Please refer to important disclosures at the end of this report 1 Y/E March (` cr) 3QFY11 2QFY11 % (qoq) 3QFY10 % (yoy) Net sales 124 133 (6.4) 83 50.5 EBITDA 77 63 23.1 76 1.1 OPM (%) 62.1 47.2 1,485bp 92.4 (3,037)bp PAT 50 48 4.6 67 (25.1) Source: Company, Angel Research Anant Raj’s (ARIL) 3QFY2011 results were broadly in line with our expectations. The top line was driven by mid-income residential projects. PAT stood at `50cr (up 4.6% qoq). ARIL continues to focus on mid-income residential projects and intends to launch another 3mn sq. ft. in 4QFY2011. However, we have lowered our FY2012 estimates by 37% to factor in the delay in the launch of its super premium residential Hauz Khas project. The promoters have not converted warrants (20mn) citing that it would have led to dilution of >5%, therebytriggerin g an open offer. ARIL’s net debt-equity stands at 0.2x, which is the lowest amongst peers. We maintain Buy on the stock. Revenue driven by new residential launches: ARIL had launched two residential projects in the NCR in 1HFY2011– Kapashera (0.28mn sq. ft.) andManesar (1mn sq. ft.) at `5,000/sq. ft. and `3,300/sq. ft., respectively. During the quarter, ARIL booked combined revenue of `102cr from Kapashera ( `6.4cr) and Manesar( `94.5cr). Historically, ARIL’s revenue has been driven by land/FSI sale and rental income, where it booked revenue on net sales basis (which excludes land cost). Consequently, OPM has been at 85–95%, as it includes only employee and administrative expenses. In 1QFY2011, ARIL had changed its accounting method from net sales to gross sales, where expenses include land and construction cost. Thus, OPM came in at 62.1% (down 3,037bp yoy and up 1,485bp qoq). We expect OPM to remain at these levels with increasing share of residential projects. Outlook and valuation: ARIL’s near-term revenue visibility is set to be driven bymid-income residential projects; and with the commercial segment gaining traction, rental income is set to improve. The launch of the Hauz Khas project will be a key catalyst for the stock’s performance, which has got delayed by over a year. We maintain our Buy rating on the stock with a revised Target Price of `145 ( `178), which is at 25% discount to our one-year forward NAV. Key financials (Consolidated) Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E Net sales 251 286 500 697 % chg (58.5) 14.2 74.8 39.4 Net profit 207 238 196 250 % chg (52.5) 14.9 (17.6) 27.2 EBITDA (%) 88.0 90.3 55.4 65.6 EPS (`) 7.0 8.1 6.7 8.5 P/E (x) 14.3 12.5 15.1 11.9 P/BV (x) 0.9 0.8 0.8 0.7 RoE (%) 6.7 6.9 5.3 6.4 RoCE (%) 6.5 6.7 6.1 8.5 EV/Sales (x) 10.2 9.1 5.8 5.3 EV/EBITDA (x) 11.6 10.1 10.5 8.1 Source: Company, Angel Research BUYCMP `101 Target Price `145 Investment Period 12 Months Stock Info Sector Bloomberg Code Shareholding Pattern (%) Promoters 61. 4 MF / Banks / Indian Fls 8. 7 FII / NRIs / OCBs 25. 6 Indian Public / Others 4. 3 Abs. (%) 3m 1yr 3yr Sensex (13.5) 13.2 3.3 ARIL (25.7) (23.4) (71.3) 2 17,776 5,313 ANRA.BO ARCP@IN 2,967 1.0 160/94 204,997 Real Estate Avg. Daily Volume Market Cap ( `cr) Beta 52 Week High / Low Face Value ( `) BSE Sensex NiftyReuters Code Param Desai 022 – 3935 7800 Ext: 6823 [email protected]Mihir Salot 022 – 3935 7800 Ext: 6843 [email protected]Anant Raj Industries Performance Highlights 3QFY2011 Result Update | Real Estate February 8, 2011
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ARIL’s rental revenue grew by 6% qoq to ` 19.8cr in 3QFY2011. The company
earned ` 6.9cr from Manesar IT Park , ` 8.1cr from three hotels, ` 1.2cr from Karol
Bagh Mall and ` 3.6cr from Jhandewalan and Faiz Road. Further, we expect ARIL’s Manesar and Kirti Nagar properties to reach their peak occupancy levels in 6–9
months, as leasing activity improves. Management has indicated that the
company’s Kirti Nagar property (0.75mn sq. ft.) has been pre-leased to the extent
of 0.3mn sq. ft. at ` 100/sq. ft. and expects tenants to move in by 1QFY2012.
Rentals at the Kirti Nagar Mall have been renegotiated from ` 150/sq. ft., as
indicated earlier by the management.
Exhibit 3: Rental income to grow 4x to `184cr by FY2012E
Source: Company, Angel Research
Increasing land acquisition
During 1HFY2011, ARIL acquired 153 acres of land for ` 564cr. These land
parcels were primarily bought in Gurgaon (125 acres), Sonepat (10 acres) and
Neemrana, Rajasthan (18 acres). Out of the 125 acres in Gurgaon, 110 acres of
land is agricultural land where it intends to develop group housing and township.
On the remaining 43 acres, the company intends to launch a mid-income
residential project over the next six months. This is in line with ARIL’s strategy to
acquire land at a cheaper cost. Consequently, the company has turned net cash to
net debt of ~ ` 700cr as of 3QFY2011 to fund land acquisition. Initially, the
company had planned to raise equity to fund its new land acquisition. As market
conditions were not conducive, management was reluctant to dilute at current
levels. Consequently, the promoters have not converted warrants (20mn) citing that
it would have led to dilution of >5%, thereby triggering an open offer. Thus, the
sum of ` 44cr paid by the promoters stands forfeited by the company.
Delay in the launch of super premium residential projects
ARIL’s stock price has sharply underperformed the market on account of the delay
in launching some of its high premium residential projects in Hauz Khas and
Bhagwandas Road, both of which are in up-market Delhi locations. The company
has successfully tried to replace the launch of these projects with other suburban
launches (Kapashera and Manesar), but these projects are relatively small.
We anticipate the delay to continue for another 8–12 months as both projects are
yet to receive all the necessary approvals. Consequently, we have downgraded our
Almost all of ARIL's land bank (1,000 acres) is exclusively located in the NCR,within 50km of Delhi, with approximately 525 acres in Delhi. This land bank has
been acquired at an historical average cost of ` 300/sq. ft., with recent transactions
by ARIL executed at ` 370/sq. ft., ` 450/sq. ft. and ` 130/sq. ft. in high-growth
areas such as Gurgaon, Manesar and Sonepat, respectively. ARIL's successful land
acquisition strategy is attributed to its acquisition through the allocation route from
DDA at significantly low prices compared to the prevailing rates and its focus on
being an NCR player, which helps in identifying areas with high economic
potential in Delhi.
Residential projects to drive near-term visibility
ARIL recently launched two residential projects in NCR–Kapashera (0.28mn sq. ft.)
and Manesar (1mn sq. ft.) for ` 5,000/sq. ft. and ` 3,300/sq. ft., respectively.
Management has indicated that the entire property of Kapashera and ~50% of
Manesar property have been sold out so far. The Manesar property was acquired
at ` 450/sq. ft. in 2009. Management has guided for ` 500cr of revenue in FY2011
from the residential segment. Further, we expect ARIL’s Manesar and Kirti Nagar
properties to reach peak occupancy levels in 6–9 months as leasing activity
improves. The company will also have five hotels operational by the end of
FY2011, with transfer of occupancy risk to third party in return of fixed rentals.
Consequently, we expect ARIL to report rental income of ` 184cr in FY2012 as
compared to ` 49cr reported in FY2010.
Well-capitalised balance sheet
Post the recent land acquisitions ( ` 1,000cr), ARIL has a net debt balance of ` 700cr
(0.2x) from having net cash balance of ` 190cr in 1QFY2011, which is the lowest
amongst peers. This augurs well for the company even in a downturn and gives
headroom to leverage at reasonable costs for the timely execution of projects.
Research Team Tel: 022 - 3935 7800 E-mail: [email protected] Website: www.angelbroking.com
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Disclosure of Interest Statement (Company name) Anant Raj Industries
1. Analyst ownership of the stock No
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