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com January 29, 2008

Emaar MGF Land


IPO Fact Sheet

Issue details Company background


Issue opens : 01 February, 2008 Incorporated in 2005, Emaar MGF Land (Emaar MGF) is a
Issue closes : 06 February, 2008 joint venture between Emaar Properties PJSC of Dubai
Issue size : 10.26 crore equity shares (Emaar) and MGF Development (MGF) of India. Emaar is
Face value : Rs10 each the world's leading real estate company, which has operations
Break-up of fresh issue
in 16 countries and has developed approximately 45.0 million
to public: square feet (mn sq ft) across the business verticals. MGF
- QIB's portion : 6.15 crore shares has established itself as one of the key players in retail real
estate development in northern India over the last ten years.
- Retail portion : 3.08 crore shares
- Non-institutional portion : 1.02 crore shares Land bank and development details
Price band : Rs610-690 Emaar MGF has land reserves of 13,024 acre as on December
31, 2007. Out of 13,024 acre of land, the company has
Object of the issue development plans for 12,028 acre, which are expected to
The issue of 10.26 crore equity shares is aimed at raising translate into developable area of 588mn sq ft and saleable
Rs6, 256.8 crore to Rs7,077.4 crore (depending on the price area of 566mn sq ft. The company has well diversified land
band of Rs610-690 per share) to make part payment towards bank spread over 26 cities in 16 states. It has commenced
acquisition of land and land development rights, development projects in eight cities. These include eight residential
and construction cost for its Palm Drive project and properties, one retail property and five hospitality properties.
repayment of loans. Part of the proceeds would be utilised Land reserves distribution
for meeting issue expenses and general corporate purposes. Region-wise (in acre) Vertical-wise (in mn sq ft)
Retail Hospitality
Particulars Amount (Rs cr) West 4%
East 3%
9% Commercial
Part payment towards acquisition of land 2,560.5 1% 16%
and land development rights
Repayment of loans 1,449.6 South
Development and construction for Palm Drive project 775.5 14%

Issue expenses Amount not


disclosed Residential
North
General corporate purposes Amount not 76%
77%
disclosed
Key positives
After the issue, the total number of shares for the company
will increase from 88.34 crore shares to 98.59 crore shares, Parent company's advantage
bringing down the stake of the promoters and the promoters Emaar MGF is a joint venture between Emaar and MGF. We
group to 85.3% of the diluted equity. believe Emaar's brand name coupled with its international
expertise will enable Emaar MGF to develop the prestigious
Shareholding pattern Pre-issue (%) Post-issue (%) projects in a timely manner. On the other hand, MGF's local
Promoters and promoter group 95.3 85.3 knowledge and capabilities will enable it to identify suitable
Public 0.0 10.4 locations, acquire and aggregate large parcels of land. We
Others 4.7 4.3 believe these skills are complementing each other and will
Total 100.0 100.0 enable Emaar MGF to develop the large integrated master

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planned communities such as Palm Drive in Gurgaon, The Key concerns


Villas at Mohali Hills and Boulder Hills in Hyderabad in a 80.0% of land reserves comprise agricultural land
timely manner. The better realisation for these master
Approximately 80% of the total land reserves comprise
planned communities and the other high-end residential
agriculture land for which Emaar MGF and its sole or joint
projects such as The Palm Springs in Gurgaon would lead to
development partners have not yet obtained a certificate
improved margins for Emaar MGF compared with the other
of change for land use. This may delay Emaar MGF's
real estate developers, moving ahead.
development plan since the change of usage of land from
Higher proportion of well-diversified land bank is fully agriculture into property development involves stringent
paid regulations and cumbersome procedures.
Given the aggressive development plans by the real estate Higher concentration of land bank in northern region
developers, we believe land acquisition cost is going to
Around 76.0% of Emaar MGF's land bank is located in the
increase significantly for the developers. Emaar MGF has
northern region. Any downturn in the region's real estate
made full payment for 89.0% of the total land reserves.
market could affect Emaar MGF's financial performance
With a higher proportion of a fully-paid land bank, Emaar
significantly.
MGF is well in position to remove uncertainties associated
with escalation in the land acquisition cost. For the Execution risk
remaining 11.0% land reserves, the company has entered
Emaar MGF plans to develop 588mn sq ft (566mn sq ft
into sole development rights for which consideration is
saleable area) over the next five years to seven years.
typically paid out in the form of revenues and profit sharing
This implies execution of around 84.0mn sq ft on an annual
out of the property development.
basis. Hence, we believe executing the projects as per
Aggressive expansion plans in hospitality schedule is going to be a challenge for Emaar MGF.
The demand for accommodation across the hotel sector is Valuation
gaining momentum due to increased international and
Using the net asset value (NAV) valuation method, we have
domestic tourism, increased business travels and growing
arrived at an NAV of Rs754 per share. Given the well-
investment in infrastructure. To capitalise on this
diversified land bank, the parent company's advantage and
opportunity, Emaar MGF is planning to develop 4,960 hotel
plans to expand into the other verticals of the sector, we
rooms across cities over the next five to seven years. The
believe Emaar MGF should trade at 1.1x NAV multiple,
company has also entered into a joint venture with leading
indicating a fair value of Rs830 per share. At the upper
hospitality players such as Accor, Premier Inn,
price band of Rs690, the stock implies a 16.8% discount to
Intercontinental Hotels, Marriott, Hyatt and Four Seasons
its fair value.
to develop, operate and manage these hotels.
NAV valuation
Other initiatives
Particulars Rs in crore Per share
Emaar MGF is also planning to foray into healthcare and
Residential 32,484.9 329
infrastructure projects. In the healthcare business line, the
Commercial 29,099.7 295
company has entered into a memorandum of understanding
Retail 6,784.7 69
with Fortis Healthcare to develop hospitals, which would
Hotels 5,907.3 60
be positioned as "one-stop shops" for healthcare facilities
in the Tier-I and Tier-II cities of India. The company plans Gross asset value 74,276.6 753

to develop 25 hospitals with capacity ranging from 75 to Net cash/(Debt) 3,291.8 33

125 beds in joint venture over the next 10 to 12 years. In Less: Preference shares 922.5 9
infrastructure projects, Emaar MGF has bid for the Less: unpaid land cost 2,288.7 23
development of the international airport at Amritsar in Net asset value 74,357.2 754
Punjab. The project includes commercial operation and Price to NAV multiple 1.1
maintenance of the airport terminal spread across 41,000 Fair value 830
square meter and city side development covering 30 acre. Post issue no of shares (in crore) 98.6

Sharekhan 2 January 2008


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Sensitive analysis Peer group comparison


We have considered average selling price and construction We have done the peer group comparison for Emaar MGF
cost growth rates of 5% each; we have also considered 14.0% with the large real estate developers such as DLF and
as the discount rate and 10.0% as the cap rate for valuation Unitech. At Rs690 per share, Emaar MGF is available at a
of the commercial and retail properties. Based on these discount to its peers.
base case assumptions, we have arrived at a fair value of
Rs830 per share. The tables below show the sensitivity to Company name NAV CMP Price to NAV multiple
our assumption. Emaar MGF @Rs690 754 690 0.9
Emaar MGF@Rs610 750 610 0.8
Selling price growth rate
DLF* 803 883 1.1
Construction cost

3% 4% 5% 6% 7%
Unitech* 381 388 1.0
growth rate

3% 790 824 859 895 932 *Consensus estimates


4% 775 809 844 880 917
5% 761 795 830 866 902
6% 745 780 814 850 887
7% 730 764 799 835 872

Discount rate
12% 13% 14% 15% 16%
8% 1014 1000 987 975 963
Cap rate

9% 924 912 900 888 877


10% 853 841 830 818 808
11% 795 783 772 762 751
12% 746 735 724 714 704

The "views" expressed in this report are our views only and have been arrived at after analysis of the public offering
details. This is not a recommendation under our "Stock Idea" category. It may/may not be included in the Stock Idea by
our analysts at a later date.

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Sharekhan 3 January 2008