MANAGEMENT DISCUSSION AND ANALYSIS 1. THE INDIAN ECONOMY 1.1. Review of 2014-15 India's GDP crossed the sub-five per cent era after quite a few years and registered a growth rate of 7.3% for the financial year ending 2015(constant market prices). Also, during the year, the country's GDP reached valuations over USD 2 tn for the first time clocking USD 2.1 tn and has a 3.3% share in the global GDP. (<http://statisticstimes.com>, indiabudget.nic.in) The Indian economy picked pace from the first quarter of the year with the formation of a majority government for the first time in decades. Several economic and social reforms followed during the year and inflation declined by over 6 percentage points since late 2013 reaching 5.17% in March 2015, creating a relaxed path for softening credit rates. Current account deficit has plunged from a peak of 6.7% of GDP (in Q3, FY13) to an estimated 1% at the end of FY15. Foreign portfolio flows worth USD 38.4 bn since April 2014 have stabilised the rupee, easing long-term interest rates. The country's per capita net national income (at current prices) rose by an estimated 9.2% to Rs 87,748 from Rs 80,388 during 2013-14. 1.2. Outlook Going forward, Indian economy is projected to clock 8.1% growth in the current financial year, spurred by strong consumer spending amid low inflation, infrastructure projects and government's reform measures. Investment is also expected to rebound, although unevenly, given the still low industrial capacity-utilisation rate at about 70 percent. (Source: CSO, UN economic survey, statistics times) 1.3. The Union Budget 2015-2016 - implications for the real estate sector The union budget 2015 had several provisions that are beneficial for the real estate industry in the long run. These include: • Allocation of Rs 224,070 mn for housing development in the country. This would involve construction of 20 mn urban and 40 mn rural housing units across the country to realise the aim of 'Housing for all by 2022' • Proposal to overhaul the capital gains taxes to pave way for the listing of Real Estate Investment Trusts (REITs) in the country • Implementation of GST by April 2016. 1.4. Black money bill (Benami transaction prohibition bill) The proposed bill on curbing black money is expected to significantly improve transparency in the Indian real estate sector. Real estate in India is seen as one of the largest sectors in which unaccounted money is deployed. There have been consistent problems in real estate transactions, involving hidden transactions. This helped investors procure land and get benefit from return, while saving on the taxable quotient of gains. Black money makes it possible for the buyer to get the properties registered at lower values; which significantly reduces the revenue of the Government. This has caused real estate prices in many parts of the country to escalate to unsustainable levels despite certain Government valuations of land and property prices. At brsent, many major cities have huge unsold inventory. Despite this, property prices have not corrected significantly in line with the expectations of many industry watchers. Upon proper execution of the bill, the real estate market will see a structural reform and with property valuations being transparent, the genuine buyers will be able to enter the market with greater confidence and assured returns; opening the industry to larger audiences. This will also pave the way for an equitable expansion in the affordable housing segment, making home ownership easier, and ensuring a sustainable, secure economy. Under the purview of the bill, the government has specified: • Any transaction of more than Rs 0.1 mn will attract mandatory reference of PAN number • A cap of Rs 20,000 as advance payment in cash towards any real estate deal 2. REAL ESTATE SECTOR IN INDIA India is expected to emerge as the world's 3rd largest construction market by 2020, by adding 11.5 mn homes every year Foreign direct investment (FDI) in the construction development sector is expected to increase to USD 25 bn in the next 10 years, from brsent USD 4 bn. The construction industry ranks 3rd among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. .1. Review The real estate sector in India is being recognised as an infrastructure service that is driving the economic growth engine of the country. India's Real Estate market size is expected to increase seven times by 2028 from USD 121 bn in 2013 to USD 853 bn. The housing sector alone contributes 5-6% to the country's gross domestic product (GDP). Also, in the period between 2008 and 2020, the market size of this sector is expected to increase at a compound annual growth rate (CAGR) of 11.2%. Retail, hospitality and commercial real estate are also growing significantly, providing the much-needed infrastructure for India's growing needs. 2.2. Factors driving real estate growth The real estate sector which is deeply linked to the economic performance is expected to be a major beneficiary in the expected strong Indian economic growth. The major drivers supporting real estate sector include urbanisation, rising income levels, a favourably young demographic and growing number of nuclear families, and strong expected growth in the manufacturing and service sector. The share of real estate sector in national GDP is expected to increase from 6.3% in 2013 to 13% by 2028. In absolute terms, the size of the sector is expected to increase seven times to USD 853 bn in 2028 from USD 121 bn in 2013. Economic growth • Indian economy is expected to be the fastest growing economy for the next few decades • The growth could be primarily driven by infrastructure investment and the rising manufacturing and service sector • Within the service sector, the growing IT and banking sectors are expected to significantly add to the demand for Commercial real estate Urbanisation • About 10 mn people are moving to Indian cities every year • Urban areas are expected to contribute 70-75 per cent to nations GDP by 2025 • About two mn houses are required to be developed each year, typically in the affordable segment. Rising income levels • India's per capita income rose 9.7% from USD 1,487 in 2013 to USD 1,631 in 2014 (World Bank) • The per-capita income in urban India is expected to reach USD 8,300 in 2028. • The rising income supports the growth of retail and residential real estate Younger demography and nuclear families • The average household size is expected to decrease from 4.8 currently to just above 4.4 • The fall in household size is expected to add about demand for 10 mn new housing units • About 35% of India's population is between 15-35 age bracket which is expected to drive the demand for housing over the next 15 years Foreign direct investment Total FDI in the construction development sector during April 2000-November 2014 stood at around USD 23.5 bn • As of November 2014, total cumulative inflows in the construction development sector accounted for 10% of total inflows in USD terms • 100% FDI permitted in real estate projects within Special Economic Zone (SEZ) • 100% FDI permitted for developing townships within SEZs with residential areas, markets, playgrounds, clubs, recreation centres, etc. • Industry players, including realtors and property analysts, are rooting for the creation of "Special Residential Zones" (SRZs), along the lines of SEZs • Minimum land requirement has been brought down from 1000 hectares to 500 hectares for multi-product SEZ and for sector-specific SEZs to 50 hectares 2.3. Key trends in real estate sector With growing economy and changing buyer expectations, real estate developers are constantly being innovative with their business plans. Buyers in different cities have reacted to the changes differently and the developers have had to adapt accordingly. Smart cities The challenges and opportunities that come with rising urbanisation across the world have given birth to the concept of smart cities. It is estimated that by the year 2050, the number of people living in Indian cities will touch 843 mn. Growth in urban population is creating excessive brssure on demands for water, transportation, waste management and power. For a city to cope with these challenges and deliver a high-quality of urban living, it has to be energy-efficient and have an efficient and sustainable transport infrastructure. Such cities are known as "smart cities", and are managed and monitored by cutting-edge information and communications technology. Initiatives by the government Apart from the allocation of Rs 70,600 mn in the Union Budget of 2014-15 towards development of 100 smart cities, the requirement of the built-up area and capital conditions for FDI has being reduced from 50,000 square metres to 20,000 square metres and from USD 10 mn to USD 5 mn, respectively, with a three year post completion lock-in period. This will not only help small developers with good track record to access foreign funds but also enable equity funds to look at a large range of developers to collaborate with. Real estate adopting e-commerce channel The e-commerce business in India has been rising for the last two years was at its peak during 2014 and is expected to grow unabated. The developers and various players in the market are exploring unchartered avenues to reach out to potential customers. Currently, in India, the e-commerce business is not regulated and this poses a serious threat to physical retailers and mall developers. However, with changing times, some of the developers have changed their style of business to enable them to sail through these difficult times. A revamped tenant mix, adoption of the mixed- use format and delivering theme-based shopping experiences are some of the methods adopted by proactive developers. These practices are now common in overseas markets, and Indian retail malls will be seen adapting to them more rapidly in 2015. REITs The union budget for 2015-2016 has eased the path for listing of Real Estate Investment Trusts (REITs) in India by allowing pass-through of taxes for rental income and rationalising capital gains tax for the sponsors of a REIT. The move is likely to boost REIT listing in the country, allowing faster and smoother exits to investors. The large quantum of funds locked up in various completed projects need to be released to facilitate new infrastructure projects to take off. Listing commercial properties on REITs will allow builders to raise cheaper capital and also give an opportunity for retail investors to participate in India's growing commercial realty market. REIT is a type of security that is sold like a stock on an exchange and invests and owns real estate assets that produce a stable rental income for shareholders. The rental income arising from real estate assets directly held by the REIT is also proposed to be allowed to pass through and to be taxed in the hands of the unit holders of the REIT. (Sources: Union Budget, SEBI, ET) InvITs Infrastructure Investment Trusts (InvITs) are mutual fund like institutions that enable investments into the infrastructure sector by pooling small sums of money from multitude of individual investors for directly investing in infrastructure so as to return a portion of the income (after deducting expenditures) to unit holders of InvITs, who pooled in the money. InvITs, as an investment vehicle, may aid: • Providing wider and long-term re-finance for existing infrastructure projects • Freeing up of current developer's capital for reinvestment into new infrastructure projects • Refinancing/takeout of existing high cost debt with long-term low-cost capital and help banks free up/reduce loan exposure, and thereby help them create headroom for new funding requirements. • InvITs may help in attracting international finance into Indian infrastructure sector. • InvITs will enable the investors to hold a diversified portfolio of infrastructure assets. InvITs are also proposed to bring higher standards of governance into infrastructure development and management and distribution of income from assets so as to attract investor interest. LEED certification LEED is a green building rating system developed and administered by the U.S. Green Building Council, a Washington D.C. based, non-profit coalition of building industry leaders. It is designed to promote design and construction practices that increase profitability while reducing the negative environmental impacts of buildings and improving occupant health and well-being. This corresponds to the number of credits accrued in five green design categories: sustainable sites: • Water efficiency • Energy and atmosphere • Materials and resources • Indoor environmental quality LEED projects earn points across nine basic areas that address key aspects of green buildings: • Integrative process • Location and transportation • Sustainable sites • Water efficiency • Energy and atmosphere • Materials and resources • Indoor environmental quality • Innovation • Regional priority LEED standards cover new commercial construction and major renovation projects, interiors projects and existing building operations. Standards are under development to cover commercial "core & shell" construction, new home construction and neighbourhood developments. LEED certification, which includes a rigorous third-party commissioning process, offers compelling proof that the developer has achieved environmental goals and the building is performing as designed. Getting certified allows the developer to take advantage of a growing number of state and local government incentives, and can help boost brss interest in projects, which in return, adds to the intrinsic value of the project. Housing finance industry supporting buyer aspirations The Rs 9.7 tn Indian housing finance market has grown at a steady rate of 19% CAGR over the last three years while reporting good asset quality indicators despite challenges in the operating environment. Historically, banks were mostly focused on corporate lending, over the past decade, mortgage and specifically retail home loans have gained increased importance and have become key thrust segments for many banks. The housing finance market in India will expand to include borrowers who are currently not being serviced by financial institutions (typically these borrowers are in low-to-mid income segment and may not have formal income proof). There are a large number of NBFCs operating in the HFC segment, and recent regulatory changes will see many more HFCs come up in India to cater to specific customer segments. Consequently, mortgage penetration (which is currently at 8%) could increase to double digits over the next three years. Reasons for optimism: • Lower mortgage penetration compared to advanced and emerging economies implies huge opportunity for growth. • Indian mortgage industry at an inflection point and is expected to grow five-fold in next 10 years. • In this year's budget, the Government has increased tax exemption limits on home loan repayments, effectively lowering the rate of interest • Urban Housing requirement is estimated at 45 mn units by 2022 as demand continues to increase due to rapid urbanisation, growing trend of nuclear families and rising income. Plummeting crude prices The falling crude prices in 2014 had a cascading effect on energy prices and global commodities. This led to a fall in price of key commodity inputs such as cement and steel. A moderation in the overall cost of operations across allied services such as transportation and labour was also experienced. A sustained period of low commodity prices will lead to a reasonable cost of construction for real-estate players. Lower inflation and higher savings will mean that capital creation for assets such as homes will be aided and will support demand growth. 2.4. Going forward Economic activity is gradually picking up, and the Country's GDP is projected to grow by 8.1% in the next financial year. Corporate India has already made it clear that there will be more hiring of talent to help tackle rising business activity. Put together, this means a rise in jobs and incomes, which in turn is very favourable for both residential and commercial real estate. The market has witnessed a re-orientation and developers are now largely focusing on affordable homes. This will go a long way, though definitely not all the way, in bridging the existing wide gap between demand and supply of affordable homes. (Source: JLL) 3.1. Residential Real Estate The housing sub-segment contributes 5-6% to the country's gross domestic product (GDP). Demand for residential properties has surged due to increased urbanisation and rising household income. About 10 mn people migrate to cities every year; 35% of the population is in the age bracket of 15-35 years. Real estate contribution to India's GDP is estimated to increase to about 13% by 2028. In 2015, developers are likely to become more earnest about right-sizing and right-pricing their offerings. Smaller, yet better-designed and more efficient homes will define the residential real estate market in 2015, and selective corrections in some of the over-priced cities will help bring about faster sales for stagnated supply of larger configurations. (Source: jll) 3.1.1. Luxury housing The luxury housing is the fastest growing segment among residential housing. Luxury housing concept in India generally refers to houses which are more than USD 170,000 and are at least 1,200 square feet in size with no cap on the higher side. It is expected that India would require 1.5 mn luxury houses over the next 15 years. The latest trend among luxury housing is branded residences and golf townships. Leading developers in India are collaborating with renowned global luxury brands and hotel chains to develop branded-luxury villas, flats and service apartments. The developers are scouting for new ideas to attract the HNIs' attention and luxury livings. (Source: KPMG) 3.2. Commercial Real Estate Over the past few years until 2014, the supply of office real estate was higher than demand by 4 to 10 mn sqft. Though office real estate prices failed to recover from the after-effects of the financial crisis up to late 2014, the beginning of a gradual turnaround was observed. This can be attributed to the fact that commercial real estate developers began to strategically reduce the incoming supply to a new-normal level of occupier demand in the range of 27 to 30 mn sq. ft. each year. This helped bring down the vacancy rate to 17% from more than 18.5% just a year ago. In 2015, demand is projected to remain in this range, marginally improving from the level seen in 2014. The trend of moderate-to-healthy leasing activity will continue in 2015. India is going to produce an estimated 2 mn new graduates from various Indian universities during the current year, creating demand for 100 mn square feet of office and industrial space. (Source: JLL) 5. Retail Real Estate In 2014, the retail real estate sector was one of the biggest casualties to market conditions that increasingly favoured the online retail community, with the exclusion of well-managed and leasehold organised retail malls. Vacancy in poorly-built and operated malls was as high as 20%, while good quality malls were relatively better off with about 10% of vacant space. However, this is a short term phenomenon, as the long-term growth prospects remain bright, with organised retailing growing at nearly 30 per cent in India. Indian consumerism is booming, and many new MNC retailers are entering India. This will create a robust demand for retail space, especially on the high-streets. The increase in FDI limit for multi brand retail will further drive growth. (Source: JLL, Cushman and Wakefield) 3.4. Hospitality real estate The renewed sense of optimism followed a volatile economic environment throughout 2014 and the hospitality real estate sector hopes that initiatives announced by the new government, including those related to e-visas and specific funds for developing tourist circuits would bring in good business. The optimism is derived from the steps that the new government led by Prime Minister Narendra Modi stepped a much needed boost to the sector. In the Budget for 2014-15, the union Finance Minister acknowledged the importance of tourism as a major job creator and announced the government's intention to facilitate visa on arrival facility. He announced that a facility of Electronic Travel Authorisation (e-Visa) would be introduced in a phased manner at nine airports in India where necessary infrastructure would be put in place within six months and also proposed to create five tourist circuits around specific themes and set aside a sum of Rs 500 crore for the purpose. The visa on arrival program has been extended to cover 150 countries from the brvious 43, which will lead to a huge step forward for tourism in India. This is a huge plus for hospitality real estate and will also significantly amplify destination retail in the country. (Source: PTI) REAL ESTATE MARKET IN SOUTHERN INDIA The South Indian real estate market was known as highly price sensitive with buyers primarily focused on the affordability quotient. Developers had to adopt a strategy to entice potential end-users and investors by offering their products in the right price band. However, with more and more foreign companies establishing their back offices in prime locations of South Indian cities and offering power jobs to the local populations, the South Indian economy has witnessed rapid growth over the last few years. The Southern Indian States, Andhra Pradesh, Telangana, Tamil Nadu and Karnataka, have been the major drivers of economic growth in India over the last decade. The four states together account for about 22% of India's GDP. This has been reflective on the areas' real estate markets, as well. Of late, the most important South Indian real estate markets - Bengaluru, Chennai, Hyderabad and Kochi, have been faring very well. This dynamic was evident even when the nation was going through a phase of low sentiments. While the burgeoning IT sector in these cities is the main reason behind the real estate boom in these cities, some of them also have a rapidly strengthening industrial base which is further augmenting real estate demand. Nearly 45% of India's office stock is rebrsented by these states; over 64% of the country's IT SEZs are housed in this region. Office stock in the Southern cities is projected to grow at a CAGR of 8% between 2012 and 2016. The real estate market of South India led by Bengaluru has outdone Mumbai and Delhi in terms of attracting private equity funding. Healthy sales volume has made the region a brferred destination for investors. (Source: Jones Lang Lasalle) 4.1. Real estate market in Bengaluru Residential demand in Bengaluru is expected to increase during 2015 In the year 2014, demand for residential real estate was primarily led by the absorption of mid segment homes. Residential demand in Bengaluru is typically led by the end user category. A significant portion of this demand arises from the employees working in IT/ITes companies operating in the city. People employed in medical, pharmaceutical industries, SMEs and other non IT professional also contributes to the overall demand. Residential demand in northern Bengaluru is primarily driven by the brsence of the international airport at Devanahalli. Development of townships, especially in the eastern part of the city near Whitefield, is another growing trend. Preference was observed for the micro markets of Hebbal and Whitefield. Demand for residential real estate in Bengaluru is primarily driven by end-users. Investor demand currently stands at around 10-15%. CRISIL Research expects demand for residential real estate in the city to increase at a CAGR of 6% during the 2015-17 period. 66% of the total planned supply in the region is likely to materialise by 2017. Total planned residential supply in Bengaluru is 289.0 mn sqft. of which 190.1 mn sqft is expected to materialise during 2015-2017. Micro markets of Whitefield, Hebbal and Hosur Road account for majority of the supply. The commercial office leasing trends in Bengaluru clearly reflect that the city is topping all others in terms of space and job creation. IT, ITeS and retail are driving employment creation in the city. Bengaluru is expanding in all directions, and with most phases of the Metro on track in terms of deployment, Bengaluru has emerged as one of the best investment destinations for affordable, affordable luxury and luxury segment housing. (Sources: JLL, CRISIL Research) COMPANY REVIEW Prestige Estates Projects Ltd is one of the leading real estate development companies in south India. The firm was registered as a private limited company with the name Prestige Estates Projects Private Ltd in June 4, 1997. The Company has over 29 years of experience in real estate development, and is one of the leading real estate development companies in southern India. It has completed 186 real estate projects or 62.25 mn sq. ft. It has developed a diversified portfolio of real estate development projects focusing on the projects in residential (including apartments, villas, plotted developments and integrated townships), commercial (including corporate office blocks, built-to-suit facilities, technology parks and campuses and SEZs), hospitality (including hotels, resorts and serviced accommodation) and retail (including shopping malls) segments of the real estate industry. The Company has for the year ended 31st March 2015 sold 4,058 Residential units & 0.81 mn square feet of Commercial space, totaling to 7.73 mn square feet, amounting to Rs 50,135 mn of Sales, up by 13% from that of FY14. (Of this, Prestige share is 3,716 residential units totaling to 6.69 mn square feet amounting to Rs 43,625 mn of Sales, up by 20% from that of FY14.) It also has another 68 on-going projects comprising around 64.98 mn sqft & 30 upcoming projects totalling 36.64 mn sqft. Highlights of year 2014-15 • Highest No. of projects / area under development (68 projects - 64.98 mn sqft) • PAT around Rs 1,000 mn per quarter. • Crossed Turnover of Rs 5,000 mn. per quarter. • Highest ever sales of Rs 50,135 mn, up by 13% from FY14. • Highest ever collections at Rs 38,843 mn, up by 32% from FY14 (Prestige Estates share of Rs 32,316 mn, up by 31%) • 14.63 mn sqft of Launches - Highest launches by a developer. • 8.92 mn sqft of completions • Exit Rental at Rs 3,840 mn, up by 30% from FY14. • Inaugurated two mails (Forum) in Mangalore and Hyderabad. • Successfully raised Rs 6,125 mn from QIP. • Financial/Credit rating upgraded by ICRA from ICRA A- to ICRA A+ • Re-affirmation of DA1 rating by CRISIL. • Tied up for 17 new property developments • 30+ Awards - Maximum no. of awards. • Rated as the Best in India one of the best in Asia for investor relations by Institutional Investor Magazine. OPERATIONAL REVIEW Prestige Estates Projects Ltd. had a market capitalisation of Rs 100,688 mn (as of 31st March 2015). Prestige's key business segments include Real Estate Development which contributed Rs 23,867 mn to the total revenues, commercial property rentals (net of sublease rental payments) which contributed Rs 2,533 mn to total revenues, retail & hospitality which contributed Rs 2,229 mn and other real estate services which contributed Rs 3,992 mn to total revenues for the year ending 31st March, 2015. 5.2. Segment overview 5.2.1. Residential Segment Faster absorption and higher demand across high end luxury projects, villas and mid segment apartments have created a distinct and alluring opportunity in the residential property segment. The Company has 53 in ongoing projects. Prestige has plans for 23 new upcoming residential developments. For FY 2014-15, residential segment sales contributed 93% to total sales and witnessed 15.44% increase from Rs 35,234 mn in FY2013-14 to Rs 40,673 mn in FY2014-15. Mid-income segment contributed 79.26% at Rs 32,236 mn and brmium segment at Rs 8,436 mn, contributed 20.74% to total residential segment sales. 5.2.2. Commercial Segment The Company has 99 completed projects, 6 on-going projects and 5 upcoming commercial projects across Bengaluru, Kochi and Chennai. The segment contributes 12% in total revenues and 7% in total sales of the Company. During the year, total commercial segment sales for the year was marked at Rs 2,952 mn as against Rs 1,089 mn during brvious year. Revenue recognised from this segment during FY 2014-15 is Rs 4,077 mn as against Rs 1,360 mn in FY 2013-14. 5.2.3. Retail Segment New retail projects aggregating to 2.10 mn sqft are lined up in the Company. The division has a portfolio of 6 completed projects, 6 ongoing and 2 upcoming projects in the near future. Retail's contribution to total revenue registered is 4% for the year under review. Revenue from this segment for the FY 2014-15 was Rs 1,383 mn as compared to Rs 1,222 mn in the brvious year. This translates to increased revenue of Rs 161 mn, with 13% growth in FY 2014-15. 5.2.4. Hospitality Segment Prestige Group develops and owns hotels, resorts, spa and serviced accommodation and has tie ups with some of the most reputed names in hospitality industry for marketing of its services like Hilton, Marriott, Starwood and Banyan. Since inception we have completed 5 hospitality projects having 617 keys. Further we have 3 ongoing projects, which will add 942 keys to the existing portfolio. During FY15 Company's hospitality segment recorded Rs 846 mn of revenue, an increase of 50% from the brvious year. The division contributes 2% of the total revenues of the Company. 5.2.5. Real Estate Services Segment With its integrated and unique real estate services, renowned and well accepted over the region, the real estate service division commands 12% in the total revenue of the Company. Array of the offered services include: - Property Management - Project and Construction Management - Interior Solutions - Mall Management Services During FY15, Services segment recorded Rs 3,992 mn of revenue an increase of 28% as compared to FY 2013-14 from Rs 3,112 mn. 7.1. Income analysis (at consolidated level) Turnover The Company's turnover increased by 32.94% boosted by new projects under revenue recognition and rental income. Income from real estate sales increased by 36.23% over the brvious year while income from sales of services comprising of facilities, rental and maintenance income, property income and other operating income increased by 29.58%. Almost every income head posted incremental growth over the last year. EBITDA EBITDA rose by 33.59% over the brvious year due to increase in turnover of the Company. As a percentage of total sales, it stood at a healthy 31% depicting a healthy margin for the Company. Profit after tax Profit after tax for the year stood at Rs 3,675 mn. Although, PAT increased by 14.31% over the brvious year, PAT margin slipped slightly by 200bps to 10% on account of higher debrciation cost and higher finance cost due to new mall launches. 7.2. Cost analysis (consolidated) The Company's total operating costs increased by 34.45% from Rs 21,471.6 mn in 2013-14 to Rs 28,869.6 mn in 2014-15, owing to growing scale. Cost of construction: The increase in cost of construction by 33% is in line with increase in turnover of the Company. The Company has been able to keep the costs under control despite inflationary trend in key input costs due to better efficient cost management. Property and facility operating expenses: Property and facility operating expenses has increased by 36% compared to brvious year due to new rental yielding commercial properties and incremental recurring expenses. People cost: Human resource cost increased by 42.28% from Rs 1,609.7 mn in 2013-14 to Rs 2,290.3 mn in 2014-15, owing to rise in manpower and incremental benefit allowances by the Company. Finance cost: Finance cost has increased by 40.31% in 2014-15 primarily due to increase in borrowings. Further, finance expenses incurred on rental yeilding properties capitalised during the year is being charged to profit and loss account. Debrciation: Debrciation and amortisation expenses increased by 56.5% over the brvious year due to new rental yielding retail and commercial properties. 7.3. Balance sheet analysis (consolidated) Net worth: The Company's net worth increased by 28% to Rs 38,206 mn as on 31st March 2015 from Rs 29,792 mn as on 31st March 2014 owing to increase in reserves and surplus. Equity: The Company's equity is comprised of 375,000,000 (as on 31 March 2015) equity shares with a face value of Rs 10 per share. As on 31st March 2015, promoters held 70% stake in the Company. Reserves: Reserves amounted at Rs 34,456 mn as on 31st March 2015 primarily consisting of accruals of profits and securities brmium received from public issue of its shares. The Company retains a share of profits to internally fund projects and lessen debt reliability. External funds The Company's loan portfolio increased by 28.58% to Rs 40,556 mn as on 31st March 2015 compared to Rs 31,541 mn at the brvious year end. The rise in debt in on account of increase in operating scale and construction of new rental yielding properties. The net debt-equity was maintained at 0.76 which still leaves room to leverage. The loans were availed from established banks and financial institutions. 8. RISKS MANAGEMENT Every opportunity imposes typical challenges and risks. While taking up challenges and overcoming hurdles is a part of the business success, there are certain risks that can be averted through cautiousness. Looking back should not be a habit but rather practice to remain on the right track. Periodically visiting core strengths and possible threats to the organisation, Prestige perceives the following risks underlying in the business sphere, likely to impact operations and thus is brpared to overcome them: SUSTAINABLE PERFORMANCE, DERISKED OPERATIONS The Company, being in the real estate industry, has been able to harness the benefits of a diverse income portfolio. The income sources for Prestige comprise of: 1. Income from project sale 2. Income from property rentals 3. Income from project management services Today, in the real estate sphere, Prestige has been able to create a genuine sustainable future by arriving at an optimum mix of the income generating components. Prestige has been able to sell 21.97 mn sqft residential and commercial space from its ongoing project portfolio. Substantial portion of above sales are yet to come for revenue recognition in the books of accounts. The overall unrecognised revenue with respect to above sales is Rs 85,254 mn which will be recognised as revenue over the period of next 36 - 48 months. This implies that the Company has secured a stable cash flow for the next 36 - 48 months irrespective of any operations turn down during the period. Also, the total collection amount stood at Rs 38,843 during the year. The collection amount is notably among the highest in the industry and is structured in a way which will auto-hedge the Company against macro-economic impacts. In the real estate industry, turnover is considered against realisation of a minimum 25% of the construction (exclusive of land procurement costs) through sales. Prestige has been able to quote a total turnover figure of Rs 35,184 despite a contracted market during the year and tight parameters for considering turnover in the industry; a testimonial to the wide spanning operations of the Company. Moreover, in the commercial and retail segments, the Company generally manages self-developed projects which adds to the sustainable financial position of the Company 10. HUMAN RESOURCES Human resources are the building blocks of a successful organisation. Prestige strongly guards this idea through aligning the organisation's growth with the growth of every individual who is functional in taking the organisation closer to its goals. Thus, from searching to finding to nurturing and retaining the valuable human resources to the Company, Prestige invests substantial time and energy in maintaining an engaging human resource culture. New employees are trained to help them be accustomed to the Prestige culture while continuing employees are given ample opportunities to explore their talent and capabilities. The Company will continue to expand itself by the virtue of its core intellect that resides with the human resources. 11. INTERNAL CONTROLS & SYSTEMS The Company has an adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposal and to ensure all transactions are authorised, recorded and reported correctly. It has in place internal controls covering all fields across all financial and operating functions ranging from procurement ofland to smooth execution of projects in time. Apart from ensuring that proper accounting policies and financial reporting regarding the same is made properly, the internal control team keeps a close watch on the schedules followed, to ensure that the Company is able to meet the delivery deadlines. The audit committees of group companies keeps reviewing the internal audit reports from time to time, and keeps offering suggestions for improvement of internal controls and systems within the group. 12. OUTLOOK Going forward, the Company wishes to continue adding to the growing project portfolio with more developments across segments by leveraging upon its core strengths; strong connection with clients, stable financials and unmatched capabilities. The Company will focus on strengthening annuity income through expanding the rental portfolio with a sustainable look out for the future. The Company plans to add 1.65 mn s ft of rentable space during the following year while increasing existing incomes at a brscribed rate. Further, riding on the opportunities derived from changing demographics and consumer brference, the Company plans to continue residential development for a niche buyer class and commercial and retail developments for the globally acclaimed clientele at large. During the next year, the Company will focus on adding 20.24 mn sq ft of residential space and 6.73 mn sq ft commercial space. Prestige thrives to remain the market leader in the cross-segment Indian real estate industry with sheer attention to business details, capability to track opportunities and proactive action. |