1) Anant Raj Industries reported a 203.4% quarter-over-quarter growth in net sales to Rs. 103 crore for the first quarter of FY2011, though sales were down 1.5% from the prior year. However, margins declined due to a change in accounting practices.
2) The company launched two residential projects during the quarter and has already sold all units in one project and 50% of units in the other.
3) Anant Raj maintains a strong balance sheet with a net cash position and fully paid land banks, providing flexibility for future growth.
1. 1QFY2011 Result Update | Real Estate
August 5, 2010
Anant Raj Industries BUY
CMP Rs120
Performance Highlights Target Price Rs178
Y/E March (Rs cr) 1QFY11 4QFY10 % qoq 1QFY10 % yoy Investment Period 12 Months
Net sales 103 34 203.4 105 (1.5)
Stock Info
EBITDA 57 26 117.0 76 (25.2)
Sector Real Estate
OPM margin (%) 55.0 76.9 (2,191bp) 72.4 (1,741bp)
Market Cap (Rs cr) 3,531
PAT 46 31 48.1 69 (33.5)
Beta 1.3
Source: Company, Angel Research
52 Week High / Low 164/99
Anant Raj Industries’ (ARIL) 1QFY2011 results were in line with our expectations. Avg. Daily Volume 290,753
ARIL’s net sales grew by 203.4% qoq (down 1.5% yoy) to Rs103cr. During the Face Value (Rs) 2
quarter, ARIL changed its accounting method for booking revenue to gross-sales
BSE Sensex 18,173
method from net-of-costs method, which resulted in lower OPM (55%). Thus, PAT
Nifty 5,447
grew by 48.1% qoq to Rs45.8cr. We maintain a Buy view on the stock.
Reuters Code ANRA.BO
1QFY2011 revenue driven by new residential launches
Bloomberg Code ARCP@IN
During 1QFY2011, ARIL launched two residential projects in NCR, Kapashera
(0.28mn sq. ft.) and Manesar (1mn sq. ft.) for Rs5,000/sq. ft. and Rs2,500/sq. ft.,
respectively. The Kapashera property has been entirely sold (112 flats) and ~50% Shareholding Pattern (%)
of the Manesar property (500 flats) has been sold out so far. During the quarter, Promoters 61.4
ARIL booked Rs82cr of revenue from its Kapashera property. MF / Banks / Indian Fls 5.8
Change in accounting method and revenue mix impact margins FII / NRIs / OCBs 29.0
Indian Public / Others 3.8
Historically, ARIL’s revenue has been driven by land/FSI sale and rental income,
where it booked revenue on net sales basis, excluding land cost. In 1QFY2011,
ARIL changed its accounting method to gross sales, resulting in lower OPM at Abs. (%) 3m 1yr 3yr
55%, from its high of 85–95%. We expect OPM to remain at the current level, with
Sensex 6.3 14.3 20.0
increasing share of residential projects.
Anant Raj (2.5) (12.8) (53.6)
Outlook
ARIL is trading at 42% discount to our one-year forward NAV, which gives a
margin of safety, given its low-cost land bank situated at prime locations and a
well-capitalised balance sheet. We maintain Buy on the stock with a Target Price
of Rs178, which is at 15% discount to our one-year forward NAV.
Key Financials (Consolidated)
Y/E March (Rs cr) FY2009 FY2010 FY2011E FY2012E
Net Sales 251 286 491 995
% chg (58.5) 14.2 71.5 102.7
Net Profit 207 238 209 434
% chg (52.5) 14.9 (12.1) 107.4
EBITDA (%) 88.0 90.3 52.7 58.2
EPS (Rs) 6.6 7.6 6.6 13.8
P/E (x) 18.2 15.8 18.0 8.7 Param Desai
P/BV (x) 1.1 1.0 1.0 0.9 022 – 4040 3800 Ext: 310
RoE (%) 6.7 6.9 5.6 10.6 paramv.desai@angeltrade.com
RoCE (%) 6.5 6.7 6.0 12.2
Mihir Salot
EV/Sales (x) 12.4 11.1 6.8 3.9
022 – 4040 3800 Ext: 307
EV/EBITDA (x) 14.1 12.3 13.0 6.7 mihirr.salot@angeltrade.com
Source: Company, Angel Research
Please refer to important disclosures at the end of this report 1
3. Anant Raj Industries |1QFY2011 Result Update
Improving visibility in rental income
ARIL’s rental revenue grew by 20.7% qoq to Rs18cr. The company earned Rs4.5cr
from the Manesar IT Park project, Rs8.1cr from three hotels, Rs1.2cr from Karol
Bagh Mall and Rs3.6cr 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 its Kirti
Nagar property (0.75mn sq. ft.) has been pre-leased to the extent of 0.3mn sq. ft.
at Rs100/sq. ft. and expects tenants to move in by October 2010. Rentals at the
Kirti Nagar Mall have been renegotiated from Rs150/sq. ft., as indicated earlier by
the management.
Exhibit 3: Rental income to grow 4x to Rs201cr by FY2012E
250
201
200
150
(Rs cr)
100 86
49
50
11 16
0
FY2008 FY2009 FY2010 FY2011E FY2012E
Source: Company, Angel Research
During the quarter, ARIL acquired 15.5 acres (FSI of 2) of land for Rs85cr
(Rs531/sq. ft.) at Gurgaon Sec 91. The company intends to launch it as a
mid-income residential project over the next six months. This is in line with the
company’s strategy to acquire land at a cheaper cost.
August 5, 2010 3
5. Anant Raj Industries |1QFY2011 Result Update
Investment arguments
Land acquisition at discounted price
Almost all of ARIL's land bank (872 acres) is exclusively located in NCR, within
50km of Delhi, with approximately 525 acres in Delhi. This land bank has been
acquired at an historical average cost of Rs300/sq. ft., with recent transactions by
ARIL executed at Rs531/sq. ft., Rs450/sq. ft. and Rs130/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 lower prices compared to 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 Rs5,000/sq. ft. and Rs2,500/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 Rs450/sq. ft. in 2009. Going ahead, ARIL intends to launch its premium
residential project at Hauz Khas, Delhi, as it gets environmental clearance.
Management has guided for Rs500cr of revenue in FY2011E from the residential
segment. Further, we expect ARIL’s Manesar and Kirti Nagar properties to reach
their peak occupancy levels in 6–9 months as leasing activity improves. The
company will also have five hotels operational by FY2011E, with transfer of
occupancy risk to third party in return of fixed rentals. Consequently, we expect
ARIL to report rental income of Rs201cr in FY2012E as compared to Rs49cr
reported in FY2010.
Well-capitalised balance sheet
ARIL's land bank is fully paid and it has net cash balance of Rs190cr, with unpaid
land cost of Rs60cr. This augurs well for the company even in a downturn and
gives headroom to leverage at reasonable costs for the timely execution of
projects. Further, the recent issuance of 2cr warrants to promoters (Rs87/share) will
strengthen its cash balance by Rs130cr on conversion.
August 5, 2010 5
6. Anant Raj Industries |1QFY2011 Result Update
Outlook and valuation
ARIL is trading at 42% discount to our one-year forward NAV (much higher
than its peers), which gives a margin of safety given its low-cost land bank
situated at prime locations and well-capitalised balance sheet. This can be
primarily attributed to the company’s higher exposure to commercial assets
(67%). However, we believe near-term revenue visibility will be driven by ARIL's
residential projects. Further, we expect rental income to grow 4x by FY2012E
to Rs200cr as Manesar and Kirti Nagar properties should reach their peak
occupancy levels in 6–9 months coupled with five hotels getting operational by
FY2011E, which will improve ARIL’s rental visibility. We maintain a Buy view on
the stock with a Target Price of Rs178, which is at 15% discount to our one-
year forward NAV.
Exhibit 8: Key Assumptions
Figures in mn sq. ft. FY2011E FY2012E
Residential sales 0.96 1.01
Leasing 1.9 3.5
Commercial 1.41 2.89
Hotel 0.46 0.61
Retail 0.10
Pricing (%)
Residential 5 5
Commercial (5) 5
Retail (5) 5
Source: Angel Research
August 5, 2010 6
11. Anant Raj Industries |1QFY2011 Result Update
Research Team Tel: 022 - 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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Disclosure of Interest Statement (Company name) Anant Raj Industries
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock Yes
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Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)
August 5, 2010 11