Socio Economic Environment

There is a sense of optimism about the Indian economy in the long term but in the immediate term the various economic indicators have not yet shown clear signs of a recovery. The global recovery has remained uncertain, with each geographical region having its own specific challenge. The devaluation of currency of trading partners and the weak global demand has resulted in contraction of exports. However, the impact on the current account deficit has been mitigated by the significant fall in commodity prices, particularly crude oil.

The overall domestic demand remains subdued although there are sectoral variances. The monsoon has been characterized by delays and significant variance over the period. The current view is that it will be near normal and this augurs well for the rural demand.

As per the Economic Survey report, GDP growth rate at constant (2011-12 base year) market prices in FY2013 was 5.1%, which increased to 6.9% in FY2014 and is estimated to further rise to 7.4% in FY2015. For the first time India’s GDP is estimated to cross the US$2 trillion mark to reach US$ 2.1 trillion in FY2015. The current account deficit has shriveled from a peak of 6.7% of GDP in Q3 FY2013 to an estimated 1.0% in FY2016.

Inflation has declined by over 6 percentage points since late 2013, with Wholesale Price Index (WPI) declining by 2.3% in March 2015 and is the deepest decline since November 1976. With the easing of inflationary conditions, the RBI has been cutting policy repo rates since January 2015. But, the current expectation is that inflation will harden in the coming period.

RBI’s Current Situation Index and the Future Expectation Index (FEI) of consumer confidence have increased by 10.1% and 7.6%, respectively since June 2014 quarter. After remaining at around 118 levels during the last three rounds of survey, the FEI increased to about 127. This is due to an improvement in positive perceptions on the future economic conditions and future spending. The overall Employment Index increased from 151 in March 2014 to 178 in March 2015.

Real Estate Market

Indian Real Estate Market

There have been some key policy changes announced by the Government of India which augur well for the real estate sector but the benefits arising out of these changes are going to be realized only in the future. Real Estate Investment Trusts will allow the funding of real estate assets at an attractive rate. This is a positive for the industry but the issues of taxation and the current low rental yield are inhibitors for the initiative to fructify. The initiative of "housing for all by 2022" has again a major potential for the real estate sector but the true impact will become known when more details emerge. The creation of 100 smart cities is yet another major initiative where the actual activity on the ground is still some time away.

The Real Estate (Regulation and Development) Bill and the Land Acquisition Rehabilitation and Resettlement Bill are two other aspects which will alter the processes of development management in the future.

The residential segment of the industry has seen slow absorption rates across markets resulting in an increase in the inventory overhang and stagnation in price. The demand in the mid-income segment remains better than the other segments and there is a shift of demand with units of smaller size and correspondingly lower value.

The office building segment has seen a significant increase in the occupancy ratio and the outlook remains positive. Supply has lagged behind and as businesses expand in the coming periods, there will be growth in demand for space.

The retail shopping mall segment also has witnessed reduced supply in the recent past. While there has been significant advertising and discount frenzy by e-tailers and consequent growth of demand from consumers for online way of shopping, the conventional mode will co-exist and there will be growth in demand particularly for spaces which are situated in good location and are designed well.

The hotel & hospitality segment tracks the growth of the larger economy. The sector has witnessed a subdued demand for a significant period of time and the expected growth in economic activity will turn the outlook to positive.

Bangalore Real Estate Market

The Bengaluru Real estate market has been the best performer when compared across other Indian cities, across all segments. But absorption levels in the residential segment have not increased and consequently the price points have also remained unchanged. There has been a rise in the inventory levels but this situation is easing as the new projects launched are also seeing a decline. Under these situations the choice of location of a project, sizing it right and Offering it to the right segment becomes critical.

The Company

Company Overview and Market Positioning

Incorporated in 2004, Nitesh Estates Limited ("Nitesh Estates" or "Company") is an integrated property developer and one of India’s most recognized luxury real estate brands with presence in multiple asset classes. The Company made its initial public Offering in May 2010 and was listed on the Bombay Stock Exchange and the National Stock Exchange. Within a span of 11 years, the Company has brought over 2.06 million sq. m. of area under development and has built a strong reputation for high quality.

Nitesh Estates operates through the Joint Development Agreement (JDA) model,which is asset-light leading to low capital requirements and is easily scalable. It has a sound pipeline of ongoing and upcoming projects covering 1.72 million sq. m. of area across multiple cities and operating segments. Over the years, the Company has received investments from large institutional investors such as HDFC, Goldman Sachsand Apollo Management Group.

Over the years, the Company has completed 13 projects across residential, commercial and hospitality segments covering a developable area of 242,475 sq. m. The current project portfolio of the Company has 19 high and mid-income residential projects and a mall. The residential projects have a total revenue potential of Rs. 4,600 Crores. Nitesh Estates acquired a shopping mall in Pune in May 2015 in line with its strategy to diversify into different asset classes. Strategically located, the Pune mall is expected to generate a rental income of Rs. 45 Crores per annum. The Company is also developing a shopping mall in Indiranagar, Bengaluru, one of the major shopping centers in the city. In addition to the aforesaid projects, the Company is continuously scouting for land arrangements for future joint development. The arrangements in hand are suitable for development of 366,035 sq. m. of developable area.

The Ritz-Carlton,one of the world’s finest brands for luxury hospitality, partnered with the Company to bring India’s first Ritz Carlton Hotel in Bengaluru. The Company believes in partnering with leading global firms and The Ritz-Carlton partnership is a testament to our development capabilities.

Nitesh Estates has a comprehensive corporate governance framework with an eminent Board and strong management team with significant experience across industries. In line with best in class corporate governance practices, the Company has a high proportion of independent directors with 5 out of the 10 directors being independent.

Operational Performance

During the year, the Company sold a total of 551 residential units having 85,470 sq. m. of area. The corresponding Sales Value was Rs. 468 Crore and this represents a sales growth of 23.5%over FY2014. The average realization for the year was Rs. 59,643 per sq. m., which is one of the best in the Bengaluru real estate industry. The collections were at Rs. 281 Crore, compared with Rs. 330 Crore in FY2014. The cumulative collections were at Rs. 894 Crore at the end of the year and represented 66% of the cumulative sales booked. Unrecognized Income from the ongoing projects, as on March 31, 2015, was at Rs. 598 Crore.

In FY2015, six residential projects were launched, namely Nitesh Virgin Island, Nitesh Rio, Nitesh Chelsea, Nitesh Melbourne Park, Nitesh Hunter Valley and Nitesh Knightsbridge. These projects have a sales potential of Rs. 1,400 Crore. Another 13 projects are currently under design and approval stages and are expected to be launched in the coming year. The sales potential of these projects is about Rs. 3,200 Crore.

The Ritz-Carlton hotel which commenced commercial operations in October 2013 is now experiencing increased occupancy. Spread over an area of 46,451 sq. m., the hotel features a multitude of lavish facilities and amenities. It has a convenient downtown location with richly-appointed guest rooms & suites and multiple dining options.

The construction of the shopping mall being developed in Indiranagar, Bengaluru will commence during FY2016 and is expected to be completed in 3 years. The mall is spread over 0.1 million sq. m. and has revenue potential of Rs. 60 Crore per annum for Nitesh Estates. It is designed by Callison, a globally renowned architectural firm and construction is to be done by L&T, the largest infrastructure company in India. Anchor tenants already on board include leading retail brands like PVR and Hypercity.

Financial Performance

Nitesh Estates generated revenue of Rs. 290.6 Crore, compared to Rs 300.1 cr in FY2014. The Earnings before interest, tax, depreciation and amortization (EBITDA) was Rs. 68.7 Crore at 23.6% margin, as compared to Rs. 60.8 Crore in the previous year. The Profit after Tax (PAT) during the year was Rs. 30.9 Crore at a margin of 10.6% and Net Profit was Rs. 2.4 Crore in comparison to Rs. 23.6 Crore and Rs. 5.3 Crore respectively in FY2014. The Basic Earnings per Share (EPS) was Rs. 0.16.

The robust financial performance of the Company may be attributed to increased revenue recognition from projects. There were 7 projects under income recognition during the year with Unrecognized Income of Rs. 598 Crore. The Company expects increased revenue going forwardowing to various projects getting to advanced stages of construction.

Revenue Breakup

Rs. Crore FY2015 % share FY2014 % share
Property Development 264.4 92.0% 263.6 88.9%
Contractual Activities 16.9 5.9% 29.0 9.7%
Maintenance Income 6.2 2.1% 4.9 1.6%
Total 287.5 297.5

Financial Condition

(Rupees in Crore)

Particulars March 31, 2015 March 31, 2014
Sources of funds
a. Shareholders’ funds 327.82 326.16
b. Minority Interest - -
c. Loan funds 417.55 336.21
Total 745.37 662.37
Application of funds
a. Fixed assets (net) 76.60 63.42
b. Investments 112.15 125.53
c. Net current assets 555.65 473.69
d. Deferred tax/ miscellaneous expense, among others 0.97 0.03
Total 745.37 662.37


(Rupees in Crore)
Particulars 12 months ended 12 months ended
March 31, 2015 March 31, 2014
Profit before tax 38.96 29.35
Add: Adjustments 27.59 30.76
Add: Net working capital (102.59) (12.26)
Less: Income Tax paid (1.35) (1.76)
Net cash flow from operating activities (37.39) 46.09
Net cash flow from investing activities (25.12) (61.20)
Cash flow from financing activities 53.91 7.50
Net cash inflow / (outflow) (8.6) (7.61)


Nitesh Estates has suitable commercial arrangements with its creditors, healthy cash flows and suffcient standby credit lines with banks and financial institutions to meet its working capital requirement. It deploys a robust cash management system to ensure timely servicing of its liquidity obligations. The Company has also been able to arrange for adequate liquidity at an optimized cost to meet its business requirements.

As of March 31, 2015, the Company had cash and cash equivalents of Rs. 28.0 Crore,total debt of Rs. 417.6 Crore and resulting net debt of Rs. 389.7 Crore. The Company’s net debt to equity ratio is 1.19.

Business Strategy

Joint Development Model

Nitesh Estates follows the Joint Development (JDA) model wherein it does not need to create a "land bank" and develops properties jointly with the land owners. Under this model, an agreement is executed with the land owner which entitles the Company irrevocably to plan the project, obtain approvals and sanctions from the relevant authorities, construct the project and have the right over a share of the developed property.

The Company is also entitled to name and market the project. A power of attorney is executed by the owners in favour of the Company which entitles it to enter into sale or lease agreements and have the right to transfer the Company’s share of the developed area. It can also raise finance against mortgage of the property as it is also entitled to the custody of title deeds. The owners of the land are entitled to payment of monies as deposit, which may be partly non-refundable, besides a share of the developed area. The owner indemnifies the Company from any claims against the title of the property.

This model requires very limited land acquisition cost and provides the rights over land to the Company. It also mitigates the risk related with the title of land and the fluctuation in land value due to a shift in consumer preferences. The Company, therefore, can effectively deploy the capital towards project development rather than developing a land bank. The JDA model is asset light and enables a higher internal rate of return to the Company.

Resource Deployment and Delivery Model

Nitesh Estates deploys its own employees for managing relations and transactions with land owners, sales and marketing, coordination of design and architecture, planning and monitoring of projects, contracts and procurement and quality management.

Depending on the project type and the end consumer segment, the Company also partners with external firms for design & architecture. It has associations with leading international firms such as KPF, WATG, Callison and L&T as well as local firms such as RK Associates and CnT Design and Construction Services. For some of its projects, Nitesh Estates also deploys specialist firms for project management and quantity survey for high and sustainable growth of business.

Business Structure – subsidiaries and associate companies

Nitesh Estates follows the strategy of creating special purpose vehicles so as to enable investments by investors in specific segments or projects of the Company. The subsidiaries of the Company, Nitesh Housing Developers Pvt Ltd, Nitesh Urban Development Pvt Ltd, Nitesh Indiranagar Retail Pvt Ltd, Nitesh Pune Mall Pvt Ltd and Kakanad Enterprises Private Ltd. were created in line with this strategy.

The Company has also created a wholly owned subsidiary – Nitesh Property Management Pvt. Ltd., to engage in the business of facility management. Further, Nitesh Estates has two joint ventures namely Nitesh Estates Whitefield and Courtyard Construction Pvt Ltd and an associate company called Nitesh Residency Hotels Pvt Ltd.

Geographical Footprint

The Company believes that deep insights into the community and clientele and a thorough understanding of the policies, priorities and processes of the local Government are essential factors that drive success. In line with this belief, Nitesh Estates has chosen to operate in the South Indian market. Majority of the ongoing and upcoming projects are located in Bengaluru,where the Company has strong experience of executing several projects since its incorporation. Furthermore, Bangalore is considered to be one of the best real estate markets in India. Nitesh Estates is also selectively pursuing opportunities in other southern cities such as Chennai, Kochi and Goa.

Market Segments

The Company aims to diversify its business by operating in various real estate segments. Towards this objective, Nitesh Estates operates in four business segments namely residential, hotels, office buildings and shopping malls. These segments have different characteristics and therefore varying risk and return profiles. The residential segment is a "build and sell" business where the payback period is low while the other three segments are "build and earn" capital intensive businesses where the payback period is high. During FY2014, Nitesh Estates brought The Ritz-Carlton hotel under operations. The Company targets to maintain the right balance between these segments so as to diversify its business risk. Currently, there are 20 projects in the construction stage, 19 of which are in the residential segment and 1 in the shopping mall segment.

In May 2015, Nitesh Estates acquired the Plaza Central shopping mall in Pune. Spread over 6 acres of land, with a built up area of 92,902 sq. m., the mall is located in Koregaon, an upmarket prime location in Pune. Further, in line with the strategy of diversifying annuity revenue stream, Nitesh Estates signed a partnership platform agreement (MOU) with Goldman Sachs, a global financial institution in May 2015. Under this platform arrangement Goldman Sachs will make investments through Nitesh Estates SPVs, Associates, Subsidiaries and JVs. These investments will be made in income generating grade A office buildings, shopping malls and luxury hotels across Tier I cities in India. Nitesh Estates will own upto 24.99% in the SPVs, Associates, Subsidiaries and JVs. Total assets/ investments under the partnership will be upto $250 million. This partnership will increase the asset base of the Company in the next 3-5 years.

Opportunities and Threats

Bengaluru which was once known as a ‘Pensioners Paradise’ has emerged as one of the Asia’s fastest growing city marked by strong industrial growth mainly in IT/ITES and the Biotechnology sector. Bengaluru contributes to about a third of the total Indian IT exports and houses approximately half of the total biotechnology firms in India. More than half of the demand in Bengaluru’s organized real estate comes from the 0.85 million IT/ITES professionals based in the city. Bengaluru is the third-largest hub for high net worth individuals in India, contributing maximum to the luxury real estate in Bengaluru. The market dynamics of the Bengaluru real estate market remains strong, backed by employment opportunities, IT/ITES industry growth, afiordability, favourable demographics and urbanization. With inflation no more a problem, borrowing in the housing market is expected to increase, thereby encouraging real estate development. The ongoing and proposed infrastructure development in Bengaluru along with active promotion of Special Economic Zones by the government will provide a conducive market environment for real estate development. Furthermore, the Planning Commission estimates that by 2030, about 600 million people will live in cities. Afiordable housing, therefore will create significant demand and the industry has a large gap to meet, with shortage seen among the low income groups. All the aforesaid aspects result in opportunities in all segments of real estate.

The key threats to real estate business emanate from the cyclicality of the business owing to the tide and ebb in consumer and business confidence. Going forward, with the e-commerce market in India making itself look attractive, can pose a serious threat to the retail real estate. Other immediate challenges to the business are from: ???environmental risks such as depletion of water table ? potential impact of global slowdown on the Bengaluru IT/ITES industry ? increase in cost of commodities and building materials ? increase in interest rates which could result in depressed demand from customers and at the same time increase our interest burden

? shortage of labour and skilled technical manpower and the consequent upward pressure on cost of human resources ? regulatory and policy changes results in higher costs and delays in approvals related with projects

Risk management

The Company has defined the enterprise risk management framework which has been approved by the board of the Company. The framework defines the roles and responsibilities of the various stakeholders, the risk identification process, the classification and analysis of risks, the review mechanism and defines the communication channels related with risk management. A risk register has been put in place and the assigned owners manage the risk within their purview. The risk management gets reviewed by the risk management committee which in turn reports to the Audit Committee.

There are several areas of risk related with:

• the title of land and joint development partners

• the information technology systems and disaster recovery

• the project management resulting in deviation from planned time, quality, cost and safety ? the availability and cost of building materials ? the changes in statutes and processes in decision making by the Government ?

• the availability of finance and the cost of financing

• the human resources – their availability, costs and compliance with the code of ethics of the Company ? the vendors and business partners ? the assets of the Company ? the customers and the competitors

Control Systems

Nitesh Estates deploys a strong internal control system to ensure timely and accurate compilation of financial and operational information, compliance with various regulatory and statutory guidelines, and protect investor’s interest by following highest level of corporate governance. The Company has a strong IT policy to ensure data is secure and protected.

The Company has appointed Deloitte Haskins & Sells LLP as their internal auditor. They carry out periodic audits as per an agreed internal audit programme. They bring to the notice of management, issues which require attention and also highlight the severity of the issue. Corrective actions are then set in place. The internal auditors report is reviewed by the Audit Committee and placed before the Board of Directors for their consideration. The Company strives to continuously strengthen the internal control systems by adopting standard operating procedures and by delegating roles & responsibilities to various Department heads for effective implementation of the same. This is to ensure that the Company conducts its business with highest standards of statutory, legal and regulatory compliance.


The Indian real estate industry witnessed subdued growth in FY2015. However the long term outlook still remains favourable: employment opportunities, afiordability, favourable demographics, urbanization, and preference of Bangalore as a location by NRIs, expats and IT/ITES professionals. Further, income tax benefits, interest subvention scheme and availability of financing options support the growing demand. Management would adopt a cautious approach and observe the developments closely while making decisions. The key focus for us in the following year would be:

• Focus on execution and revenue recognition: There are 16 projects currently in execution having a developable area of 1.15 million sq. m. There are another 10 projects having a developable area of 0.82 million sq m which are in various stages of design and approval and are targeted for launch during the coming quarters. This represents a huge growth in the intensity of the business and correspondingly on the revenue and profits of the Company. We are now focused on staying ahead on the cash collection cycle and accelerate execution. The consumers are highly discerning and the market is competitive. For success in the market place timeliness and quality of delivery are the differentiators.

• Design and Innovation: The Company has always focused on building a strong brand recall and differentiating itself from the competitors by continuous investments in new design and innovation for projects. Our association with leading firms like KPF, WATG, Callison, RK Associates and Cnt help us develop projects which provide our customers a unique living experience.

• Cash-flow Management – Tight control on accounts receivables and accounts payables with the objective of reducing the interest burden.

• Customer Relationship – Enhance customer experience at each of their touch points starting with the stage at which we interact with them to assist in selection of a home till the time it is handed over and thereafter when we provide maintenance services.

Human Resources Development

Our registered and corporate office is located in Bengaluru. This houses employees who oversee our financial, administrative, design and planning and other reporting functions. We have not experienced any material strikes, work stoppages, labour disputes. As part of our strategy to improve operational eficiency, we regularly organise in-house and external training programs for our employees. We also follow a transparent appraisal system for our employees.

Our work-force consists of our permanent employees, consultants and labour work force that work at projects through sub-contractors. We currently have 552 employees compared to 591 in the previous year. The function-wise break-up of our employees is as below.

Function FY2015 % share FY2014 % share
Construction Management 78




Sales & Marketing 51




Administration & Secretarial 40




Internal Support (HR, IT and F&A) 31




Facility Management 31




Pre-Construction 9




Quality Management 10




Contracts & Procurement 9




MD & COO's Office 9




Business Development 6




Legal 4




Ritz Carlton Operations 274




Total 552 591

For the development of some of our projects, we also engage third party consultant engineers, architects, interior designers and landscape designers. In addition to our employees, we also engage the services of contractual workers which include tradesmen, car drivers, housekeeping personnel and other skilled, unskilled and semi-skilled workers. Our consultants, contractors and subcontractors who work on our projects also employ a significant labour force.

For and on behalf of the Board of Directors
Place : Bangalore NITESH SHETTY