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Prozone Intu Properties Ltd.

BSE: 534675 Sector: Infrastructure
NSE: PROZONINTU ISIN Code: INE195N01013
BSE LIVE 11:46 | 13 Dec 75.60 -0.05
(-0.07%)
OPEN

76.00

HIGH

77.80

LOW

74.55

NSE 11:32 | 13 Dec 75.60 -0.15
(-0.20%)
OPEN

75.75

HIGH

77.65

LOW

74.65

OPEN 76.00
PREVIOUS CLOSE 75.65
VOLUME 118972
52-Week high 78.35
52-Week low 31.30
P/E 360.00
Mkt Cap.(Rs cr) 1,154
Buy Price 75.20
Buy Qty 265.00
Sell Price 75.60
Sell Qty 247.00
OPEN 76.00
CLOSE 75.65
VOLUME 118972
52-Week high 78.35
52-Week low 31.30
P/E 360.00
Mkt Cap.(Rs cr) 1,154
Buy Price 75.20
Buy Qty 265.00
Sell Price 75.60
Sell Qty 247.00

Prozone Intu Properties Ltd. (PROZONINTU) - Chairman Speech

Company chairman speech

CHAIRMAN

LETTER TO SHAREHOLDERS

Dear Shareholders

It's my pleasure to share with you our annual review and highlight the key fundamentalsof our business plan that i believe will optimize the valuation of Prozone Intu PropertiesLtd over the long term. The company changed its name from Prozone Capital Shopping CentresLimited to Prozone intu Properties Limited in 2014 to align with the new name of our UKpartner intu Properties plc (formerly Capital Shopping Centres Group plc).

Our priority now is on execution of the investments we've made over the years.Continued development of our existing projects is in full swing and we will begin theprocess of unlocking significant value this year. Let me first outline our strategyrelative to the current market conditions.

The Market Dynamics

Despite slower recovery of the indian economy than hoped last year with GDP growthunder 5% inflation at over 10% and pressure on currency weakening the Indian Rupee allsigns suggest that economic confidence is returning following the election of a newpro-development Government. Real estate businesses must in any case take a longer termview of the market in light of the gestation periods required to fructify value.

We believe that India's economic fundamentals over the long term are driven by threekey factors: Rapid urbanization with over 50% of the population forecast to be urbanizedby 2020 from current level of 29%; High youth population which is the prime driver ofconsumption with over 70% of the population under 35 years; and a savings-driveneconomy-as India has no real social security system over 50% of Indian savings projectedto be $10 trillion over the next 10 years is expected to be invested in residential realestate.

Urbanization gives rise to new major cities emerging in Tier II and III sectors as themajor metro cities are already choked and highly priced. This is further fuelling analready wide housing supply/ demand imbalance especially in the mid-to-upper levelresidential sector where we operate. This backdrop fits perfectly with our originalstrategy for Prozone and our existing investments into Tier II cities.

Our Business Strategy

We operate two distinct business models that are harmonized to optimize value. TheBuild to Lease model for retail shopping centres generates a rental income stream anddelivers long term value through yield compression. The Build to Sell model forresidential and commercial developments unlocks value shorter term through cash flows fromproperty sales.

Retail infrastructure can become one of the most valuable 'sticky' assets in a realestate portfolio over the long term. However under the economic conditions of the pastcouple of years we decided to slow down our retail development and reduce the mall sizesto align with the market. Developers in Tier II & III cities have been hit the hardestin the softer market but now with improved economic indicators and consumer confidencebeginning to return we believe the time is right to go forward with our retail projects.

Two other factors are affecting the retail infrastructure business. Ecommerce isgrowing exponentially and putting pressure on many types of offline retail. Many retailersare therefore more cautious about brick-and-mortar expansion and as a result we'reredesigning our mall tenant mix to be more experiential and adding more entertainmentelements. Additionally with the influx of foreign brands entering India seeking worldclass trading platforms the value of quality retail space will rise. There is a scarcityof high quality shopping malls and with our partners we have ensured our malls aredesigned to the highest international standards.

In the residential sector we have developed key differentiators that meet homebuyers'contemporary needs and give Prozone Intu a distinct USP. Our strategy is to anchor eachscheme with required site infrastructure and facilities first and have all approvals inplace before we launch a project. This way we exhibit the quality of our projects and giveour customers the confidence of on-time delivery. In general Residential sales have beensluggish last year but the mid-level segment in Tier II cities in which we operate isgrowing so we are moving ahead swiftly to develop and launch our residential townships.

Operations Overview

The Aurangabad mall has exhibited steady growth in trading densities and retailersales. We've increased our marketing spends to ensure we continue to add footfall in asofter market and as a result we continue to increase our market share in the city. Ourfirst commercial office tower (Prozone Trade Centre) of 190000 square feet which waspresold is under construction but as the commercial office sector is slow we're timingthe completion in line with demand. The Aurangabad 'street market' (Saral Bazaar) of55000 square feet in the lower ground floor is 65% sold nearing completion and should beopen by the end of 2014.

In Coimbatore shopping mall leasing is in progress for key anchor tenants as well asthe multiplex plus entertainment zone. We also have strong interest from both national aswell as the local/regional retailers. The residential township's sales office show flatclubhouse and landscape infrastructure is under construction and should be completed byend 2014. We plan to launch the project for sales in early 2015 within this financialyear.

In Nagpur mall design is completed but we are focusing on residential first such thatthe cash flows generated will fuel construction costs of the retail segment. Theresidential sales office sample flat and site infrastructure has been completed and thepre-launch was extremely well received with sales of over 340 units. The clubhouse andinfrastructure is under development and we will begin the first phase of residentialconstruction and restart sales in second half of 2014.

Our focus is on timely execution attuned to market demand and cash flow management.Revenue recognition from our key residential projects is expected to generate strong cashflows this year and grow further in FY16.

Financial Performance

The company achieved total consolidated revenue of Rs 59 Crore against the last year'stotal consolidated revenue of Rs 84 Crore. The Aurangabad mall rental income remainedsteady. This lower revenue reflects that there were no commercial office sales in FY14whereas we had presold the first office tower in Aurangabad the previous year. We'll seerevenue climb sharply once our residential properties go to market. The company earnedconsolidated EBITDA margin of Rs 21.39 Crore against Rs 25.76 Crore the previous yeardown 17%. This was largely due to increased power costs and additional marketingexpenditures in the Aurangabad mall required to maintain footfall in a softer retailmarket.

We benefit enormously from the knowledge and expertise of our Board and our strategicinvestors the Triangle Fund and the Lewis Trust Group whose continued support is greatlyappreciated. I'm also grateful to all our employees throughout the company for theirpassion loyalty and dedication to achieve excellence.

It's been an 8-year journey for all of us in Prozone Intu so far. Always our primaryconcern is to protect our investment portfolio through prudent analysis of markets andcareful deployment of finances and we've now reached a 'tipping point' where unlockingvalue will begin in earnest. I'm extremely grateful for your confidence; it's going to bea great journey ahead and I'm glad we're together to enjoy it.

With best wishes

Nikhil Chaturvedi

Managing Director