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KB Brings Affordable Single-Family Housing to India

KB Brings Affordable Single-Family Housing to India. Agenda. Company Overview/New Product Mode of Entry Market Environment & Competitive Analysis Finances Risks. Company Overview. KB Home One of the largest home builders in the United States (37,140 homes, $9.4 Billion in Revenue).

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KB Brings Affordable Single-Family Housing to India

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  1. KB Brings Affordable Single-Family Housing to India

  2. Agenda • Company Overview/New Product • Mode of Entry • Market Environment & Competitive Analysis • Finances • Risks

  3. Company Overview • KB Home • One of the largest home builders in the United States (37,140 homes, $9.4 Billion in Revenue). • French Subsidiary (Kaufman & Broad S.A.) builds American homes with a French twist. • Operational Model, KBnxt, has been a success. • Current US market conditions require diversification. Customer Service Survey Build Custom Design Develop New Communities

  4. Company Overview • KB Home • One of the largest home builders in the United States (37,140 homes, $9.4 Billion in Revenue). • French Subsidiary (Kaufman & Broad S.A.) builds American homes with a French twist. • Operational Model, KBnxt, has been a success. • Current US market conditions require diversification. Customer Service Survey Build KB Home Design Studio Custom Design Develop New Communities

  5. New Service Concept • Deliver custom built, American style homes to India. • Leverage catalog of American designs, add Indian customizations. • Place KB Home Design Studios in popular retail locations. • Used a phased approach to introduce ourselves to the market. Phase 1 (25 acres) Phase 2 (100 acres) Phase 3 Full Scale 0 mos. 18 mos. 30 mos.

  6. Mode of Entry • Foreign Direct Investment • Establish a joint-venture with local homebuilder. • We supply capital and knowledge. • Local homebuilder supplies land, knowledge of local market, building codes, and a resource pool.

  7. Phase 2 Phase 3 Phase 1 Organizational Structure • Start with a Project Structure and morph into a full Organization Structure.

  8. Market Environment & Competitive Analysis India Demographics : Housing Shortage

  9. Market Environment & Competitive Analysis FDI Regulations : Feb 2005 Housing Reforms

  10. Market Environment & Competitive Analysis Major Indian Cities Snapshot

  11. Market Environment & Competitive Analysis Major Builders In India

  12. Market Environment & Competitive Analysis • Growing trend towards American Style housing fuelled by burgeoning middle class • Major Obstacle Missing Title Insurance + Corruption = Higher Land Cost

  13. Hiranandani Uniform Ansal API Edelco Prestige Low Price DLF High Price KB India Unique Market Positioning & Competitive Strategy Positioning: Perceptual Map

  14. High KB India Multi-unit Housing Apartments Low Design Options Time to Move Financing Options Able to Modify Later Quality Cost Warranty Market Positioning & Competitive Strategy Positioning: Strategy Canvas vs. Other Housing Options + - - - = + +

  15. Market Positioning & Competitive Strategy • Target Market: The emerging fast-growing Middle Class • The Four P’s: • Price: Close to the cost of Multi-family housing when HOAs are considered (Average $150,000) • Place: Bangalore, India • Product: Mass-Customized Single Family Homes • Promotion: Internet, Traditional Advertising, Referral, Design Center

  16. Market Positioning & Competitive Strategy • Growth Strategy • 18 Months: • 25 Acre Development Complete (Sold and Built) • 100 Acre Development Started (Land Purchased) • 30 Months: • 100 Acre Development Complete (Sold and Built) • If Successful: • New Infrastructure introduced for mass entry • 1000 Acre Development Started

  17. Finances Assumptions Underlying the Scenarios for KB Homes India Phase 1 – 1/1/07 to 6/30/08 (18 months) – Fiscal Year 2008 Product or Service Variable Most Likely Pessimistic Scenario Scenario New Home Construction Construction Cost 75% of Sale Price 90% of Sale Price (Land + Labor) General Admin. Expense 12% of Sale Price 12% of Sale Price Land Needed 25 acres 25 acres Units to be Built 150 150 Units Sold at Full Price 150 120 Units Sold at Discount 0 30 Tax Rate 34% 34% Effect on Income Capital Required $20,000,000 $23,000,000 EBIT $2,850,000 ($1,350,000) Retained Earnings $1,900,000 ($1,350,000) Return on Equity 9.5% (5.9%)

  18. Finances Assumptions Underlying the Scenarios for KB Homes India Phase 2 – 7/1/08 to 6/30/09 (12 months) – Fiscal Year 2009 Product or Service Variable Most Likely Pessimistic Scenario Scenario New Home Construction Construction Cost 75% of Sale Price 90% of Sale Price (Land + Labor) General Admin. Expense 12% of Sale Price 12% of Sale Price Land Needed 100 acres 100 acres Units to be Built 600 600 Units Sold at Full Price 600 480 Units Sold at Discount 0 120 Tax Rate 34% 34% Effect on Income Capital Required $85,000,000 $101,500,000 EBIT $12,600,000 ($6,560,000) Retained Earnings $8,316,000 ($6,560,000) Return on Equity 9.8% (6.5%)

  19. Finances Assumptions Underlying the Scenarios for KB Homes India Phase 3 – 7/1/09 to 6/30/12 (36 months) – Fiscal Year 2010, 2011, 2012 Product or Service Variable Most Likely Pessimistic Scenario Scenario New Home Construction Construction Cost 75% of Sale Price N/A (Land + Labor) General Admin. Expense 10% of Sale Price N/A Land Needed 1000 acres N/A Units to be Built 6000 N/A Units Sold at Full Price 6000 N/A Units Sold at Discount 0 N/A Tax Rate 34% N/A Effect on Income Capital Required $886,000,000 EBIT $154,000,000 Retained Earnings $101,000,000 Return on Equity 11.4%

  20. Finances Summary of Key Financial Metrics by Fiscal Calendar Year (Most Likely Scenario) 200820092010201120125 Year Total Capital Required $20M $85M $167M $351M $368M $991M Revenue Generated $22.5M $99M $198M $416M $437M $1,172M EBIT $2.5M $12.6M $29M $61M $64M $169M Retained Earnings $1.9M $8.3M $19M $40M $42M $111M Return On Equity 9.5% 9.8% 11.4% 11.4% 11.4% 10.7% Units Sold 150 600 1200 2400 2400 6750 Summary of Key Financial Metrics by Fiscal Calendar Year (Pessimistic Scenario) 200820092010201120122 Year Total Capital Required $23M $102M N/A N/A N/A $125M Revenue Generated $21.6M $95M N/A N/A N/A $116.6M EBIT ($1.4M) ($7M) N/A N/A N/A ($8.4M) Retained Earnings ($1.4M) ($7M) N/A N/A N/A ($8.4M) Return On Equity (5.9%) (6.5%) N/A N/A N/A (6.7%) Units Sold 150 600 N/A N/A N/A 750

  21. Risk Recognition & Reduction

  22. Summary • New Product • Mass produced, affordable single-family homes in Bangalore, India • Why India? • Shortage of housing • Growing middle class • Available workforce

  23. Summary • Mode of Entry • Partnering with a local contractor • Phased growth plan • Financing • Use of KB Home’s available cash reserves • Loans for later phases if needed • Implication • Diversification of investments • Less reliance on shifting US Housing Market

  24. Now is the Time India is the Place

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