Emaar MGF Land (EMLL), a joint venture (JV) between Emaar Properties PJSC of Dubai and MGF Development of India (MGF), develops properties in the residential, commercial, retail and hospitality sectors across India. Emaar Properties PJSC of Dubai, one of the promoters, is among the world’s leading real-estate companies, with development of about 50 million square feet (sq ft) of residential, commercial and other business segments and operations in 16 countries end December 2007. Over the last 10 years, MGF has become one of the key players in retail real-estate development in north India.
EMLL commenced operation in February 2005. It had land reserve of 13,024 acres end December 2007. The land reserves are spread over 26 cities in 16 states. The company has commenced projects in eight cities in seven states. According to its estimates, the land reserve will provide a proposed saleable area of approximately 136.5 million sq ft of plotted residential development (including built-up villas); 318.8 million sq ft of built-up residential properties; 88.9 million sq ft of commercial properties; 18 million sq ft of retail properties; and 4,960 keys in hospitality properties.
Of the land reserve, EMLL has development plans for approximately 12,028 acres translating into a proposed development area of around 588 million sq ft and a proposed saleable area of about 566 million sq ft. These projects are spread over eight residential properties including plots, villas, townhouses and apartments, and one retail and five hospitality properties. The company currently has about 17.7 million sq ft of residential, commercial and retail space under development. These include Mohali Hills, part of the 3,000-acre integrated master planned communities with aggregate saleable space of 9.3 million sq ft consisting of 5.7 million sq ft of developed plots, 1.9 million sq ft of apartments, 1.2 million sq ft of villas, and 0.5 million sq ft of retail space. The other projects are Palm Springs, a high-end apartment block with a saleable space of 0.7 million sq ft in Gurgaon; the Common Wealth Games Village in Delhi, with a saleable area of 1.8 million sq ft; Chennai Esplanade Phase I, a residential group housing project with an saleable area of 0.4 million sq ft; and Palm Drive, a residential project on 35.1 acres in Gurgaon, with saleable area of 3.3 million sq ft plus commercial and retail space of 0.3 million sq ft.
EMLL is also developing a group housing project with a saleable area of 1.9 million sq ft as part of its 510-acre Boulder Hills including an international golf course under development and expected to be completed by March 2008.
In the hospitality sector, EMLL is developing hotels across various price points in the luxury, upmarket, mid-market and budget segments across India. The company has entered into JVs with Accor, France for the development and operation of budget hotels, and with Premier Inn, UK for the development and operation of mid-market hotels in India. The two JVs contain an exclusive clause: the budget hotel and mid-market brands of Accor and Premier Inn, respectively, will be developed only in association with EMLL. In addition, it has entered into agreement with various entities in the Intercontinental Hotels group. EMLL is currently developing a total of five hospitality projects in Kolkata, New Delhi, Dehradun and Amritsar and expected to have 635 keys in operation by the year ending March 2010 (FY 2010) and 1,135 keys in operation by FY 2011 as per the projects under development. However, it has planned to have about 3,825 keys from a slew of proposed hospitality projects. Of the five hotel projects, the one at Dehradun is a hotel-cum-convention project and the other in New Delhi is a luxury hotel.
In the residential realty segment, EMLL focuses on development of integrated master planned communities in the mid to luxury segments. Here, it builds properties ranging from villas, townhouses to apartments of varying sizes. Commercial and retail development is also done either as part of the integrated master planned communities or as standalone commercial/retail sites and properties.
EMLL has JV relation with Leighton International and Multiplex (both of Austraila) for construction and Turner Construction International, US for project management.
The issue proceeds will be used as part payment for the acquisition of land and land development rights and related approvals for its ongoing and planned projects amounting Rs 872.80 crore. The funds will also be used for the development and construction cost of Palm Drive in Gurgaon (Rs 775.5 crore) and repayment of loans (Rs 1449.60 crore). Outstanding debt was Rs 5287.58 crore on 12 January 2008.
Strengths
Land reserve of 13,024 acres spread over 26 cities in 16 states end December 2007make it a pan-Indian player. Moreover, the strong parentage and access to capital add muscle for future growth. Enjoys strong parentage benefits. The overseas promoter brings international experience and much needed funds and lends a globally reputed brand name. The domestic promoter has local knowledge for acquisition of land, to deal with regulatory approvals, and for the smooth execution of the project.
Of the land reserve, higher proportion ( 89%) is fully paid. The balance is largely revenue share and not payable upfront. About 51.8% (acreage) and 67.3% (saleable area) is either directly or indirectly owned. Besides the National Capital Region (NCR), has substantial land reserve in Hyderabad, Chennai and Bangalore. The average acquisition cost is about Rs 195 per sq ft.
Weakness
Though with a strong track record in the realty business, promoters lack adequate operating history
Of the current land bank of about 13,024 acres, around 760.26 acres are subject to litigation including 374.81 acres for which proceedings have been initiated by the promoters and about 197.83 acres for which proceedings have been initiated against them. For 187.62 acres, proceedings involve sole/joint development partners.
The JV will be the sole vehicle for development of foreign direct investment (FDI)- complaint realty projects. The MGF group can either on its own or through its group companies take up non-FDI complaint projects.
Change of land use yet to be obtained for agricultural land comprising about 80% of the land reserve. The gravity of this problem can be gauged from the fact Rs 1604.4 crore (including external development charges) is to be spent for converting 1,214 acres of land at Gurgaon NCR.
Valuation
EMLL has not recognised any revenue in FY 2007 and incurred loss of Rs 47.31 crore on account of establishment expenses. Consolidated revenue was Rs 472.72 crore and restated net profit after minority interest Rs 129.83 crore in the half year ended September 2007. The company sold properties worth Rs 3000 crore and recognised revenue for about Rs 500 crore end September 2007 as it follows the percentage-completion method of accounting. The annualised EPS adjusted for extraordinary items (EO) works out to Rs 2.6. The P/E on the lower price band (Rs 610) works out to 234.6 times and that on the upper price band (Rs 690) works out to Rs 265.4 times. Post-IPO, the market cap of Emmar MGF will stand at Rs 68029 crore (at the upper price band) compared with DLF’s current market cap of Rs 147930 crore. Enterprise value per million square foot of proposed saleable area for Emmar MGF stands at Rs 130 crore compared to Rs 211 crore for DLF.