Finance Case Competition

APOGEE’ 24, BITS Pilani

Team Je M&Appelle
Arushi Bhatt | Bhumi Kathuria | Shruti Anand | Tamana Gupta
Gargi College, University of Delhi
Executive Summary
GODREJ PROPERTIES SHOULD ACQUIRE SUNTECK REALTY
• Godrej Properties' market size at $7.42 bn can acquire
Sunteck with a market size of $0.7 bn . Less merger
synergies due to varied market sizes.
• Benefit for Sunteck by leveraging Godrej's pan
India geographic presence
• Godrej can diversify into mid- high luxury segment in the
residential space
• Sunteck is undervalued by 45% making it an attractive buy
for Godrej as it can be acquired at a price lower than its
intrinsic price
• Assets of Sunteck include major land chunks ( solely 23
acres) in Mumbai
• Increasing demand for residential housing (CAGR 2024-
2028) of 3.64%

Executive Industry Company Financial Feasibility Post

Conclusion
Summary Overview Analysis Analysis Analysis Acquisition
Rationale of selecting Sunteck & Godrej
Acquisition of Sunteck Realty Ltd. by Godrej Properties Acquisition of Sunteck Realty Ltd. by Oberoi Realty
• Godrej Properties' market size at $7.42 bn can acquire Sunteck with a market size
of $0.7 bn . Less merger synergies due to varied market sizes. • Segment Misfit. Oberoi Realty operates in the high-end luxury segment while
• , pan India geographic presence
Benefit for Sunteck by leveraging Godrej's Sunteck Realty in the mid-high segment ,
• Godrej can diversify into mid- high luxury segment in the residential space • May lead to Oberoi Realty's brand dilution by foraging into the mid-segment market
• Sunteck is undervalued by 45% making it an attractive buy for Godrej as it can be • Integrating operational synergies is tough due to different requirements for high
acquired at a price lower than its intrinsic price end projects and projects for mid-segment
• Assets of Sunteck include major land chunks ( solely 23 acres) in Mumbai
• Increasing demand for residential housing (CAGR 2024-2028) of 3.64%

Merger between Godrej Properties and Oberoi Realty Acquisition/Merger of India Bulls Housing Finance
• There is a segment overlap leading to redundancies in marketing, projects etc • Less synergies in cost and revenue drivers
• Identities may get lost due to both being leading players in their respective • Merging a housing finance company with real estate may face regulatory hurdles
segments , and merger/acquisition difficulties ,
• Integrating established company cultures and work styles is a challenge • In-house/partnerships already exist with Godrej Capital, SBI, HDFC, Sunteck Realty
• Godrej Properties is currently overvalued by 2% • India Bulls was recently charged with banking malpractices and siphoning making it
a risky merger/acquisition

Executive Industry Company Financial Feasibility Post

Conclusion
Summary Overview Analysis Analysis Analysis Acquisition
Industry Overview
The Real Estate Industry in India Market size is estimated at USD 0.33 trillion in 2024, and is expected to reach USD 1.04 trillion by 2029, growing at a CAGR of
25.60% during the forecast period (2024-2029).

SEGMENTS OF INDIAN REAL ESTATE

Residential Real Estate
• Worst hit during the Covid-19 pandemic.
• Market Size (2024) USD 227.26 Billion
• Market Size (2029) USD 687.27 Billion
• CAGR (2024 - 2029) 24.77%
• Among the top 10 price-appreciating housing markets
internationally.
• FDI in this sector (including construction development &
Future of technological innovations activities) was USD 55.18 billion from April 2000-
September 2022.
• PropTech Integration: Commercial Real Estate
PropTech solutions like AI, virtual reality (VR), and Big • Market Size (2024) USD 40.71 Billion
Data for AI-powered property valuation, virtual tours • Market Size (2029) USD 106.05 Billion
with 3D visualization, and data-driven marketing. • CAGR (2024 - 2029) 21.10 %
• Smart and Sustainable Buildings: • Major players include DLF, Godrej Properties, Housing
The rise of smart cities equipped with automation, Development and Infrastructure Ltd (HDIL), and Oberoi
energy efficiency features, and Internet of Things Realty. The market is in intermediate consolidation phase
(IoT) applications will be a major trend. Sustainability as the number of developers offering commercial
will be a key consideration. properties is decreasing. (Source : Mordor Intelligence,
CRE)
Executive Industry Company Financial Feasibility Post
Conclusion
Summary Overview Analysis Analysis Analysis Acquisition
Godrej Overview
Commercial Industrial 300 +
Type of Gold and Platinum
Residential Properties Township projects
Ranked Global Sector
Construction materials Leader (Development) for
Green building certification services
MEP design consultancy
Residential Real Estate for
Services the 3rd consecutive year
Property development
Leasing by the Global Real Estate
Busducts Sustainability Benchmark
Environmental engineering
(GRESB)
Construction and civil engineering

Godrej Properties Consolidated Revenue 2016-23

Golden Peacock Award
Source- Statista 2024 Environmental And Social
Initiatives
Outstanding Companies-
Real Estate
Best Residential
Developer

consolidated Godrej Properties Annual Report

net profit growth 6% YoY Godrej Properties is the recipient of over 400
awards- Global Recognition in Real Estate
Executive Industry Company Financial Feasibility Post
Conclusion
Summary Overview Analysis Analysis Analysis Acquisition
Sunteck Realty Overview
• Suntek Realty Ltd. (SRL) is a Mumbai-based real estate development company. Brands of Sunteck
• The company designs, develops, and manages residential, commercial, retail,
and mixed-use properties
• It also leases properties; and provides incidental services.

Market Cap – Rs. 5888 Cr, as

Segments of Sunteck on 21s t March, 2024 SRL’s Flagship Project
Signature Island in Bandra-
Kurla Complex (BKC) is home
Uber Luxury Aspirational LuxuryMarquee to some renowned corporate
Ultra Luxury Premium
Luxury heads and celebrities.
Trends in Luxury Housing in India
Financials of Sunteck
Consolidated Revenue from Consolidated Profit Before
Operations (Rs. In Lakhs) Tax(Rs. In Lakhs)
FY 23: 75% 4% 45%
Revenue from
Operations- 362 Cr
75% increase in the sale Share of luxury Share of mid-end projects in
PBT -4.48 Cr
of luxury homes in India, segment in total sales sales during 2023, followed by
priced Rs. 4 cr and more now stands at 4 per high-end and affordable
in 2023 cent in 2023 projects

Sunteck Realty expects its pre-sales to grow three-fold to Rs 5,000 crore

by FY28 – Moneycontrol, April 2023
Source: Sunteck Annual Report

Executive Industry Company Financial Feasibility Post

Conclusion
Summary Overview Analysis Analysis Analysis Acquisition
DCF of Sunteck Realty
Calculation of Terminal Value
Actual Estimated Estimated Estimated Estimated Estimated
FCFF (n+1) 125.55
Calculation of PV of FCFF Mar-23 Mar-24 Mar-25 Mar-26 Mar-27 Mar-28 WACC 8.00%
EBIT 90 108.00 129.60 155.52 186.62 223.95
Terminal Growth Rate 5.38%
Tax Rate 25% 25% 25% 25% 25% 25%
Terminal Value 4,792.07
Calculation of Equity Value
EBIT (1-Tax) 67.5 81.00 97.20 116.64 139.97 167.96
PV of FCFF 303.04
PV of Terminal Value 3,389.35

Less: Reinvestment Rate 37.71% 37.71% 37.71% 37.71% 37.71% 37.71%

Value of Operating Assets 3,692.39
Free Cash Flow to Firm (FCFF) 42.05 50.46 60.55 72.66 87.19 104.63
Add: Cash 158.00
Less: Debt 0.00
Mid Year Convention 0.5 1.5 2.5 3.5 4.5

Value of Equity 3,850.39

Discounting Factor 0.96 0.89 0.82 0.76 0.71
No. of shares 14.60
PV of FCFF 48.55 53.95 59.94 66.60 74.00
Equity Value Per share 263.73
Expected Growth 20% Sunteck’s intrinsic value of share is Rs. 263.73,
while the market value of the share is Rs. 402
Terminal Growth 5.38% implying that the share is at a premium, and Share Price 402.00
WACC 8.00% overvalued by 52.43%.
Discount/premium 52.43%

Executive Industry Company Financial Feasibility Post

Conclusion
Summary Overview Analysis Analysis Analysis Acquisition
Sensitivity Analysis
WACC
3692.385
Terminal Growth Rate

858 6% 7% 8% 9% 10%
3% 3,263.07 2,523.06 2,079.06 1,783.05 1,571.62
4% 4,743.08 3,263.07 2,523.06 2,079.06 1,783.05 In this table, we have found the
Enterprise Values for different
5.38% 14,625.76 5,784.57 3,692.39 2,756.10 2,225.14 values of WACC and Terminal
Growth Rate.
7% -17,457.13 18,063.21 6,223.10 3,855.07 2,840.21
8% -5,617.02 -17,457.13 18,063.21 6,223.10 3,855.07
WACC
Terminal Growth Rate

263.725
In this table, we have found the
0588 6% 7% 8% 9% 10%
Implied Share Price for
3% 234.32 183.63 153.22 132.95 118.47 different values of WACC and
4% 335.69 234.32 183.63 153.22 132.95 Terminal Growth Rate. The
5.38% 1,012.59 407.03 263.73 199.60 163.23 implied share price in our
7% -1,184.87 1,248.03 437.06 274.87 205.36 valuation is Rs. 263.73.
8% -373.91 -1,184.87 1,248.03 437.06 274.87

Executive Industry Company Financial Feasibility Post

Conclusion
Summary Overview Analysis Analysis Analysis Acquisition
Comps Analysis
Shares Enterprise
Company Share Price Outstanding Net Debt Cash Value Revenue EBITDA Net Income EV/Revenue EV/EBITDA P/E

Sunteck 403.25 14.65 0 45.42 1.87 0.21 0.58 24.29x 216.29x 695.26x
Mahindra
Lifespace
Developers
Limited 552.85 15.5 0.256 26.5 56.26 4.53 1.27 0.01 12.42x 44.30x 55285.00x
Brigade Group 934.4 23.09 34.6 13.6 139.11 9.65 9.78 2.91 14.42x 14.22x 321.10x
Anant Raj
Limited 301.8 32.41 10.49 48.08 13.21 2.51 2.3 3.64x 19.16x 131.22x
DLF Limited 867 247.53 0.57 907.42 60.12 20.43 23.73 15.09x 44.42x 36.54x

Sunteck Comparable Valuation

High 24.29x 216.29x 55285.00x
75th percentile 15.09 44.42 695.26 Implied Enterprise Value 26.12647565 14.21197204 6550.416957
Average 13.97x 67.68x 11293.82x Net debt 0 0 0
Median 14.42x 44.30x 321.10x Implied Market Value 26.12647565 14.21197204 6550.416957
25th percentile 12.42 19.16 131.22 Shares outstanding 14.65 14.65 14.65
Low 3.64x 14.22x 36.54x Implied Value per share 1.783377178 0.97010048 447.1274373

Excel Workbook for DCF –

1) https://docs.google.com/spreadsheets/d/1MiFqLwpDE3aBeL2ImJnFOw3l6b6W7axcV61lNOCfdv8/edit?usp=sharing
2) https://1drv.ms/x/s!AnjyMby10uY1iQxXIAVi4bV_rnG6

Executive Industry Company Financial Feasibility Post

Conclusion
Summary Overview Analysis Analysis Analysis Acquisition
Synergies
• The factors shown at above are what management must focus on to unlock cost synergies Achieving cost synergies
while also creating value for stakeholders
• By keeping these factors in mind while transacting with Sunteck, Godrej Properties could
realize cost synergies above our projected figure
• The most important would be focusing on the regulatory incentives

Efficient project execution aided by Godrej’s infrastructure expertise

Planning Scheduling Execution

• Consistent program planning and execution excellence is essential to the success of

capital projects
• Godrej provides a systems approach to program planning and execution by integrating
cost, land banks , schedule, and technical requirements in a fully planned, resourced,
and budgeted program management solution
• By leveraging Godrej execution capabilities, Sunteck will reap cost synergies

Post Merger ESG Implications

The proposed acquisition would be massively ESG accretive as both companies ESG goals align
almost perfectly. It is possible that the merger could boost Sunteck’s ESG score considering the
amount of ESG synergies.
Executive Industry Company Financial Feasibility Post
Conclusion
Summary Overview Analysis Analysis Analysis Acquisition
Acquisition Feasibility
6400.1
0.64 Legal and Antitrust Regulations Two Types of M&A in
Real Estate
• In April 2023, the Competition (Amendment)
5169.82
Act, 2023 was enforced.
• The amendment introduced a new notification At Project At Entity
criterion, that is, a deal value threshold of Rs. Levels levels
2,000 crore
0.55 • Any merger or acquisition exceeding the Project-level M&A is In entity level
where a single transactions, the
threshold would mandatorily require CCI
commercial, industrial securities, assets
approval. and liabilities of real
or residential asset is
• CCI can approve the acquisition post due taken over during its estate companies
diligence. project cycle. are taken over.
2022 2023 2022 2023
Sunteck's Synergisitic Projects India Bulls Real Estate Ltd. (IBREL)
GPL’s Total debt in INR CR
Pending Merger with Embassy Group
GPL’s Total Debt to Equity Ratio
• Sunteck Realty leases out commercial space to Companies
Inference ( Debt Financing ) Upgrad for 29 years, to make Rs 2,000 crore in total
The merger between IBREL and Embassy
• Sunteck Realty, IFC set up joint platform to invest
The ideal Debt to Equity Ratio for the Real Estate Industry Group cos. NAM Estates and Embassy One
ranges between 0.7 to 1.5, this testifies that Godrej Rs 750 cr for affordable housing projects was approved in FY21 to create a pan-India
• Sunteck Realty is on a Rs 22,000-crore potential real estate platform with residential and
Properties maintains an ideal ratio. Therefore, acquiring
revenue path by launching seven projects in and commercial assets.
Sunteck Ltd on debt at the price of 3850.39 crores INR The merger got approval from CCI, BSE,
won't impact the ratio largely. around the Mumbai metropolitan region over the
NSE, NCLT Bengaluru Branch. However,
next five to eight years.
NCLT Chandigarh withheld the merger
• These projects are expected to make it one of the citing concerns over the share swap ratio.
largest realtors in terms of the topline.

Executive Industry Company Financial Feasibility Post

Conclusion
Summary Overview Analysis Analysis Analysis Acquisition
Post Merger Strategy
Sunteck can benefit from the strong brand image of Godrej Properties to bolster its own
reputation in the market.

Godrej Properties' experience in managing large projects could help Sunteck Realty
improve its efficiency in project completion.

Depending on the structure of the acquisition, Godrej Properties' financial resources could
provide Sunteck Realty with greater access to capital for future projects

Sunteck Realty has a presence in Mumbai which could complement Godrej Properties' existing
footprint in other parts of India

Godrej Properties can leverage the advantage of being a

market leader in MMR and venture into uber luxury, premium
luxury, and aspirational segments and can achieve
operational efficiency.
Source- Sunteck Annual Report
Executive Industry Company Financial Feasibility Post
Conclusion
Summary Overview Analysis Analysis Analysis Acquisition
Conclusion

Sunteck Realty has a market

dominance in Mumbai which is
As Sunteck Realty is overvalued
also a fast growing hub for
by 52.4%, Godrej may have to
Godrej Properties and Sunteck residential demand. With this as
pay a premium while acquiring
Realty are known players in base, Godrej Properties can
it but the P/E analysis of
the real estate industry and leverage their geographic presence
Sunteck on the basis of
have their fair shares in the and emerge as a single real estate
comparable companies is
luxury residential segments developer in that region. Other
undervalued showing a
benefits include gaining access to
potential for bargain.
Sunteck Realty’s land bank and
other announced building projects.

Executive Industry Company Financial Feasibility Post

Conclusion
Summary Overview Analysis Analysis Analysis Acquisition
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Executive Industry Company Financial Feasibility Post

Conclusion
Summary Overview Analysis Analysis Analysis Acquisition