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Thursday, November 23, 2006

Man Financial - D.S. Kulkarni Developers


  • DSKDL is a niche real estate company with more than 90% of its interests in residential properties in and around Pune. However, it is spreading its wings in Mumbai, Bangalore, Hyderabad, Delhi, and USA.
  • The company has constructed and handed over 15,000 tenements (approximately 12.5 mn sq. ft) in the past.
  • The company's ongoing projects indicate that it will build on an average 4 mn sq. ft. of property for the next four years, including FY07; 90% of these tenements are in and around Pune.
  • The company has a unique policy of transferring acquired land at a significant discount to the market price to DSKDL and the management says that it will continue with this policy in the foreseeable future.
  • The company is known for its innovative customer-centric approach and has also three quality certifications (the only construction company to have these)

  • The company has 650 acres (28.3 mn sq. ft, based on FSI of 1) of unused land spread across Pune, Mumbai, and Bangalore which is lying vacant and projects on this land are presumed to begin six years from FY07.
  • NPV of ongoing projects and unused land with 35% discount comes to Rs 688, a 115% premium to CMP of Rs 317. We have debited Rs 17.5bn for consideration paid to privately held companies.
  • The management indicates that it will go through the SPV route for undertaking larger projects in future wherein it will maintain 75-80% of the equity interest while the rest is offloaded in favour of a VC partner after valuing the specific project
  • Above NPV does not take into account the upside from projects in Hyderabad (400 acres land), Delhi (500 acres), and the project in the US (3,000 acres land bank) to construct 280 villas in Connecticut.
  • Risks: Overdependence on Pune's residential real estate market, transfer pricing policies, propensity to fund larger working capital in order to take advantage of rising residential property prices trend. Pune is a developing market for IT and ITES industry with demand-supply favouring the rising price trend. The company's past transfer pricing arrangements have been transparent benefiting shareholders of DSKDL and management indicates those to continue in foreseeable future.

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    Thanks Vishesh