SEZs : Offering New Opportunities. K Malmarugan VP Infrastructure/MARG

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1 SEZs : Offering New Opportunities K Malmarugan VP Infrastructure/MARG March 23, 2007

2 MARG Profile

3 Incorporated in 1994 and headquartered in Chennai Promoted by Mr GRK Reddy, a first generation entrepreneur having decades of experience in real estate and financial services Early mover in Chennai realty space with focus on IT Corridor

4 Business organised into two verticals Real Estate and Infrastructure MARG s shares listed in Bombay Stock Exchange, Madras Stock Exchange & Luxembourg Stock Exchanges (FCCB) An ISO 9001 : 2000 Certified Company

5 Completed Real Estate Projects Digital Zone I, Software Technology Park, Karapakkam, Chennai (built up area 2.4 lakhs sq. ft) and leased to Tata Consultancy services Marg Square, Software Technology Park at Karapakkam, Chennai (Built up area of 2.05 lakh sq ft) and leased to Satyam Computers Digital zone II, Software Technology Park at Karapakkam, Chennai (built up area of 2.16 lakh sq.ft) and leased to Scope Intl, a subsidiary of Standard Chartered Bank Slash Support Systems, Software Technology Park at T.Nagar, Chennai Wescare Towers, an office complex in Chennai. Subhodaya, a housing complex in Chennai

6 MARG s Upcoming Real Estate Projects Riverside Mall Shopping Mall on OMR at Karapakkam Marg Greens Residential colony at Alathur Marg Garden Residential Apartments at Thandalam Marg Oakwood Serviced Apartments at Kazhipattur Residential Apartments at Kalavakkam Tranquil Cove Marg Oakwood

7 MARG Riverside

8 Karaikal Port Development of all-weather port at Karaikal Concession Agreement (CA) signed with Government of Puducherry in Jan 2006 Phase I comprising two berths for handling 4 Million Tonne one each for coal and general cargo Estimated Project Cost : Rs 450 Cr Financial closure achieved and works commenced Commercial operations slated to commence in October 2008 Ultimate capacity of the port would be 10 Million Tonnes

9 SIGNA Signa Infrastructure India Ltd (SIGNA) promoted as 74:26 JV by HUDCO and MARG Constructions Ltd (MARG) SIGNA incorporated with the objective of harnessing the synergies of HUDCO s financial strength and technical know-how and MARG s project development and implementation competencies SIGNA, the only JV of HUDCO in South India SIGNA to focus on large infrastructure projects of Central and State Governments posed under PPP format

kms from TIDEL park - 55 kms from Siruseri - 60 kms before Pondicherry - On East

10 Seekinakuppam SEZ 312 acres Light Engineering (incl Auto Ancillary) 300 acres Multi Services SEZ Seekinakuppam Village in Cheyyur Taluk of Kanchipuram District - 70 kms from TIDEL park - 55 kms from Siruseri - 60 kms before Pondicherry - On East Coast Road In-principal approval obtained Proposed SEZ Master planning by C.R.N Architects

11 Site at Seekinakuppam Dry land with no displacement

12 Allocation Plan Item Acres % Project Cost estimated at Rs 1200 Cr LES Plots MS Plots MS Tower Roads Open Space Processing Zone % 16% 5% 5% 3% Villas / Apartments Shopping Mall Convention Centre School & Hostel Hospital Desal Plant Roads Open Space Support Facilities Non-Processing Zone % 2% 2% 1% 0.5% 2.5% 8% 10% 1% LES/MS Plots Roads Shopping Mall Banks & Offices Hospital MS Tower Open,Landscape School Conv Centre Utilities Total apts, 180 villas

13 SEZs in Pipeline IT/ITES SEZ in Tirupati Construction related SEZ in Kodad, Andhra Pradesh Port based SEZ at Karaikal

14 Structure of Presentation Special Economic Zones Real Estate Sector Emerging Opportunities in SEZs Points to Ponder

15 Special Economic Zones

16 Special Economic Zones A specifically delineated duty free enclave that is deemed to be foreign territory for the purposes of trade operations and duties and tariffs

17 Economic Logic SEZs, an attempt to address : infrastructural deficiencies procedural complexities bureaucratic hassles and barriers of monetary, trade, fiscal, taxation, tariff and labour policies Since countrywide infrastructure development is complex and time consuming, SEZs are seen as important tool in expediting industrialisation Success of Chinese model

18 Forerunners First Free Trade Zone (FTZ) set in 1947 in Puerto Rico Next FTZ in Ireland in 1960 Asia s first FTZ set up in Kandla in 1965 SEEPZ set up in 1972 Shenzhen, Zhuhai, Xiamen and Shantou set up in 1979 in China China has just 6 SEZs Role Models Shenzhen and Jebel Ali (Dubai) Export Processing Zones forerunner to SEZ in India India s SEZ Policy vintage 2000; SEZ Act Feb 2006

19 Some Statistics 63 SEZs notified as on January IT/ITES SEZs 14 SEZs already functional MEPZ SEZ, Mahindra City SEZ 237 SEZs received formal approvals 164 SEZs have in-principle approvals

20 More Statistics 3,000 SEZs worldwide in 120 countries SEZs generate USD 600 bn in exports and provide jobs to 50 mn As on Mar 31, 05, in India, 811 units situated in 8 functional SEZs Estimated exports : Rs 1831 Cr Employment : 1,00,650

21 Emerging Scenario India likely to have more than 500 SEZs, if all applications and intentions translate into reality Estimated investment : Anywhere from Rs 3 tn to Rs 4.25 tn! Employment generation : Anywhere from 5 lakhs to 3 million! SEZs will ultimately generate 3 million jobs, an annual turnover of Rs 15,00,000 crore ($335 billion: 25-35% of India s annual GDP over the next several years), and will multiply Indian exports five-fold to $ 500 billion per year?...

22 Real Estate Sector

23 Overview RE Market currently estimated at USD 16 bn, likely to grow 3.5 times to USD 60 bn by 2010 FDI in real estate growing steadily from 4.5% of USD 2.7 bn in to 26.5% of USD 8 bn in Fears of overheating RE Bubble? Participatory Notes Vs Hedge Funds RBI s move to treat lending to SEZs on par with RE sector

24 Demand for Office Space Demand for office space grown from 4 mn sft in to 19 mn sft in % of demand to come from IT/ITES sector Expected requirement in 2010 for IT/ITES sector : 200 mn sft

25 Demand for Dwelling Units As per 10 th Five Year Plan, shortage of dwelling units estimated at 22 mn units 70% of above units to cater for middle and lower income groups Demand from lower strata still largely unmet and is set to emerge as a major opportunity

26 Spiralling Costs Rentals in NCR and Gurgaon reported to have increased by 90% to 100% last year Rentals of office space also shown similar trend with capital values rising by 150% Office rentals in Mumbai in areas like Lower Parel and Bandra- Kurla Complex also shown similar trend Chennai, also witnessing booming RE market HTL deal : 11 acres for Rs 297 Cr Rentals breaching Rs 60 to 70 sft in areas outside Corporation limits

27 Hospitality Untapped Estimated additions by 2010 : 50,000 to 70,000 rooms Average Room Rents, one of the highest in the world Tourism sector recording very high growth rates Foreign tourist arrival estimated at 4.42 mn in 2006 (13% growth) Strong growth trends in domestic tourism as well Emerging trend : Leading Realty Developers tying up with Premium Hotel Chains : For tapping the growing demand Insulation from vagaries of RE sector

28 Opportunities almost unlimited for RE Sector considering the burgeoning growth in demand for residential and official spaces, SEZs and hospitality segments

29 Emerging Opportunities in SEZs

30 Opportunities Galore Huge untapped demand for RE Sector arising out of new SEZs More than 50 to 70 SEZs to be IT/ITES SEZs FSI and Ground coverage likely to be higher Processing area in SEZs to be mostly around 35% - 40% Malls, hospitals, multiplexes, hotels and convention centres in addition to service apartments and residential/office complexes Construction of industrial/manufacturing units to also emerge as an attractive area

31 Advantages of SEZs for Developers 100% FDI allowed for Township with residential, educational and recreational facilities Franchise for basic telephone services in SEZ Income Tax benefit under Section 80IA (10 years in block of 15 years) Duty free import/procurement of domestic goods for development and O&M of SEZs Exemption from Service Tax/CST Income of infrastructure capital fund/company from investment exempt from IT

32 Other Advantages Investment by individuals in SEZ companies exempt under Section 88 of IT Act Developer permitted to transfer facility for O&M Generation, transmission and distribution of power allowed Freedom to allocate space and built-up area to approved SEZ units on commercial basis Provision of utility services, restaurants, security services on commercial basis

33 Areas of Opportunities Developer of facilities Facilities Management Other forward and backward linkages Provision of utility services Landscaping and horticulture Architectural Design and PMC services (DLF and Feedback) Generation, transmission and distribution of power Back office services

34 Our Outlook for Developers Likely number of SEZs in next 3 years : 150 (subject to non-stipulation of cap in numbers) Average size per SEZ : 100 hectares Total land area : 150,000 hectares Minimal development cost per hectare : Rs 2 Cr per hectare Total investment in RE facilities : Rs 300,000 Cr (excluding cost of plant and machinery for processing area)

35 Our Outlook for Facilities Management World-class assets require high quality O&M to preserve and sustain their utility and viability Facilities Management, still an uncharted area Leading RE players, intending to diversify into facilities management Estimated market size for SEZs : Rs 18,000 Cr (6% of Investment for good quality asset) MARG is setting up a separate BU for Facilities Management!

36 More on the Anvil Education SEZs Health Care SEZs Power SEZs Tourism SEZs (Special Tourism Zones) Entertainment SEZs Shared land banks Common infrastructure facilities across neighbouring SEZs Mortgage Markets Maturing of rental markets

37 Positive Fallout Inflow of huge FDI Impetus to manufacturing and services industries and emergence of Indian Multinational Companies (MNC) Large scale investments to lead to consolidation and emergence of key players at regional levels Adoption of modern construction, management and O&M technologies and practises Global alliances and collaboration Standardised service levels in terms of construction, delivery and management of assets Real Estate Development Regulatory Authority? Significant ripple effect indirect jobs, hinterland development

38 Points to Ponder

39 SEZs will drive investment and production away from the Domestic Tariff Area and lead to significant revenue losses, which some estimates put at Rs 175,000 Cr!

40 The Chinese started with four SEZs and have six now. We are going in for SEZs on a cottage industry basis!

41 SEZs will be at the expense of established urban centres and Central Business Districts and would drive away investments from these areas, making them unliveable!

42 SEZ Policy is a response to governance failure. Perhaps it reflects a belief that growth and social justice cannot be reconciled so you go for growth and leave social justice for Domestic Tariff Area to handle!

43 Why doesn t the State encourage industry to develop the more than 20% (68 million hectares) of the country s land area that is officially classified as wasteland instead of focusing on taking away huge chunks of lands from the country s farmers?

44 We will give you our blood but not our land. - A Resident of Nandigram

45 In India there is a sacred bond that binds the tiller with the land. If you want to snap that bond, do that with great caution. Don t think you can do it lightly it is a minefield! - Mr P Chidambaram (Jan 2007)

46 Thank You

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Real Estate NOVEMBER For updated information, please visit Real Estate NOVEMBER 1 Contents Advantage India Market overview and trends Growth drivers Success stories: DLF, Godrej Properties Opportunities Useful information 2 Real Estate NOVEMBER Advantage India