Growth Strategy

Affordable Housing – Hero Realty

Disclaimer
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2
Contents
 Competition Analysis

 Hero Realty

 Target Markets

 Case Studies

 Suggested Business Model

 Indicative Financials

 Suggested Development Type

 Acquhire Target

3
Competition
Analysis

4
Competition Analysis
What is Competition doing?
01 02 03 04
Tata Housing Jeevan Geet SP Group VBHC

Independent &
1 BHK : 500 Sqft
Expandable row 1 BHK : 600 Sqft 2 BHK : 1200 Sqft
Product 2 BHK : 700 Sqft
housing, Size : 2 BHK : 1290 Sqft 3 BHK : 2044 Sqft
3 BHK : 1500 Sqft
500 – 600 Sqft

Bahadurgarh – Bulandshahar, Bhiwadi -

Location New Delhi Moradabad - UP
Howrah - Kolkata
Haryana

INR 2500 to 4000 INR 3000 to 3500 INR 3000 to 3500 INR 3000 to 3500
Price per sqft per Sqft per sqft per sqft

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Competition Analysis
What is Competition doing?
05 06 07 08
Xrbia Mahindra Ashiana Stellar

1 BHK : 450 Sqft 1 RK : 350 Sqft

2 BHK : 1210 Sqft 1 BHK : 500 Sqft
Product 2 BHK : 600 Sqft 1 BHK : 550 Sqft
3 BHK : 1700 Sqft 2 BHK : 670 Sqft
3 BHK : 800 Sqft 2 BHK : 750 Sqft

Hinjewadi ,
Bhiwadi, Sohna, Noida, Greater
Location Talegaon - Pune, Boisar - Mumbai
Neemrana, Jaipur Noida
Karjat

INR 3200 to 3500 INR 3500 - 4000 INR 4000 to 4500

INR 2000 per sqft
Price per sqft per Sqft per sqft

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Competition Analysis
Range of Product, Location & Price

Location
Product Price:
North & West India

• 1 BHK: 450 to 600 Sqft • North India :Bahadurgarh, • Renowned Brands :

Bulandshahar, Sohna, • INR 3000 – 4000 per sqft
• 2 BHK: 600 to 1300 Sqft Bhiwadi, Noida, Greater
Noida, Neemrana,
• Local brands :
Moradabad, Jaipur etc
• 3 BHK: 800 to 2000 Sqft • INR 2000 – 3000 per sqft
• West India : Hinjewadi,
Talghat – Pune, Borsai-
Mumbai, Karjat etc

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Competition Analysis
Where are the Gaps & How to bridge them?
Offering Gap Proposal Example

Provision for
Product size ranges Problem for growing
Expansion of Homex – Mexico
from 500 - 1500 sqft families
covered space

Frequent wear and Improved

Sub-standard Hero Homes –
tear increases Specifications with
specifications Ludhiana
ownership cost higher durability

Location: High Transit time in

Proximity to basic
unfavourable areas Tier 1 & Anantraj Builders –
infra & transport
Tier 2 / outskirts of unfavourable Neemrana
system
Tier 1 demand in tier 2

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Competition Analysis
Where are the Gaps & How to bridge them?
Offering Gap Proposal Example

Issue of Discourages the PE Tie up with Micro Housing

transparency in investors to HFC/Launch own Finance Corporation
transactions participate HFC – Madhya Pradesh

Ownership cost Insurance product for Con Homex Seguro

Deterrence to
similar to normal covering wear & tear An insurance product
Customers
housing for 10+ years (ABA Seguros)

Unavailability of Deters potential Use of renewable

Brick Eagle -
innovative housing customers of low sources to reduce
Chennai
finance products income groups ownership cost

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Hero Realty

10
Hero Realty
SWOT of Hero Realty Existing Business
Strength Weakness
• New entrant in the realty
• Brand Equity and Market Segment
penetration
• Strong supply chain operation
• Strong Corporate Governance
• Disposable income data

Opportunity Threat
• To Create an efficient eco-system • Wrong execution could have a
by providing Housing Finance cascading impact on the brand
Solution
• To attract international investors
for equity participation to scale
business

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Hero Realty : Suggested Positioning

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Hero Realty
Proposed plan of Action
Acquisition & execution of multiple projects Identify projects with good
through one platform. Adopt hub & Spoke model infrastructure linkages; Industrial
for acquisition & execution hubs, large townships
Tie-up with Housing Finance Companies
providing innovative products for LIG &
Long Term Platform level EWS. Hero can leverage Hero Fin Corp.
Equity infusion

Having already delivered

Can be achieved Via JVs & projects it has early mover
JDAs Or Distressed Buyouts advantage

How Hero Realty Stands?

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Target Markets

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Target Market
Target annual income for purchasing a house of INR
 Hero Homes to be priced in the range of affordability of mid 25 Lakhs with various down payment percentages
income segment in the target City
House Price (INR Lakhs) 25 25 25 25
 Affordability of 4-5 times gross annual income 40% 30% 20% 10%
Down Payment/ Owners
Equity (INR Lakhs)
 Minimum annual income of 4-8 Lakhs to be targeted.
Value of Home Loan (INR 15 17.5 20 22.5
 People currently staying in rental accommodation Lakhs)
EMI (% of Income) 14,118 16,471 18,824 21,176
 Growing families or families planning to upgrade ownership to
better quality housing Monthly Income (INR) 38,156 44,515 50,874 57,234

Annual Income (INR Lakhs) 4.6 5.3 6.1 6.9

IT Employee Bank Employee Small Entrepreneur Govt. Employee

Annual Income : INR 8.5 Lakhs Annual Income : INR 10 Lakhs Annual Income : INR 6Lakhs Annual Income : INR 4.8 Lakhs

Age: 30 Years Age: 32 Years Age: 40 Years

Age: 35 Years

Family Size : 2 Family Size : 4 Family Size : 4

Family Size : 5

House Price : 35 lakhs House Price : 25 lakhs House Price : 30 lakhs

House Price : 35 lakhs

Down Payment : 7 Lakhs Down Payment : 5 Lakhs Down Payment : 15 Lakhs –

Monthly Mortgage payments:
26,350:
Monthly Mortgage payments:
18,800
Down Payment : 10 Lakhs
sells old house
Monthly Mortgage payments:
Monthly Mortgage payments:
14,200
15,500

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Strategic Geographies to Target
Criteria for Shortlisting Locations
1. Demographics & Economic Parameters
• Per capita income
• Employment
• Population Density
• Migration Data

2. Infrastructure Development
Stage 1
• Access to basic Infra
• Government Schemes & Initiatives
• Proximity to Industrial Corridors
• Periphery of major cities
Stage 2
3. Consumer Requirement
• Consumer Requirement Analysis
• Disposable Income
• Insurance Product Penetration
Stage 3 • Two Wheeler data

4. Supply & Demand

• Mapping current & future supply
• Forecast demand Growth - HFC Data
Stage 4 • Sales velocity of on-going projects

Map Locations which qualify through the above stage gate model

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Case Studies

17
Best in Class Affordable Housing Projects
Case 1 Project Description
Pros.
Anant Raj Aashray
Project Name • Completion in record breaking
timelines
• Located in Neemrana
Project Segment Low cost / affordable group housing Industrial Zone
• Eco-friendly, recycled and
Location The project is located in Neemrana, Rajasthan energy efficient low cost
homes
• Tax Incentives for affordable
Development 1. Land area of 18 acres; saleable area of 1.8 Mn sq. ft.
Type 2. Comprises of 2580 units with a standard size of 450 sq. ft.
housing projects

1. Well connected with Delhi-Gurgaon and is 100 meters

from NH8.
2. Can be accessed via a 30 meter wide road around the site
Cons.
Project Details
3. Community centre within the complex
4. Surface, basement and stilt parking
5. RIICO approved • Non availability of a housing
finance product
Price Point Launch price of Rs. 8,50,000 per unit; Rs. 1888 per sq. ft. • Inferior Specifications
• Little Choice of product
Development Launched in July 2011; Completion in record breaking time
Time lines (2013-14

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Best in Class Affordable Housing Projects
Case 1 Project Description
Pros.
Project Name Stellar Upvan
• Price Point
• Catchment of prospective
Project Segment Low cost / affordable group housing buyers
• Sales & marketing Model –
Location The project is located near Pilkhuwa city (NH 24) Zero Brokerage

1. Low rise G+3 floors only

Development
2. 1 & 2 BHK accommodations of 500 & 670 sq. ft.
Type
respectively

1.
2.
1 km from Pilkhuwa city, 10 kms from Hapur city
Gated community with 24 hrs security
Cons.
Project Details
3. Common parking space
4. HPDA approved
• Non-availability of housing
finance products
Price Point Starting price of Rs. 8,95,000 / Rs. 12,15,000 for 1 / 2 BHK. • Inferior Interiors

Development
Already delivered in 2015
Time lines

19
Homex - Mexico
A Case Study

20
Case Study : Homex Development Corp
A vertically-integrated home development company that engages in
Introduction the development, construction and sale of entry-level, middle-income,
and upper-income housing in Mexico.

• 140 developments under construction in 34 cities located in 21

Portfolio Mexican states.
• Land Reserves of 77.2 Mn sqm. primarily in Mexico

• Focused on entry-level and mid-income housing

• Its entry-level developments range in size from 500 to 20,000
Product homes and is developed in stages typically comprising 300 homes
each.

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Case Study : Homex Development Corp
Homex Business Model

Develop low rise Minimal working

Buy out large land
single housing capital was
parcels in the Debt was primarily
units only after a required due to
outskirts of cities taken to fund land
unit is sold and is construction and
with or without any acquisition
delivered within 14 sale only on
infra connectivity
days demand

• Policy changes • Asset light Business

• Financial Mis- Model
management • Use of Minimal Debt
• Business Model Issues • Economies of scale

Reasons of Lessons
Failure Learnt

22
Suggested
Business Model

23
Business Model
Suggested Business Model to adopt
Acquhire Achieve Optimum Grow Organically by Acquiring
Platform Capital Structure Projects

Acqu(h)ire Organic Growth

• Clean & reputed Companies with on-going
projects & strong local brand equity
• Strong and Credible management with
experience in affordable housing in tier 2
markets
• Company supported by credible and globally
respected investor base
Funding
• Raise entity/platform level fund in
the form of long term equity
• Raise minimal debt at project level
and do maintain an efficient capital
structure
• Use the cash accruals to acquire
projects
• Protect principle investment through topline
share
• Get the upside through bottom-line sharing
• Continue to grow organically by acquiring
projects through JDA/JVs and ensure high
return on equity
• Opportunistically look-out for distressed
deals

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Business Model
Execution of the Business Model
 Strong balance of local and centralized  Leverage the proprietary data base and
controls Operations technology to identify potential customers

 Use of technology for real time monitoring of  Leverage efficient procurement & vendor
the sales process, construction, and project management system
finances
Three
Pillars
Finance Marketing

 De-risk investment capital by securing

top-line share with the partner
 Financing through internally generated cash-flow
 Commence a building only when customer has
secured loan financing to avoid risk of shortage of
working capital, Bridge loans & Excessive Debt
 Hold land for about 2 to 3 years of future sales
 Leverage large database of demographic
and marketing information.
 Leverage dealer network to collect primary
data
 Launch a marketing campaign emphasizing
people’s ability to live in and improve their
home over time

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25
Indicative
Financials

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Indicative Financials – Equity Infusion
Stage I Stage II

USD 50 Mn Equity Infusion USD 100 to 150 Mn Equity Infusion

• Pre-Money Valuation at USD 50 to 70

• Pre-Money Valuation at USD 350 to 450
Mn
Mn in 6th year.
• Post Money Valuation at USD 100 to
• Post Money valuation at USD 450 to
120 Mn
600 Mn
• Inorganic Growth Through USD 25 Mn
• To be deployed for Organic growth &
Geographical expansion
• Organic Growth through USD 25 Mn

Year 0 Year 6

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Indicative Financials
Particulars (INR 000) 2016 2017 2018 2019 2020 2021 Total
New projects l a unched 2 3 7 7 6 3 28
New projects l a unched but no fi na nci a l s ma de - - 2 3 4 6
Projects under execution
Addi tiona l Fundi ng Pumped - 2,42,977 14,21,150 18,53,029 17,17,060 6,46,230 58,80,445
Cum. Ca s h Ba l a nce a t the end of the yea r 3,20,480 9,55,795 18,97,759 22,98,706 30,66,842 26,75,293
Particulars 2016 2017 2018 2019 2020 2021
Nos of Apartment sold 72 1,164 3,109 5,465 8,108 7,575
Cumulative 72 1,236 4,345 9,810 17,918 25,493
Sq. Ft. Sold 50,800 8,28,800 22,34,600 39,28,600 58,45,200 54,86,200
Cumulative 50,800 8,79,600 31,14,200 70,42,800 1,28,88,000 1,83,74,200
Particulars (INR 000) 2016 2017 2018 2019 2020 2021 Total
Total Revenue - 7,57,010 64,53,350 1,05,80,130 1,86,19,662 1,92,49,488 5,56,59,641
Y-O-Y Growth 752% 64% 76% 3%

Total Pa yment to La nd Owner - 1,77,604 15,42,639 27,40,400 50,32,966 52,18,315 1,47,11,924

Cons truction Cos t - 3,12,544 26,84,882 44,93,364 80,18,934 83,24,813 2,38,34,536
Overhea ds 72,415 1,24,529 4,41,144 8,85,515 13,51,858 14,14,253 42,89,715
Devel oper Devel opment Fee 5,790 1,49,475 6,45,724 12,17,480 20,12,586 23,07,638 63,38,693
Total cost excluding amortisation 78,206 7,64,153 53,14,407 93,36,761 1,64,16,345 1,72,65,020 4,91,74,892

EBITDA (72,415) 1,42,332 17,84,667 24,60,849 42,15,902 42,92,107 1,28,23,442

Amortiza tion of Ini tia l Cos t 3,353 19,765 42,000 78,471 1,07,529 1,09,706 3,60,824

EBIT (75,768) 1,22,568 17,42,667 23,82,378 41,08,373 41,82,401 1,24,62,619

EBIT (after carry fwd/set off of losses) - 46,799 17,42,667 23,82,378 41,08,373 41,82,401 1,24,62,619

Ta x - 7,601 3,56,889 4,15,917 6,81,968 6,06,800 20,69,175

PAT - 39,199 13,85,778 19,66,462 34,26,405 35,75,601 1,03,93,444
Profit Margin 5.2% 21.5% 18.6% 18.4% 18.6% 18.7%

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Indicative Financials
Hero Realty after 6 years
28 projects with area 18 mn
15 additional projects in Total 25,500 residential
sq. ft., 10 projects
pipeline with an area units sold, more than
completed and 18 under
development of 10 mn sqft. 10,000 units delivered
execution

Expected Sales : INR 1,925 Cr

Hero Realty
After 6 Value
Expected PAT : INR 358 Cr
Years INR 2000 to
Expected Margin % : 18.6%
7000 Cr

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Indicative Financials

30
Indicative Financials

31
Development
Types

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Development Type Expandable Homes
Suggested type & design of development

Low Ticket Size 25% • Size : 1000 to 1800 Sqft

Expandable • Price : INR 30 to 35 Lacs
30% Low
Homes • To be made as Ground
Ticket Sized
Floor Row Houses with
Apartments provision for expansion

Mid Ticket Size

• Size : 450 to 700 Sqft 45% Mid
• Price : INR 10 to 15 Lacs Ticket Sized
• To be made as Connected Apartments
Towers with lifts
connected on top Floor

• Size : 700 to 1200 Sqft

• Price : INR 20 to 30 Lacs
• To be made as G +3/4
Structures

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Development Type
Suggested type & design of development

Minimal Landscaping Provision for Expansion Functional Retail Stores

Row Housing Low Rise Connected Towers Provision for Solar Panel

34
Acquhire
Target

35
Acquhire Target Organisation Structure for
Scaling
Director - Head - Head –
Founder & COO – Director- Head – Sales
Finance & Contracts & Design &
CEO Operations Investments & Marketing
Legal Procurement Planning

36
Acquhire Target - Portfolio
The platform to be acquired could have some where around 2 to 4 Million sqft of under construction projects
distributed across regions

37
Annexures

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Homex Financials
Liquidity &
2005 2006 2007 2008 2009 2010 2011 2012
Solvency

Current Ratio 2.70 2.01 2.12 2.13 3.27 2.81 2.21 1.63

Quick Ratio 1.90 1.32 1.40 1.48 2.55 0.65 0.53 0.69

Financial leverage 3.30 4.41 2.58 2.70 2.66 3.02 3.07 3.53

Debt/Equity 0.08 0.69 0.59 - 0.74 0.91 0.85 1.17

Long Term Debt

3349 3377 3098 5990 9460 10788 11358 16949
(Mxn Million)

Short Term Debt 3299 5398 6331 6210 271 1729 3662 3002

Over the years company’s liquidity has reduced(reflected in current & quick ratios) and long-term debt has
risen. After 2012 company went bankrupt.

39