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Transaction Services Strategy

March 2014

LEPL Projects Limited


Project Lychee
This is a working draft. Messages in this draft
report are subject to amendments/withdrawl

Strictly Private and Confidential

Table of Contents
Section

Overview

Page

Scope and Process


1

Project background

Feasibility Assessment

2.1

The Tier 2 growth story

2.2

Vijayawada - An emerging destination

14

2.3

Vijayawada city attractiveness

23

2.4

Attractiveness of the proposed location

34

2.5

Micro-market assessment for project components

37

2.6

Summary

61

Other successful mixed use projects in India

64

Annexures

67

Appendices
1

Section 1
Project background

LEPL Projects Limited Feasibility Study


PwC

March 2014
1

Section 1 Project background

LEPL intends to undertake development of an integrated township on a


600 acre land parcel located on NH-5, Vijayawada-Guntur highway
The site is located on NH 5, 13 kms away from Vijayawada city, which is the 3rd largest city of Andhra Pradesh
Vijayawada Fact File

Andhra Pradesh

District

Krishna

Population (2011 census)

1.2 million

Geographic Area (sq.km)

119.8

Languages spoken

English, Telugu

Literacy rate

69%

Source: Zonal Development Plan, VUDA

Our understanding of project details


Vijayawada

LEPL (LEPL Projects Limited or the Company) is a Vijayawada-based


diversified Real estate development company with offerings in
residential, commercial, education, aviation, power and health sectors
Project is planned on a total land area of 585.83 acres, on NH5 between
Vijayawada and Guntur Highway. This falls under the authority of Vijayawada
-Guntur -Tenali- Mangalagiri urban development authority (VGTMUDA)
LEPL has acquired land parcel of 432 acres and is in the process of
acquiring the remaining land parcel. LEPL has also donated 6.5 Acres to
Chinmaya mission
Land is presently approved under the Residential category conversion to mixed-use development has been proposed to VGTMUDA by
LEPL
The site is likely to be developed in 4 phases, starting from October
2014 to 2018-19

LEPL Projects Limited Feasibility Study


PwC

Source: LEPL management

March 2014
2

Section 1 Project background

As an integrated mixed-use residential township, the project will comprise


of various components residential, commercial, office and other social
infrastructure elements
S.
No.

Particulars

Plotted development

190.61

Golf course

45.93

Commercial & Entertainment

10.43

Residential apartments

82.62

Office

72.39

High end Villas

51.22

Education complex

19.02

Health care

17.48

IT Park SEZ

18.94

10

Retail

4.10

Net Land area for development

Total Area in
Acres

512.74

Source: LEPL management

LEPL Projects Limited Feasibility Study


PwC

March 2014
3

Section 1 Project background

During the course of this engagement, we interviewed several


corporates, business professionals and industry players in Vijayawada
and other cities
Category

Number of interviews in
Vijayawada

Number of interviews
outside Vijayawada region

Industry Associations

Commercial &
entertainment

Hospital

Real estate players

6
(including International
Property Consultants such as
JLL and C&W)

Hotels

IT/ITes

Others

24

25

Total

LEPL Projects Limited Feasibility Study


PwC

We have carried out


c. 50 interviews till
date across various
industry players in
each sector of
interest

March 2014
4

Section 2
Feasibility Assessment

LEPL Projects Limited Feasibility Study


PwC

March 2014
5

Section 2 Feasibility Assessment

We have used a hypothesis based approach to evaluate the feasibility of the


integrated township
Developing an integrated township on the proposed location (in NH5)
between Vijayawada and Guntur is an attractive opportunity
2

Vijayawada as an emerging investment


destination

Vijayawada will emerge as an


attractive investment destination
Indias GDP is expected to grow
from 4.6% currently to 5.5% by
FY2015 and 6.5-7% by FY2016
Growth in Tier 1 cities is
stagnating due to infrastructure
constraints and saturation
This will lead to Tier 2 cities
like Vijaywada attracting
significant share of investments
going forward
Political developments in
Vijaywada to further accelarate
this
There are also other enablers in
Vijaywada which will drive this
growth

LEPL Projects Limited Feasibility Study


PwC

3
The proposed location offers several
advantages

Location Attractiveness of the project

The location has an attractive


catchment and offers some
unqiue advantages

Investment inflow into Vijaywada will


increase demand for housing and
other planned project offerings

Attractivess of each of the project


components within the township

Hypothesis

Demand and supply scenario


for various project components:
Plotted Development and
residential apartment
High-end Villas
Entertainment
Golf Course
Education Complex
Healthcare
Retail
Hotel
IT SEZ
Offices
Recommendations for LEPL

1. Average estimates from various sources such as IMF, Trading Economics, World Bank,

March 2014
6

Section 2.1
The Tier 2 growth story

LEPL Projects Limited Feasibility Study


PwC

March 2014
7

Section 2.1 The Tier 2 growth story

As Indias economy continues its growth trajectory, growth is likely to


become more broad-based involving cities beyond Top 6
As Indias economy continues on its growth trajectory, growth is likely to spill over and become more broad-based
by expanding beyond the traditional top 6 cities
First wave of growth: Concentrated in cities of

Top 6 cities
comprise 23%
of the GDP1

New York, Los Angeles, Chicago and Washington

Stage of development of the economy

1.3 X USA
1.4 X Japan
Top 6 cities
comprise 26%
of the GDP1

5 X China

Expansion to other cities: Factors such as housing


affordability, low population density and economic
abundance led to emergence of cities such as San
Francisco, Seattle, Boston etc . Manufacturing started
moving to other emerging cities such as
Texas, Austin, Wisconsin etc

First wave of growth: Limited to top cities of


Shanghai, Beijing, Guangzhou, Shenzhen and Tianjin.

Expansion to other cities: With rising wages nationwide, interior

4 X Brazil
Top 6 cities
comprise 31%
of the GDP1

3 X India

Note 1 GDP refers to the Nominal GDP as on FY 2012

LEPL Projects Limited Feasibility Study


PwC

regions started receiving greater investment and government support.


Cities such as Chengdu, Chongqing, Hangzhou, Ningbo etc witnessed
increasing industrial and commercial activity outpacing growth in
larger cities

First wave of growth: Historically, growth in India has been concentrated


in top 4 metro cities of Delhi, Mumbai, Kolkata & Chennai

Expansion to other cities: As metros reached saturation levels and with


increasing pressure on infrastructure, land and utilities, cities such as
Bangalore, Hyderabad and Ahmedabad gained prominence Slowly growth has
begun to become even more broad-based spilling over to cities such as NCR
region of Delhi, Pune, Kanpur, Surat etc

Timeline
X Represents the number of times GDP (nominal) has grown over last 10 years till FY 12
Source: Brookings Institution, World bank estimates, PwC analysis

March 2014
8

Section 2.1 The Tier 2 growth story

Rapid urbanisation in India has brought its own set of challenges for top
cities....(1/2)
Urban population is expected to increase to 600 mn by 2030...

India will have 68 cities with a population of more than


a million each by 2030 up from 42 in 2008

600+
+225
Urban Population
(In Million)

600+

375
223

Number of cities

291

340

Total Population
Million
Urbanization %1

1991

2001

2011

2030

856

1,040

1,210

1,470

26%

28%

31%

41%

Tier 1 > 4 mn
Tier 2
1 mn - 4 mn
Tier 3 & 4
< 1 mn

This rapid urbanization has propelled the creation of


satellite cities
Urban cities are facing challenges of high population density which
has led to sharp increase in housing costs, severe pressure on road
infrastructure and utilities such as acute water and power shortages.
Government policy too has been focussed on broad-basing growth
to other cities and this has led to emergence of satellite cities which can
sustain the momentum of economic growth

Source: Worlds Cities Summit- CII, US Census Bureau, PwC Research & Analysis

LEPL Projects Limited Feasibility Study


PwC

93
52

158 13

106

55

9
33
337

195

2008

6,000

5,000

2030

With saturation in Tier 1 cities, Tier II and III cities are


gaining momentum and will help drive India growth story.
As they develop, they will also provide people living close to
them access to jobs, markets and urban infrastructure
NASSCOM
Note 1 :Urbanisation is defined as the ratio of urban to total population based on the census
definition of urban areas; population >5,000; density >400 persons per square kilometre; 75
percent of male workers in non-agricultural sectors; and statutory urban areas.
March 2014

Section 2.1 The Tier 2 growth story

...They are plagued by rising cost and unavailability of land , manpower


adding pressure on infrastructure and utilities
Challenges faced by companies in metro cities

Paucity of land and rising


real estate costs

Infrastructural challenges

Ground water
availability, power shortages
and drinking water shortages

Rising manpower costs and


higher attrition rate

LEPL Projects Limited Feasibility Study


PwC

Land in Delhi-NCR has become expensive and


Bhiwadi and Dharuhera have become industry
hubs on the Delhi-Mumbai Industrial Corridor.
Companies such as Honda, Gillette and Lafarge
have set up plants there
Ashiana Housing
Larsen & Toubro is considering moving its
manufacturing facilities out of Mumbai to Surat
as Mumbai is facing severe pressure on its civic
infrastructure and utilities and it has become a
logistic nightmare to operate there
L&T, India
Ground water has depleted very fast due to rapid
urbanization, and at this rate Hyderabad will be
the first to run dry in three years time. Problems
of long and indiscriminate power cuts also
remain in the city
National Geophysical Research Institute
Attrition is a big worry in metros as salary hikes
of even 15-20% are ineffective due to rising cost of
living and retaining talent is becoming tougher
Infosys

Implications for companies


Companies are setting operations in
the outskirts of major cities such as
Faridabad, Noida, Gurgaon, Navi
Mumbai etc.
However transportation costs and
commute time has increased
substantially causing dissatisfaction
among employees.
Paucity of land has led to
manufacturing companies
relocating to other cities which offer
good availability of resources and
infrastructure
As the competitive advantages of
operating in metro cities have started
becoming less apparent , service
sector companies such as
IT/ITes, banking etc are targeting other
emerging cities for expansion

March 2014
10

Section 2.1 The Tier 2 growth story

As a result, growth in recent years has spilled over to other Tier 2 cities

Vijayawada

Evolution: Tier 1 cities : 8 cities. Population > 4mn


Pre 2003

Stage of classification of Tier 1 cities

Next wave of growth

12 major clusters are expected to house more than 40%


of this rapidly growing urban population

Delhi
Mumbai
Chennai
Kolkata

2004
Bangalore
Hyderabad

2008 onwards
Ahmedabad
Pune

India had 4 major metro cities - Commercial and industrial activity has
quickly expanded in the last decade, leading to emergence of newer cities
which are driving growth in India
Infrastructural challenges and space constraints in Delhi has led to
growth expanding to 4 satellite towns
Mumbai has not been able to sustain its growth momentum and
infrastructure development; Pune as well as Navi Mumbai have emerged
as hubs of commercial and business activity
Bangalore and Hyderabad have started facing issues regarding real
estate costs, power and water shortages due to which cities such as
Mysore and Vizag have emerged as alternatives

Evolution: Tier 2 cities : 26 cities, Population 1 mn - 4 mn

Even a decade back, half of Indias 10.7 million households


with an annual income of up to $23,000 were living in
smaller cities such as Vadodara, Nagpur, Ahmedabad and
Vijayawada
National Council for Applied Economic Research
LEPL Projects Limited Feasibility Study
PwC

Emerging
cities

Kochi, Trivandrum, Mysore, Coimbatore, Bhubaneswar, Vishakha


patnam, Vijayawada , Jaipur, Chandigarh, Surat

Other
cities

Nagpur, Lucknow, Vadodra, Indore, Ludhiana, Madurai, Bhopal,


Patna, Nasik, Agra, Asansole, Varanasi, Rajkot, Meerut, Jamshed
pur

Source: NCAER, PwC Analysis and Estimates

Tier 3&4 cities : All other cities, Population < 1mn


March 2014
11

Section 2.1 The Tier 2 growth story

Tier 2 cities are emerging as a key investment destination across several


sectors
Services sector comprising of
trade, finance, IT/ITES etc has outpaced other
sectors in India during the last 6 years...
Components of GDP at factor
cost (in INR bn)

CAGR
55,054 GDP

19%

45,161
17%

35,644
16%

28%

8%

Finance, Insu
rance, Real 11%
Estate &
Business
Services
Trade, Ho
tel, Trans
port and
Communi
cations

Companies are expanding into Tier 2 cities to overcome


challenges of operating in metro cites and capture growing
demand in these emerging cities
Sector
IT/ITes

9%
Manufacturi
ng

27%
8%

26%

Manufactur
ing

6%

Healthcare

8%
8%

15%

Construction 7%

17%

Others

14%

Agriculture

16%

16%
18%

18%

18%

15%

FY 07

FY 10

7%

3%

Others

Retail,
Hospitality,
Education

FY 13

LEPL Projects Limited Feasibility Study


PwC

Source: PwC Analysis,


RBI data bank

Investment focus in Tier 2 cities


"We are looking for land in various parts of the country and
looking to expand our capacity with a focus on Tier 2 cities since
some of the Tier 1 cities are facing challenges of infrastructure
Infosys
There is ample scope for our operations in Tier 2 and Tier 3
locations. Over 70 per cent of the campus recruitment for TCS is
conducted at Tier 2 and Tier 3 locations
TCS
We plan to increase our sales and service outlets from 274
across 146 cities and towns in India now, to 500 by 2015,
mainly in 2 and 3 markets
Ford India
Tier 2 and 3 towns offer better return on investments - We
expect about 30 per cent of our revenues and profits to come
from Tier 2 and Tier 3 cities in the next three to five years. 50%
of our planned addition of 2,400 beds is in these cities
Apollo Hospital
There is a huge scope in Tier 2 and 3 towns as growth has
slowed down in metros and our model of retail with Brand
Factory is creating an opportunity to buy brands at lower
price
Brand Factory, (Future Group)
As Tier 1 cities in India are getting expensive for hotel
development with a gestation period of about 15 - 20 years,
there is booming scope in Tier 2 cities for future hotel demand.
March by
2014Taj
Vivanta
12

Section 2.1 The Tier 2 growth story

This is evidenced by prominent companies establishing their operations


beyond the metros and entering Tier 2 markets in recent years
Emerging Tier-2 destinations of India (2013)

IT investments in Tier 2 cities in last 5 years


No.

8
7

3
1

2
Tier 2 cities of India are definitely lucrative for us for
several reasons. Besides the cost factor, one gets an amazing
talent pool in Tier 2 cities. We have plans to extensively
expand in Tier 2 cities of India in the next two-three years
Genpact
LEPL Projects Limited Feasibility Study
PwC

City name

Sectors driving growth

Mainstream IT firms
with delivery centres1

Kochi

IT/ITes, Manufacturing

TCS, IBM, Wipro

Trivandrum

IT/ITes, Real Estate

Oracle , Infosys, TCS, IBS


Software Services

Mysore

IT/ITeS

Infosys, Wipro

Coimbatore

IT/ITeS, Education,
Healthcare, Manufacturing

Cognizant, TCS, IBM,


Dell

Bhubaneswar

IT/ITeS, Education,
Engineering and R&D

Mindtree, Genpact, IBM

Vishakhapatna
m

IT/ITeS, Healthcare,
Manufacturing

IBM, Infotech, Miracle


Software, Wipro

Jaipur

IT/ITeS, Education,
Manufacturing

Genpact, Infosys

Chandigarh

IT/ITeS, Education

HCL, Wipro, ST
Microelectronics, Sapient

Vijayawada

Education, Healthcare and


Automobile

FirstSource, domestic IT
companies

Other cities in South India that have emerged as manufacturing


hubs are Sri-city and Ranga Reddy in Andhra Pradesh, and
Tumkur and Kolar in Karnataka
Note 1: For each city, the list is indicative and doesn't include all mainstream IT firms
Source: PwC Analysis,

March 2014
13

Section 2.2
Vijayawada - An emerging destination

LEPL Projects Limited Feasibility Study


PwC

March 2014
14

Section 2.2 Vijayawada - An emerging destination

Services (IT/ITeS, Banking) has buoyed growth in Andhra Pradesh; A large


portion of these investments have flown to Hyderabad
GDP of Andhra Pradesh (FY 13 - constant (2004-05
prices) INR 4,265 bn

GDP growth by sector and cumulative investments


Growth in
GDP (CAGR
2008-13)

Industry
sector
Manufacturing

24%

11%

Agriculture
Sector

Construction

8%
Trade, Hotels &
Restaurants

13%
19%
11%

Others

6% 8%
Transport
& Storage

Real estate &


Business Services

Services
sector

Banking &
Insurance

Cumulative
investment
from FY11 -13
(INR bn)

Manufacturing

5%

1,341

Construction

7%

306

Trade, Hotels & Restaurants

5%

35

Real estate & Business Services

7%

103

Banking & Insurance

15%

n/a

Transportation, Logistics,
Warehousing & Packaging

11%

473

Agriculture Sector
Total

2%
7%

n/a
2,722

Historically, Hyderabad has attracted a larger share of investments Hyderabad accounts for 9% of the
states GDP, as compared to 5-6% of Krishna/Guntur districts.
However, with the bifurcation of the state, high growth sectors such as
transportation, logistics, construction, business services and food processing can gain
traction in these districts
Source: PwC Analysis, SEC AP Survey 2012-13, NSDC Skill Gap
Study for AP (2013), 12th 5 year Plan AP

LEPL Projects Limited Feasibility Study


PwC

March 2014
15

Section 2.2 Vijayawada - An emerging destination

The bifurcation of Andhra Pradesh is likely to increase political will for


development of the Seemandhra belt, especially Vijayawada (as the
frontrunner for the capital of the new state)
Vijayawada is a leading contender for being the new capital after state bifurcation which can propel interest and
growth in the region
Telangana

Hyderabad
Hyderabad

Seemandhra

New capital:
Vijayawada ?

Andhra Pradesh has been pro-active in offering incentives under the ICT Policy, 2010-2015
such as single window clearance under APIIC, subsidy on lease rentals and exemptions
from certain regulations to promote IT/ITES industry in the state. However, most of these
investments have been channelled to Hyderabad
Absence of political will and lack of development of industrial ecosystem in the region has
discouraged companies from committing investments to the VGTM region
Vijayawada is being touted as the capital of the new state due to its inherent locational
advantages, superior connectivity and status as a major trading hub in Andhra Pradesh. If
Vijayawada becomes the new capital, it can radically alter the investment climate in the
region and provide significant boost to investment in the region
LEPL Projects Limited Feasibility Study
PwC

Source: Trade Press, Industry reports, Discussions with industry participants

Vijayawada can potentially emerge


as the new capital
The Andhra Pradesh Reorganization Bill
2013, in its current form, envisages
Hyderabad as a common capital for 10
years and a special financial package for
the Seemandra region to facilitate
creation of a new capital
The bill has been cleared in both houses
of the Parliament and is awaiting the
Presidents nod
Recent news articles and statements from
industry leaders positions Vijayawada as
a frontrunner for being the new capital
It is easier to establish a capital in Vijayawada as
it has facilities like airport, large bus terminal, a
railway junction and infrastructural facilities
besides being located centrally
Andhra Chamber of Commerce
Enquires from IT companies have gone up after
bifurcation bill as Vijayawada is the strongest
contender companies will be willing to set up
operations when there is clarity
STPI Vijayawada
March 2014
16

Section 2.2 Vijayawada - An emerging destination

The region is likely to see a spurt in investments and demand once it is


accorded the special category status along with a substantial financial
package
Salient features of
Package to
Seemandhra region
Financial package for Seemandhra region

"Special category state" status for 5 years


Advantages of special category status ...

Funds for financial


assistance for 3 years1

INR 500 bn
The Andhra Pradesh Reorganization Bill 2013
provides for a special development package for the
backward regions of the successor state of Andhra
Pradesh, in particular for the districts of Rayalaseema
and North Coastal Andhra Pradesh.
While the quantum of the package has not been
announced, it is estimated to be around INR 500 bn
which can provide a huge boost to the region

Significant
excise-duty
concessions

Waiver of excise duty in the state (currently at


16%) for upto 10 years
Attracts industries to relocate/locate
manufacturing units within their territory

Higher
central
budgetary
allocation

30% of the Centre's gross budget has to be


mandatorily allocated to special status states
Higher share in the Union government's resource
allocation to help overcome their backwardness

Higher share
of central
grants

Special-category states obtain funds (Centrallysponsored schemes and external aid) in the ratio
of 90:10 grants versus loans, as opposed to 30:70
for other states under regular funds

The state of Seemandhra is 12th State to get the benefit of special


package besides 11 other states in the country
Timely sanctioning and allocation of the allotted money is key for
development of the residual state

Note 1 As per announcement from Union Minister for Rural Development, Trade press

LEPL Projects Limited Feasibility Study


PwC

Source: Trade Press, Industry reports, Discussions with industry participants

March 2014
17

Section 2.2 Vijayawada - An emerging destination

Vijayawada will potentially emerge as a key investment destination; the


VGTM region can target investments flows of more than INR 250 bn by
2017
Indias investment flows have more than doubled every
5 years since FY 02

Investment inflow1 in India (INR bn)


63,990

Projected CAGR
15%

CAGR
18%

6,025

1.

2.

Share of Andhra Pradesh


@ 6%
INR 4480 bn

31,814

15,406

FY 02

Targeting even 5-6% share of the investment inflow to


unified Andhra Pradesh, will lead to Vijaywada
attracting investments of over INR 250 bn

FY 07

FY 12

FY 17

Potential share of VGTM1


region
@ 5-6%
INR 250 bn

Investment inflows for a year has been represented by the annual gross fixed capital formation (GFCF) for Industry, as reported by ASI. GFCF is net increase in physical assets for
industries (investment minus disposals). Industry as defined by ASI includes factories employing 10 or more workers using power; and those employing 20 or more workers without using
power. It also includes certain utilities and servicing units such as electricity, water supply, cold storage, repairing of motor vehicles etc.
Vijayawada, Guntur, Tenali and Mangalagiri

Source: Annual Survey of Industries (ASI), PwC analysis

LEPL Projects Limited Feasibility Study


PwC

March 2014
18

Section 2.2 Vijayawada - An emerging destination

Services together with select manufacturing segments will be the key


drivers to this growth in the region

Incremental workforce requirement 2012-17


(in 000)
586

2,495
1,162

35

584

103

Banking & Insurance

580

n/a

Agriculture Sector

Construction
Real estate
Transportation &
logistics

473

217
679

IT/ITes
Hospitality

306

Real estate & Business Services

Transportation, Logistics, Wareho


using & Packaging

High

1,341

Construction
Trade, Hotels & Restaurants

Break-down of emerging sub-sectors in the state

Incremental
manpower requirement
requirementt

Manufacturing

Cumulative
investment in 2011-13
(INR bn)

Agriculture
Mining &
quarrying

Banking and
Food processing
insurance
Chemicals &
Auto and autopharma
components
Textiles and leather

Wood and paper


products

Recreational
services

Education and
other services

n/a

Low
Low

Economic potential and attractiveness of


the sector

High 15

Source: PwC Analysis, SEC AP Survey 2012-13, NSDC Skill Gap


Study for AP (2013), 12th 5 year Plan AP

LEPL Projects Limited Feasibility Study


PwC

March 2014
19

Section 2.2 Vijayawada - An emerging destination

Sectors such as agri-processing, leather and textiles etc are suited for KrishnaGuntur districts. Growth in these segments can generate employment for over
80,000+ people in the region
Types of industries

Manufacturing and industries

Food and agrobased processing

Auto and auto


components

Leather and
textiles

Manpower
demand 2012-172

Total : 12,000+1

Total : 25,000+1

S/SS: 18,496
MS: 12,133

Others

S/SS: 6,000
MS: 4,000

Source: PwC Analysis, NSDC Skill Gap Study for AP (2013)

LEPL Projects Limited Feasibility Study


PwC

S Skilled

Opportunities

Challenges

Processing of chilies and spices produced in Guntur


Processing of rice, maize, pulses, mango produced in
Krishna district
Setting up of food parks and agri export zones

Auto Nagar Industrial Estate (340 acres) in


Vijayawada caters to the automobile sector with more
than 1500 automobile accessory units
Scope for setting up of automobile R&D
hub, bodybuilding and assembly plants
Guntur is a cotton producing hub contributing 16% of
APs overall production more than 600 cotton mills.
Exports of garments and fabric, setting up of
integrated textile park
Large livestock population indicates good scope for
processing raw hides and skins to finished leather
The region has potential for manufacturing metals &
non metallic products , chemicals & pharmaceuticals
including refractory manufacturing
SS Semi-skilled

MS Minimally skilled

Note 2 represents incremental manpower requirement over 5


years

High level of
fragmentation and
challenges in scaling up

Land is scarce and


prices are incraesing
rapidly

Government does not


own large tracts of land
Land availability will be
an issue

Lack of political will has


restricted flow of major
investments to the area

Note 1 based on an annualised 4-5%


growth over existing employment

March 2014
20

Section 2.2 Vijayawada - An emerging destination

Services (IT/ITeS, banking) will also find this region attractive due to cost
advantages and availability of skilled labour pool
Manpower
demand 2012-172

Types of industries

S/SS: 14,210
MS: 6,395

Services

Transportation, logi
stics, warehousing
and packaging

IT and ITES Sector


S/SS: 99,400

Ancillary
sectors

Banking , financial
and insurance

MS: 12,381

Construction
S/SS: 300,000+
MS: 121,100

Tourism, travel
and hospitality

Opportunities
The Krishna-Godavari belt has significant agricultural
horticulture and marine produce, however current
cold storage capacity is only 6% of the total
produce and needs to be augmented
Vijayawada is a major commercial centre to a host of
wholesale and retail activities dealing in consumer
goods, textiles, automobiles and industrial products
Scope for setting up an integrated logistics park
and strengthening cold storage chains
Strategically located close to major IT hubs of
Hyderabad, Chennai and Bangalore
Large catchment of engineering graduates, low cost
of living and recent development of retail, malls and
entertainment complexes
Setting up of SEZ and STPI in the region
Rapid development of infrastructure in the region
expansion of road network, creation of commercial
and office space and expansion of the cities will lead
to a large manpower deployment in the construction
and real estate sector
Social infrastructure in terms of hotels and tourism is
likely to receive a boost as business activity increases
in the region.

Challenges

Inadequate skilling and


training of workforce

Investments have slowed


down in the region due to
political instability and
lack of government will

Social infrastructure has


started developing
recently, resulting in
stagnation of business
services dependant on
mid-level management

Limited flight options in


the past restricted travel
to the region

This will lead to incraesd demand for social infrastructure such as retail, entertainment and hospitality
LEPL Projects Limited Feasibility Study
PwC

S Skilled

SS Semi-skilled

MS Minimally skilled

Source: PwC Analysis, NSDC Skill Gap Study for AP (2013)

March 2014
21

Section 2.2 Vijayawada - An emerging destination

Vijayawada has in place most of the key enablers for emerging as a key
investment destination
Current
strength

Enablers for Investment

Political

Human capital

Infrastructural

Connectivity Road, Rail, Air

Rationale
Vijayawada is a major transit point major National Highways pass through the
city, largest railway junction in South, largest and busiest bus terminal in Asia
and a domestic airport

Land cost & availability

Within the main city limits, land availability is relatively scarce and is becoming
expensive. As a result, demand is likely to move to the peripheral regions as the
city expands

City infrastructure
and utilities (roads, water, power)

Development of city road infrastructure in Vijayawada has been slow, however


road widening and improvement work is under progress in various parts of the
city. Ground water availability is good and power supply is not a constraint.

Social Infrastructure
(Retail, hospitality, entertainment &
medical)

Vijayawada is strong in the healthcare segment, however the entertainment


and hospitality sector has picked pace only in the last few years and there is
significant scope for expansion.

Demographic and economic


profile

Vijayawada is the third largest city of Andhra Pradesh. The city has witnessed
rapid urbanization and rise in per capita income levels, partly driven by NRI
remittances

Middle management retention

Lack of employment options has led to migration to other cities. Due to lack of
social infrastructure, middle management is reluctant to move to the city
hampering growth of sectors such as IT /ITeS.

Availability of low cost skilled


talent

Governance and political system

LEPL Projects Limited Feasibility Study


PwC
Source: PwC Research & Analysis

Low

Medium

Vijayawada is an important educational hub, with a large pool of graduates


owing to the presence of large number of engineering and medical colleges;
however challenges around migration and lack of skilling remain
Vijayawada has been developed largely by entrepreneurs from the city and lack of
political will in the past has resulted in low emphasis on investment and reforms in
the region. However, the city landscape is likely to change drastically with the
bifurcation of the state and Vijayawada being the frontrunner for the new capital

High

Absent/Nil

March 2014
22

Section 2.3
Vijayawada city attractiveness

LEPL Projects Limited Feasibility Study


PwC

March 2014
23

Section 2.3 Vijayawada city attractiveness

We have discussed the following key enablers in detail

Social Infrastructure including


retail, entertainment and medical

Physical Infrastructure and


connectivity

Demographic and economic


profile

Supporting infrastructure for


business & leisure

Business destination

Human Capital including


Education

Vijayawada city
attractiveness

LEPL Projects Limited Feasibility Study


PwC

Strength of the parameter

High

Medium

Low

Vijayawada has majority of the enablers in


place good infrastructure, talent pool and
commercial activity. Bolstering of social
infrastructure and strong political will
attract businesses into the region
Andhra Chamber of Commerce

March 2014
24

Section 2.3 Vijayawada city attractiveness

Like most other Indian cities, Vijaywada too has significant population
growth with rising income levels, partly driven by NRI remittances
Vijayawada is the third largest city of Andhra Pradesh
and has witnessed rapid urbanization and rise in income
levels

Population growth in Vijayawada (in millions)


1.6
1.2
0.8

2001

Per capital income


(2010) (in INR)
Rank

2011
Hyderabad

Ranga Reddy

63,600
1

Vijayawada is the 3rd largest city in Andhra Pradesh and has


witnessed high population growth rates of over 30% (2001-11) driven
by higher economic and industrial activity in the region

Vijayawada forms a part of the Krishna District which is one of the


richest districts in Andhra Pradesh and ranks 4th in Andhra
Pradesh in terms of per capita income

Krishna district has witnessed a rapid increase in


urbanization, with urban population comprising 40% of the total
population in 2011. This indicates a higher migration of population
from surrounding towns and villages, especially into Vijayawada

2021
Vizag

Krishna

53,200

51,000

44,400

NRI remittances play a key role in the economic growth of the city

In the recent decades, there has been a strong emphasis on seeking employement opportunities outside India (US, UK etc) a sizeable number
of resdient households in the city have family members who work abroad. A significant proportion of investments in Vijayawada comprise of NRI
remittances from outside India

Vijayawada has been admitted as a sister city to California in US since 2003 by the Modesto Sister Cities International(MSCI), a nonprofit, community-based organization due to its strong ties with the NRIs
Almost every upper middle class household in Vijayawada has one
or more children working in the US or UK
President, Builders Association

- Vijayawada Urban Development Authority


A lot of the investments we have seen in the past are from NRIs
who buy property for capital appreciation or rental purposes or
for providing housing to their parents
HRT Builders (Developer)

Source: CII (Blueprint for KGPG Belt), Discussion with industry participants

LEPL Projects Limited Feasibility Study


PwC

March 2014
25

Section 2.3 Vijayawada city attractiveness

The city is a major transit hub with good road and rail connectivity
Vijayawada is well connected to the three major regions of Andhra Pradesh
Air Transport
Domestic airport located at Gannavaram, about 20 km
from the city, connects Vijayawada to major metros.
Regional airline, Air Costa, is also ramping up
operations to increase flights in the city
An international airport is being considered in
Vijayawada with the Government signing an MoU
with the Airports Authority of India (AAI) for upgradation of the existing operational airport.
Government has agreed in principle for acquisition of
additional 492 acres of land.
Rail Transport
Largest railway junction on the South Central
Railway network handling more than 320 trains
including both passenger and freight trains per day
Road Transport
Large network of state highways and district roads
with 3 National Highways, the NH5 from Chennai
to Kolkata, NH-9 from Machilipatnam to Mumbai
and NH 221 passing through the city
Second largest and busiest bus terminal in Asia
The Urban development authority has allocated 35% of the total capital investment for Vijayawada (estimated to be INR
1,1110 crores) towards improvement of road infrastructure in the city. Work is also under progress to widen the length of
Hyderabad-Vijayawada-Machilipatnam stretch on NH-9
LEPL Projects Limited Feasibility Study
PwC

Source: SEC Survey 2012-13 (Government of AP)

March 2014
26

Section 2.3 Vijayawada city attractiveness

However, challenges availability of land could pose a challenge

Key messages

PwC Comments

Land availability is relatively


scarce in the city (especially
within the main city limits);
land ownership by
Government is limited

Availability of land has been a major challenge in Vijayawada as land has become scarce and
expensive within the city. The Government has not been able to implement any major development
projects as it does not own major tracts of land in and around the city yet

It is hard to acquire land in Vijayawadas city limits and commercial activity needs to expand
outside the city boundaries. Landholding in the peripheral regions is fragmented, and the
Government does not own much land around the city yet
-

Credai (The Confederation of Real Estate Developers Association of India)

Infrastructure availability in the city is not an issue water, power are manageable and
connectivity is excellent. The only thing is that the city has to expand as land is becoming scarce and
expensive
-

Development of city
infrastructure has been slow
Expenditure on road sector
as on 2011 (INR crores)
Vijayawad
a

12

Guntur
Tenali

0.9

Mangalagi
ri

0.8

While Vijayawada offers excellent external connectivity with no significant power and water issues,
development of internal road infrastructure in the city has been slow. Only 50% of the proposed
allocation by VUDA (Vijayawada Urban Development Authority) has been spent on road widening and
improvement.

While intra-city infrastructure is good in Vijayawada the infrastructure within the city is yet to
keep pace as there are open sewages ; Road improvement has been slow in the last 3 years

22

13

35

14

Expenditure proposed

Marketing Private Ltd. (Retailer)

Gateway Hotels

Political will is lacking in the region to implement infrastructural projects the ambitious
Vijayawada-Kakinada Petroleum, Chemicals, Petrochemical, Investment Region (PCPIR) plan to
join the coastal district of Andhra Pradesh has not taken off as PSUs have backed out

70

APCII, Vijayawada

Actual expenditure

Source: Zonal Development Plan 2021- (VUDA), Discussion with industry participants

LEPL Projects Limited Feasibility Study


PwC

March 2014
27

Section 2.3 Vijayawada city attractiveness

Retail activity has increased with entry of marquee national brands and
emergence of malls
Upcoming malls
Mostly high street retail trade in
textiles, jewellery, cosmetics and consumer
goods concentrated around Bandar
Road
Brands: M&M, RS
Brothers, Kalaniketan, Twills, K-Lounge
Maanya

PVP Square
Area:
230,000 sq ft
Theatre:
Cinneapolis

LEPL Centro Mall


Area: 120,000 sq ft
Brands:
Lifestyle, Auchan, Reliance
Digital
2011

Pre 2011

2013
2012

LEPL ICON Mall


One of the first malls in
Vijayawada, it brought together
entertainment, dining and retail
through foray of national brands
Area: 120,000 sq ft
Brands: Shoppers Stop, Inox

Retail environment in Vijayawada has changed in recent years


with establishment of malls and entry of national brands
Retail and entertainment scenario have evolved in the last 5 years; Presence
of several national brands such as Shoppers Stop, Lifestyle, PVR etc
Vijayawada attracts residents from villages and towns in the surrounding
coastal districts as well as business travellers
Retail businesses continue to stay invested in the region

LEPL Projects Limited Feasibility Study


PwC

Source: PwC research, Discussion


with industry participants

Trendset Mall
Area:
300,000 sq ft
Theatre : Asian
Films

2014 onwards

Ripples Mall
Area:
200,000 sq ft
Brands:
PVR, Van
Heusen, Allen
Solly

People in Vijayawada
today know fashion and are
becoming more aware of the
brands retail has seen
faster growth since 2008
M&M Retail

Vijayawada stands 1st among Tier 2 cities for Lifestyle as it has


been growing at 20% here since 2011 even despite closing
down for 5 days and suffering losses due to the political
disturbance, we are still doing very well here
Lifestyle
The response has been good since we opened in 2011 even
without marketing, customers do have brand loyalty
Shoppers Stop
Walmart and Metro are already present in Vijayawada; there is
a Reliance Retail in Guntur as well. We hear Spencer is
looking
March
2014at
coming up with a hyper market here
28
Real estate broker

Section 2.3 Vijayawada city attractiveness

Vijayawada is also a large healthcare hub in the region


Vijayawada ranks among the top tier-2 cities in terms of number of private beds
Split of private hospital beds in India (Total =
c.960,000)
Top-8
cities, 27%
Tier-2 cities
Rest of
8%
India, 65%

Key tier-2 cities in terms of private hospital beds


(2013, '000s)
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0

Vijayawada is emerging as an attractive medical hotspot of


the coastal region
A sizeable demand for healthcare in Vijayawada comes from patients
under the Aarogyasri Scheme where financial cover is provided to
families living below poverty line for up to INR 2 lakhs in a year. This
also covers private hospitals
Vijayawadas 1st NABH certified hospital is Nagarjuna Hospital and
hospitals are applying for NABH certification to attract medical tourists
Vijayawada produces good quality doctors owing to presence of several
medical colleges and fondness for education in the region. However , they
usually end up migrating to Hyderabad
LEPL Projects Limited Feasibility Study
PwC

12.7
7.5

7.2

6.9

6.5

6.0

5.9

5.8

5.1

4.6

Break-up of private hospitals by bed size


4

Guntur

353

1
6

Vijayawada

385
<100 beds

100-300 beds

1
>300 beds

We had 1 medical college 10 years back and now within 60 kms


radius there are 7 medical colleges. All of them opened during
last 5-6 years. Hospitals in Vijayawada which have good
consultants are doing very well
Lata Super specialty
Source: PwC Knowledge Base, Discussion with industry participants

March 2014
29

Section 2.3 Vijayawada city attractiveness

Realizing the need for multi-specialty hospitals in Vijayawada, several


large corporate chains are planning to set up operations
Currently, Vijayawada has only a handful of large hospitals
(>100 beds)
No.

Hospital name

Bed size

Type

Aayush Hospital

200

Multi-specialty (started in May


2012)

Dr Ramesh Hospital

200

Cardiac hospital

Nagarjuna Hospital

200

NABH certified specialty


hospital

Andhra Hospital

200

Corporate multi-specialty
hospital

Saumya Apollo

250

Corporate hospital

KIMS

150

Multi-specialty hospital

Other prominent hospitals with less than 100 beds include Sunrise, Rainbow,
City Neuro and Med-City Hospital.

Challenges of migration of medical staff continue to exist


There is continuous migration of doctors to cities such as
Hyderabad due to lack of social infrastructure in Vijayawada.
Additionally, penetration of insurance is low in Vijayawada.
Operational challenges exist here - while bed-day rates are
lower in Vijayawada, costs continue to be high as salaries to
retain doctors is much higher than average
Dr Pramod , Lata Super specialty

LEPL Projects Limited Feasibility Study


PwC

Source: PwC Knowledge Base

Realizing the need for multi-specialty hospitals, a number


of corporate hospitals are coming up in the region
Upcoming hospitals

Bed size

Kamineni Hospital (Super


specialty)

250+

Nagarjuna Cancer Centre

150

Andhra Hospital (Cardiac)

150

Given the need for super-specialty hospitals in the region - more


than a dozen 100-bed corporate hospitals have come up in
Vijayawada during the last few years and there are several
upcoming super-specialty hospitals
Large chains such as Apollo and Yashoda hospitals have expressed
interest in setting up operations while names such as L V Prasad Eye
Institute, Sunshine are already present in the city.

We are looking to invest in Vijayawada or Guntur region of


Andhra Pradesh, once there is political stability, as they
present an attractive opportunity due to factors such as good
supply of doctors, sound infrastructure and most
importantly higher affordability of the people"
Apollo Hospital

March 2014
30

Section 2.3 Vijayawada city attractiveness

Vijayawada is witnessing an increase in business travellers; some reputed


hospitality brands are already in the process of setting up operations
in/near the city
Currently Vijayawada has a handful of 3-4 star
hotels with majority of them being established
before 2008-09
The
Gateway
Hotel

Quality Hotel
D V Manor

Hotel Raj
Towers

Krishna
Residency

Fortune
Murali Park

The Kay
Hotel

Hospitality chains
consider Vijayawada as
an attractive market

However there are shortterm challenges around


attracting top executives
and strengthening city
infrastructure

however, new hotels in the luxury/upscale segment are planned


and will be operational in 3-5 years
Name

Segment

Keys

Greenpark Hotel

Upscale

N/A

Novotel

Luxury

240

Marriott

Luxury

N/A

KEES Hotel

Upscale

150

Majority of the hotels are setting up


operations around the Airport, with
some of them already in the
construction phase
Interest in hospitality has picked up
in the region owing to increase in
traffic from business travellers

We have a lot of corporate travellers in the city - 5-6 years back there were only 2 flights, now we
have 9 and soon there will be 14 flights everyday which is going to increase traffic. Labor is not much
of a problem here as we are not too dependant on local labor
- Quality Hotel DV Manor
Out of 365 days, we are sold out for atleast 100 days which is a good sign that there is sufficient
demand in Vijayawada there will be a boom for existing hotels for the next 3-4 years till new
capacity is added
- The Gateway Hotel
There are certain challenges in increasing average room rates as mostly mid-level executives come to
Vijayawada who have a lower entitlement for corporate stays. Additionally, while the outside
infrastructure is very good there is still need for improvement in the road and sewage infrastructure
inside the city. However these are short-term challenges which can be addressed
- Fortune Murali Park

LEPL Projects Limited Feasibility Study


Source: PwC Knowledge Base
PwC

March 2014
31

Section 2.3 Vijayawada city attractiveness

Penetration of IT/ITeS sector is currently low; however, with strong


political will, there is opportunity to gain share from Hyderabad and
emerge as an alternative IT/ITeS destination
Penetration of IT/ITes is currently low in Vijayawada

Revenue of Andhra Pradesh from IT/ITes


(in INR crores)
CAGR
18%

96

51,899

Hyderabad

Vijayawada offers significant headroom for growth as there are only


35 software companies (largely local/regional) which have set up
operations in Vijayawada including 22 in STPI and 4 in SEZ.
Vijayawada employs only ~2,000 employees in the IT sector as
compared to 17,000 in Vizag and 3 lakh in Hyderabad.

1,445

1,200

FY 11

Andhra Pradesh ranks number 4 in terms of IT performance in


India contributing more than 12% of the national IT sector
exports. However, growth has been driven solely by Hyderabad
which accounts for more than 95% of the share of IT/ITes
revenues in the state

115

53,246

45,900

64,354

FY 12
Vizag
Vijayawada

3,136

FY 13
Others

IT companies have shown interest in Vijayawada but due to


the lack of political will and clarity in the region they are wary
of committing investments
The city needs an anchor IT/ITes company to drive investments in the
region
However, IT/ITeS has not yet taken off in Vijayawada due to lack of
political will and Government incentives to channel investments

There has been a strong interest from First American (BPO)


and HCL (IT services), with HCL looking to have a 5,000-strong
workforce here. While they have not committed yet due to the
political uncertainty both are expected to start operations
STPI Vijayawada
Enquires from IT companies have gone up after bifurcation
and they are waiting the resolution of the bill before setting up
an IT Park here
APCII, Vijayawada

Source: Discussions with industry participants, Trade Press, PwC Analysis

LEPL Projects Limited Feasibility Study


PwC

March 2014
32

Section 2.3 Vijayawada city attractiveness

Vijayawada is an important educational hub with a large pool of


graduates; however challenges around migration and lack of skilling
remain
The Krishna and Guntur region have a large number of engineering and MBA colleges along with prominent
universities
Engineering
District

MBA

MCA

Undergraduate

Number of
colleges

Seats

Number of
colleges

Seats

Number of
colleges

Seats

Number of
colleges

Seats

Krishna

37

13,170

41

2,730

32

2,200

103

24,774

Guntur

46

15,690

47

3,060

46

3,020

114

27,420

Prominent
Universities in
VGTM area

Dr. N.T.R. University of Health Sciences, K L


University, Vignan University, School of Planning
and Architecture, Acharya Nagarjuna University

Prominent
medical
colleges

Guntur Medical College, NRI Academy of Medical


Sciences, KMC, Siddhartha Medical College

Vijayawada has a large pool of 90,000 graduates


passing out annually from the region...

...however challenges exist in terms of migration of


work force and lack of skilling

People in Vijayawada have a fondness for education with most parents


typically encouraging their children to enrol for engineering or medical
courses

Lack of opportunities along with aspirations to work in a bigger city


has led to ongoing migration of educated manpower to other cities.

Vijayawada-Guntur region has emerged as an important educational


hub in Andhra Pradesh - few large universities such as KL University
and Nagarjuna University have more than 10,000 students

Lack of sustainable programme s to develop skills in sectors as food


processing, textile processing, electronic system design etc is creating
a crunch for skilled manpower

Vijayawada is the educational hub of coastal Andhra and has a


large pool of workforce owing to many engineering and medical
colleges in the region
President, Builders Association
LEPL Projects Limited Feasibility Study
PwC
Source: CII (Blueprint for KGPG Belt), Discussion with industry participants

March 2014
33

Section 2.4
Attractiveness of the proposed location

LEPL Projects Limited Feasibility Study


PwC

March 2014
34

Section 2.4 Attractiveness of the proposed location

The proposed site is well-connected and could experience a boost in


demand with the potential secretariat of the new capital in close proximity
The proposed site has certain key advantages

The site is located at NH5 equidistant from Vijayawada


and Guntur with a large catchment (VijayawadaGuntur-Tenali-Mangalagiri)

The site is well-connected with 2 railway stations


within a 4 m radius and airport located 30 kms away.
The widening of NH5 to a six-lane express stretch is
also underway.

Poor land availability in Vijayawada, will lead to


expansion of city and extension of demand to the
outskirt areas

The site is located in close proximity to a 1000-bed NRI


hospital/college and Hailand Theme Park

Availability of water is not a challenge due to


availability of ground water and extraction from Guntur
channel or Krishna river

Due to the availability of government land near the


Nagarjuna University, it is best-suited to emerge as
the seat of the Secretariat if Vijayawada becomes
the new capital. This can lead to a boost in demand
for various components of the project such as
residential, office and commercial space.

Domestic Airport
30 kms

Site Location: 600 acres

NRI Medical College/Hospital


Hailand Theme Park
LEPL Raintree Park
Nagarjuna
University
Likely Secretariat of the new capital ?

Legend:
Railway Station
Tenali
LEPL Projects Limited Feasibility Study
PwC

Source: Vijayawada City Development Plan, VUDA,

Required land is not available in the city, so if


Vijayawada does become the capital the secretariat will
have to be located on NH5 where Govt can acquire land
Andhra Chamber of Commerce
March 2014
35

Section 2.4 Attractiveness of the proposed location

The project also addresses many of the issues faced by businesses while
contemplating an entry into Vijayawada
Enabler
Social
Infrastructure

Human
capital

Physical
Infrastructure

Key issues faced by businesses

Middle management reluctant


to move to Tier 2 city due to
limited social infrastructure

HCL wanted 1 lac sft space here, however middle


management is not interested in coming here due to
lack of recreational facilities
- L&T, Hitech City, Vijayawada

Lack of availability of skilled


middle-level talent

Vijayawada largely offers fresh graduates that can be


used mostly for back office operations and repeat jobs
training is very important for employability in IT/ITes
- APCII, Vijayawada

@
#
$

Availability of
land

Proximity to city and


transport infrastructure

Transport costs are high as the Hitech City SEZ is


located 30 kms from the city and this is a deterrent for
people to work here
STPI Vijayawada

Paucity of land in the city

Land has become scarce and expensive in Vijayawada.


Setting up a large IT/ITeS complex requires large land
tracts to be available
- Cushman & Wakefield

Solution offered by The integrated township


can address these issues
The project addresses
issues of land
availability, infrastructure
and transport with an
integrated residential, and
commercial proposition
The project includes social
and entertainment
facilities, which addresses
the challenge of attracting
and retaining) middlemanagement
The (likely) new Secretariat
will result in development
of transport facilities to the
site
The project also envisions
sizeable scale of plug and
play infrastructure for
IT/ITeS companies and
other businesses

Source: Discussions with industry participants, PwC Analysis

LEPL Projects Limited Feasibility Study


PwC

March 2014
36

Section 2.5
Micro-market assessment for project
components

LEPL Projects Limited Feasibility Study


PwC

March 2014
37

Section 2.5 Micro-market assessment for project components

LEPL is keen on a joint development model by tying up with a developer for


construction and management of the project components in the township

Developer-led model

Operator-led model

Land owner-led model

Relevance for LEPL


Type of operating
model

Salient
features

Rewards

Risks

Joint development with a 3rd


party developer who constructs
the property
Developer brings the operator
for individual components by
tying up with them

The land-owner directly ties up


with individual operators who
construct and manage the
property

The land-owner constructs the


warm shell and outsources the
management of the property to
an operator

The revenues from the


property are shared between
the land-owner, developer and
the operator; Returns tend to
be lower than other models for
the land owner

The land owner provides only


the land for which it charges a
lease rent (as per a long lease
arrangement) and/or a % of
revenues

The operator is typically paid a


management fee and/or lease
rental for managing the
property which can maximise
returns for the land-owner

Flexibility of risk sharing


between the land-owner and
the developer reduces the
overall risk of the project

Since the capital and


operational risk lies largely
with the operator, the operator
may not be keen on committing
huge investments unless
returns are reasonably assured

Land-owner is exposed to
higher capital and operational
risk related to
construction, development and
management of the property

Land owner can


also choose to
develop as well as
manage the
individual
components.
However, we
understand LEPL
is not focused on
development and
management of
properties, hence
this option is
currently limited
to development
and sale of plotted
developments
only

Level of control

Low

High
Resources (cost, time and effort) committed
LEPL Projects Limited Feasibility Study
PwC

March 2014
38
Source: PwC Research & Analysis

Section 2.5 Micro-market assessment for project components

Snapshot of feasibility assessment across various components...1/2

Total area allocated


(in acres)
Saleable area
Feasibility demand
over next 5 years
Unabsorbed supply
anticipated

Key recommendations

! Residential

@ Office

# IT Park

$ Retail

324.45

75.4

19

4.1

155.43 acres

14.5 mn sft

2.8 mn sft

0.6 mn sft

Minimal

High

Medium

Minimal

Upto 11.5 mn sft

Upto 1.1 mn sft

Estimated workforce
demand required for the
site across various
sectors is lower than the
quantum required for the
site, potentially resulting
in significant
unabsorbed supply

The IT park SEZ


could witness a
slower absorption in
the first 5 years, due
to vacant supply in
existing IT parks and
lower incremental
skilled IT/ITeS
workforce
requirement in the
region from FY 15-20

Sufficient demand is
expected for residential
housing due to growth
in existing population,
influx of workforce and
lack of significant
residential supply in the
region

The retail proposition in


the township is expected
to have a reasonable
walk-in to catchment
population ratio of 2-3%
and can cater to the
institutional demand
from hotels and colleges

Source: PwC Research & Analysis

LEPL Projects Limited Feasibility Study


PwC

4 High 4 Medium 4 Low

March 2014
39

Section 2.5 Micro-market assessment for project components

Snapshot of feasibility assessment across various components...1/2


% Education complex

^ Commercial and

& Hospital

* Golf course

entertainment
Total area allocated
(in acres)

19

10.43

17.48

45.93

Saleable area

n/a

3.4 mn sft

1.75 mn sft

n/a

Feasibility demand
over next 5 years

Unabsorbed supply
anticipated

n/a

n/a

n/a

n/a

Key recommendations

An IB school is an
The project is estimated to have
attractive option and
sufficient demand from the local
enrolments of up to 750
catchment for setting up a 2
students can be achieved
screen multiplex in the
by targeting even 10% of
entertainment complex
the local catchment
By targeting a 3-4% market
Another suitable option
share, there is scope for setting
that can be explored is
up a 100-120 room hotel in the
setting up of a professional township as a first phase
course college with an
There is opportunity to add
average student enrolment another 100-120 rooms as part
of 500-600 in first phase,
of second phase of expansion,
gradually growing to 1000
once the first phase has
students over subsequent
stabilised
phases of expansion

LEPL Projects Limited Feasibility Study


PwC

While the region is wellcovered in terms of general


healthcare, it lacks in
sufficient number of large
specialty hospitals
A super/multi specialty
hospital of 250-300 beds can
be set up in the township

March 2014
40

Residential
Section 2.5 Micro-market assessment for project components

! Large demand is expected for residential housing due to growth in


existing population and influx of workforce
Demand for Housing in VGTM region
Housing demand
in the region will
come from..

1
Influx of people
in the region

Demand drivers

If Vijayawada becomes the capital of the bifurcated


state, new offices and businesses will emerge
around the secretariat in the vicinity of the site
This will lead to a surge in creation of new jobs in
the region and demand for skilled manpower
This workforce is expected to drive the demand for
housing in the region

Estimated population
driving demand for
housing for next 5 years*

c.156,600
Total skilled workforce
requirement in 5 years
(FY15-20) in VGTM region

Can generate potential


demand of

> 1 lakh
housing units in the
VGTM region between
2014-2020

2
Growth in
existing
population

*Refer Annexure for details

With scarcity and rising cost of land in


Vijayawada, growth is already spilling over to the
north-eastern and western regions in Vijayawada
As people look for cheaper options outside the
city, the demand will expand to the NH 5 belt due to
affordable housing options, availability of ground
water and proximity to the city

362,000+
Incremental growth in
population in 5 years
(FY15-20) in VGTM region

Source: PwC Research & Analysis

LEPL Projects Limited Feasibility Study


PwC

March 2014
41

Residential
Section 2.5 Micro-market assessment for project components

! There are few large residential projects that have been announced in the
region; hence we expect robust offtake for LEPLs planned 5900 housing
units
Supply scenario
There are very few large residential projects (>300-500
units) that are ongoing/have been announced in the region
- Lotus Real Estate Group is marketing a township with
1600+ housing units (total project area of 110 acres)
- A 300-400 unit housing project has been announced
near Lanco township
- Arihant Housing has an ongoing 290 unit housing
project in the region
Once demand picks pace, we expect more residential
projects to be planned and announced; however these are
also likely to be smaller in size (compared to the LEPL
project)
Large tracts are land not available easily in the
region, hence most of the new residential projects are
smaller in size 40-50 acres or so
- Builders Association, Vijaywada

Implication for LEPL project

5900 units as per


project masterplan

The supply of 5,900 units by the project can be


absorbed over a 5 years time frame due to the higher
housing demand in the region and lack of upcoming
supply
The LEPL project is likely to be the largest project of its
kind in the region, and is well positioned to be a hub for
residential, and consequently commercial demand.
The project envisages 5,900 residential units, including
400 villas which can cater to the demand from influx of
workforce and existing population growth in the region
In light of anticipated demand for housing (refer previous
slide), the proposed units are likely to be absorbed with
growth in commercial and office activity in the region.
These 5900 units translate to a approximate 26,500
residents; providing an attractive catchment for allied
sectors such as retail & entertainment

LEPL Projects Limited Feasibility Study


PwC

March 2014
42

Residential
Section 2.5 Micro-market assessment for project components

! Residential prices in other large and emerging Tier 2 cities have


historically grown at 8-14% levels (CAGR over 6 years)
CAGR
2007-13

Price trends in residential pricing, Residex (indexed to 2007=100)


250

14%

Bhopal
200

Bhubaneshwar
Ahmedabad

12%
12%

Nagpur

10%
8%

Patna

Large and growing Tier


2 cities have kept an
overall positive growth
momentum, despite
short term fluctuations
in property rates over
the recent quarters

150

Jaipur
Hyderabad

100

In comparison, residential prices in


Vijayawada have been more
volatile, with some areas (such as
CBD) seeing high growth
spurts, while other areas showing
poor growth due to lack of demand

50

Q1 2011

1%
-1%

Q2 2011

Q3 2011

Q4 2011

LEPL Projects Limited Feasibility Study


PwC

Q1 2012

Q2 2012

Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

March 2014
43

Residential
Section 2.5 Micro-market assessment for project components

! With recalibration of the market dynamics, Vijayawada is likely to


witness faster escalation in property rates in the coming years

Unlike other Tier 2 cities, Vijayawada is expected to undergo a complete recalibration of


demand due to the anticipated political changes, which will also change the economic development in
the region

As a result, while other cities have historically grown at 8-14% levels, price escalation in the site
(VGTM belt) is likely is be 500-600 basis points higher than peer Tier 2 cities

Y-o-y growth in apartment rates in the project site


(projected)

25003500

FY14

30003500

FY15

36004000

43004560

51005250

Y-o-Y Growth in plot rates at project site (projected)

60006200

70007500

43-64
CAGR of
15-20%

FY16

39-58
35-52

30-45
26.5-40
INR 000 per
sq yard

INR per sq ft

CAGR of
15-20%

Acutal prices on a year-on-year basis may


vary from our estimates below due to to
uncertainity in the market (since it is not
cleat when the city will be formally declared
as the capital). However, over a 5-8 year
time frame, overall rates are likely to
appreciate significnatly

FY17

LEPL Projects Limited Feasibility Study


PwC

FY18

FY19

FY20

Current rates near project site as per


market discussions

23-34
20-30

FY14

FY15

FY16

FY17

FY18

FY19

FY20

March 2014
44

Office
Section 2.5 Micro-market assessment for project components

@ The estimated demand for office space in the vicinity of the LELP project
site is expected to be 3.9-4.9 mn sq ft till 2020...
Demand for office space
Sector

Growth in
employment
(for sector) in
VGTM (FY 1520)

Estimated
requirement
for new office
space (mn sq
ft)

Estimated
share of
project site
(%)

Banking & Financial


Services Insurance

39,437

3.2 3.9

50%

Tourism, Travel &


Hospitality

37,450

3.0 3.7

50%

5,991

0.5 0.6

50%

Transportation,
logistics,
warehousing

Others

Domestic/small IT &
ITES Sector

~2300

LEPL Projects Limited Feasibility Study


PwC

1 1.6

0.2

Rationale

Out of the total demand for


office space from new
businesses, the LEPL project site
is expected to take majority
share (c. 50%) due to
Lack of large scale organized
office space in the city and
Likely Secretariat in the
vicinity of the project site

50%

Additional demand from various


other services such as legal,
accounting etc due to the
potential location of Secretariat
near the project site; assuming
this accounts for 10-15% of rest
of office space demand

10%

A lower share has been


attributed to smaller domestic
IT/ITes companies as larger
companies are expected take up
space in IT SEZ

Potential demand of

3.9
4.9 mn sq ft at
project site between
2015-2020

March 2014
45

Office
Section 2.5 Micro-market assessment for project components

@ We suggest that the planned allocation for non-IT office area be reduced
to 4-5 mn sq ft in the initial phase; room for adding office space in
subsequent phases once demand is more certain
Planned area for office space (as per
project master plan)

65-70% reduction in
office space allocation

PwC estimate of office space


allocation for the project

14.4 mn sq ft

4-5 mn sq ft

The project master plan has an allocation


of 14.4 mn sq ft of saleable area (over 72.4
acres of land)

Considering the potential demand, we


recommend a reduction of 65-70% of the
area allocated to office space

Demand for office space is expected to be


around 3.9-4.9 mn sq ft (refer previous
slide); this is much lower than lower than
the planned project allocation, which could
lead to over-supply situation and high
vacancies

This translates to 4-5 mn sq ft of saleable


area (ie, 22-25 acres of land)

LEPL Projects Limited Feasibility Study


PwC

In order to avoid a supply overhang, LEPL can plan for


lower allocation of office space in the initial
years.

The capital for Seemandhra (assuming it is


Vijayawada) is likely to be operational only after 10
years, as per the current bill. Once the potential
Secretariat and other civic and government offices
become fully operational, demand is likely to pick up

The project can plan for expanding its office space once
demand is more certain in the region

March 2014
46

IT Park
Section 2.5 Micro-market assessment for project components

# Similarly, for the IT park, the current allocation of 2.84 mn sq ft could


lead to a supply overhang. Expected demand for IT park is estimated at 1.8
mn sq ft
Projected Demand-Supply scenario for IT space
in VGTM (till 2020)
Location

SEZ (L&T
Hitech
City)
STPI
Other
commerc
ial IT
space
Total

Unoccupied
area in FY 14
(mn sft)

Upcoming
supply
(mn sft)

0.18

0.02

0.06

0.04

0.151

0.24

0.21

Saleable area of 2.84 mn


sq ft (19 acres of land)
allocated for IT Park as
per project masterplan

2.84

3.29

Excess supply of
1 1.1 mn q ft
2.22

0.21
0.24

Existing surplus

Growth in supply (new LEPL project - IT/ITeS


additions till 2020)
space

Total supply

Current occupancy in the city is low


(only c. 30% of available IT space is
occupied)
1.
2.

As per primary discussions, on an average 25,000-35,000 sft gets added each year under this non-SEZ, non-STPI
commercial IT space in Vijayawada
Standard industry norm of a requirement of 96 sft of super built up IT space per person has been taken for
computation

LEPL Projects Limited Feasibility Study


PwC

At planned allocation of
2.94 mn sq ft of saleable
area, there is likelihood
of overall excess supply
of 1 1.1 mn sq ft
Hence the project could
either reduce its
allocation for the IT
Park to c. 1.8 mn sq
ft of saleable area or
anticipate some unsold
inventory in the initial
years

Demand for IT space by


FY 20
Demand for IT space based on expected
incremental employment of more than 23000
people in IT/ITeS sector by 2020
Note that demand projection is based on
current industry estimates; there may be a
possibility of a single large player like IBM or
Accenture requiring a large allocation (say 11.5 lakh sq ft), which could change the
demand dynamics significantly

March 2014
47

Retail
Section 2.5 Micro-market assessment for project components

$ The project and its surrounding regions is expected to provide a


reasonable retail catchment of 80-90,000 potential customers...

Population in retail catchment area


Tertiary
catchment
2.8 mn
Secondary
catchment
86,000
Primary
catchment
24,000

The tertiary catchment is


the population of
Vijayawada and Guntur in
2020 (only a fraction of this
will be addressed)
Secondary catchment
comprises floating
population from visitors,
employees and students
within the project
township
Primary catchment
comprises the resident
population in the project
township; assuming 90%
occupancy by 2020

LEPL Projects Limited Feasibility Study


PwC

Addressable catchment for retail outlets in the


project township

% of
addressable
population

Target
population
for retail

Primary
catchment

100%

24,000

Secondary
catchment

50-60%

43-51,000

Tertiary
catchment

0.5-0.6%

14-17,000

Total

81-92,000

Taking a very small


proportion of city
population as floating
population that may
include visitors to nearby
locations (such as Hailand
Entertainment park or the
potential Secretariat)
March 2014
48

Retail
Section 2.5 Micro-market assessment for project components

$...which can support the viability of the retail component envisaged in


the township
A walk-in to catchment population ratio of 6-7% can make the
planned retail space of 0.6 mn sft viable in the township
Food and
grocery
space
Space available
(in sft)

Expected monthly
rentals (INR per sq ft
per month)
Minimum monthly
revenue required per
sqft (INR)
Target monthly
revenues for
breakeven (in INR
mn)
Number of walk-ins
required daily

Other
retail
shops

248,000

372,000

30-40

40-50

120-130

130-135

25-35

45-55

5000-5100

Comments
Assuming a mix of 40:60, for
hyper/super market for food
(40%) and other retail shops
(60%)
Current rental in the non-CBD
regions (periphery) in Vijayawada
is INR 15-20; assuming a 100200% increase in rentals as
demand in the region picks up
Break even rentals have been
assumed to be 12-15%

Average bill size has been


assumed at 500 and 2,500 and
5300-5500
conversions at 80% and 30% for
food and other retail, respectively

Retail shops in the township will serve a


large resident catchment and could also
cater to institutions such as hotel, colleges
directly
The retail outlets in the project township will largely
serve the local residents
A mix of food and grocery retailing
(super/hyper markets, restaurants, other food
oulets) and non-food outlets (apparel, other
consumer goods, gifts & stationery etc) is
envisaged
The food and grocery shops can also tie-up and cater
directly to the hotels and educational institutions
Higher affordability and a sizeable catchment of
residents and working class population can drive
growth in retail in the township.
We procure grocery from Walmart (in the
outskirts), Metro (in Vijayawada) and Reliance
Retail (in Guntur) - cash and carry retail is doing
very well here. Even Spencer wants to come up with
a hyper market in Vijayawada
- Taj Gateway Hotel

Assuming a catchment of 80-90,000


customers, this translates to a population-towalkin ratio of 6-7% for breakeven
LEPL Projects Limited Feasibility Study
PwC
Source: PwC estimates, Discussions with industry participants

March 2014
49

Rentals for nonresidential area

Section 2.5 Micro-market assessment for project components

Future rental rates for commercial areas (office, retail, entertainment etc)
in the project township are dependent on changes in the political and
economic scenario in Vijayawada

Current rentals in Vijayawada (retail, office etc) vary significantly between


the CBD and peripheral regions on the outskirts

Rental rates in Tier 2 cities in India

INR per sq ft
per month

Office

Retail

INR per sq ft per


month

Office
space

Retail
space

CBD

60-70

100-150

Patna

20-50

40-150

Non-CBD (within
city limits)

20-35

30-70

Jaipur

30-110

40-170

Peripheral regions

10-20

15-25

Surat

25-40

30-60

Coimbatore
city

35-60

45-80+

Coimbatore
(peripheral)

25-42

25-45

Chandigarh

30-120

50-180

Kochi

25-60

50-150

Vizag

12 60

16-78

Nagpur

30-80

40-130

Indore

25-65

50-120

Rentals in the peripheral regions are low due to limited demand


today. However, with the changes expected in the political and economic
scenario in the city, the demand scenario in and around the project
site is expected to be very different from current levels.
Comparing with other Tier 2 cities that have seen significant appreciation in
property rates in recent years (due to changing demand dynamics), it is
likely that rental rate in the project site will move closer to its other Tier 2
city counterparts.
Hence, we expect rentals for office space to range from INR 30-50
and for retail to range from INR 40-60 in the project site. Note that
these rates assume competition from other commercial/retail options that
may emerge once demand in the project region picks up. As such, real estate
rentals are difficult to predict over the long term as supply-demand
scenario can be very dynamic

Source: PwC research, discussions with real estate developers and agents

LEPL Projects Limited Feasibility Study


PwC

March 2014
50

Education
Section 2.5 Micro-market assessment for project components

% LEPL can consider an international school or a professional college as


part of the educational complex envisaged in the township
University

Salient
features

Demand
drivers

Large student
enrolment of 2500+
students
Offer a variety of
courses

Colleges general
courses

Colleges Professional courses

International school

Courses such as arts,


Courses such as engineering, medical,
commerce, science and
management, law and other vocational
education
courses such as hotel management etc
Account for the bulk of Higher fees of courses (more than 10
the of enrolment in
times)
higher education in
Growth rate in enrolments@20%
India
CAGR

AP has only 2 deemed


private universities vs.
more than 10 in other
south states
Large catchment of
Krishna-Guntur district

Schools offering international


standards of education for primary,
middle years and diploma (K-12)
Affiliation to either International
Baccalaureate (IB) headquartered at
Geneva or Indian General Certificate
of Secondary Education (IGCSE) run
from Cambridge, UK

Vijayawada-Guntur is the hub of education for the coastal region Aspirational value of international
attracting a large number of students from the region
quality education
Strong culture of providing quality education to children with
Large NRI base can be tapped
aspirations that they become engineers or doctors
Higher affordability and propensity of
people to invest in education

The site offers an area Large number of general


of 19 acres, while large
course colleges in the
private universities
region
such as Amity, IBS and No new college has come
Lovely University
up in last 5 years

Feasibility for operate on campus


Slow growth rate of
the site
sizes of at least 50-100 enrolments@ 6% CAGR
acres

4
LEPL Projects Limited Feasibility Study
PwC
Source: PwC estimates, Discussions with industry participants

The Krishna-Guntur region has one of


the highest number of engineering
and general management courses in
the state (more than 80)
There is opportunity for medical
colleges, MBA and specialised courses
(eg, law, polytechnics) however
tieup with reputed education brand
will be critical to differentiate from
existing providers

IB schools are the fastest growing


segment in India (@30% enrolment
CAGR)
Currently there are no reputed
international schools in Vijayawada
No
Can target larger catchment as people
are more willing to travel for an IB
school

4 High 4 Medium

4 Low

March 2014
50

Education
Section 2.5 Micro-market assessment for project components

% There appears to be high feasibility for an IB school in the project;


enrolment of 500+ is achievable by targeting a small fraction of the local
school-going catchment

An IB school can be an attractive proposition for the township given the size of catchment, aspirational value of
an international course and tendency of the people to invest in good quality education
Particulars

Population Comments

Local catchment
(radius 2-5 kms)

School going
population

35,000

~7,000

Target share

@8%

Students
targeted in local
catchment
Additional students
within 5-15 kms
Total enrolment
that can be
achieved

400-450

200-300

600-750

Includes resident township population


(c. 27,000 and other residents in area
(c. 8,000)1
Out of the total population in Krishna
district, around 20% is in the age
group of 6-17 years (school going
population) with a gross enrolment
ratio of 80%
IB school enrolment as % of total
enrolment in cities such as Bangalore
and Hyderabad is currently around 68%
Typically 60% of the students of
overall enrolment are from local
catchment and rest travel a distance of
5-15 kms
Targeting even 8% of the of local
catchment can result in enrolments of
upto 750 students

While the size of IB schools vary


in India, a typical school has
enrolment of c. 500-600 students.

Lack of good quality schools in the region State board


schools dominate the Vijayawada-Guntur region and the region
lacks even good quality CBSE schools.

Larger catchment While CBSE schools have a localised


catchment, an IB school attracts students even as far as 5-15 kms
as willingness to travel longer distance is higher for international
quality education.

NRI population and affordability Vijayawada has a strong


NRI connect; an IB school can attract them to the region as it
provides an international education to their children

Attitude to education Residents of Vijayawada have high


propensity to spend on education and consider it as an
investment. Good quality education has an aspirational value and
families save to provide education to their children.

People in Vijayawada tend to save money for education as


they believe it is an investment for future. Lack of good quality
schools in the region often results in parents migrating to other
cities; Also, this impacts the overall quality of living and hence
willingness of professionals to live here
KL University

1. As per primary discussions, Lotus township is the only major residential complex in the vicinity with an expected 1600 units. Assuming an additional supply of 400 units by FY 2020,
resident population in the vicinity of 5kms has been taken at 8,000 with an average household of 4 persons.

LEPL Projects Limited Feasibility Study


PwC

March 2014
Source: PwC estimates, Educational Stats of AP 2010-11, Discussions with industry participants

51

Education
Section 2.5 Micro-market assessment for project components

% Another option is to tie up with a reputed brand to set up of a college for


professional courses with enrolment of 500-600 students in first phase
There is a need for the current supply of seats in professional courses to grow at 4-5% to meet the expected
enrolments in FY 20
Total population of Krishna and Guntur
Additional seats
required by 2020

district has been taken at 11 mn in FY


20, with a growth rate of 2% over population
as per the last census 2011 (9.4 mn)
Taking 10% of the population in 18-23 band
with a GER* of 28%, expected enrolments in
FY 20 are c. 305,000 students2
Out of these typically, 35% opt will for
professional courses 106,8002

106,826

27-37,000
70-80000

As per current estimates, total seats


in Guntur and Krishna districts for
professional courses such as
engineering, MBA, MCA, medical,
polytechnic total 70-80k, with
maximum seats for engineering
courses at c.29,000.

Current supply (seats)

Expected demand in FY 20

Courses such as Engineering and General management are witnessing


saturation levels as Krishna-Guntur district already have more than 80
engineering and general management colleges. Growth in enrolments in existing
colleges is likely to cater to majority of the future demand for such courses
However there is scope for setting up of a professional college for courses such as
law, medical, hotel management, pharmacy etc, which have limited options in the
region
The region also lacks a reputed management college, which is affiliated
to a known domestic/global brand. This can attract students from the other
parts of the state as well as from other states in the country

Vijayawada is alredy saturated in terms of


professional colleges offering
engineering, MCA, MBA degrees...A strong brand is
key to position yourself differently in this market"
- Promoter, Management college in Vijayawada

The site can garner a share of the expected


enrolments in FY20 and have a specialized
professional course, medical college or a reputed
MBA college (option to have multiple
professional courses under the same college)
The college can target enrolments of 500600 students in the initial phase. As the
institute gains popularity , there is opportunity
for subsequent expansion in capacity to
1000-1200 seats

1.
2.

GER (Gross enrolment ratio) is the ratio of students enrolled in higher education to the population that is eligible for enrolment i.e. population in the age of 18-23
State averages have been used for estimating population in the age band of 18-23 and GER. All India enrolment in professional courses is 30% out of total enrolments, since enrolments in
these courses
are growing
at a higher
LEPL Projects
Limited
Feasibility
StudyCAGR of 30% as compared to general courses (6%), it is expected to form a share of 35% of total enrolments by FY 20.
March 2014

PwC

Source: PwC estimates, All India Survey on Higher Education (AISHE) 2012, CII (Blueprint for KGPG Belt)

52

Education
Section 2.5 Micro-market assessment for project components

% Fees for IB schools ranges from INR 1-3 Lakh per student per annum;
fees for professional courses vary widely across various types of
programmes
Indicative

Fees in IB schools

12
INR lakh per student

Fees for professional courses

Fees for professional courses varies widely across


institutes, and is driven by the brand of the
institution, infrastructure and amenities offered in the
campus and residential vs day-scholar programmes

International schools target the upper echelons of the


socio-economic strata in India largely the upper
middle class and the rich
Fees in IB schools are significantly higher than ICSE
and CBSE schools, and can vary depending on
whether the school offer residential facilities or is dayscholars only
Typical fees range from INR 1 2 Lakh for a dayscholar only school
-

Step by Step school charges INR 0.8 Lakh at entry


level, INR 1 Lakh for mid-level and INR 1.5 Lakh
at Diploma level

Pathways School in Gurgaon charges 0.8 Lakh at


entry, 1.1 Lakh for Grades 9-10 and 1.4 Lakhs for
IB Diploma

Chinmaya International Residential School in


Coimbatore charges INR 5 Lakh at Diploma level

Indicative course fees


for private colleges
(INR lakh per annum)
Management

3 10+

Engineering

0.8 2 L

Law

0.5 2 L+

MCA/MCS etc

0.5 1.5 L

Hotel Management

0.75 1.5 L

Source: School/college databases, PwC internal knowledge base, PwC research

LEPL Projects Limited Feasibility Study


PwC

March 2014
53

Commercial &
entertainment

Section 2.5 Micro-market assessment for project components

^ The project is likely to have sufficient demand from the local catchment
for setting up a 500-seater multiplex
Market opportunity for multiplex1 in the project
Estimated footfalls from movie-going population
in the catchment

Estimated footfalls in a 500-seater multi-screen


multiplex

Potential footfalls of

Footfalls in a 500-seater multiplex

120 140,000

80-90,000 per

per annum (by 2020)

annum

Demand estimation

Feasibility for 500-seater multiplex in the township

The catchment for the entertainment complex and multiplex


comprises residents in the project township and floating
population of the township

With limited competition due to absence of other options


in/near the region, a multiplex in the township can target a
large share of this demand

- The resident population of the township including villas, town


houses and apartments is estimated to be c. 26,500
- Additionally, a large population comprising of officegoers, hotel guests, college students, visitors etc of ~73,000 will
comprise primary catchment
Since people in the VGTM region are very fond of watching movies
(due to lack of any other significant entertainment option) a higher
share at 35% of the total catchment has been taken as the moviegoing population (compared to average penetration in urban India
of 30%)
Taking a conservative estimate of an average of 1 movie every 3-4
months per person, the total potential footfalls for movies
from local catchment has been estimated at 120-140k.
Source: PwC Research & Analysis, FICCI: Media and Entertainment report

LEPL Projects Limited Feasibility Study


PwC

A 500 seater multiplex can capture around 65-70% of this


demand, ie 80-90,000 footfalls
- Using industry average norms for occupancy rates at 6575% for weekends and 35-45% for weekdays (Inox cinema
in Vijayawada city has an average occupancy of 60-70%)
Multiplex operators have already started eyeing underpenetrated markets such as Vijaywada for their next
phase of growth
National multiplex chain such as PVR and Inox have opened 4
screen multiplexes and large chains such as Cinepolis and
Asian Films are expected start operation in current year in PVP
Mall and Trendset Mall in Vijayawada
Watching movies is one of the primary mode of
entertainment for people in Vijayawada
March
2014
Inox, LEPL ICON
mall
53

Commercial &
entertainment

Section 2.5 Micro-market assessment for project components

^ Existing supply of hotels rooms in the region will be insufficient in 3.54.5 years if demand increases at a CAGR of 25-35% over next 5 years
Growth in demand for rooms at 25-35%
CAGR can lead to higher occupancy
levels for the existing and upcoming
hotel supply resulting in demand for
new hotels over next 3.5-4.5 years

Projected Demand-Supply* scenario in 3 Star Hotels and above segment


1347

1,300

1,307

1,223
1,137

1,100

1,080

Number of rooms

1,019
942

988

963

900
849

830

859

747

700

702

Current
supply

688

708

639

650

590
565

500

491

3
Years

3.8
Years

5.5
Years

If demand
If demand
increases at 40% increases at 30%
CAGR
CAGR

Current demand

6+
Years

If demand
increases at 20%
CAGR

If demand
increases at 15%
CAGR

300
FY 13
Supply

FY 14

FY 15

Demand@15% CAGR

FY 16

FY 17

Demand@20% CAGR

FY 18

FY 19

Demand@30% CAGR

FY 20

FY 21

Demand@40% CAGR

*For supply, only planned additions to room inventory till FY15 -16 have been taken into account, after which supply has been considered to be constant

LEPL Projects Limited Feasibility Study


PwC

Source: Industry Discussions, PwC Analysis

March 2014
55

Commercial &
entertainment

Section 2.5 Micro-market assessment for project components

^ The project can target a 4/5 star hotel at the site. The hotel can be planned
in a phased manner starting with 100-120 rooms, with option to add
another 100-120 rooms as demand picks up
Demand for Hospitality in VGTM region
Annual demand from hotel guests by 2020
(25-35% CAGR)

Existing demand (FY14)

Current demand estimated at

c. 60,000

220,000 +
# of guests

# of guests
Currently there are only a handful of 3 star and 3 star
plus hotels in the region; these hotels together
comprise over 700 rooms

Factors driving increase in demand in the region...


i. Increase in business
activity in the region

Business travelers form more than 85% of the demand


for 3/4 star hotels in the city
Current occupancy levels are 65-70%; however hotels
are witnessing increase in demand in recent months
due to increase in air connectivity and business
interest in the region

We are now having occupancy of more


than 80-90% in certain months
- Taj Gateway

Vijayawada being the potential capital of the new


state will witness an influx of business travelers
due increase in commercial and business activity in
the region

ii. Increase in traffic &


international airport

Increase in flight options with new operators such as


Air Costa and proposed international airport can
significantly increase the existing air traffic of 1 lakh
passengers annually

iii. Limited supply of


upscale hotels

Vijayawada and Guntur have few existing and


planned hotels in the upscale/luxury segment, and
with renewed investments in the region, there will be
demand for such hotels by executives/senior
management traveling to the region

Targeting 7-8% of the demand translates into overall opportunity for setting up a 200-240 room hotel. A phasewise strategy can be employed starting with 100-120 rooms in the initial phase and subsequently expanding to
200-240 rooms depending on growth in demand
LEPL Projects Limited Feasibility Study
PwC

Note 1 Assuming a lower occupancy of 60% and average length of stay of 3


days, a 200-240 room hotel will have 14,000-17,000 guests annually (representing
7%-8% of projected demand of 220,000)

Source: PwC Research & AnalysisMarch 2014

56

Commercial &
entertainment

Section 2.5 Micro-market assessment for project components

^ ARRs in Vijayawada have been traditionally low; given the upcoming


demand we expect a moderate growth in rates over the next 5-6 years

Existing ARR for 3/4 star property (FY14)

Expected ARR by 2020 (for 4/5 star property)

Current ARR in Vijayawada

4800-5400

2500-3000

INR

INR

Market discussions with leading 3/4 star hotels in the


city indicate an average room rate (ARR) of INR
2500-3000. This is lower than other Tier 2 state
capitals cities such as Ahmedabad (INR 4300-4500)

Most of the corporate guests to Vijayawada


currently are mid-level executives, who have lower
entitlement. Hence we keep our rates to ensure we
can target the corporate traveller
DV Manor

Room rates have been largely flat in the last 2-3


years. This year, with increase in air connectivity we
have seen more footfalls, and we revised our rates
upwards marginally

Demand for hotel rooms is expected to grow as


business activity in the region picks up (refer previous
slide). As a likely state capital, Vijayawada is likely to
attract senior cadre of corporate travellers and
business visitors (who are less sensitive to increase in
room rates).

At the same time, additional supply of c. 650 rooms is


expected to come up in the next 2-3 years; this is likely
to keep price increase low in the short term

After 3.5-4.5 years, room rates are expected to grow as


demand outpaces supply. We expect an overall growth
in ARR at a CAGR of 5-7% between FY14-FY20 (in line
with historical growth rate in Tier 2 cities such as
Ahmedabad and Jaipur )

Taj Gateway

Source: Industry discussions, HVS report on Hotels in India, PwC research and analysis

LEPL Projects Limited Feasibility Study


PwC

March 2014
57

Healthcare
Section 2.5 Micro-market assessment for project components

& While the region is well-covered in terms of general healthcare, there are
few large specialty hospitals in the region

Vijayawada-Guntur region is a hub for healthcare in the


region...
Vijayawada and Guntur have one of the highest ratio of beds
per 1000 population at 6.6, compared to the national average
of 1.2 and the Andhra Pradesh state average of 1.4
The region is well-covered in terms of general hospitals, which
are mostly private in nature
Provision of cover by the Government (upto 2 lacs per annum)
under Aarogyashri and state insurance schemes, as well as a large
catchment of high income population in surrounding areas has
encouraged private healthcare players to set up operations
here
The region also has a large number of medical colleges, doctors
and health consultants

However, majority of the hospitals in the city are small


(<100 beds); large specialty hospitals are limited
Majority of the hospitals in the region are small hospitals set up
by private consultants and doctors . Currently there are only
7-8 major specialty hospitals in the region. (Refer slides 2829 for more details on healthcare market in Vijayawada)
# of hospitals in Vijayawada and Guntur, by size
385

353

9
Vijaywada
<100 beds

100-300 beds

Guntur
>300 beds

In order to tap the opportunity for offering specialized care, 3-4


hospitals specializing in cardiology, oncology etc are also
coming up in the region
The catchment of patients for these super-specialty and multispecialty hospitals is larger, comprising of the population from
nearby coastal areas as well.
Bed occupancy rates in the city vary from 50-70%, depending
on type of hospital and consultants in the hospital

LEPL Projects Limited Feasibility Study


PwC

Source: PwC Research & Analysis

March 2014
57

Healthcare
Section 2.5 Micro-market assessment for project components

& A super/multi specialty hospital of 250-300 beds can address this needgap and can be set up in the proposed area of 17.5 acres
While there is sufficient coverage for general healthcare in the region, there is a need-gap for specialty healthcare
which can be bridged by a multi-specialty or super-specialty corporate hospital
Most residents of Coastal Andhra currently go to Hyderabad or other
cities for specialized treatments. They can be targeted by exploring
various options

Super-specialty hospital specializing in


oncology, nephrology, cardiology etc

Multi-specialty hospital

Novel concept such as a heath village with multiple niche offerings


such as geriatric care etc.
Competition in the specialist healthcare space could increase
as newer hospitals are eyeing the market to bridge the need
gap in the region. Early entrants are likely to have a first
mover advantage
Upcoming hospitals

Type

Bed size

Kamineni Hospital

Super
specialty

250+

Nagarjuna Cancer Centre

Oncology

150

Andhra Hospital

Cardiac

150

LEPL Projects Limited Feasibility Study


PwC

Source: PwC Research & Analysis

Potential for 250 -300 bed specialty hospital in


the given area of 17.5 acres
There are no standard norms around the land area
required for setting up a hospital of 200-300 beds; it
varies as per the building plan and availability of open
space at the site
Based on benchmarking the land area for hospitals of
varying bed sizes in other cities, the current area of
land at 17.5 acres is well-suited for setting up of a 250300 bed hospital Apollo Hospital in Ahmedabad: 234 beds in 10
acre
Apollo Hospital in Hyderabad: 550 beds in 35
acre
Fatima Hospital in Kochi: 500 bed in 25 acre
Sankara Eye Hospital in Guntur: 225 beds in
4.3 acres

March 2014
58

Healthcare
Section 2.5 Micro-market assessment for project components

& ARPOB for speciality hospitals in Tier 2 cities typically ranges from INR
12 16000 currently; we expect the proposed hospital to match market
rates in the long term
Current ARPOB in Tier 2 cities (FY14)

Expected ARPOB by 2020


(5-8% CAGR)

12-16000

18 - 22000

INR/day

INR

Average room rate per occupied bed (ARPOB) ranges


from INR 12 16000 in Tier 2 cities for branded
specialty hospitals. In Tier 1 cities such as
Mumbai, Delhi & Chennai this can range from INR
22-26000
-

For Apollo Hospitals, the ARPOB from its Tier 2/3


cluster (which includes cities such as
Madurai, Bhubaneshwar, Vizag, Mysore etc)
ranges from INR 11,000 - 16000

Growth in ARPOB is a function of internal factors (type


of specialisations added, ability to capture market
share, hospital reputation etc) and external factors
(overall demand for healthcare in the
region, competing corporate hospitals, oversupply
issues etc)

We have taken a conservative estimate of growth of 58% (in line with inflationary trend) in ARPOB over the
next 5-6 years

ARPOB from Apollo hospitals in Hyderabad is


estimated at INR 18-20,000 while it is INR 2526000 in Chennai

Source: Industry discussions, Apollo annual report, PwC research and analysis

LEPL Projects Limited Feasibility Study


PwC

March 2014
60

Golf course
Section 2.5 Micro-market assessment for project components

* Golf courses are gaining in popularity in prestigious real estate projects


in India

Golf courses in India


There are nearly 200 golf courses currently in India, of which more than
half belong to the Indian army and operate for non-profit purposes.

Over 50% of the golf courses are 18-hole courses, 40-45% are 9-hole
courses with just a few 27-hole courses

Membership models
Vast majority of golf courses operate on a membership only basis and
generally allow only the club members and their guests to play
- Memberships are typically on an annual subscription + usage charges
for most golf clubs
Corporate memberships have been rising for golf clubs with increase in
expat employees
The membership strength for a golf course typically ranges from ~1500
members for 27-hole golf course, 1000-1200 members for 18-hole
golf course and 300-500 members for 9-hole golf course.
Typically only 20%-30% of the members constitute active members.
Operating model
The design and development of the golf course is typically contracted to a
specialist agency. Once the golf course is ready and operational., the
maintenance and management is done in-house by the developer (a
dedicated team is hired for management and maintenance of golf course)
Other components such as pro-shop (for equipment & accessories) and
food & beverage units are typically outsourced
LEPL Projects Limited Feasibility Study
PwC

While Golf as a sport is still in a very nascent stage in


India, it is fast becoming a status symbol and a lifestyle
statement
Hence, in recent years, real estate developers have started
building golf courses as part of residential complexes to
demand premium prices for their property and attract
aspirational as well as affluent customers as
potential residents/ investors
A number of golf centric townships have come up in India
in recent years
Jaypee Group has announced a 452-acre golf course
centric mixed use real estate project in Greater Noida
(18-hole Greg Norman Signature championship course)
Unitech Grande has an ultra-luxury residential project
in Noida, with a 18-hole golf curse designed by Greg
Norman
Royal Indian Raj International Corporation announced
a partnership with professional golfer Jack Nicklaus to
build eight 18-hole courses at the firm's new resort and
residential communities across India.
Omaxe is developing a golf-themed township in
Raipur, Chhattisgarh
IVRCL Assets & Holdings Limited has started on a 700
acre township project Aavisa which is also the first
private golf-centric community in Chennai

March 2014
59

Golf course
Section 2.5 Micro-market assessment for project components

* The golf course appears prima facie viable, by targeting affluent


individuals in the city in addition to villa residents and senior corporate
cadre
Target population for Gold Course memberships
Golf course
memberships will
target...

1
Villa residents

2
Affluent
individuals in
Vijaywada

Corporate
memberships
(senior
management)

Demand drivers

Target population

The buyers of premium villas in the project township can be targeted for
golf club membership
Typically golf club memberships are not mandatory

In most cities, private golf club memberships are targeted at the top income
bracket; membership to such clubs are considered a status symbol and sign
of affluence
Excluding Mumbai and Delhi, for other Tier 1 cities affluent households
(income > INR 2 lakhs per month) accounts for 3% of the households. For
Hyderabad, this is 2%.
Assuming a similar distribution in Vijayawada, this translates to 12,500
households (2% of 6.3 mn HHs in Vijayawada and Guntur, as on 2020)
Corporate memberships of golf clubs (for senior management and expat
employees) can be another target segment for the gold club
Targeting the senior employees/top management of IT/ITeS companies
within the project township translates to a corporate target population of c.
350-400 potential members1
1. Taking 2% of overall employee base of 18500 IT/ITeS employee base within the
IT/ITeS park in the project township

LEPL Projects Limited Feasibility Study


PwC

~450

~12,500

350-400

Even a 5-8% success rate with


the target population can result
in 600-1000 members for the
golf course

March 2014
60

Section 2.6
Summary

LEPL Projects Limited Feasibility Study


PwC

March 2014
61

Section 2.6 Summary

Demand for residential and retail components is expected to absorb


planned supply from the project; office and IT saleable areas need some
correction from the original plan
Project
Component
Plotted
development

Land allocation
(acres)

Saleable area
(mn sq ft)

324.4

553,502 sq
yards

Residential
apartments
High end Villas

Office

Land
allocation
(acres)
324.4

Saleable area
(Sq ft)
553,502 sq
yards

10.33

10.33

148,733 sq
yard

148,733 sq
yard

Comment

Large demand is expected for


residential housing due to growth in
existing population and influx of
workforce
There are few large residential projects
that have been announced in the
region; hence we expect robust offtake
for LEPLs planned 5900 housing units

72.4

14.5

22-251

4-5

The project will have to reduce its


planned allocation for non-IT office area
to 4-5 mn sq ft, else it is likely to face a
supply overhang

IT Park

19

2.8

19

1.8

For the IT park, the current allocation of


2.84 mn sq ft could lead to a supply
overhang. Expected demand for IT park
is estimated at 1.8 mn sq ft

Retail

4.1

0.6

4.1

0.6

The project and its surrounding regions


are expected to provide a reasonable
retail catchment of 80-90,000 potential
customers, which can support viability of
the retail component

1. Initial phase

LEPL Projects Limited Feasibility Study


PwC

March 2014
62

Section 2.6 Summary

Education, multiplex, hotel and hospitals are prima-facie viable at the


project site; a golf course will boost project popularity and enhance its
positioning in the market
Project
Component

Land allocation
(acres)

Saleable area
(mn sq ft)

Land allocation
(acres)

Saleable area
(Sq ft)

19

na

191

na

LEPL can consider an international


school or a professional college as part of
the educational complex envisaged in the
township; there appears to be high
feasibility for an IB school in the project

Commercial &
Entertainment

10.4

3.4

10.41

3.4

The project is likely to have sufficient


demand from the local catchment for
setting up a 500-seater multiplex
There is also scope for setting up a 100120 room hotel in the township

Hospital

17.5

1.75

17.5

1.75

A super/multi specialty hospital of 250300 beds can be set up in the proposed


area of 17.5 acres

Golf course

45.9

Na

45.9

Na

Golf courses are gaining in popularity in


prestigious real estate projects in India.
Targeting affluent individuals in the city,
in addition to villa residents and senior
corporate cadre, makes the golf course
prima facie viable

Education
complex

Total

512.7

1. Initial phase

LEPL Projects Limited Feasibility Study


PwC

462 - 465

Comment

The various components are likely to spread over


460-470 acres in the initial phase; the remaining
land can be used for expansion in subsequent phases
(eg, hotels, educational institutions, office space etc).
This will also add to the overall viability of the
March 2014
project, from a land owners perspective

63

Section 3
Other successful mixed use projects in India

LEPL Projects Limited Feasibility Study


PwC

March 2014
64

Section 3 Other successful mixed use projects in India

There are a number marquee integrated townships that have been


successful in India. While townships started as a Tier 1 phenomenon, this
model is gaining popularity in Tier 2 cities as well
Townships are large real estate developments with mix of
residential, commercial, retail, educational and recreational
space

We have looked at the several townships in India to identify


the critical success factors
1. Jaypee Greens Wish Town 1162 acres

Townships have their own infrastructure backbone of


security, power, roads, sewage, drainage etc. There are planned
open and green spaces, with social amenities such as
parks, playgrounds, entertainment zones etc in order to create a
self-contained city within a city

Increasing pressure of infrastructure development and poor civic


amenities in the mainstream city regions have lead to increasing
popularity of the township model in real estate in India
-

As urban areas are getting more crowded and infrastructure


development has not kept pace with real estate
growth, integrated townships provide the long term solution
-

Pacific Developers

Successful townships in India include Hiranandani Gardens in


Mumbai, Magarpatta City in Pune, Mahindra World City in
Chennai and Jaypee Greens Wish Town near Noida.

With the success of the township model in Tier 1 cities and


availability of large tracts of land (a key requirement for the
township model), Tier 2 cities has witnessed a number of township
projects being launched in recent years
-

2. Hiranandani Gardens, Mumbai 250 acres

3. Mahindra City, Chennai 1550 acres

4. Magarpatta City, Pune 430 acres

Shubh Griha by Tata Housing in Ahmedabad


Integrated townships in by HIRCO in Panvel, Nagpur, Nasik
among others
Tanaji Malusare City by Matheran Realty in Karjat
Vedanta City by Vedarya Township in Surat

LEPL Projects Limited Feasibility Study


PwC

March 2014
65

Section 3 Other successful mixed use projects in India

Critical success factors for a successful township development



Self sustained environment
Balanced mix of residential and commercial spaces along with welldeveloped infrastructure and recreational amenities besides green
and open spaces
Typical components in an integrated township include residential
apartments & villas, shopping complex, convenience
stores/supermarket, entertainment avenues
(eg, multiplex, restaurants), hotels, hospital, parks/gardens, sports
venues etc
"Townships should be self-sutained, with all ameneties, including
elements such as schools, recreation
areas, hospital, retail, available to residential and office users"
Tata Housing

Well designed environment with


developed infrastructure
The design aspect is improtant in
kmaintaining the overall integrity of the
township. Clearly demarcated business vs
commercial vs residential areas, ample
green cover, easy accessibility to various
social/entertainment components need to
be ensured
While expanding into newer geographies,
companies would prefer places which have
ready infrastructure including power,
water and housing
- Tata Housing

LEPL Projects Limited Feasibility Study


PwC

World class office space within the premises


The office space within integrated townships find takers in
sectors such as IT/ITeS, telecomm, BFSI, electronic hardware
etc.
Customers expect the building to be designed as best in class,
with necessary telecomminucation & IT connectivity, power
backup, parking facilities, secrity system etc
Without commercial space, no township can be called fully
successful. The two most successful townships in India
Hiranandani Gardens and Magarpatta City have a
significant amount of office space within the townships
- JLL

Low dependence on amenities


provided by civic authorities
Most of the internal amenities (sewage
management, water supply and overall
maintenance of the immediate
surroundings) are managed by the
township themselves
Maintenance of township is managed by
inhouse team of develop for initial 2-3
years, after which the developer continues
to manage some part of the premises
(commercial building, shopping area etc)
but may handover the residential part to
third party service providers

Accessibility to main city


While townships are typically located on the
outskirts of the city, since large tracts of
land are typically available only at the city
periphery,
"A good project, even if at some distance
from the city centre, finds favour
professionals who would prefer to live in
urban environment without the
congestion"
Sobha Developers
"A township which is completely cut-off
from the main city does not serve
anybody's purpose"
- JLL

March 2014
66

Appendix 1
Annexures

LEPL Projects Limited Feasibility Study


PwC

March 2014
67

Residential
Appendix 1 Annexures

Annexure Growth in population in the region


Expected new employment in the region (leading to influx of people) Growth in existing population in Vijayawada and Guntur
Yearly incremental skilled
workforce requirement
Krishna
and
Guntur
Districts

Population and growth rates

Share of Vijayawada- Guntur


cities1
%

Yearly
require
ment

Requirement
for 5 years
(FY 15-20)

FY 11
(in
millions)

Growth
rate

Incremental
population
(FY 15- FY 20)

Vijayawada

1.17

3.4%

0.24

2%

0.12

Construction

19,088

30%

5,727

28,633

Tourism, Travel &


Hospitality

Guntur

1.03

14,980

50%

7,490

37,450

2.2

Transportation,
Logistics,
Warehousing &
Packaging

Total (in
mn)

2,396

50%

1,198

5,991

IT & ITES Sector

5,140

90%

4,626

23,129

11,268

70%

7,887

39,437

Food processing

2,330

50%

1,165

5,825

Auto & Auto


components

5,000

50%

2,500

12,500

Textile & leather

2,427

30%

728

3,640

31,321

156,604

Banking &
Financial Services
Insurance

Total

62,629

Source: PwC Analysis, NSDC Skill Gap Study for AP (2013)

LEPL Projects Limited Feasibility Study


PwC

0.36

Note 1 We have adjusted the share of skilled workforce requirement in the VGTM region on the basis
of suitability and potential of the sector in the Vijayawada-Guntur belt. Hence, services such as
IT, banking, hospitality, transportation, food processing and automotive are expected to have a higher
share of the demand in the VGTM region.
Source: Zonal Development Plan 2021, VUDA

March 2014
68

Retail
Appendix 1 Annexures

Annexure Calculation for retail catchment

Calculation of catchment area for retail in the township


Type

Description

Primary captive catchment

Number of residents in
township

Secondary catchment

Floating population of
workforce, students and
visitors in the township

Tertiary catchment

Population of Vijayawada and


Guntur regions in FY 20

Population
26,550

55,000

2,823,201

Comments
As per the number of units planned in
the township
Comprising of expected IT and office
workforce by FY 20 and students
Population of Vijayawada and Guntur
has been grown at their historic growth
rates of 3.4% and 2%, respectively to
arrive at population in FY 20.

Source: PwC Analysis

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March 2014
69