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Ackruti City
Premium land, but needs to be developed; retain Buy
Ackruti’s project portfolio is premium among peers. Post a good
FY10, launches slowed. Though collections from pre-sales have
been good, 1HFY11 has seen debt rising by ~`5bn, largely used
for stake additions and working capital. We now value the stock
at Mar ’12e NAV of `566 and trim our target price to `421. Buy.
Premium land – Execution is key. Compared with Mumbai
peers, Ackruti’s projects have an edge as regards location (Mumbai
island city) and spread (Mumbai suburbs). We believe successful
and timely project development would drive value.
Growing debt may be a concern. In the past six quarters,
Ackruti has sold property worth `16bn, realized debtors of `4bn,
raised equity of `3bn and sold FSI/TDR of `3.1bn. But, debt also
rose, by `5bn, mainly due to larger project additions and rehab
construction. Although sanctioned debt for projects is `14.4bn,
new project payments and stalling market volume are concerns.
Change in estimates. Our NAV is impacted by removal of the
Bandra (E) project (premium yet to be paid), the Gujarat Biotech
Park phase-3 (nil progress), and SRS/virgin land projects. We also
increase discount to 25% from 20%, accounting for recent events
and their medium-term impact.
Valuation and risks. Our Mar ’12e NAV stands at `566 and
price target at `421, which is at 25% discount to NAV. At CMP,
the stock trades at 0.9x Mar ’12e PBV. Key risk: Slowdown in
sales.
Premium land – execution the key
Compared with Mumbai peers, Ackruti’s projects have an edge as
regards location (Mumbai island city) and spread (Mumbai
suburbs). We believe successful and timely project development
would drive value
Land differentiation
Spread and size
Ackruti’s projects portfolio is spread across micro-markets in Mumbai, and
concentrated in the central suburbs. We believe that the central suburbs of
Mumbai and Bandra (E) would out-perform other markets in Mumbai on
pricing in the next five years.
Also, its project sizes are smaller in South and South-Central Mumbai, and
medium-to-large in the suburbs. This, we believe, could drive volume once
such projects are launched.
Launches need to pick up pace
FY10 saw residential and commercial sales of 2.16m sqft worth `8.4bn.
Sales in 1HFY11 have been 0.94m sqft (ex TDR and FSI) for `8.7bn.
Along with quick absorption of launched projects, the company has hiked
prices, though accompanied by some volume slowdown.
Further, on the sales value receivables front, Ackruti has been
comparatively better than peers, with as much as 40% recovered from
sales already concluded. Since all launches follow construction-linked
payment plans, execution of launched projects is well on track.
With launch plans of 6.9m sqft over the next 3-4 quarters, as per 2QFY11
guidance, the company did not launch any project in 3QFY11. We believe,
however, that, in order to monetize its land parcels, launches would have
to be brisk, as further price hikes would be difficult. Volumes in Mumbai
have already slowed down and hence price points of new projects would
be important.
Fig 11 – Project launches planned
Project Name Location Area to be launched in m sqft
Residential Projects
IVIL Phase I Ghatkopar 0.7
Ackruti Ruby Andheri(W) 0.3
Ackruti Swastik Chembur 0.4
Mazgaon Mazgaon 0.2
Ackruti Sea Breeze Hughes Road 0.2
Jade Gardens Peddar Road 0.0
Ackruti Gardenia Phase II Mira Road 0.5
Ackruti Lakewoods Thane 0.5
Ackruti Countrywoods Phase II Kondhwa, Pune 1.2
Commercial Projects
Zeus - PH I Mulund 1.5
GSRTC - Geeta Mandir Ahmedabad 0.3
GSRTC - Adajan Surat 0.5
Hotel, Residential & (Service)
Hindustan Mill Prabhadevi 0.6
Source: Company
Growing debt may be a concern
In the past six quarters, Ackruti sold properties worth `16bn,
realized debtors of `4bn, raised equity of `3bn and sold FSI/TDR of
`3.1bn. Debt, however, has also risen, by `5bn, mainly on account of
other construction and larger project additions. Although sanctioned
debt for projects is `14.4bn, new project payments and stalling
markets raise concerns.
Balance sheet
Debt has risen by `5bn in 1HFY11, mostly on project stake additions,
investments in township projects, debtors from sales of FSI/development
rights and working capital for rehabilitation. With sales slowing down in
Mumbai and credit becoming dearer for developers, the increase in debt
could be a cause of concern.
But key near-term projects are well-funded
All residential under-construction projects being self-funded now, the
focus is on new launches. Ackruti has sanctioned debt of ~`14.4bn for the
new launches planned. This, we believe, could hasten the rehab and freesale
construction process in the near future, provided project additions are
arrested.
Fig 13 – Sanctioned debt for new projects
Project Sanction (`m)
Textile Park 700
Rising City 2,000
Chembur 1,200
Ruby 1,000
H Mills 9,500
Sion - Wadala P1 2,500
Source: Company
Change in stance
We change our NAV for Ackruti City, in line with Mumbai peers.
We remove projects with little visibility (Gujarat Biotech Park,
Culture Cricket academy; Bandra East; a few SRS projects) and
where premium has not been paid for the land (Bandra East
government colony project). This impacts our NAV by 47%. We also
raise our discount to NAV to 25% from 20% earlier, to take into
account recent events and their medium-term impact.
Valuation
We have removed the Bandra (E) government colony project where
Ackruti City has obtained an LoA, but a premium of `3.33bn has yet to be
paid. The payment, initially to be made in Sep ’10, has now been delayed
to Feb ’11. The final sellable area of the project also depends on when the
area obtains an FSI of 4. Negative impact on NAV: 21%.
Gujarat Biotech Park: Progress on the biotech park SEZ has been slow
in the past few quarters. Although phase 1 is complete and operational,
phase 2 is seeing slow progress and land for phase 3 would be handed over
to the company only on substantial development in phase 2. Negative
impact on NAV: 18%.
In certain SRS and virgin land projects in Mumbai, complete project
acquisition has still to be achieved and is slow at present. We remove eight
SRS projects totaling 2.1m sqft and a PPP project of over 0.28m sqft in
Bandra (E) owing to nil visible progress and the negligible premium paid.
Negative impact on NAV: 4%
Fig 14 – Valuation: Mar’12e
NAV Mar’12 (`m) (`/share)
SRS 22,083 304
PPP 10,701 147
Normal Projects 8,057 111
SEZs 11,863 163
Townships 2,782 38
Investments at Cost 870 12
Net Debt (15,177) (209)
Total 41,179 566
Source: Anand Rathi Research
Fig 15 – Optional Value - considered as on March'12
NAV Mar’12 (`m) (`/share)
Bandra(E) Gov Colony 10,918 150
Biotech Park P2 and 3 9,976 137
SRS, PPP projects 3,027 42
Source: Anand Rathi Research
We have assumed a development schedule for slum rehab schemes/
redevelopment schemes where work has started, and debt has been
sanctioned or drawn.
We change our assumptions for the Hindustan Mills Project, from a sale
model to a lease one (cash flows would now be back-ended). The
company has received the important environmental clearance for the
project and debt sanctioned is `9.5bn.
After changes in taxes applicable on slum rehab projects, Ackruti sold
some projects to avail of higher tax benefits and upfront cash.
For the residual township land, we have altered our market-value
assumptions in line with recent land sales conducted by the company in
the region.
Risk
Slowdown in sales
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ackruti City
Premium land, but needs to be developed; retain Buy
Ackruti’s project portfolio is premium among peers. Post a good
FY10, launches slowed. Though collections from pre-sales have
been good, 1HFY11 has seen debt rising by ~`5bn, largely used
for stake additions and working capital. We now value the stock
at Mar ’12e NAV of `566 and trim our target price to `421. Buy.
Premium land – Execution is key. Compared with Mumbai
peers, Ackruti’s projects have an edge as regards location (Mumbai
island city) and spread (Mumbai suburbs). We believe successful
and timely project development would drive value.
Growing debt may be a concern. In the past six quarters,
Ackruti has sold property worth `16bn, realized debtors of `4bn,
raised equity of `3bn and sold FSI/TDR of `3.1bn. But, debt also
rose, by `5bn, mainly due to larger project additions and rehab
construction. Although sanctioned debt for projects is `14.4bn,
new project payments and stalling market volume are concerns.
Change in estimates. Our NAV is impacted by removal of the
Bandra (E) project (premium yet to be paid), the Gujarat Biotech
Park phase-3 (nil progress), and SRS/virgin land projects. We also
increase discount to 25% from 20%, accounting for recent events
and their medium-term impact.
Valuation and risks. Our Mar ’12e NAV stands at `566 and
price target at `421, which is at 25% discount to NAV. At CMP,
the stock trades at 0.9x Mar ’12e PBV. Key risk: Slowdown in
sales.
Premium land – execution the key
Compared with Mumbai peers, Ackruti’s projects have an edge as
regards location (Mumbai island city) and spread (Mumbai
suburbs). We believe successful and timely project development
would drive value
Land differentiation
Spread and size
Ackruti’s projects portfolio is spread across micro-markets in Mumbai, and
concentrated in the central suburbs. We believe that the central suburbs of
Mumbai and Bandra (E) would out-perform other markets in Mumbai on
pricing in the next five years.
Also, its project sizes are smaller in South and South-Central Mumbai, and
medium-to-large in the suburbs. This, we believe, could drive volume once
such projects are launched.
Launches need to pick up pace
FY10 saw residential and commercial sales of 2.16m sqft worth `8.4bn.
Sales in 1HFY11 have been 0.94m sqft (ex TDR and FSI) for `8.7bn.
Along with quick absorption of launched projects, the company has hiked
prices, though accompanied by some volume slowdown.
Further, on the sales value receivables front, Ackruti has been
comparatively better than peers, with as much as 40% recovered from
sales already concluded. Since all launches follow construction-linked
payment plans, execution of launched projects is well on track.
With launch plans of 6.9m sqft over the next 3-4 quarters, as per 2QFY11
guidance, the company did not launch any project in 3QFY11. We believe,
however, that, in order to monetize its land parcels, launches would have
to be brisk, as further price hikes would be difficult. Volumes in Mumbai
have already slowed down and hence price points of new projects would
be important.
Fig 11 – Project launches planned
Project Name Location Area to be launched in m sqft
Residential Projects
IVIL Phase I Ghatkopar 0.7
Ackruti Ruby Andheri(W) 0.3
Ackruti Swastik Chembur 0.4
Mazgaon Mazgaon 0.2
Ackruti Sea Breeze Hughes Road 0.2
Jade Gardens Peddar Road 0.0
Ackruti Gardenia Phase II Mira Road 0.5
Ackruti Lakewoods Thane 0.5
Ackruti Countrywoods Phase II Kondhwa, Pune 1.2
Commercial Projects
Zeus - PH I Mulund 1.5
GSRTC - Geeta Mandir Ahmedabad 0.3
GSRTC - Adajan Surat 0.5
Hotel, Residential & (Service)
Hindustan Mill Prabhadevi 0.6
Source: Company
Growing debt may be a concern
In the past six quarters, Ackruti sold properties worth `16bn,
realized debtors of `4bn, raised equity of `3bn and sold FSI/TDR of
`3.1bn. Debt, however, has also risen, by `5bn, mainly on account of
other construction and larger project additions. Although sanctioned
debt for projects is `14.4bn, new project payments and stalling
markets raise concerns.
Balance sheet
Debt has risen by `5bn in 1HFY11, mostly on project stake additions,
investments in township projects, debtors from sales of FSI/development
rights and working capital for rehabilitation. With sales slowing down in
Mumbai and credit becoming dearer for developers, the increase in debt
could be a cause of concern.
But key near-term projects are well-funded
All residential under-construction projects being self-funded now, the
focus is on new launches. Ackruti has sanctioned debt of ~`14.4bn for the
new launches planned. This, we believe, could hasten the rehab and freesale
construction process in the near future, provided project additions are
arrested.
Fig 13 – Sanctioned debt for new projects
Project Sanction (`m)
Textile Park 700
Rising City 2,000
Chembur 1,200
Ruby 1,000
H Mills 9,500
Sion - Wadala P1 2,500
Source: Company
Change in stance
We change our NAV for Ackruti City, in line with Mumbai peers.
We remove projects with little visibility (Gujarat Biotech Park,
Culture Cricket academy; Bandra East; a few SRS projects) and
where premium has not been paid for the land (Bandra East
government colony project). This impacts our NAV by 47%. We also
raise our discount to NAV to 25% from 20% earlier, to take into
account recent events and their medium-term impact.
Valuation
We have removed the Bandra (E) government colony project where
Ackruti City has obtained an LoA, but a premium of `3.33bn has yet to be
paid. The payment, initially to be made in Sep ’10, has now been delayed
to Feb ’11. The final sellable area of the project also depends on when the
area obtains an FSI of 4. Negative impact on NAV: 21%.
Gujarat Biotech Park: Progress on the biotech park SEZ has been slow
in the past few quarters. Although phase 1 is complete and operational,
phase 2 is seeing slow progress and land for phase 3 would be handed over
to the company only on substantial development in phase 2. Negative
impact on NAV: 18%.
In certain SRS and virgin land projects in Mumbai, complete project
acquisition has still to be achieved and is slow at present. We remove eight
SRS projects totaling 2.1m sqft and a PPP project of over 0.28m sqft in
Bandra (E) owing to nil visible progress and the negligible premium paid.
Negative impact on NAV: 4%
Fig 14 – Valuation: Mar’12e
NAV Mar’12 (`m) (`/share)
SRS 22,083 304
PPP 10,701 147
Normal Projects 8,057 111
SEZs 11,863 163
Townships 2,782 38
Investments at Cost 870 12
Net Debt (15,177) (209)
Total 41,179 566
Source: Anand Rathi Research
Fig 15 – Optional Value - considered as on March'12
NAV Mar’12 (`m) (`/share)
Bandra(E) Gov Colony 10,918 150
Biotech Park P2 and 3 9,976 137
SRS, PPP projects 3,027 42
Source: Anand Rathi Research
We have assumed a development schedule for slum rehab schemes/
redevelopment schemes where work has started, and debt has been
sanctioned or drawn.
We change our assumptions for the Hindustan Mills Project, from a sale
model to a lease one (cash flows would now be back-ended). The
company has received the important environmental clearance for the
project and debt sanctioned is `9.5bn.
After changes in taxes applicable on slum rehab projects, Ackruti sold
some projects to avail of higher tax benefits and upfront cash.
For the residual township land, we have altered our market-value
assumptions in line with recent land sales conducted by the company in
the region.
Risk
Slowdown in sales
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