Anant raj

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

Please refer to important disclosures at the end of this report 1

Anant Raj Industries |1QFY2011 Result Update

Exhibit 1: Quarterly performance
(Rs cr) 1QFY11 4QFY10 % (qoq) 1QFY10 % (yoy) FY2010 FY2009 % chg
Revenues 103 34 203.4 105 (1.5) 286 251 14.2
Total expenditure 47 8 491.4 29 60.8 28 30 (7.7)
EBIDTA 57 26 117.0 76 (25.2) 259 221 17.2
EBIDTA margin (%) 55.0 76.9 (2,191bp) 72.4 (1,741bp) 90.3 88.0 230bp
Depreciation 4 (2) 3 3.1 11 9 23.9
Interest 1 5 0 5 0
Other income 9 13 (25.7) 15 (39.3) 53 70 (23.8)
PBT 61 36 71.7 88 (30.4) 296 282 5.2
Tax 15 6 159.8 18 (14.4) 58 73 (20.8)
Tax rate (%) 25.1 16.6 20.4 19.6 26.0
EO/Minority int. (0) 1 (1) (0) (1)
Adj PAT 46 30 54.2 70 (34.5) 238 208 14.4
Adj. PAT margin (%) 44.3 87.2 66.7 83.2 83.1
Reported PAT 45.8 30.9 48.1 68.9 (33.5) 238 207 14.9
Number of shares (mn) 29.5 29.5 29.5 29.5 29.5
EPS (Rs) 1.6 1.0 2.3 8.1 7.0

Exhibit 2: Actual v/s Estimates
Particulars (Rs cr) Estimates Actual Variation (%)
Net Sales* 60 103 72.0
Operating Profit 48 57 18.3
OPM (%) 80.0 55.0 (2,498bp)
Reported PAT 44 46 4.3
Source: Company, Angel Research; Note*Change in accounting method from Net sales to Gross
sales resulting in lower OPM

August 5, 2010 2


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


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


Exhibit 4: Quarterly revenue trend Exhibit 5: Quarterly EBITDA trend
120 200 90 91.7 92.4 100
80 72.4
100 159.2 150 76.9
70 80
80 100 60 55.0
60
50

(Rs cr)
(Rs cr)

(%)
()%)
60 50 40
40
17.0 30
40 (1.5) 0
(39.0) 20 20
20 (44.3) (50) 10
0 0
0 (100)
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11
Revenue (LHS) yoy change (RHS) EBITDA (LHS) EBITDA Margin (RHS)

Source: Company, Angel Research Source: Company, Angel Research

Exhibit 6: Quarterly profitability trend
80 500
70 415.3 400
60
300
50
(Rs cr)

(%)
40 200
30
100
20
(43.9) 1.4 0
10 (54.8) (33.5)
0 (100)
PAT (LHS) yoy change (RHS)


Exhibit 7: Peer valuation
Company Reco. Mcap CMP TP Upside P/E (x) P/B (x) NAV Prem/(Disc) EV/EBITDA (x) RoE (%) CAGR #
(Rs cr) (Rs) (Rs) (%) FY11E FY12E FY11E FY12E to NAV FY11E FY12E FY11E FY12E Sales PAT
ARIL Buy 3,531 120 178 48.8 18.0 8.7 1.0 0.9 210 (42.0) 13.0 6.7 5.6 10.6 123.8 41.2
DLF Neutral 52,738 311 - - 26.8 14.8 1.6 1.5 298 4.3 16.9 11.0 6.2 10.5 41.4 53.1
HDIL Buy 9,274 268 302 12.6 12.3 7.5 1.2 1.1 402 (33.3) 12.4 6.9 10.8 15.4 54.9 67.8
Source: Company, Angel Research; Note: # CAGR over FY2010-FY2012E

August 5, 2010 4


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


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


Profit & Loss Statement (Consolidated)
Y/E March (Rs cr) FY07 FY08 FY09 FY10 FY11E FY12E
Net Sales 208 604 251 286 491 995
Other operating income - - - - - -
Total operating income 208 604 251 286 491 995
% chg 266.1 190.2 (58.5) 14.2 71.5 102.7
Total Expenditure (31) (42) (30) (28) (232) (416)
Construction costs - - - - (213) (377)
Other Mfg costs (27) (35) (23) (20) - -
Personnel (4) (6) (7) (7) (9) (13)
Other operating cost - - - - (11) (27)
EBITDA 177 562 221 259 259 579
% chg 342.0 217.6 (60.7) 17.2 (0.0) 123.9
(% of Net Sales) 85.1 93.1 88.0 90.3 52.7 58.2
Depreciation& Amortisation (8) (8) (9) (11) (18) (26)
EBIT 169 554 212 248 240 553
% chg 355.2 227.4 (61.7) 16.9 (3.1) 130.3
(% of Net Sales) 81.3 91.8 84.6 86.6 48.9 55.6
Interest & other Charges (2.4) (3.3) (0.5) (4.9) (8.3) (12.8)
Other Income 4.3 29.3 70.1 53.4 43.8 31.2
(% of PBT) 2.5 5.1 24.9 18.0 15.9 5.5
Recurring PBT 171 580 282 296 276 571
% chg 363.6 239.0 (51.4) 5.2 (7.0) 107.4
Extraordinary Expense/(Inc.) - - - - - -
PBT (reported) 171 580 282 296 276 571
Tax (46) (144) (73) (58) (66) (137)
(% of PBT) 26.7 24.8 26.0 19.6 24.0 24.0
PAT (reported) 125 436 208 238 209 434
Add: Share of earnings of associate 0.3 - - - - -
Less: Minority interest (MI) - (0.0) 0.2 (0.1) - -
Prior period items (0.0) 0.2 (1.3) (0.1) - -
PAT after MI (reported) 126 436 207 238 209 434
ADJ. PAT 126 436 207 238 209 434
% chg 347.5 246.9 (52.5) 14.9 (12.1) 107.4
(% of Net Sales) 60.5 72.3 82.7 83.2 42.7 43.6
Basic EPS (Rs) 4.6 13.8 6.6 7.6 6.6 13.8
Fully Diluted EPS (Rs) 4.0 13.8 6.6 7.6 6.6 13.8
% chg 347.5 246.9 (52.5) 14.9 (12.1) 107.4

August 5, 2010 7


Balance Sheet (Consolidated)
SOURCES OF FUNDS
Equity Share Capital 48 59 59 59 63 63
Preference Capital - - - - - -
Warrants/sh. appl. money 9 0 18 60 16 16
Reserves& Surplus 1,110 2,841 3,242 3,477 3,834 4,233
Shareholder’s Funds 1,167 2,901 3,319 3,595 3,913 4,312
Minority Interest 0 0 69 86 86 86
Total Loans 340 58 210 139 139 499
Deferred Tax Liability 2 2 3 1 1 1
Total Liabilities 1,509 2,961 3,600 3,821 4,139 4,897
APPLICATION OF FUNDS
Gross Block 1,105 1,131 1,260 1,860 2,220 2,966
Less: Acc. Depreciation 34 37 45 54 72 98
Net Block 1,071 1,094 1,215 1,806 2,148 2,868
Capital Work-in-Progress 200 386 762 746 746 746
Goodwill - 141 146 145 145 145
Investments 112 149 309 295 295 295
Current Assets 385 1,437 1,289 1,015 1,090 1,306
Cash 63 605 626 489 338 199
Loans & Advances 301 444 411 274 302 332
Other 21 388 253 252 450 776
Current liabilities 258 246 126 189 287 465
Net Current Assets 126 1,191 1,163 826 803 841
Mis. Exp. not written off 1 1 5 3 3 3
Total Assets 1,509 2,961 3,600 3,821 4,139 4,897

August 5, 2010 8


Cash Flow Statement (Consolidated)
Profit before tax 171 580 282 296 276 571
Depreciation 9 8 10 12 18 26
Other Adjustments (1) (8) (60) (44) 8 13
Chg in Wkg. cap. (59) (460) 7 201 (102) (162)
Less: Other income 23 (0) (5) 2 0 -
Direct taxes paid (46) (144) (74) (60) (66) (137)
Cash Flow from Operations 97 (26) 160 408 135 311
Inc./ (Dec.) in Fixed Assets (844) (173) (136) (602) (360) (746)
Inc./ (Dec.) in Investments (112) (36) (160) 14 - -
Inc./ (Dec.) in loans & adv. - - - - (27) (30)
Other income (152) (211) (207) 79 - -
Cash Flow from Investing (1,108) (420) (503) (508) (387) (776)
Issue of Equity 796 1,349 233 59 131 -
Inc./(Dec.) in loans 302 (282) 152 (71) - 360
Dividend Paid (Incl. Tax) (30) (76) (21) (21) (21) (22)
Others 3 (3) (0) (3) (8) (13)
Cash Flow from Financing 1,071 988 364 (36) 102 326
Inc./(Dec.) in Cash 59 542 21 (136) (151) (139)
Opening Cash balances 3 63 605 626 489 338
Closing Cash balances 63 605 626 489 338 199

August 5, 2010 9


Key Ratios
Y/E March FY07 FY08 FY09 FY10 FY11E FY12E
Valuation Ratio (x)
P/E (on FDEPS) 28.3 8.6 18.2 15.8 18.0 8.7
P/CEPS 23.2 8.5 17.5 15.1 16.6 8.2
P/BV 3.2 1.3 1.1 1.0 1.0 0.9
Dividend yield (%) 0.8 1.2 0.5 0.5 0.5 0.8
EV/Sales 18.3 4.9 12.4 11.1 12.0 6.2
EV/EBITDA 21.5 5.3 14.1 12.3 12.9 6.6
EV / Total Assets 2.5 1.0 0.9 0.8 0.8 0.8
Per Share Data (Rs)
EPS (Basic) 4.6 13.8 6.6 7.6 6.6 13.8
EPS (fully diluted) 4.0 13.8 6.6 7.6 6.6 13.8
Cash EPS 4.9 14.1 6.9 7.9 7.2 14.6
DPS 0.9 1.4 0.6 0.6 0.6 1.0
Book Value 37 92 105 114 124 137
DuPont Analysis
EBIT margin 81.3 91.8 84.6 86.6 48.9 55.6
Tax retention ratio 73.3 75.2 74.0 80.4 76.0 76.0
Asset turnover (x) 14.4 25.6 8.4 8.6 7.3 13.2
ROIC (Post-tax) 8.6 17.7 5.3 6.0 2.7 5.6
Cost of Debt (Post Tax) 0.9 1.3 0.3 2.3 4.6 3.0
Leverage (x) 0.2 (0.1) (0.2) (0.1) (0.1) 0.0
Operating ROE 10.3 16.6 4.5 5.6 2.9 5.6
Returns (%)
ROCE (Pre-tax) 18.8 24.8 6.5 6.7 6.0 12.2
Angel ROIC (Pre-tax) 25.4 40.3 12.1 11.0 9.0 16.5
ROE 17.9 21.5 6.7 6.9 5.6 10.6
Turnover ratios (x)
Asset Turnover (GB) 0 1 0 0 0 0
Inventory / Sales (days) 14 26 66 16 87 110
Receivables (days) 46 97 401 306 211 157
Payables (days) 82 97 180 517 114 93
Wrk. Cap (ex-cash, days) - - - - - -
Solvency ratios (x)
Net debt to equity 0.2 (0.2) (0.1) (0.1) (0.1) 0.1
Net debt to EBITDA 1.6 (1.0) (1.9) (1.4) (0.8) 0.5
Int. coverage (EBIT/int) 69.1 166.4 451.7 50.7 28.8 43.3

August 5, 2010 10


Research Team Tel: 022 - 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com

DISCLAIMER

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make
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Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
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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
4. Broking relationship with company covered No

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

Anant raj

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