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Puravankara Projects – Lehman initiates coverage

February 7, 2008

Lehman Brothers equity research has initiated coverage on Puravankara Projects with an OVERWEIGHT rating. Puravankara Projects Ltd (PPRO) is a high-quality real estate group exposed to the rapid economic growth of South Indian cities such as Bangalore,Chennai, and Kochi.

Puravankara has a high-quality landbank of 107m sq ft, and most of it is close to the economic hubs of cities. Average cost of acquisition is only INR 97 psf.Strong in-house construction skills give the company an edge in execution since 60-70% of the space is developed in-house.

More than 80% of Puravankara’s landbank is in two metro cities – Bangalore and Chennai. These areas are driven by the IT/ITES industry, which witnessed a CAGR of 35% over the past three years. possession. Almost the entire landbank has been fully paid for, with just INR 630m outstanding (6% of total cost). High clarity on title to the property is ensured as about 80% of the land is owned directly by Puravankara. Most of Puravankara’s landbank in Bangalore is located within 20km of the centre of the city, which results in easy accessibility. A number of its projects in the south and east Bangalore are located close to the IT hubs of Electronic City and Whitefield.

Valuation of Purvankara:
The company is expected to report an EPS of Rs 9.5 for FY08 and Rs22 for FY09 on revenues of Rs 547 crore and Rs 1,175 crore. Valuing the existing landbank through the NAV route, primarily capturing the build-out of most of the landbank over 2008-2020.

NAV / Share Rs 454.
Terminal Value / Share Rs 77
Intermediate NA / Share Rs 79
Lehman has set a Target Price Rs 610 on Puravankara Projects

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