberoi Realty model of buying one piece of land every two years, developing the project, making money from it, and then moving to the next project. No one wants to buy land and sit on it. The IRRs are now so tight that you cannot justify hoarding land.”

This has resulted in a dramatic reduction in land demand and land prices, which is evidenced in Mumbai in at least two ways.

A leading private sector lender seems to have repeatedly tried to auction Dunlop House in Worli (central Mumbai). No developer has put in a bid for this prime plot. Lawyers tell us that even the lender’s reserve price is unacceptable to the developers.

Oberoi Realty has purchased 60 acres of a large plot of land from GSK in Thane at Rs555crores (click here). This translates into Rs9crores per acre. Sector experts tell us that a decade ago that same plot of land in Thane would have fetched double that amount. Thanks to the oversupply of flats in Thane and due to the punitive sanctions imposed by RERA, no other developer had the means or the gumption to bid for this plot.

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By postponing the cash flows of a real estate project in a muted demand environment, RERA has reduced real estate project IRRs from the low twenties to the mid-teens

Anecdotal evidence indicates dramatic reduction in land demand and land prices

https://goo.gl/L8EXcr

Strategy


Section 3: What now for residential real estate? The demand side picture for residential real estate seems neutral at best. This is because the drag created by the black money crackdown, job market squeeze, and adverse GST structure is at best being offset by the improving availability of home loans, improving home affordability, and pro-consumer regulatory changes. The supply side picture on the other hand is unilaterally negative given the impacts of RERA and NCLT on developers. Even as supply growth has curbed today, we believe the launch of cheaper land and real estate from CY18 appears inevitable given the slew of bankruptcies. Our base case scenario is, hence, one of hard landing for real estate prices. Even as the demand side scenario today can be defined as being neutral at best, the supply side picture is bleak given the inventory pile-up in most Indian cities. To this end, the limited availability of funding for real estate developers, the inception of RERA and the NCLT process are making developers reluctant to launch new projects which is acting as a drag on supply expansion. We expect land prices to fall from February 2018 as Insolvency Practitioners (IPs) liquidate the assets of bankrupt companies. As land prices fall, it is but natural that real estate developers launch cheaper properties through 2019 and 2020 (see exhibit below). Exhibit 18: The hard landing scenario for residential real estate is our base case


As cheaper properties come into the market, developers who own the unsold inventory are likely to enter financial distress. Furthermore, this could also lead homeowners who are repaying mortgages (which are far bigger than the prevalent prices of their property) to start defaulting on their mortgages.

In the section below, we elaborate the dynamics highlighted above in greater detail.

Section 3.1: The demand side picture is neutral at best

The demand side picture today can be described as being neutral at best. Whilst three sets of factors - namely improving affordability, availability of home loans, and pro-consumer regulatory changes - are positive from a demand perspective, three sets of factors - namely squeeze on black money and jobs, and GST structure - are negative for demand.

Factor#1: Even as residential real estate is fundamentally overvalued, the affordability has improved of late

Rental yields in the Indian residential real estate market are abnormally low, especially when compared to its emerging market cities (see exhibit below). This implies that residential real estate is fundamentally overvalued and unaffordable.

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We expect land prices to fall from February 2018 onwards

India residential real estate is fundamentally overvalued and unaffordable

Strategy


Exhibit 19: India has one of the lowest gross rental yields relative to other Asian markets

Source: Global Property Guide, Ambit Capital research. Note: The gross annual rental income, expressed as a percentage of property purchase price. This is what a landlord can expect as return on his investment before taxes, maintenance fees and other costs. The properties are 120-sq. m. apartments located in premier city centres.

In a fairly-priced real estate market, the rental yield should be somewhere close to the cost of borrowing. However, the difference between lending rates and rental yields is one of the highest in India (see exhibit below).

Exhibit 20: The difference between rental yields and lending rates is one of the highest in India

Source: Global Property Guide, World Bank, Ambit Capital research.

Several investors believe that rental yields are higher in the rest of the country and that Mumbai is an anomalously stressed city. However, data in fact suggests that this is not the case (see exhibit below). When we travel around India, we find that not just in state capitals but also in Tier 3 and Tier 4 cities, residential real estate markets are stagnant, buyers are absent and real estate developers (usually local politicians’ protégés) are left scratching their heads.

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Strategy


Exhibit 21: Rental yields are low in Indian cities in general (and it is not just a Mumbai-thing!)

Source: Anarock, Ambit Capital research.

That said, with residential real estate prices having been flat to marginally down in nominal terms over the past three years whilst incomes have risen, affordability for the buyer is marginally better now than what it used to be three years ago. Exhibit 22: Housing affordability, as indicated by the difference between house prices and per capita income, has improved recently

Source: World Bank, RBI, Ambit Capital research.

Factor#2: The availability of home loans has improved From a single housing finance company in India in 1980, the country now has 80 housing finance companies providing home loans. This is over and above the 30 odd commercial banks which are active in the market already. With the cost of wholesale market funding having fallen sharply in the past four years, many dozens of lenders in India are now keen to finance home loans.

Exhibit 23: SBI’s advanced lending rate and three-month CP rate have been on a downtrend

Source: Bloomberg, RBI, CEIC, Ambit Capital Research.

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SBI advanced lending rate 3 month CP rate

Housing affordability for the buyer is marginally better now than what it used to be three years ago.

Many dozens of lenders in India are now keen to finance home loans

Strategy


Alongside this, the overall fall in interest rates over the past three years is facilitating easier availability of home loans and is positive for demand. As depicted in the exhibit below, home loans are growing at a much faster rate than growth in non-food gross bank credit.

Exhibit 24: Housing loans (from banks) have grown faster than non-food gross bank credit

Source: RBI, Ambit Capital research. Note: RBI collates data from large banks which constitute 95% of the total system credit.

Factor#3: Powerful pro-consumer regulatory changes are underway The passage of RERA and the NCLT process are powerful pro-consumer developments. The real estate regulator’s systematically pro-consumer interventions were described in the previous section. The NCLT process, according to lawyers, is “ten times more powerful than RERA in terms of how much power it gives to customers”. Any customer (or any other creditor) who believes that they have not been given their due can go to the NCLT and file for the developer to be declared insolvent. That threat of insolvency is enough for developers to give customers what they want. In fact a top real estate focused lawyer told us that, “At present, the courts and regulators don’t even want to hear the case properly. As soon as you enter the room, the Government official says ‘I don’t want to hear anything. Please give the customer what is due to him.’ As a result of this pro-consumer environment, I have told real estate developers that they should not even think of launching a project in the next couple of years. Until RERA an NCLT settle down, developers don’t know where they stand.” A leading real estate developer corroborated this by telling us that “What RERA and NCLT are delivering for consumer in seven days now used to take seven years earlier”.

Factor#4: The squeeze on black money is curbing demand for real estate As highlighted in our July 2015 Real Estate thematic, more than 30% of India’s real estate sector is funded by black money. The size of India’s black economy expanded materially under the UPA Government and given that black money finds high acceptance in physical assets such as real estate, a large portion of these funds were presumably channelled into real estate. However, the NDA Government is engineering a clampdown on black money in India. With various measures in place aiming at cracking down on black money (including demonetisation, Black Money Bill, Benami Transactions Bill, and GST), the flow of funds into physical assets including real estate has dried up (see exhibits below).

0%

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Loa

n a

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Housing Loans Non-food Gross Bank Credit

Home loans are growing at a much faster rate than non-food gross bank credit

Any customer (or any other creditor) who believes that they have not been given their due can go to the NCLT and file for the developer to be declared insolvent.

The flow of funds into physical assets including real estate has dried up

http://reports.ambitcapital.com/reports/Ambit_Economy_Thematic_RealEstate_14Jul2015.pdf

Strategy


Exhibit 25: The Government has administered a series of changes to crack down on India’s black economy (1) Ban on cash transactions above Rs300,000: The Income Tax Act for FY18 has introduced section 269ST, which makes cash transactions above Rs300,000 illegal. Offenders will have to pay a 100% fine if caught. (2) Payments of wages through bank accounts: The Parliament on February 08, 2017 passed a bill seeking to enable the Centre and State Governments to specify industrial units which will have to pay wages through cheques or by bank transfer only. Once this happens, the units will also have to comply with the minimum wages rule and other benefits such as Provident Fund. (3) Income tax notices: The Government has budgeted a 27% YoY increase in income tax while it expects nominal GDP to grow at 11%. Such a sharp jump hinges on the crackdown by the income tax department on black money and unexplained deposits after the demonetisation. The income tax department has already sent 1.8 million such tax notices. (4) Empowerment of tax officials: The Government has amended the income tax act to empower even the junior-most tax official to conduct raids. (5) Crackdown on benami properties: The Government has begun a massive crackdown on benami properties (properties which are in the name of fictitious persons) all over the country in order to unearth unaccounted money stashed in the form of such properties. (6) PAN-Aadhaar linkage: The Government has now made it compulsory to link Permanent Account Number (PAN) to the Aadhaar in order increase scrutiny on tax evaders. Source: Ambit Capital research

Exhibit 26: Savings in India are moving away from physical assets

Source: CSO, CEIC, Ambit Capital research.

It is critical to note that there is yet another angle to the black money squeeze. Residential real estate brokers who have historically been paid in cash are now having to transition to the white economy. With the number of residential real estate buyers declining and with GST about to hit the sector, residential real estate brokers can be negatively impacted. Factor#5: The job squeeze is hampering demand for real estate as well A slowdown in India’s job engine is negative for real estate demand. The Naukri jobs index which reflects the state of employment in 9 key sector, namely insurance, automobile, pharma, IT, banking, BPO, telecom, construction and oil & gas, has been decisively trending downwards (see exhibit below). Exhibit 27: Organised sector hiring activity has weakened over the past 18 months

Source: Infoedge, Ambit Capital Research

31% 33%36% 36%

41%

67% 66%62% 62%

57%

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Sha

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Financial assets Physical assets Gold and silver

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MoM YoY

A slowdown in India’s job engine is a negative for real estate demand

Strategy


According to Manpower’s quarterly survey (click here), hiring plans are at the weakest since the survey began 12 years ago. Large employers report healthy hiring intentions with a Net Employment Outlook of +21%, while the outlook for medium Employers stands at +10%. However, small employers anticipate a decline in payrolls, reporting an outlook of -6%. Small employers report a steep decline of 24 percentage points when compared with the previous quarter, while the outlook for medium employers is 5 percentage points weaker. Meanwhile, large employers report no change. Year-over-year, sharp declines of 41 and 28 percentage points are reported by small and medium-size employers, respectively, while the outlook for large employers is 12 percentage points weaker (see exhibit below). Exhibit 28: Hiring plans are the weakest since 12 years

Source: Manpower Group, Ambit Capital research.

Furthermore, even as employers in all seven industry sectors expect to increase staffing levels during the July-September period, four sectors reported their weakest forecasts since the survey began 12 years ago - Finance, Insurance & Real Estate, Manufacturing, Mining & Construction and Services.

Factor#6: Demand for real estate has been adversely affected by the GST rates structure GST is applicable to real estate in a peculiar way. As per the GST rate structure, if you buy a finished property, you do not have to pay GST. However if you do buy a property at the pre-occupation certificate stage, you pay an effective GST of 12%. As a result, no rational buyer wants to buy a flat until it is completely finished and has an occupation certificate. In the pre-GST rate structure, VAT was calculated on material cost and service tax was calculated on labour and service cost. VAT thus was in the range of 1-5% and Service Tax was at 4.5% (for cities such as Bangalore, Mumbai, Pune, Chennai and Gurgaon). Consequently, the indirect tax rate payable on under-construction properties was lower than it is currently under the GST regime.

Real estate developers are trying to mitigate this issue by claiming input cost credit on as many of their inputs (such as cement, labour, steel and glass) as they can, thereby lowering the effective GST rate to below 12%. However, given the sector’s history of transacting in black money, this reduction in the effective GST rate is likely to be a gradual process.

We now proceed to elaborating on the supply side factors.

Section 3.2: Even as supply growth has been curbed today, the launch of cheaper supply from CY18 onwards appears inevitable

Even though supply growth of residential real estate has been impacted today due to RERA and restriction in supply of funding for real estate developers, the availability of more land at lower prices is inevitable from CY18. This is because the Insolvency and Bankruptcy Code is expected to lead to bankruptcies that will release a large chunk of land into the market. In a demand environment that is at best neutral, land prices are bound to fall as supply increases.

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Net employment outlook Seasonally adjusted

Hiring plans are at the weakest since 12 years

GST’s structure for real estate implies that no rational buyer would want to buy a flat until it is completely finished and has an occupation certificate

https://goo.gl/tb9fht

Strategy


Section 3.2.1: A range of factors has curbed the supply of real estate today

The drying up of access to funding for property developers

Subsidies under the previous UPA regime grew at a staggering CAGR of 19% from FY04-14. A substantial portion of these subsidies (40-50%) was pilfered by the political class and used by it to fund investment in gold and real estate. The NDA has cut subsidies sharply (declining at a CAGR of 2% from FY15-17) and is shifting subsidies to Direct Benefit Transfer (DBT). As a result, the ability of the politician-and-builder to pilfer subsidies to fund real estate construction has been checked (see exhibits below).

Exhibit 29: Subsidy growth rates have been declining under the NDA government

Source: Ministry of Finance, Ambit Capital research.

Exhibit 30: Studies suggest that leakages in the Public Distribution System amount to 40-50%

Title Key relevant finding Source and year

Performance Evaluation of Targeted Public Distribution System

Leakages in India after the implementation of the targeted PDS concludes that illegal diversions of rice and wheat at the all-India level in 2003/2004 was 37% of the total supply of subsidised grain meant for the BPL category.

Planning Commission, 2005

Public Distribution of Food in India: Coverage, Targeting and leakages

In1986/1987, 37% of the supply of subsidised rice and 38% of the supply of subsidised wheat were illegally diverted

World Bank, 1993

How can food subsidies work better? Answers from India and Philippines

In 2004-05, the per capita consumption of subsidised food grains was 1.03kg/month whilst the per capita supply of subsidised food works out to be 2.27kg/month. This works out to a leakage of 55% of subsidised food grain supply.

Asian Development Bank, 2010

Source: Various Academic publications, Ambit Capital research

As highlighted in our July 2015 note, lending by banks to real estate has been secularly slowing. As of July 2017, in fact lending has declined by 2% (see exhibit below). That said, bank funding to developers could improve next year once the PSU banks are recapitalized.

Exhibit 31: Real estate loans by banks are growing slower than non-food gross bank credit

Source: Ambit Capital research. Note: Excludes housing loans.

Equity fund offer sizes by listed real estate developers have also declined substantially. From a peak of Rs215bn in CY09, the offer size has declined to Rs5bn as of CY17. Private equity investments in the sector have also moderated since attaining a peak in 2007 (see exhibits below).

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Real estate loans Non-food Gross Bank Credit

Subsidies have declined at 2% per annum from FY15-17

Equity offer sizes by listed real estate developers have also declined substantially

Strategy


Exhibit 32: Offer sizes (for listed companies) have declined in the real estate sector

Source: Bloomberg, Ambit Capital research

Exhibit 33: Private equity investments in the Indian real estate sector have moderated

Source: JLL, Ambit Capital Research

Hence, equity (public and private) as well as bank funding for this sector have been impacted negatively. With all low-cost funding routes shut for all developers barring a few marquee names, developers are forced to rely on expensive loans from housing finance companies at interest rates of 14% or more. The developers are hoping that the PSU bank recapitalization can help them get funding 100-200bps cheaper next year.

RERA is leading to a delay in launches by developers The launch of the Real Estate Regulatory Act (RERA) will have an impact on all stakeholders in the real estate market but especially on the developers - only those developers confident of meeting timelines will undertake new projects. As depicted in exhibit 7, there are several punitive measures on developers if they miss the delivery date. This will lead to longer timelines and reduce the IRR of the project. One of the largest residential real estate brokers in India told us that, “Post-RERA it is a brave real estate developer who is willing to invest in buying land and launch a new project because under RERA the developers face steep fines and jail sentences due to delayed delivery of projects. That obviously pushes developers to commit to a conservative delivery timeline but that in turn brings down the project IRR to the mid-teens.”

The head of a prominent Asset Reconstruction Company told us, “Demand for prime land in Central Mumbai is very weak. A leading private sector bank has repeatedly tried over the past year to sell office of a bankrupt corporate borrower on three occasions. On all the three occasions, the auction has failed. The bidders were not even prepared to bid at the reserve price.” Here we reiterate some of the punitive measures in the RERA Act (as highlighted in Exhibit 7) If the project gets delayed the developer will have to pay interest on the amount

paid by buyer. Failing to register a property will attract penalty up to 10% of the project cost and

a repeated violation could send the developer to jail. If the buyer finds any shortcomings in the project he can contact the developer in

writing within one year of taking possession. Section 3.2.2: The supply of cheap land and subsequently cheap real estate is likely to increase We expect supply of cheap land and real estate to increase due to two key reasons - 1) Insolvency and Bankruptcy Code proceedings are likely to lead to bankruptcies, releasing a large chunk of assets (offices, land, factories). This could potentially increase the supply of urban and industrial land and lead to a fall in prices; and 2) since residential real estate prices are a derivative of land prices, real estate developers are likely to launch cheaper properties through 2019 and 2020.

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With RERA, only those developers confident of meeting timelines will undertake new projects

Strategy


National Company Law Tribunal (NCLT) and the Bankruptcy Code may increase the supply of land

There are 12 names sent into the IBC (Insolvency and Bankruptcy Code) proceedings as per the list released by the RBI in June 2017. Eleven of these companies have been admitted to NCLT for time-bound IBC process (see exhibit below). Exhibit 34: Names sent to the Insolvency and Bankruptcy Code proceedings by the RBI in June 2017 Company Debt outstanding (Rs bn)

Essar Steel 457

Bhushan Steel 445

Lanco Infratech 430

Bhushan Power & Steel 372

Alok Industries 249

Electrosteel Steels 124

Monnet Ispat & Energy 120

Amtek Auto 105

Era Infra Engineering 101

Jaypee Infratech 86

ABG Shipyard 70

Jyoti structures 52

Total 2,609

Source: RBI, Ambit Capital Research

In addition to the 12 names shown in the exhibit above, over the past three months, the RBI has pushed another 50 companies into the NCLT process. Our discussions with insolvency experts suggest that at least half of these 60-odd companies will go bankrupt in 1HCY18. As these companies slide into bankruptcy, large chunks of land will be available. This could potentially increase the supply of urban and industrial land and lead to a fall in prices. Investors should note that over the past four months, around 60 stressed borrowers have been pushed by the RBI into the insolvency process. These borrowers have loans outstanding of Rs4.7tn. Barring a miracle, most of these borrowers face liquidation in CY18.

As the CFO of a leading Mumbai-based real estate company told us, “Insolvency practioners are beginning to call up real estate brokers to sell the land holdings of bankrupt companies. However, demand is so weak that they are not getting bids for even prime plots of land in Mumbai.”

More generally, several real estate developers who were delaying payments to suppliers have already been subjected to the NCLT process by their suppliers (who were not getting payment) or their creditor (who were not getting repaid). To be specific, under the Insolvency and Bankruptcy Code, such parties can move the NCLT and ask for a developer to be declared insolvent if they can produce proof that they have not been repaid on time. Lawyers say that just the threat of moving to NCLT is now enough for developers to settle the dues. As a result, real estate developers are now refusing to buy land or launch projects unless these are very good projects with compelling economics.

A subsequent increase in supply of cheaper residential real estate appears likely

We expect land prices to fall in 2018 as Insolvency Practitioners (IPs) liquidate the assets of bankrupt companies. As land prices fall, it is but natural that real estate developers launch cheaper properties through 2019 and 2020.

Section 3.3: Is there a soft landing scenario? In a hard landing scenario, demand for land from real estate developers continues to stay weak due to the punitive sanctions imposed by RERA. Furthermore, from February 2018, we expect the Insolvency and Bankruptcy Code to trigger distressed sales of hard assets (factories, offices, land) as Insolvency Practitioners liquidate the assets of bankrupt companies. As land prices fall, it is but natural that real estate developers launch cheaper properties through 2019 and 2020 (see exhibit below).

Insolvency and Bankruptcy Code proceedings are likely to lead to bankruptcies, releasing large chunk of assets (offices, land, and factories)

Threat of NCLT is making real estate developers refuse buying land or launching projects unless these are very good projects with compelling economics.

Strategy


Exhibit 35: The hard landing scenario for residential real estate (demand falls but supply increases)


As cheaper properties come into the market, developers who own the unsold inventory enter financial distress. Furthermore, homeowners who are repaying mortgages which are far bigger than the prevalent prices of their property start defaulting on their mortgages.

In an alternative soft-landing scenario, demand and supply both decrease, but marginally, leading to limited impact on residential real estate prices. Since prices don’t crumble, real estate developers’ bankruptcy is postponed and home buyers also aren’t tempted into defaulting on their home loans.

The soft landing scenario entails little or no fresh supply of land emerging and thus land prices staying broadly where they are (in an environment characterized by very few land transactions). With land prices staying stable, the few new projects that are launched are at prices marginally below the currently prevalent rates (expressed in per square feet terms). Demand for and supply of residential real estate stay weak but because prices don’t crumble, real estate developers’ bankruptcy is postponed and home buyers also aren’t tempted to default on their home loans (since the value of their properties aren’t falling).

Exhibit 36: The soft landing scenario for the residential real estate sector (demand and supply both fall)


Pri

ce

Quantity

Old Demand

New Demand

Old Supply

New Supply

New Price

Old Price

Q

Pri

ce

Quantity

Old Demand

Old SupplyNew Demand

New Supply

Old QuqntityNew Quantity

Price

We expect land prices to fall making real estate developers launch cheaper properties through 2019 and 2020

In an alternative soft-landing scenario, demand and supply both decrease, but marginally, leading to limited impact on residential real estate prices

Strategy


Section 4: Investment implications Our base case scenario for real estate is one of hard landing in real estate prices over the next two years. As land prices fall, cheaper properties will come into the market, driving developers with unsold inventory and home owners with expensive mortgages into default territory. Given this, we believe there is trouble ahead for NBFCs/HFCs since their ability to refinance or evergreen stressed developer loans will progressively get compromised as the downturn prolongs. On the other hand, real estate developers with strong balance sheets will benefit in a stressed sector. Discussions with real estate brokers, asset reconstruction companies and real estate developers suggest that a further 10-20% price correction in residential real estate prices (alongside a sharper drop in land prices) over the next two years does not seem unlikely. Such a point of view is also validated by recent drops in land prices. As indicated in the article in Business Standard dated 4 October 2017 (click here), land values are estimated to have hit a five-year low. The number of buyers is down, with some developers and land owners offering land parcels at the same rates they were offering in 2012-13. Exhibit 37: Recent deals Buyer Seller Size (in acres) Area Value (in Rs crores)

GIC - K Raheja Corp Siemens 3 Worli/Mumbai 610

Oberoi Realty GSK Pharma 60 Thane/MMR 555

Ascendas - Singbridge NA 16 Karadi/Pune 200

Shapoorji Pallonji BPTP 20 Dwarka Expressway/New Delhi 150

Source: Business Standard, Ambit Capital research

The recent Oberoi-GSK land deal in Thane (a town next to Mumbai) which was executed at a massive discount (price per acre at under Rs9.3crore while the circle rate and recent transactions peg it closer to ~Rs30crore; for more details click here) along with a leading private sector lender’s failed attempt to auction Dunlop House show that there is evidence of a major correction in land prices taking place.

This hard landing scenario has played out once before in India. Over 1991-97, residential real estate prices rose sharply in the major cities (in fact, in Mumbai they tripled). Then, over 1997-02, residential real estate prices fell sharply (in Mumbai they fell by a total of 50% and in other cities they fell by 20-30%). This correction drove hundreds of non-bank lenders out of business.

Housing Finance Companies: Between a rock and a hard place

Whilst the falling IRRs in real estate development should result in weaker demand for fresh project finance demand, refinance and working capital demand has increased due to: (a) RERA, (b) muted demand for flats; and (c) banks’ reluctance and inability to lend to real estate developers due to regulatory constraints. See the note from our BFSI team dated 9th October for more details.

As banks stick to less risky lease rental discounting and late-stage construction finance, NBFCs are active in land and pre-approval financing but with tighter structuring of loans (than has been historically seen India). With strong demand, back-ended payment structures (significantly higher moratoriums imply no obligations are due in the next 2 years), lenders involved in developer financing should continue growing robustly and report low NPAs for now as the regulator (RBI and National Housing Board) has turned a blind eye to refinancing ‘musical chairs’ game the lenders are playing. The fact that repeated refinancing of loans to stressed real estate developers is happening is evident from our discussions with the top real estate lawyers and real estate brokers.

However, should increased regulatory scrutiny (perhaps in the run-up to the 2019 General Elections) coincide with a significant delay in the real estate sector recovering (i.e. our hard landing scenario), developer loans could meet a similar fate as that of power/infra/steel loans aggressively disbursed by banks over FY09-12 on the premise of the optimistic India growth and ‘refinancing is available’ story.

The recent Oberoi-GSK land deal in Thane (a town next to Mumbai) which was executed at a massive discount

Should increased regulatory scrutiny coincide with a significant delay in the real estate sector recovering, developer loans could meet a similar fate as that of power/infra/steel loans aggressively disbursed by banks over FY09-12

https://goo.gl/QNxjfG

https://goo.gl/Qmp8Re

http://reports.ambitcapital.com/reports/Ambit_BFSI_Lowerriskweightsonhomeloans_09Oct2015.pdf

Strategy


There is a further challenge for lenders who have financed real estate developers – projects which began in the pre-RERA and pre-NCLT era now have to be compliant with both. For many developers this is turning out to be a nightmare because they are neither being able to deliver flats on the pre-agreed timeline nor are they being able to honour their commitments to their suppliers and financiers on a timely basis. As a result, they are being dragged to the courts repeatedly. In the face of impending legal action, the lenders repeatedly have to refinance these loans to the developers because if they don’t then the developer will be declared “insolvent” under the NCLT process (and thus become an NPA on the lenders’ balance sheet).

The exhibits below show the names of the major financiers of real estate developers. The two names which stand out as being disproportionately exposed are Piramal Enterprises and JM Financial.

Exhibit 38: Developer loans exposure of lenders – Piramal Enterprises, JM Financial and Edelweiss are the most exposed to developer loans

Source: Company, Ambit Capital research. Data as on Mar’17; Note: PEL - Piramal Enterprises Ltd.; JMF - JM Financial; EDEL – Edelweiss; IBHF - Indiabulls Housing; HDFC - HDFC Ltd.; DHFL - Dewan Housing; IIFL - IIFL Holdings; YES - Yes Bank; PNBHF - PNB Housing Finance; IIB - Indusind Bank; KMB - Kotak Mahindra Bank; ICICIBC - ICICI Bank; L&T FS - L&T Finance; AXSB - Axis Bank; HDFCB - HDFC Bank; LICHF - LIC Housing; SBIN - State Bank of India. We have also included lease rental discounting in the developer loans exposure for the sake of consistency in comparison.

Moreover, apart from developer loans, HFCs also face added risk from increasing delinquencies in retail home loans (read our notes dated 18th January – ‘Past perfect future tense’ and 24th August ‘Home loans – Asset quality risks now manifesting’.) With earnings growth slowing for HFCs due to multiple headwinds to growth, margins and asset quality, we believe HFCs are ripe for de-rating as well (read our note dated 23rd June – ‘HFCs - Holders beware’.

88%

71%

26% 22% 18% 14% 14% 13% 11% 10% 9% 8% 7% 7% 4% 4% 2%0%

20%

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100%

PEL

JMF

EDEL

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F

HD

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DH

FL IIFL

YES

PNBH

F

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KM

B

ICIC

IBC

L&T

FS

AXS

B

HD

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LIC

HF

SBIN

Developer loans (% of book)

Piramal Enterprises, JM Financial, Edelweiss are the most exposed to developer loans

http://reports.ambitcapital.com/reports/Ambit_BFSI_Thematic_HFCsPastperfectfuturetense_18Jan2017.pdf

http://reports.ambitcapital.com/reports/Ambit_BFSI_HomeloansAssetqualityrisksnowmanifesting_24Aug2017.pdf

http://reports.ambitcapital.com/reports/Ambit_BFSI_HFCsHoldersbeware_23Jun2017.pdf

Strategy


Exhibit 39: The top listed lenders to real estate developers

Company Ticker Mcap (US$ bn) Loan book* (Rs bn)

Developers loans*

ROE (FY17)

P/B (FY17)

P/E (FY17)

12m return (%) RECO**

Piramal Enterprises Ltd. PIEL IN 7.28 244 88% 8% 3.4 38.3 51% NR

JM Financial JM IN 2.06 114 71% 15% NA 27.6 105% NR

Edelweiss EDEL IN 3.57 276 26% 14% 5.1 37.9 122% NR

Indiabulls Housing IHFL IN 8.23 913 22% 25% 4.4 18.3 50% NR

HDFC Ltd. HDFC IN 41.45 3,378 18% 21% 7.1 35.5 23% SELL

Dewan Housing DEWH IN 3.06 836 14% 23% 2.7 16.7 89% NR

IIFL Holdings IIFL IN 2.87 226 14% 21% 4.3 26.3 92% NR

Yes Bank YES IN 11.14 1,323 13% 20% 3.7 20.9 22% NR

PNB Housing Finance PNBHOUSI IN 3.63 415 11% 14% 4.2 41.4 NA NR

Indusind Bank IIB IN 15.04 1,131 10% 15% 4.9 33.5 38% SELL

Kotak Mahindra Bank KMB IN 30.07 1,361 9% 13% 7.0 49.4 28% SELL

ICICI Bank ICICIBC IN 29.97 4,642 8% 11% 2.1 19.5 17% BUY

L&T Finance LTFH IN 5.65 666 7% 13% 4.5 37.0 88% NR

Axis Bank AXSB IN 17.91 3,731 7% 8% 2.1 31.3 0% SELL

HDFC Bank HDFCB IN 71.75 5,546 4% 19% 5.4 31.3 43% SELL

LIC Housing Finance LICHF IN 4.81 1,445 4% 19% 2.9 16.0 5% SELL

State Bank of India SBIN IN 41.79 18,690 2% 7% 1.5 22.9 22% SELL

Source: Company, Ambit Capital research. Note: *FY17. ** NR stands for “not rated”.

Real Estate Developers: Brand and balance sheets are essential for success

Real estate developers with strong balance sheets and strong brands will benefit. We see Godrej Properties and Sobha Developers as well-placed to gain share in the stressed sector which is consolidating pan-India around a dozen players who manage capital sensibly, can execute projects at speed and have the knowhow to manage the ecosytem.

Exhibit 40: Real Estate developers who seem well-placed

BBG Ticker MCap (USD mn)

RoE RoCE 12M trailing P/E Debt/Equity CFO/EBITDA

FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17

GPL IN Equity 2235 8.8 11.0 7.4 6.5 88.2 70.0 1.8 2.0 0.7 -3.2

SOBHA IN Equity 771 6.1 6.2 5.1 5.1 33.3 31.4 0.9 0.8 0.1 0.3

Source: Bloomberg, Ambit Capital research

Godrej Properties

Godrej’s brand recall, built over decades and through everyday consumer products, makes it a partner of choice for many regional/local real estate developers across the country; most of the smaller regional developers are facing funding issues amid weak demand and rising pressure of regulations (RERA, GST, non-cash transactions). Godrej has had a strong conversion rate for its projects and delays have been one of the lowest amongst peers. These imply that Godrej could record strong sales momentum from its industry-leading project launches in the past 12 months. Higher mix of affordable and mid-priced offerings than premium offerings of its portfolio implies that sales risk could be lower to the inventory pipeline as well as launch pipeline (31mn sq ft, own and JVs). Sales booking in FY17 was diversified with Mumbai amounting for just 10%, implying reducing dependence on Mumbai. High leverage of 2x (albeit low in the context of the sector) and continuing weak CFO/(pre-tax) EBITDA (mainly on account of loans to JVs) are key risks to watch out for in the uncertain demand environment.

Real estate developers with strong balance sheets and strong brands will benefit. We see Godrej Properties and Sobha Developers as being well placed

Strategy


Sobha Developers

Sobha’s focus on mid-premium, affordable offerings and relatively less dependence on land bank gathering have historically kept its cash flows more stable than those of peers. After establishing itself in the South Indian markets, the company has been strengthening its brand in Delhi too and has been witnessing steady demand for the last couple of quarters as unorganised peers face pressures of weak demand, rising regulation and restricted funding for weaker players. Sobha’s focus on execution has helped it maintain strong sales over the past six months despite lack of new launches. Steady operational performance in 2QFY18 (sales volume up 6% QoQ and flat YoY) was led by leadership and strong execution in Bangalore. Sales of its NCR projects were also strong and realisations have been steady. The key things to watch out are: (i) how the company scales up in Pune and Chennai from its current insignificant presence and (ii) conversion of its mid-premium pipeline in Bangalore. The company’s debt-to-equity ratio is below 1x. Job losses in the IT industry in Bangalore are a key risk.

Strategy


Institutional Equities Team Saurabh Mukherjea, CFA CEO, Ambit Capital Private Limited (022) 30433174 [email protected] Pramod Gubbi, CFA Head of Equities (022) 30433124 [email protected]

Research Analysts

Name Industry Sectors Desk-Phone E-mail

Nitin Bhasin - Head of Research E&C / Infra / Cement / Home Building (022) 30433241 [email protected]

Aadesh Mehta, CFA Banking / Financial Services (022) 30433239 [email protected]

Abhishek Ranganathan, CFA Retail / Consumer Discretionary (022) 30433085 [email protected]

Aditi Singh Economy / Strategy (022) 30433284 [email protected]

Anuj Bansal Consumer (022) 30433122 [email protected]

Ariha Doshi Consumer (022) 30433228 [email protected]

Ashvin Shetty, CFA Automobiles / Auto Ancillaries (022) 30433285 [email protected]

Bhargav Buddhadev Power Utilities / Capital Goods / Small Caps (022) 30433252 [email protected]

Deepesh Agarwal, CFA Power Utilities / Capital Goods (022) 30433275 [email protected] Dhiraj Mistry, CFA Consumer (022) 30433264 [email protected]

Gaurav Khandelwal, CFA Automobiles / Auto Ancillaries (022) 30433132 [email protected]

Gaurav Kochar Banking / Financial Services (022) 30433246 [email protected]

Girisha Saraf Home Building (022) 30433211 [email protected]

Karan Khanna, CFA Strategy / Small Caps (022) 30433251 [email protected]

Nikhil Mathur Small Caps (022) 30433220 [email protected]

Mayank Porwal Retail / Consumer Discretionary (022) 30433214 [email protected]

Pankaj Agarwal, CFA Banking / Financial Services (022) 30433206 [email protected]

Prateek Maheshwari Cement / E&C / Infrastructure (022) 30433234 [email protected]

Prashant Mittal, CFA Strategy / Derivatives (022) 30433218 [email protected]

Rahil Shah Banking / Financial Services (022) 30433217 [email protected]

Ravi Singh Banking / Financial Services (022) 30433181 [email protected]

Ritesh Gupta, CFA Oil & Gas / Chemicals / Agri Inputs (022) 30433242 [email protected]

Ritika Mankar Mukherjee, CFA Economy / Strategy (022) 30433175 [email protected]

Sudheer Guntupalli Technology (022) 30433203 [email protected]

Sumit Shekhar Economy / Strategy (022) 30433229 [email protected]

Utsav Mehta, CFA E&C / Infrastructure (022) 30433209 [email protected]

Vivekanand Subbaraman, CFA Media / Telecom (022) 30433261 [email protected]

Sales

Name Regions Desk-Phone E-mail

Sarojini Ramachandran - Head of Sales UK +44 (0) 20 7886 2740 [email protected]

Anmol Arya India (022) 30433079 [email protected]

Dharmen Shah India / Asia (022) 30433289 [email protected]

Dipti Mehta India (022) 30433053 [email protected]

Krishnan V India / Asia (022) 30433295 [email protected]

Nityam Shah, CFA Europe (022) 30433259 [email protected]

Punitraj Mehra, CFA India / Asia (022) 30433198 [email protected] Shaleen Silori India (022) 30433256 [email protected]

Singapore

Praveena Pattabiraman Singapore +65 6536 0481 [email protected]

Shashank Abhisheik Singapore +65 6536 1935 [email protected]

USA / Canada

Ravilochan Pola – CEO Americas +1(646) 793 6001 [email protected]

Hitakshi Mehra Americas +1(646) 793 6751 [email protected]

Achint Bhagat, CFA Americas +1(646) 793 6752 [email protected]

Production

Sajid Merchant Production (022) 30433247 [email protected]

Sharoz G Hussain Production (022) 30433183 [email protected]

Jestin George Editor (022) 30433272 [email protected]

Richard Mugutmal Editor (022) 30433273 [email protected]

Nikhil Pillai Database (022) 30433265 [email protected]

Strategy


Explanation of Investment Rating

Investment Rating Expected return (over 12-month)

BUY >10%

SELL <10%

NO STANCE We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NOT RATED We do not have any forward looking estimates, valuation or recommendation for the stock POSITIVE We have a positive view on the sector and most of stocks under our coverage in the sector are BUYs

NEGATIVE We have a negative view on the sector and most of stocks under our coverage in the sector are SELLs

* In case the recommendation given by the Research Analyst becomes inconsistent with the rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures (like change in stance/estimates) to make the recommendation consistent with the rating legend.

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Strategy


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