Draft Valuation Report - Indiabulls - Vizag_Aug 2014

Valuation Report of a

Residential Project

Located in Visakhapatnam, Andhra Pradesh

Prepared on behalf of –

Indiabulls Real Estate Limited

August 2014

Contact Details:

Indiabulls Real Estate Limited

Indiabulls Finance Center, Tower 1, 14th Floor,

Senapati Bapat Marg, Elphinestone (West), Mumbai – 400013

Knight Frank India Private Limited

Paville House, Near Twin Towers,

Off Veer Savarkar Marg, Prabhadevi,

Mumbai – 400025

Pradeep Gandhi: [email protected]

KF Ref. No. MVL/924

Valuation Report � Residential project located in Visakhapatnam, Andhra Pradesh 1Prepared on behalf of Indiabulls Real Estate Limited � August 2014

Executive Summary

The executive summary below is to be used in conjunction with the valuation report

of which it forms a part and is subject to the assumptions, caveats and bases of

valuation stated herein and should not be read in isolation.

Client Name Indiabulls Real Estate Limited

Subject property and

Address

Indiabulls Sierra: Underconstruction Residential

project located in Visakhapatnam,Andhra Pradesh

Purpose of Valuation Fund raising through listing of bonds

Areas Saleable Area: 786,137 sq.ft

Valuation Discounted Cash Flow Method – Income Approach

Valuation Date 30th August 2014

Market Value ` 827 mn / US $ 14 Mn

Valuer’s Details Sampuran Das

Consultant – Research & Advisory Services

In preparing our Valuation reports, no allowances are made for any liability which

may arise for payment of Corporation Tax or Capital Gains Tax, or any other property

related tax, whether existing or which may arise on development or disposal,

deemed or otherwise. No allowances are made in our valuations for any expenses of

realization, or to reflect the balance of any outstanding mortgages, either in respect

of capital or interest accrued thereon. All Valuations are given without any

adjustment for capital based Government grants received or potentially receivable on

the date of the valuation.


Abbreviations & Measurements

AbbreviationsABD Alternate Business District BFSI Banking, Financial Services and

InsuranceBPCL Bharat Petroleum Corporation

LimitedCBD Central Business District

CBD Central Business District CPI Consumer Price IndexCRR Cash Reserve Ratio DIPP Department of Industrial Policy and

PromotionFDI Foreign Direct Investment FSI Floor Space IndexFY Financial Year GS Government SecuritiesGDP Gross Domestic Product GNP Gross National Product` Indian Rupee `/sq.

ft.Indian Rupees per square feet

IT/ITeS Information Technology / Information Technology Enabled Services

MSL Mean Sea Level

MSRDC

Maharashtra State Road Development Corporation

MOSPI Ministry of Statistics and Programme Implementation

MIDC Maharashtra Industrial Development Corporation

Mn Million

NA Not Applicable Nos. NumbersPBD Peripheral Business District Q1 Quarter OnePMT Pune Municipal Transport PMC Pune Municipal CorporationQ2 Quarter Two Q3 Quarter ThreeQ4 Quarter Four RBI Reserve Bank of IndiaRICS Royal Institute of Chartered

ServicesSBD Suburban Business District

SEC Socio-Economic Classification Sq. km.

Square Kilometre

Sq. ft. Square Feet SLR Statutory Liquidity RatioSq. mt.

Square Metre USD United States Dollar

Measurements1 acre 43,560 sq. ft.

1 mn 10 Lakh

1 sq. km. 100 Ha

1 sq. mt. 10.764 sq. ft.

1 hectare 2.47 Acre


Table of Contents

Executive Summary....................................................................................................2

Abbreviations & Measurements..................................................................................3

Table of Contents....................................................................................................4

1.0 Instructions....................................................................................6

1.1 Engagement of Knight Frank India Pvt. Ltd......................................6

1.1.1 Instructions....................................................................................6

1.1.2 Valuation Standard.........................................................................6

1.1.3 Purpose of Valuation.......................................................................6

1.1.4 Conflict of Interest..........................................................................6

1.1.5 Currency and Measurement.............................................................6

1.1.6 Responsibility to Third Parties.........................................................6

1.1.7 Disclosure and Publication..............................................................6

1.1.8 Limitations on Liability....................................................................7

1.1.9 Vetting...........................................................................................7

1.2 Scope of enquiries and investigations..............................................7

1.2.1 Inspection......................................................................................7

1.2.2 Enquiries........................................................................................7

1.2.3 Legal Parameters of Property..........................................................7

1.2.4 Environmental Aspects....................................................................8

1.2.5 Information Provided......................................................................8

1.3 Basis of Valuation...........................................................................8

1.3.1 Market Value..................................................................................8

1.3.2 Date of Valuation............................................................................9

2.0 Economic Snapshot: INDIA.............................................................10

2.1 Economic Indicators (August 2014)................................................10

2.2 Real Estate Indicators...................................................................10

3.0 City Overview – Visakhapatnam.....................................................11

3.1 Salient Features – Visakhapatnam.................................................11

3.2 Geographical Location and Climate................................................12

3.3 Demographic Pattern and Growth..................................................12

3.4 Economic Overview.......................................................................13

3.5 SEZ..............................................................................................14

3.6 Infrastructure...............................................................................14

3.7 Visakhapatnam Master Plan..........................................................17

4.0 Commercial real estate overview...................................................18

5.0 The Property.................................................................................20

5.1 Location.......................................................................................20


5.2 Property Description.....................................................................20

5.3 Legal and Regulatory Aspects........................................................21

5.4 Site Inspection and Observations...................................................22

5.5 Connectivity and Neighbourhood...................................................23

6.0 Valuation Analysis........................................................................24

6.1 Methodology.................................................................................24

6.2 Valuation Bases............................................................................25

6.3 Valuation Assumptions..................................................................25

6.4 Valuation Analysis........................................................................25

7.0 Summary......................................................................................28

Disclaimer..............................................................................................29

Annexure I: General Principles and Limiting Conditions............................30

Annexure II: General Assumptions...........................................................34

Annexure III: Photographs......................................................................36


1.0 Instructions

1.1 Engagement of Knight Frank India Pvt. Ltd.

1.1.1 Instructions

On the instructions received from Indiabulls Real Estate Limited (The Client), our

subsequent engagement letter dated 4th August 2014 and our subsequent

discussions thereon, Knight Frank (India) Pvt. Ltd. has been appointed to carry out

the pre-tax valuation of an under-construction Residentialproject known as Indiabulls

Mega Mall, located in Visakhapatnam, Rajasthan.

1.1.2 Valuation Standard

The exercise has been carried out in accordance with the International Valuation

Standards vide Red Book as published by Royal Institute of Chartered Surveyors

(RICS).

1.1.3 Purpose of Valuation

The client has confirmed that the valuation report is required for the purpose of fund

raising through listing of bonds.

1.1.4 Conflict of Interest

We confirm that we have no conflict of interest in providing this report to the client,

and that we are acting as external valuers for the exercise.

1.1.5 Currency and Measurement

The currency used in the report for the analysis of the subject property is Indian

Rupees (`). This is the currency normally used for property transactions in India. All

measurements are in sq. ft. (1 sq.mt. = 10.764 sq.ft.) as this is the prevailing market

practice in India.

1.1.6 Responsibility to Third Parties

Our valuation report is only for the use of our client and no responsibility is accepted

to any third party for the whole or any part of its contents.

1.1.7 Disclosure and Publication

Neither the whole nor any part of this valuation nor any reference thereto may be

included in any published document, circular or statement, nor published in anyway,

without our prior written approval of the form or context in which it may appear. If


our opinion of values is disclosed to persons other than the addressee of this report,

the basis of the valuation should be stated.

1.1.8 Limitations on Liability

No claim arising out of or in connection with this valuation report may be brought

against any member, employee, partner, or consultant of Knight Frank India Pvt. Ltd.

Knight Frank India Pvt. Ltd.’s total liability to any direct loss or damage caused by the

negligence or breach of contract in relation to this instruction and valuation report is

limited to the amount specified in the terms of the engagement letter (if any). We do

not accept any liability for any indirect or consequential loss (such as loss of profit).

1.1.9 Vetting

The report has been vetted as per Knight Frank India Pvt. Ltd. quality assurance

procedures.

1.2 Scope of enquiries and investigations

1.2.1 Inspection

We were instructed to carry out an internal inspection of the property. Our inspection

of the property was undertaken on 25th August 2014 by valuer - Ms. Binita Patel.

1.2.2 Enquiries

In carrying out these instructions we have undertaken verbal / web based enquiries

referred to in relevant sections of the report. We have relied upon this information as

being accurate and complete.

1.2.3 Legal Parameters of Property

We have been provided with area details and location plan of the subject property.

We have relied on the area details provided by the client for the purpose of this

valuation exercise. It is recommended that the documents are subjected to formal

legal inspection in order to ensure that there are no elements, restriction or charges

contained which are likely to have detrimental effect upon the valuation provided.

1.2.4 Environmental Aspects

For the purpose of this report we have assumed that the property is not subject to

environmental contamination. However, it is recommended that an appropriate

consultant may be engaged to confirm our assumptions. If the subsequent


investigation identifies any environmental contamination on the site our report may

require revision.

1.2.5 Information Provided

In this report we have been provided with information by the client, its advisors and

other third parties. We have relied upon this information being materially correct in

all respects and have not physically measured or verified the same from any legal

documents or government authorities. All valuation calculations have been based on

the following details provided by the client:

Project DetailsProject: Indiabulls Sierra Visakhapatn

amLand Area 5 acresSaleable Area (Sq.ft.) 786,137Sold Area (Sq.ft.) 1623Sale Value (INR Mn.) 600Amount Collected (INR Mn.) 0Const. Cost incurred (INR Mn.) (as on 31st March 2014)

20

Const. Cost to be incurred (INR Mn.) (as on 31st March 2014)

1340

1.3 Basis of Valuation

In accordance with your instructions, we have provided opinions on valuation of the

project on the following basis:

1.3.1 Market Value

The Market Value of the freehold interest in the property in its current physical

condition is the basis of valuation.

Valuation has been made on the assumption that the property is sold in the open

market without the benefit of a deferred term contract, leaseback, joint venture,

management agreement or any similar arrangement which would serve to alter the

cash flow from the Property.

No allowance has been made in our analysis for any charges, mortgages or amounts

owing on the Property or for any expenses or taxation, which may be incurred in

effecting a sale. Unless otherwise stated, it is assumed that the Property is free from

encumbrances, restrictions and outgoings of an onerous nature, which could affect

the analysis.

For the purpose of the valuation exercise, as per the terms of engagement, we have

considered the residential units as completed and vacant.


1.3.2 Date of Valuation

The date of valuation is 30th August 2014, as mandated by the client.


2.0 Economic Snapshot: INDIA

2.1 Economic Indicators (August 2014)

Parameter Value

GDP Growth Rate (2013–14) 4.70%

Per Capita Income 2013-2014 (projected) ` 74,920

Inflation – CPI – July 2014 7.96%

CRR and SLR 4.00% and 22.00%

Repo Rate 8.00%

Bank Rate 9.00%

Base Rate 10.00%–10.25%

`/$1 60.4745

Risk Free Rate on Government Securities: 6.90 GS

20198.0907%

Risk Free Rate on 364 day Government T Bill 8.6840%

Source: MOSPI, RBI

2.2 Real Estate Indicators

Parameter Value (`mn)

FDI Inflow in Construction Development: Townships,

Housing, Built-up Infrastructure (April 2014 – June

2014)

16,760


Housing, Built-up Infrastructure (April 2013 – March

2014)

75,080



2013)

72,480



2012)

152,360

Source: http://dipp.nic.in


3.0 City Overview – Visakhapatnam

3.1 Salient Features – Visakhapatnam

Visakhapatnam is the second largest city in Andhra Pradesh after Hyderabad. The

city offers breath taking sceneries and pleasant environment with an expanding

industrial and education sector. India’s primer IT companies like Wipro, Infosys, TCS

has operating campus in the city.

The state government is playing a pivotal role in the development of the city. Key

infrastructure projects are pressed into action, major road widening projects and

flyovers at almost all major junctions are being constructed.

Source: Knight Frank

3.2 Geographical Location and Climate

Visakhapatnam city stretches between 26.00º N & 27.037º N latitude and 72.55º E &

73.52º E longitude. It lies at 250-300 m above mean sea level and forms a part of

district Visakhapatnam. The average annual rainfall in the district is 450 mm. The

maximum and minimum temperatures are about 42°C and 9.5°C respectively.


Visakhapatnam district comes under arid zone of the Rajasthan state. It covers

11.60% of total area of arid zone of the state. Some of the area of Great Indian

Desert Thar also lies in the district. The climate in Visakhapatnam is extremely hot

and semi-arid, with a rainy season from June to September. Despite its arid climate,

Visakhapatnam is blessed with a variety of flora and fauna. A survey conducted by

district administration with the help of forest officials shows 162 flora and 144 fauna.

Soil of the district is classified mainly as sandy and loamy.

3.3 Demographic Pattern and Growth

Demography

Total Population (Census 2011) 17.30 Lakh

Population Density (2011) 3,240 per sq.km.

Population Growth Rate (2001-2011) 44%

Literacy Rate 82.66% (2011)

Total number of Households 1,749,845

Income Classification of Households

Primary sector 20.24%

Household industry 4.04%

Manufacturing 13.38%

Electricity, gas and water supply 1.11%

Construction 5.88%

Transport, storage and communication 12.73%

Banking insurance 0.20%

Trade and business 12.94%

Services 29.48%

Sex Ratio 977


3.4 Economic Overview

Visakhapatnam has 73 large & medium industries in the field of mining, explosives,

power, cement & agro based industries such as sugar, rice & jute mills. Prominent

companies include Vizag Steel, Hindustan Shipyard, Hindustan Petroleum

Corporation, Coromandal Fertilizers, LG Polymers

Vizag Port: Vizag port is a deep water natural harbor strategically located midway

of Kolkatta and Chennai facing the Bay of Bengal coast. It provides excellent marine

access to the existing hinterlands through good connectivity from road and rail. The

port provides cost effective transit to major destination located in the East

(Bangladesh, Nepal, China, Japan etc). Further the port serves the requirements of

major steel plants located in and around Visakhapanam (Bilai, Bokaro, Rourkela,

Durgapur and TISCO)

Iron and Steel: Vizag steel plant is the oldest and the most prominent industrial

establishment in the city. The plant has registered a turnover of 14,457 Crore in

2011 – 12. Further the plant had recently expanded its production capacity from 3.1

to 6.3 MT.

Shipyard: Hindustan Shipyard Ltd. is a premier ship building company located in

vizag. It is spread over 46.2 hectares of land. The company has built around 150

ships and has repaired almost 1,800 ships Other prominent industries include


Hindustan Zinc Smelter, Hindustan Zinc Limited, Rain Calcines Limited, Coromandel

Fertilizers, Bharat Heavy Plate and Vessels Limited (B.H.P.V.). The construction of the

outer harbor and Steel Plant has given the city a distinct makeover.

These industries provide employment to a significant number of people. Besides,

these industries have strengthened the state's economy. Apart from these industries,

the Indian Navy established has established its Naval Dockyard in the East. Apart

from the above industries Information Technology, Information Technology Enabled

Services, Pharmaceuticals & Biotechnology and Tourism are emerging as a prominent

industries in the city.

A slew of new projects across various areas, both in the public and private sector, are

coming up in in Visakhapatnam. AP government is planning to set up a ceramic

specific industrial estate, called ‘ceramic city’, in Visakhapatnam on the lines of

‘Ceramic Clusters’ in Gujarat. The city will utilize existing industrial infrastructure

facilities and make use of available raw materials like clay, bauxite, quartz, feldspar,

calcite, beach sand and zirconium

Visakhapatnam Steel Plant The city also has a good exposure to steel plants. The

area approaching the steel plant to Elamanchili will be the hub of industrial activity.

The Jawaharlal Nehru Pharma City at Visakhapatnam spread over an area of 2,200

acres of land, will be developed by Ramky Pharmacity Ltd. Pharma City will have

facilities like effluent plant and hazardous waste disposal.

Visakhapatnam Special Economic zone (VSEZ) is a multi-product SEZ that offers state

of the art infrastructure and support services for hassle free business environment.

The infrastructure facilities available are in manifold and state government is

extending their support in all respect to finance and aid small scale industries and

facilitate realtors to develop the city.

Vizag is also known as the port city with a very good coast line across the place

which is ideal for harboring cargo ships and hence a very busy port is in place

handling large tonnage of cargos every day. Visakhapatnam Port Trust has

established an EXIM Park in 750 acres of land for the allotment of Port based

industries with an objective to promote industrialization of the hinterland and to

facilitate handling of export / import cargoes of various industries at this Port, and to

attract more cargo. The port activities also opened up new vitas of opportunities like

ship building industry, cement industry and a slew of major steel industries which


sprawled across the port city creating endless job openings. Similarly heavy

engineering services also cropped up to aid the big manufacturing units.

From the ancient port city with a modest population to a rapidly industrialized hub,

the city of Visakhapatnam has truly emerged as one of the fastest growing city of our

country. IT and software parks have found a new destination in this city, adding

another feather in its cap.

3.5 Infrastructure

Key StatsWater Availability

Installed capacity 37 mgd

Source of water supply

50-100 sq.km.

Water coverage Population covered by public water supply 30 %per capita supply : 62 lpcdSupply of duration : 0.45 hrs

Wastewater Disposal

Wastewater generated daily: 67.5 mldDisposal (underground sewerage) Capacity: 25 mldPresent operating capacity: 10 mldHouseholds connected to underground sewerage: 6 %

Solid waste Waste generation daily : 650 tones/dayCollection daily: 650 tones/day

Storm water Drainage

Annual rainfall 1080 cmLength of storm water drains 1400 km

Roads and Road Transport

Municipal Roads – 1120 km

C.C.Roads – 150 km B.T.Roads – 750 km Kutcha Roads – 220 km

State-level roads - 100 km

Public transportBuses – 1500Bus capacity/passengers : A capacity of 60,000 seats with moving 3.9 lakh people daily @ 6032 trips/day covering 1.37 lakh km daily

Private registered vehicles – 3,50,000Source: City Development Plan

Education

Visakhapatnam is an emerging education hub; institutions catering to disciplines like

engineering, medicine, law, design, management are present in the city.


The Indian Maritime University was established as a central university by the

government of India by an act of Parliament (the Indian Maritime University

Act 2008).

Established in 1878, A.V.N. College is one of the city's oldest educational

institutions.

Visakhapatnam is also home to Andhra University (AU), established in 1926.

The AU College of Pharmacy is the second-oldest pharmacy college in India.

Andhra Medical College, established in 1902, is the home of several teaching

hospitals.

The GITAM University (the first private university in Andhra Pradesh) and the

Gayatri Vidya Parishad College of Engineering are other technical-education

institutions in the city.

Integral Institute of Advanced Management (IIAM)

National Institute of Oceanography

Damodaram Sanjivayya National Law University

There are more than 50 engineering colleges in Visakhapatnam.

Visakhapatnam is an established school education hub for coastal Andhra Pradesh.

St. Aloysius Anglo-Indian High School is the oldest high school in the district and one

of the oldest schools in the country. It was established in 1847, and is in the old town.

St. Joseph's Girls' High School was established in 1893 in Waltair and is an ICSE

school. The city has about 10 Kendriya Vidyalayas.Other notable schools are

Visvodaya High School, Naval Children's School, Kotak Salesian School, D.A.V.

Centenary Public School, Delhi Public School, S.F.S. School, St. Anthony's High

School, Bethany School, Sri Sathya Sai Vidya Vihar, Visakha Valley School and

Timpany School. Apart from these there are many other schools.

Roads

Visakhapatnam is well connected by road to rest of India. The major highways which

connect Visakhapatnam include the following: NH- 5 and NH – 43 of the National

Highway (NH) network and the State Highways connect the city area to the vast

hinterland. Around 7.88 % of the total area is covered by roads, 2.13% by railways

and 0.85% by the Port authorities.

The city has radial form of road network development. The major road network in the

city area extends over a length of 126 Km. The total road length is 1007 kms. In

addition to these major roads, the reaches of three major R & B roads, which are


state highways passing through have also been taken up for development in addition

to this network, nine new roads have been opened and nine master plan roads have

been taken up for widening.

Railways

The city is well connected with major Indian cities like Kolkata, Hyderabad and

Chennai.

Air

Visakhapatnam airport is one of the prominent airports of Andhra Pradesh. It is also

air force base given the city acts as the Eastern Naval Command. Domestic flights

connect the city with Delhi, Kolkata, Chennai and Mumbai.


4.0 Residential real estate overview

As per the survey conducted by the International Environmental Development

Organisation, UK; eleven cities in India were amongst the fastest growing 100 world

cities, wherein Visakhapatnam stood in 5th place within India.

The old central zone consists of port area, regions near old post office and localities

around Town Main Road, Raja Ram Mohan Rai Road, AVN college road, etc. The

population here comprises mainly of workers and fishermen and these localities do

not offer any scope for good quality real estate development.

Established Residential Corridors -

Beach road - R.K Beach road, Pandurangapuram, East Point Colony, and MVP

Colony.

The prime suburb localities along NH-5 are Seetamadhara, Maddilapalem, TPT

Colony, H.B colony, Doctor’s Colony, Akireddipalam, and Madhavdhara.

Emerging Residential Corridors -

Micro-markets along NH- 5- emerging as mid to high end residential corridors

which include Madhurawada and Rushikonda

Due to non-availability of large land parcel in the core city area, real estate

developers have preferred to launch projects in the city outskirts. At present,

peripheral areas like Gajuwaka, Pendurthy, Tagarapuvalasa, Simhachalam,

Madhurawada, Muralinagar, Madhavadhara and Bheemili are some of the real estate

hotspots around the city where large residential developments are being


North–Emerging residential and IT/

South –Characterized by presence of heavy

CBD

SUBJECT SITE -2

SUBJECT SITE -1

constructed. While flats are available for about Rs 2,000-Rs 3,000 per sft in these

areas, the prices of flats in the core city ranges between Rs 3,500 and Rs 6,000 per

sft. The cost of plots is around Rs 6000-Rs 10,000 per sq yard in the core city and

about Rs 2000-Rs 6500 per sq yard in the outskirts. The prices have remained stable

for the past one year.

VUDA (Visakhapatnam Urban Development Authority), extended its jurisdiction from

Tuni on NH5 to Amudalavalasa in Srikakulam. It’s the biggest Urban Development

Authority in India in terms of area with three districts viz., Visakhapatnam,

Vizianagaram and Srikakulam. Visakhapatnam Urban Development Authority (VUDA)

initiated allocation of fresh layouts; and many residential layouts (plotted

developments) are being developed up to 5km even after Yalamanchili (75km from

Maddilapalem bus stand) on Chennai highway (NH-5) and up to 5km after Denkada

Junction(80km from Maddilapalem bus stand) on NH-5 towards Srikakulam and up to

5km after S.kota (55km from Maddilapalem bus stand) on Araku highway. Major

corridors witnessing significant growth include micro-markets along NH- 5

(Madhurwada and Rushikonda, Beach Road). Further, Anakapalli-Anandapuram and

Bhimli-Visakha is being developed as knowledge corridor. In Anakapalli-

Anandapuram micro-market about 5000 acres are to be developed as knowledge

corridor. Further Tech Mahindra operates a campus on 50 acre land allotted to it at

Rishikonda. Government has allotted another 100 acres at Rishikonda for the IT

companies; of which 50 acres of this land has been given to 13 IT companies.

Residential Price range in Visakhapatnam in INR/sq.ft

2,6003,100

3,500

2,200

3,000

2,200

4,6754,500 4,000

3,0003,400

3,500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

MVP Colony East Point Colony

Seethamadara Gajuwaka Rushikonda Madhurwada

Apartment Capital Values across Visakhapatnam

INR/ sq. ft. Min INR/ sq. ft. Max


4.1 Micro-market Overview: Madhurwada

Primary demand drivers include end users working the industrial sector, employees

in the IT/ ITeS sector and NRI’s looking for investments in the city. Small scale

apartment developments within 50 units are dominant in the market. Some of the

prominent residential developments contributing to the supply in the micro-market

include Shirram Panorama Hills, Reign Forest and India Bulls Sierra. Further NCC

Urban has planned to launch large scale project near Madhurwada IT/ ITeS SEZ.The

micro-market has witnessed a healthy absorption with 67% of the supply in the

micro-market. In between 2012_14 major quantum of the supply has been

contributed by Reign Forest, India Bulls Sierra and Sunray villas. Total completed

supply is estimated to be 3,016 units by the end of 2014. The micro-market has

witnessed a healthy absorption with about 70% of the total supply.

Project Name Location No of Units

Rate in INR/sq.ft

Sold till data

Maruti ParadiseMadhurdawa to Palam ( Cricket

Stadium) on NH-550 2850-3000 80%

NRK LegacyMadhurdawa to Palam ( Cricket

Stadium) on NH-510 2750-3000 70%

Tirumala EstateMadhurdawa to Palam ( Cricket

Stadium) on NH-525 2700-2800 100%

Jayaprabha Residency

Madhurdawa towards Subject Property

25 2500 100%

Rao & Murti Residency


8 2200 100%

V FortuneMadhurdawa towards Subject

Property50 2400 100%

Sri Ganesh castle


20 2200 100%

PRS Rama Towers

Madhurdawa towards Subject Property 25 2500 100%

Given below is the price trend the micro-market; it has witnessed about 8% YoY

increase in prices:

FY 2011 FY 2012 FY 2013 FY 20140

500

1000

1500

2000

2500

3000

3500

Capital Values of Residential Appartments in Madhurwada

Pri

ce IN

R/s

q.f

t


5.0 The Property

5.1 Location

The subject property is an under residential project called as Indiabulls Sierra. The

subject property is being constructed on the Plot no. 11; survey. no. 355/7c p, 355/8b

p 130/1a p & 130/2a p at Madhurwada, Chinnagadilli Mandal, Visakhapatnam, Andhra

Pradesh. The location is upcoming residential corridor, and is close to GITAM

University. Prominent ongoing developments include Shriram Panaroma Hills, Reign

Forest, India Bulls Sierra.

Location Map of the Subject Property

Source: Knight Frank Research, Google Maps

5.2 Property Description

The subject property is known as Indiabulls Sierra in Vizag, it is a residential project

located at a Madhurawada, near Rushikonda. The project is being constructed on a

land area of about 5 acres. The project comprises of well-designed complex of 16

storey towers with a choice of 1.5, 2, 2.5 and 3 BHK apartment offers an area ranging

from 891 sqft to 1623 sqft. The homes are equipped with essential facilities like

round the clock security, multi level parking and water harvesting as well as modern


day amenities like club house, swimming pool, community hall, indoor & outdoor

games facility and children’s play areas among others. Surrounded by green

landscapes each home enjoys beautiful views, abundant natural light and ventilation

and with beach being just 4 kms away from the project.

Amenities & Specifications:

Club house

Swimming Pool

Community Hall

Children’s Play area

Cycling & Jogging tracks

Indoor & Outdoor games facility

Integrated, round-the-clock security

Water harvesting

Multi-level parking

Landscaping of the garden areas

Underground drainage

Storage sump and water supply lines

Electrical (3 phase electricity) and sewage system

Master Plan


Floor Plans


5.3 Legal and Regulatory Aspects

Legal Title

As stated in general terms of business, we do not undertake searches or

inspections of any kind (including web based searches for title information,

searches in any publicly available land registers or land revenue cards).

We have not been provided by any land registry entries, title documents or

reports on title.

In our report, we have assumed a clear and marketable title and that all

documentation is satisfactorily drawn.

We have assumed that the property is not subject to any unusual or onerous

covenants, restrictions, encumbrances or outgoings.

We have received clarification / confirmation from the client regarding the

ownership of the subject land parcel. For the purpose of this report, we have

assumed that the title of the property is freehold.

It is recommended that the documents are subjected to formal legal

inspection in order to ensure that there are no elements, restriction or

charges contained which are likely to have detrimental effect upon the

valuation provided.

If any matters come to light as a result of your legal advisors’ review, we

recommend that these matters are refereed back to us, as this information

may have an important bearing on the values.

5.4 Site Inspection and Observations

As stated in the general terms of business, we have not undertaken a building

or site survey of the property.

During our limited site inspection, we did not inspect any inaccessible areas.

We have not been provided with a copy of the ground condition report for the

site. We have assumed that there are no adverse ground or soil conditions

and that the load bearing capacity of the site is sufficient for the buildings

constructed / being constructed / proposed to be constructed.

Our site observation did not bring out any significant flood risk to the site and

hence for the purpose of the valuation we have considered the site to be

under low flood risk.

Knight Frank is not qualified to undertake scientific investigations of sites or

buildings to establish the existence or otherwise of any environmental

contamination, nor do we undertake searches of public archives to seek

evidence of past activities which might identify potential for contamination.


Subject to above, while carrying out our valuation inspection, we have not

been made aware of any uses conducted at the subject property that would

give cause for concern as to possible environmental contamination. Our

valuation based on an assumption that the subject property is unaffected.

Valuation of the subject property is based on the observations during site

inspection, information conveyed through verbal conversation and the

architectural drawings provided by the client.

5.5 Connectivity and Neighbourhood

The immediate neighbourhood of the subject property constitutes upcoming

residential and plotted developments. Further Rushikonda Beach 4 km from the

project; is an important tourist corridor. Distances of the property from the nearest

civic amenities and transport nodes have been given below:

Railway

Station

Visakhapatnam Junction –

18 Km

Airport Visakhapatnam Airport – 25

Km

Bus Depot Bus Depot – 1 to 2 km

Andhra

University

13 km

GITAM

University

1 Km

Rushikonda

Beach

4 Km

Port 20 Km

Source: Google Maps


6.0 Valuation Analysis

6.1 Methodology

There are three approaches used in real estate property valuation:

Market Approach – Comparison Method

Income Approach – Rent Capitalisation Method, Discounted Cash Flow Method

Cost Approach – Land & Building Method, Summation Method

Considering the characteristics of the property and the market dynamics, we have

used the following method for this valuation exercise:

Discounted Cash Flow (DCF) Method – Income Approach

DCF method/analysis is a financial modelling technique based on explicit

assumptions regarding the prospective income arising out of the development to be

carried out on the subject land parcel. In case of a valuation of a large land parcel

like the subject property, where the development potential is realized over a period

of time (i.e. time value of money comes into the picture) and also where there are no

or few immediate similar properties (i.e. comparables) available for comparison, DCF

method considering relevant potential developments of the project is used.

The DCF method requires the entire development cash flows to be drawn up and

assumptions made about the market performance over the entire project time frame.

This requires an in-depth understanding of

- the demand / supply dynamics,

- transaction values and quantum,

- construction costs, quality and infrastructure requirements/constraints,

- time frame of the project,

- profit / returns,

and other analysis. All of this market data has to be compiled (as relevant to the

subject site) in order to create a financial model that captures all market drivers and

value impacting parameters.

6.2 Valuation Bases

The valuation base for the report is Market Value. Market Value is defined within RICS

Valuation Standards as:


"The estimated amount for which an asset or liability should exchange on the date of

valuation between a willing buyer and a willing seller in an arm's length transaction

after proper marketing wherein parties had each acted knowledgeably, prudently and

without compulsion."

6.3 Valuation Assumptions

Our valuation is based on a number of assumptions which have been drawn to your

attention in general principals and limited conditions (Annexure I), General

assumptions (Annexure II), and within this report.

6.4 Valuation Analysis

Area Statement

We have used the following area details received from the client:

Area Statement sq.mt. sq.ft.

Saleable Area 73,061 786,137

Cost Assumptions

The construction costs of a project depend on a variety of factors like grade of

proposed development, positioning in the market, target buyers, pricing,

architectural elevation, premium finishing & furnishing and superior interior decor

and amenities offered. Moreover, factors like labour cost, material cost and nature &

location of the property also affect the construction cost.

The cost estimate as provided by the client ` 1340 Mn. or about ` 1730 per sq.ft on

saleable area. As instructed by the client, the construction contract is a fixed sum

contract; hence we have considered a constant cost in our assumption. Cost for

approvals and contingencies, consultants’ fees, corporate expenses, marketing costs

and overheads have been considered in the total construction cost mentioned above.

The client had spent ` 20 Mn. till date, towards constructions.

Revenue Assumptions

We have arrived at the capital value for the proposed development by adopting the

market approach. Considering the market dynamics, capital values in the commercial

projects, location and characteristics of the subject property, we have considered a

capital value of ` 3,300 per sq.ft. Currently, about 1623 Sq.ft area is sold, while a

total revenue from the project is expected to be about `2925 Mn.

Discount Rate


Discount rate is a risk weighted factor used to calculate the net present value of the

future cash flows to the firm from the project till the time of exit. It is a measure of

the risk involved in the project and it is determined by the market. The discounting

rate is determined by factors like security and regularity of income, security of

capital, ease of liquidity of the asset, ease of management and transfer with a

minimum cost, divisibility of holding, etc.

Considering various factors like location, project development and asset class,

project marketability, demand-supply dynamics in the micro-market, ease of

liquidation of the product in the market and legal aspects the discount rate has been

thus considered as 20%.

Valuation Workings

Area Statement sq.ft.

Saleable Area 786,137

Area Sold Till Date 1623

Amount collected till date INR 0 Mn.

ASSUMPTIONS

Construction Cost (INR / sq.ft.)(1,73

0)

Additional CostMarketing & Publicity, Administration Cost,Contingency expenses, etc. (% of Cost of Construction) 0%

Escalation in Cost of Construction

Yearly 0%

Escalation in Revenue

Yearly 5.0%

Brokerage - Sale 1%

Sales through Brokers 50%

Capital Value (INR per sq.ft.) 3,300Residential (including base price, floor rise,car parking and other charges)

Discount Rate (%)20.0

%

Cost Structure Y0 Y1 Y2 Y3 Y4

Aug-14Aug-15

Aug-16

Aug-17

Aug-18

Construction Phasing (%)Residential 1% 30% 30% 30% 9%


Construction Phasing (sq.ft.)

Residential11,561

235,841

235,841

235,841 67,053

Construction Phasing (INR per sq.ft.)

Residential(1,730)

(1,730)

(1,730)

(1,730)

(1,730)

Cost of Construction (INR mn)Residential (20) (408) (408) (408) (116)

Additonal Cost (INR mn)

Marketing & Publicity, Consultancy fees, Administration Cost, Municipal App./Govt Dept., Contingency expences, etc (% of Development Cost)

0 0 0 0Brokerage (INR mn) (0) (3) (4) (5) (2)

Total Cost (INR mn) (20) (411) (412) (413) (118)

Revenue Structure Y0 Y1 Y2 Y3 Y4Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Sales (%)Residential 0% 20% 30% 35% 15%

Sales (Sq. ft.)

Residential1,623

157,227

235,841

275,148

116,298

Sales (INR per sq. ft)Residential 3,300 3,465 3,638 3,820 4,011

Sales (INR Mn)Residential 5 545 858 1,051 466Amount Collected Till Date 0Amount to be Collected 5Collection ScheduleResidential 0% 31% 30% 30% 9%Y0 0 1 1 1 0Y1 171 163 163 46Y2 527 257 73Y3 961 90Y4 466Y5Y6Y7Y8Y9Y10Y11Y12Y13


Total Revenue (INR Mn) 0 173 692 1,384 676

NPV Calculation Y0 Y1 Y2 Y3 Y4Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Total Revenue (INR mn) 0 173 692 1,384 676Cost (INR mn)

(20)(411

)(412

)(413

)(118

)Net Cash Flow (INR mn) 0

(238) 280 970 558

Discount Rate (%) 20.0%

NPV (INR mn) 827


7.0 Summary

On the basis of assumptions, methodology of valuation and on the belief that there

are no onerous restrictions, covenants or unusual outgoings, we are of the opinion

that the achievable market value of the subject property (on as-is-where-is basis is )

as ` 827 mn (Indian Rupees Eight Hundred & Twenty Seven Million Only) /*

US $ 14 Mn. (United States Dollar Fourteen Million only) is fair and

reasonable.

*US $ : INR = 60.4745 (source: www.rbi.org.in)

Note:

Our analysis is only for use of the party to whom it is addressed and no responsibility

is accepted to any third party for the whole or any part of its content


Disclaimer

“The statements, information and opinions expressed or provided in this publication

are intended only as a guide to some of the important considerations that relate to

property investment. Although we believe they are correct and not misleading, with

every effort having been made to ensure that they are free from error, they should

not be taken to represent, nor are they intended to represent, investment advice or

specific proposals, which must always be reviewed in isolation due to the degree of

uniqueness that will attach thereto”.

Neither Knight Frank nor any persons involved in the preparations of this publication

give any warranties as to the contents nor accept any contractual, tortuous or other

form of liability for any consequences, loss or damage which may arise as a result of

any person acting upon or using the statements, information or opinions in the

publication. This publication is confidential to the addressee and is not to be the

subject of communication or reproduction wholly or in part.”

Knight Frank (India) Private Limited

1st and 2nd Floor, Paville House

Off Veer Savarkar Road

Prabhadevi

Mumbai 25

Tel: (022) 67450101

Fax: (022) 67450202

www.knightfrank.com


Annexure I: General Principles and Limiting Conditions

General Principles Adopted and Limiting Conditions in the Preparation of

Valuations and Reports

These are the general principles and limiting conditions upon which our analysis and

reports are normally prepared; they apply unless we have specifically mentioned

otherwise in the body of the report.

1) Confidentiality

Our analysis and reports are confidential to the client or to whom they are

addressed for the specific purpose to which they refer. They may be disclosed to

other professional advisors assisting the client in respect of that purpose, but the

client shall not disclose the report to any other party. No responsibility is

accepted to any other party and neither the whole, nor any part, nor reference

thereto may be included in any published document, statement or circular, or

published in any way, nor in any communication with third parties, without our

prior written approval of the form and context in which it will appear.

2) Use of Report

The opinion on estimated cash flows expressed in this Report shall be used for

the purpose stated in this Report only. We are not responsible for any

consequences arising from the estimated cash flows being quoted out of context.

3) Source of Information

Where it is stated in the Report that information has been supplied by the sources

listed, this information is believed to be reliable and no responsibility is accepted

should it prove not to be so. All other information stated without being attributed

directly to another party is obtained from our searches of records, examination of

documents or enquiries with the relevant authorities. This Report has been

prepared on the basis that full disclosure of all information and facts which may

affect the cash flow have been made known to ourselves and we cannot accept

any liability or responsibility in any event, unless such full disclosure has been

made.

4) Legal Title

Whilst we may have inspected the title of the property as recorded in the Register

Document of Title, we cannot accept any responsibility for its legal validity.

5) Town Planning and other Statutory Regulations


Whilst we may make verbal enquiries or gather information on Town Planning, we

do not normally carry out requisitions with the various public authorities to

confirm that the property is not adversely affected by any public schemes such as

road and drainage improvements. If reassurance is required, we recommend that

verification be obtained from your lawyers or other professional advisors.

Our analysis are prepared on the basis that the premises and any improvements

thereon comply with all relevant statutory regulations. It is assumed that they

have been, or will be issued with a Certificate of Fitness for Occupation by the

competent authority.

6) Leases and Tenancies

Enquiries as to the financial standing of actual or prospective lessees or tenants

are not normally made unless specifically requested. Where properties are

valued with the benefit of lettings, it is therefore assumed that the lessees or

tenants are capable of meeting their obligations under the lease or tenancy and

that there are no arrears of rent or undisclosed breaches of covenant.

7) Development Agreements

Unless otherwise stated, no allowances are made in our analysis for any joint

venture agreement, development right agreement or other similar contracts.

8) Site Surveys

We have not conducted any boundary checks; however, we assume that the

dimensions correspond with those shown in the title document, certified plan or

any relevant agreement.

9) Structural Surveys

We have neither carried out a building survey nor any testing of services, nor

have we inspected those parts of the property which are inaccessible. We cannot

express an opinion about or advice upon the condition of uninspected parts and

this Report should not be taken as making any implied representation or

statement about such parts. Whilst any defects or items of disrepair are noted

during the course of inspection, we are not able to give any assurance in respect

of rot, termite or pest infestation or other hidden defects.

10) Site Conditions

We do not normally carry out investigations on the property or neighbouring land

(including the past and present uses) in order to determine the suitability of the


ground conditions (including contamination or potential for contamination) and

services for the existing or any new development, nor have we undertaken any

archaeological, ecological or environmental surveys. Unless we are otherwise

informed, our analysis is on the basis that these aspects are satisfactory and that,

where development is proposed, no extraordinary expenses or delays will be

incurred during the construction period.

11) Deleterious or Hazardous Materials

No investigation was carried out to determine whether or not any deleterious or

hazardous materials have been used in the construction of the properties, or have

since been incorporated and we are therefore unable to account or report for

such in our report.

12) Diseases and Infestations

Whilst due care is taken to note the presence of any disease or infestation, we

have not carried out any test to ascertain possible latent infestations or diseases

affecting crops or stock. We are therefore unable to account for such in our

Report.

13) Outstanding Debts

In the case of buildings where works are in hand or have recently been

completed, we do not normally make allowance for any liability already incurred,

but not yet discharged, in respect of completed works, or obligations in favour of

contractors, sub-contractors or any members of the professional or design team.

14) Taxation, Encumbrances, Statutory Notices and Outgoings

Unless otherwise stated, no allowances are made in our analysis for any expense

of realization or for taxation which might arise in the event of a disposal, deemed

or otherwise. We have considered the property as if free and clear of all charges,

lien and all other encumbrances which may be secured thereon. We also

assumed the property is free of statutory notices and outgoings.

15) Attendance

The instruction and the estimation of cash flow assignment does not automatically

bind us to attendance in court or to appear in any enquiry before any government

or statutory bodies in connection with the analysis unless agreed when the

instruction is given.



Annexure II: General Assumptions

We assume that information provided by client or its representative for this

analysis for all relevant projects is true and accurate. It includes details of

measurements of land and built up area, etc.

We have not gone through the legal aspects like documents of title deed,

lease deed, revenue records, court matters (if any), and documentation like

joint development with other companies. We also assume for this analysis

that the title and development rights of all the properties lies with the

Company and is clear, marketable and free of all encumbrances, restrictions,

easements or charges which may have detrimental effect upon the cash flows

of the property. It is also assumed that company has paid all property related

taxes.

We have neither carried out any soil testing nor structural surveys nor are we

experts in the field of structural survey. Therefore, we do not give any

assurance that properties are free from structural defect. If any investigation

identifies any structural defect in the property our report may require revision.

Neither are we the experts in the town planning to factor the town planning

aspects in the project. Sewers, main services and the roads giving access to

the property have been provided.

We assumed that all the constructed structures and proposed construction

is/will be free from harmful materials and/or techniques. Our analysis is on

the basis that no such materials or techniques have been used.

Unless advised by the company or representative of the company, we do not

normally make allowance for any liability already incurred, but not yet

discharged, in respect of balance land cost, completed works, or obligations in

favour of contractors, subcontractors or any other professional.

We have assumed that demand; supply, pricing, fiscal and monetary policies

of Government, taste of public will remain same as on date of analysis over

the period of time of development. All of these factors are in strong relation

with the cash flow estimation of property. Any radical change in any of the

factor may affect estimation at large.

Unless advised by the company or representative of the company, no

allowance is made for any expense of realization or for taxation, which may

arise in the event of a disposal. The property is considered as if free and

clears of all mortgages or other charges that may be secured thereon.

For the purpose of this report we have assumed that the property is not

subject to environmental contamination. However, as we are not experts in

this field, we recommend that an appropriate consultant may be engaged to


confirm our assumptions. If the subsequent investigation identifies any

environmental contamination on the site, our report may require revision.


Annexure III: Photographs


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