Reading well detailed annual reports have their own pleasure. Today, post is on annual review of Poddar developers , I have written couple of times on Poddar here and here

Numbers first

Increase in Sales by 47.97% and increase by 156.88% in PAT

The company made allotment of 11,10,900 Equity Shares of Rs. 10/- each fully paid at a premium of Rs. 1115.21/-

Opportunity size is very big, here is extract from AR

The recently released Report of the Technical Group on Urban Housing Shortage (TG-12) (2012-17) has estimated the Housing shortage to be 18.78 million out of which 56.18 per cent is in the economically weaker segments and 39.44 per cent is in the Lower income group categories. As per projections of a report by the McKinsey Global Institute, the housing shortage under business as usual circumstances could go up to 38 million units by 2030

There is a thrust from central govt. as well for affordable housing

 Ministry of Housing & Urban Poverty Alleviation has undertaken studies and extensive consultations with a variety of stakeholders including the private sector, non-governmental sectors, state governments and urban local bodies as well as other Government of India departments as well as external experts and academics .The recommendations made are primarily aimed at providing a fillip to catalyse EWS & LIG housing projects through appropriate policy instruments

Operating update

Company is building a huge pipeline

Company have completed projects with a Saleable Area of approximately 1.05 million Sq.ft., comprising of a total of 2,428 units, across 151 buildings, including 2,314 residential units and 114 retail shops, as part of the integrated residential complexes and for the convenience of Customers Company have also developed retail shops in some of our projects. Company own or have entered into joint-development agreements or joint venture agreement for 8.40 million Sq. ft. of Saleable Area in ongoing and upcoming projects in which we have beneficial interest over 7.14 million Sq.ft.

Good progress in two of the running projects

In the Badlapur Project, the Company has sold 1674 flats out of 1863 flats as on March 2015.

The Company’s subsidiary Poddar Habitat Pvt. Ltd. Project “Poddar Navjeevan” at Atgaon near Kasara is running in full swing and 45% construction completed till March 2015. The First Phasehas 36 buildings consisting 1 RK and BHK Flats. The response for this Project has also been very encouraging and Company has sold 368 flats out of 576 flats.

The company has various other projects in pipeline in multiple locations in Mumbai for reference see the snapshot from their corporate presentation, it is no coincidence the capital work in progress has shot up this year

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Management claimed that significant improvement in numbers came from cost rationalisation

 Our Company performed did reasonably well mainly due to effective cost control and favourable input cost

A quick analysis reveals this to be true

See how cost of construction in proportion to sale to has gone down, This has straight away bolstered net profit margin

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A deeper dive into construction cost would indicate that most of the savings is in development cost as compared to previous year

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Further probing into development costs shows material and infrastructure cost have brought in savings

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Is this accounting gimmick ?

The reason I am asking this is because they have changed revenue recognition method for projects starting 01-apr-2014

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Use of percentage completion method requires a lot of estimating from management

 Determination of revenue under the above method necessarily involves making estimates, some of which are of technical nature, concerning, where relevant, the percentages of completion, the cost to completion, the expected revenue from the project or activity and the foreseeable losses to completion. The estimates of project income, as well as the project costs, are reviewed periodically. The effect of changes, if any, to the estimates is recognized in the financial statements for the period in which such changes are determined. Revenue from the project is recognized net of revenue attributable to the land owners. Losses, if any, are provided for immediately.

Still I don’t think results are accounting gimmick my reasons are

a. there is no unbilled revenue shown by company – A tactic used by real estate companies to boost their revenues, This should be a key watch item if you are evaluating any real estate company

b. Profits are converting into cash (INR Lacs)

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c. Working capital situation remains good with just 17% increase in investment in working capital requirement

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Other CL has gone down year on year reducing float available to the company, the main reason is advance from customers have reduced , syncs with management commentary in con calls (INR lacs)

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But the good thing is company is investing in marketing , See below (INR lacs)

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Other titbits I picked were

J V with Employee, Employee misappropriated cash

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This is not an easy business

The Company had purchased 14983.10 Sq. Mtrs. along with the structures mostly occupied by the tenants / occupant and slum notified area for purpose of redevelopment in Goregaon (East) Mumbai. The slum owners had formed the society and the said society has appointed M/s. Shiv Shakti Developers, a firm in which the Company and one of its subsidiaries are partner, as the developers. The said firm has applied for necessary permissions under SRA Rules from the appropriate authority. In addition to above, the Company is also planning to redevelop other areas along with various tenants / occupants for which necessary steps will be taken in due course of time

 

Another one from Vidhyavihar Project

 the payment of expenses of 32.13 lacs (Prev. Yr.32.13 lacs) and advances of 70.25 lacs (Prev. Yr.62.25 lacs) towards the proposed joint redevelopment project at Vidhyavihar including incidentals, pending documentation. Moreover there are certain litigation matters, relating to the above, which will be resolved in due course of time

Revenue from this stream is increasing at very brisk space

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Finally Not alarming but they spoil a good resume, these are avoidable

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Overall a company on cusp of expansion key monitoring should be on execution

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