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Ackruti City
Stake acquisitions and approvals increase debt; Buy
2QFY11 results. Ackruti sold 0.23m sqft for `1.8bn. Sales were equally
divided between residential and FSI/TDR, both of which led to revenue
recognition in P&L as well as higher margins. We maintain Buy, with a
Sep ’11e target price of `872.
FSI/TDR/residential dominates quarter. 2QFY11 revenue arose
from FSI/TDR sales (~50%), residence sales (~35%) and lease income
(~15%). Margins were healthy, given the higher realisation on FSI sales
and lower tax rate on the same.
Stake acquisitions, approvals increase debt. Ackruti raised its stake in
the Mumbai SEZ to 40% from 33% and secured environmental
approvals for Hindustan Mills. The company is in the initial stages of
launching the Sion-Wadala rehabilitation. Cash receivables from sold
projects are sound (36% of sales value received). Yet, given the stake
additions and commencement of large projects, debt rose to `18bn,
increasing net D/E to 1x. Given the new PPP project acquired in Bandra
(E) and up-front payment of `3.3bn to the government, debt is likely to
increase. With current regulations and additional public parking FSI, the
company expects to obtain sellable FSI of 1.2m sqft from the project.
2HFY11 – Huge launches planned. Ackruti plans to launch 6m sqft of
projects in 2HFY11. Although more projects are planned in South and
South-Central Mumbai, larger projects are planned in Central Mumbai.
Valuation and risk. Management has re-classified its land/project
holding, owing to which we would be changing our estimates/NAV. But,
till further clarity, we retain our Sep ’11e target of `872. At the CMP, the
stock trades at 2x FY11e PBV. Risk: Slowdown in sales and execution.
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