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Shift in focus: Newly acquired projects to mitigate concern over
monetization delay
Golf Course Road project to be a key growth driver
With a sharpened focus on launches of recently acquired projects, Anant Raj Industries
(ARIL) is well placed to offset its recent under-performance. Concerns over delays in
monetization of its super-luxury projects are likely to be mitigated by ARIL's strong
cash flow visibility from recently acquired projects. The Golf Course Road project,
acquired in FY11 is expected to contribute 30-50% of sales over FY12-14, and will be the
key medium term value driver. While ARIL's net debt jumped sharply in FY11 to Rs8.8b,
visibility of robust operating cash flow and steady growth in annuity income provides
necessary comfort to address the liquidity risk. We expect ARIL's RoE to improve from
4.9% in FY11 to 6.2% in FY12 and 10.7% in FY13. The stock trades at 0.7x FY12E BV of Rs134.
We believe ARIL's ongoing projects and land bank (at cost) offer a healthy cushion to its
current valuations and incremental cash flow visibility from new projects could be a
strong trigger. We reiterate Buy.
Value accretive land acquisition offers strong growth potential: Over the past
12-18 months ARIL deployed ~Rs8.5b to acquire ~200 acres of land (saleable area
~10msf) in the NCR and we expect the monetization to start over the next 3-6 months.
We believe these land parcels render strong value accretive potential due to their (a)
attractive acquisition cost, (b) superior locations and (c) suitability for large format
development in the mid/high-end segment. Its recently acquired Golf Course Road
project is likely to be a key growth driver and will account for ~24% of its GAV and
about half its sales value over FY12-14.
Lack of clarity persists on luxury projects, new projects overshadow concerns:
ARIL's super luxury projects in Hauz Khas and Bhagwandas continue to face
headwinds. However, we expect monetization of recently acquired projects to mitigate
concerns over delays in old projects. With the focus shifting from luxury-end old
projects to mid to high-end new projects and an improving market outlook in NCR, we
believe on-time incubation of projects at Golf Course Road, Gurgaon Sector 91,
Neemrana and Rai will offset recent underperformance.
Leverage comfortable despite surge in net debt: During its land acquisition phase,
ARIL's net debt increased to Rs8.8b (v/s net cash of ~Rs3.5b in FY10), implying net
DER(x) of 0.24x. Still, we believe ARIL is unlikely to face liquidity pressure due to (a)
an easy repayment period, (b) strong cash flow visibility from recently acquired readily
saleable projects and (c) steady support from annuity income, which we expect to
grow to Rs1.6b by FY12 (v/s ~Rs800m in FY11).
Valuation offers an attractive entry point: We estimate ARIL's one-year forward
NAV at Rs167. The stock trades at 11.4x FY12E EPS of Rs8.1, 6.1x FY13E EPS of
Rs15 and ~45% discount to its NAV. Its ongoing operation and fully paid land bank
render strong support to current valuations. At 0.7x FY12E BV of Rs134, ARIL offers
an attractive entry point, as we expect its RoE to improve meaningfully from 4.9% in
FY11 to 6.2% in FY12 and 10.7% in FY13 going forward, through faster monetization.
We reiterate Buy with a target price of Rs140
Value accretive land acquisition offers strong growth potential
Over the past 12-18 months ARIL acquired land worth ~Rs8.5b in the NCR and has
projects at attractive locations in Gurgaon such as Golf Course Extension Road (Sector
63A) and New Gurgaon (Sector 91). ARIL acquired the land at rates ranging from ~Rs100/
sf (for EWS housing in Rajasthan) to ~Rs1,000/sf (Golf Course Road), suitable for its
focus on mid to high-end products.
ARIL has most of the requisite approvals and is well placed to monetize over the next 3-
6 months. It soft launched its mid-income project in Gurgaon, Sector 91 (1.5msf), with a
base price of Rs3,800/sf and sold 80 units in 4QFY11. It plans to launch its affordable
housing project Neemrana (Rajasthan) in 1QFY12 and its key township project in Golf
Course Road awaits master-plan approval and is due to be launched in 1HFY12.
Strong sales pick up in Gurgaon augurs well for new projects
Over the past six months sales momentum has picked up well in Gurgaon with key real
estate players like Unitech and DLF drawing a huge response to their residential and
plotted development projects in all segments. ARIL also has witnessed an encouraging
response to its Manesar project (1.2msf), which was completely sold out during 9MFY11.
Industry sources suggest that in February 2011 Gurgaon recorded a ~45% MoM jump in
sales volume (~7msf v/s ~5msf in January 2011 and ~3msf in July 2010). This was backed
by an increase in the number of launches and absorption of mid-income (Rs3,000-5,000/
sf) and high-end (Rs5,000-7,000/sf) projects in peripheral zones. We believe ARIL's newly
acquired projects will come on the market at an appropriate time to benefit from strong
market momentum. Its township project in the attractive Golf Course Road is likely to
draw strong response from the high-end customer segment and its projects in Sector 91,
Manesar and Rajasthan (Neemrana) are strategically placed to tap the mid-income and
affordable segments
Capital values in most locations in the NCR have appreciated by over 20% a year, with
Gurgaon (a high-end segment) registering 36% increase in values. This can be attributed
to rising interest from end-users and economic revival at large. Though any sharp pricing
upswing could dampen the sales velocity, we believe a moderate price increase is anticipated
due to strong end-user demand over next 6-12 months.
Golf Course Road project can be a major revenue driver
We expect ARIL's township project in Golf Course Road (Sector 63A) to be a key growth
driver over FY12-14. ARIL acquired 163 acres of land (development potential of 6.6msf)
for ~Rs6.8b and it plans to develop the project as a township with plotted development in
the initial phase, followed by residential and commercial segments. The project has obtained
zoning approval for the township and the master layout plan approval is expected over the
next three months. We expect the early phase (plotted development) of monetization of
the Golf Course Road project to start in 1HFY12. The management is looking to acquire
more land in the area, taking its total area to ~200 acres.
We believe the Golf Course Road project could spell the success of ARIL's land acquisition
strategy. At its existing acquisition cost and our assumed monetization timeline, the project
is likely to enjoy a pre-tax IRR of ~51%. Our estimate suggests the Golf Course Road
township project is likely account for 30-50% of ARIL's sales volume in FY12 and FY13,
aggregating about half of its sales accruals. We estimate the project will account for
Rs20.9b, implying ~24% of its GAV at Rs71/share (v/s GAV of Rs294/share).
Lack of clarity persists on super-luxury projects…
ARIL has two city-centric luxury projects in Hauz Khas (0.26msf) and Bhagwandas
(0.25msf) in the heart of South-central Delhi. The projects have been delayed due to
litigation and approval-related issues. Our estimates indicate the projects could contribute
~Rs11.2b (~13%) to ARIL's GAV. We believe lack of clarity on the status of the projects
has been a key headwind. We model the launch of the projects in FY13.
ARIL owns about 500 acres of fully paid land in Delhi. However, most of its Delhi projects
such as Tilak Marg, Nazafgarh and Nagli Poona are unlikely to be launched before FY13,
since such lands fall beyond Delhi's existing development plan and cannot be monetized
through residential development. In this regard, we believe ARIL will be a key beneficiary
of the implementation of Delhi Master Plan 2021, which includes such land. The
management said ongoing infrastructure development in these locations was likely to boost
demand for residential projects from FY13.
…new projects, affordable housing strategy offset concerns
While delay in monetizing old assets remains an overhang, we expect monetizing the Golf
Course Road project to significantly mitigate ARIL's cash flow concerns. Its low cost
land bank renders ARIL a huge opportunity to tap affordable and mid-income demand
through projects in New Gurgaon, Rajasthan and Rai. ARIL's recent launch plans include
an affordable housing project Neemrana (Rajasthan), where the company is likely to
launch ~2,800 units, with expected sales realization of Rs1,400/sf (ticket sizes of Rs0.7m
onwards) for the EWS/MIG segment. We expect that the focus on the affordable housing
segment is likely to bolster its sales volume.
Leverage comfortable despite surge in net debt
In FY11, ARIL's debt increased sharply to Rs8.8b (v/s net cash of ~Rs3.5b in FY10),
implying net DER(x) of 0.24x, mainly to fund construction of its residential projects
(Kapasera and Manesar) and ongoing commercial projects (Manesar IT Park, Kirti Nagar
Mall, IT SEZ at Rai and IT Park at Panchkula).
ARIL is looking to acquire more land in Golf Course Road in 1QFY12, which is likely to be
the last leg of its land acquisition plan. We believe it could be an indication of further
increase in debt in 1QFY12. However, we believe ARIL is unlikely to face liquidity pressure
due to (a) easy repayment period (average maturity of its debt is 6-7 years, with no
repayment in FY12 and only ~Rs500m in FY13), (b) strong cash flow visibility from
recently acquired projects, and (c) support from annuity income, which we expect to grow
to Rs1.6b by FY12 (v/s ~Rs800m in FY11).
We expect ARIL's leverage to fall steadily due to monetization from the early phase of
plotted development in the Golf Course Road project, which provides it with a huge cushion
against liquidity risk. ARIL is looking forward to repaying a significant portion of its debt in
FY12 and FY13, and to returning to a net cash position by FY14.
Growing annuity income a strong cushion
ARIL will be a key beneficiary from the ongoing revival of the commercial vertical. While
the lease momentum in its IT Park project at Manesar has been slower than expected, we
believe commencement of (a) Kirti Nagar Mall, (b) IT SEZ, Rai, (c) a few hotel projects
and (d) increase in operational clients in Manesar IT Park will boost ARIL's annuity
income. We model ARIL's annuity income increase to Rs1.6b in FY12 and to Rs2.3b in
FY13 from Rs814m at present. ARIL's growing annuity income will provide it with strong
resilience to its cash flow during a down cycle.
Valuation discount offers attractive entry point
ARIL has a robust business model with multiple revenue streams, relatively healthy liquidity
and high visibility of monetization. While successful utilization of surplus cash in value
accretive land acquisition will mitigate the risk of delay in luxury projects, a strong focus
on mid-income housing and the arrival of readily saleable projects (like the Golf Course
Road project) in its portfolio, is likely to provide it with robust cashflow momentum.
ARIL is likely to be a key beneficiary from the ongoing recovery in the commercial vertical
with ~4msf of completed commercial/retail projects and ~3msf of projects under
construction. We estimate its FY11 rental income will be Rs814m, which is expected to
increase to Rs1.6b in FY12 and to Rs2.3b in FY13.
However, to incorporate the delay in monetization of its old projects, we are revising our
NAV estimate downward by ~10% to Rs167 (v/s Rs185 earlier). The stock trades at
11.4x FY12E EPS of Rs8.1, 6.1x FY13E EPS of Rs15 and ~45% discount to its NAV. Its
ongoing operation and fully paid land bank render strong support to current valuations. At
0.7x FY12E BV of Rs134, ARIL offers an attractive entry point, as we expect its RoE to
improve meaningfully from 4.9% in FY11 to 6.2% in FY12 and 10.7% in FY13 going
forward, through faster monetization. We reiterate Buy with a target price of Rs140.
Near term triggers
The near term triggers for ARIL are:
(a) Successful monetization of plotted development project in Golf Course Road,
(b) Timely delivery of annuity projects coupled with the revival of the commercial vertical
and stronger rentals, and
(c) Monetization visibility of luxury projects at Hauz Khas and Bhagwandas and older
projects after the implementation of the Delhi Master Plan
Existing projects offer a strong cushion to valuations
As illustrated below, ARIL has a strong cushion of Rs80/share from value emerging from
its existing projects such as (a) operational annuity assets, (b) pre-sold residential projects
and (c) remaining land parcel, valued at acquisition costs. Hence, we expect near to
medium term triggers to provide a strong upside.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shift in focus: Newly acquired projects to mitigate concern over
monetization delay
Golf Course Road project to be a key growth driver
With a sharpened focus on launches of recently acquired projects, Anant Raj Industries
(ARIL) is well placed to offset its recent under-performance. Concerns over delays in
monetization of its super-luxury projects are likely to be mitigated by ARIL's strong
cash flow visibility from recently acquired projects. The Golf Course Road project,
acquired in FY11 is expected to contribute 30-50% of sales over FY12-14, and will be the
key medium term value driver. While ARIL's net debt jumped sharply in FY11 to Rs8.8b,
visibility of robust operating cash flow and steady growth in annuity income provides
necessary comfort to address the liquidity risk. We expect ARIL's RoE to improve from
4.9% in FY11 to 6.2% in FY12 and 10.7% in FY13. The stock trades at 0.7x FY12E BV of Rs134.
We believe ARIL's ongoing projects and land bank (at cost) offer a healthy cushion to its
current valuations and incremental cash flow visibility from new projects could be a
strong trigger. We reiterate Buy.
Value accretive land acquisition offers strong growth potential: Over the past
12-18 months ARIL deployed ~Rs8.5b to acquire ~200 acres of land (saleable area
~10msf) in the NCR and we expect the monetization to start over the next 3-6 months.
We believe these land parcels render strong value accretive potential due to their (a)
attractive acquisition cost, (b) superior locations and (c) suitability for large format
development in the mid/high-end segment. Its recently acquired Golf Course Road
project is likely to be a key growth driver and will account for ~24% of its GAV and
about half its sales value over FY12-14.
Lack of clarity persists on luxury projects, new projects overshadow concerns:
ARIL's super luxury projects in Hauz Khas and Bhagwandas continue to face
headwinds. However, we expect monetization of recently acquired projects to mitigate
concerns over delays in old projects. With the focus shifting from luxury-end old
projects to mid to high-end new projects and an improving market outlook in NCR, we
believe on-time incubation of projects at Golf Course Road, Gurgaon Sector 91,
Neemrana and Rai will offset recent underperformance.
Leverage comfortable despite surge in net debt: During its land acquisition phase,
ARIL's net debt increased to Rs8.8b (v/s net cash of ~Rs3.5b in FY10), implying net
DER(x) of 0.24x. Still, we believe ARIL is unlikely to face liquidity pressure due to (a)
an easy repayment period, (b) strong cash flow visibility from recently acquired readily
saleable projects and (c) steady support from annuity income, which we expect to
grow to Rs1.6b by FY12 (v/s ~Rs800m in FY11).
Valuation offers an attractive entry point: We estimate ARIL's one-year forward
NAV at Rs167. The stock trades at 11.4x FY12E EPS of Rs8.1, 6.1x FY13E EPS of
Rs15 and ~45% discount to its NAV. Its ongoing operation and fully paid land bank
render strong support to current valuations. At 0.7x FY12E BV of Rs134, ARIL offers
an attractive entry point, as we expect its RoE to improve meaningfully from 4.9% in
FY11 to 6.2% in FY12 and 10.7% in FY13 going forward, through faster monetization.
We reiterate Buy with a target price of Rs140
Value accretive land acquisition offers strong growth potential
Over the past 12-18 months ARIL acquired land worth ~Rs8.5b in the NCR and has
projects at attractive locations in Gurgaon such as Golf Course Extension Road (Sector
63A) and New Gurgaon (Sector 91). ARIL acquired the land at rates ranging from ~Rs100/
sf (for EWS housing in Rajasthan) to ~Rs1,000/sf (Golf Course Road), suitable for its
focus on mid to high-end products.
ARIL has most of the requisite approvals and is well placed to monetize over the next 3-
6 months. It soft launched its mid-income project in Gurgaon, Sector 91 (1.5msf), with a
base price of Rs3,800/sf and sold 80 units in 4QFY11. It plans to launch its affordable
housing project Neemrana (Rajasthan) in 1QFY12 and its key township project in Golf
Course Road awaits master-plan approval and is due to be launched in 1HFY12.
Strong sales pick up in Gurgaon augurs well for new projects
Over the past six months sales momentum has picked up well in Gurgaon with key real
estate players like Unitech and DLF drawing a huge response to their residential and
plotted development projects in all segments. ARIL also has witnessed an encouraging
response to its Manesar project (1.2msf), which was completely sold out during 9MFY11.
Industry sources suggest that in February 2011 Gurgaon recorded a ~45% MoM jump in
sales volume (~7msf v/s ~5msf in January 2011 and ~3msf in July 2010). This was backed
by an increase in the number of launches and absorption of mid-income (Rs3,000-5,000/
sf) and high-end (Rs5,000-7,000/sf) projects in peripheral zones. We believe ARIL's newly
acquired projects will come on the market at an appropriate time to benefit from strong
market momentum. Its township project in the attractive Golf Course Road is likely to
draw strong response from the high-end customer segment and its projects in Sector 91,
Manesar and Rajasthan (Neemrana) are strategically placed to tap the mid-income and
affordable segments
Capital values in most locations in the NCR have appreciated by over 20% a year, with
Gurgaon (a high-end segment) registering 36% increase in values. This can be attributed
to rising interest from end-users and economic revival at large. Though any sharp pricing
upswing could dampen the sales velocity, we believe a moderate price increase is anticipated
due to strong end-user demand over next 6-12 months.
Golf Course Road project can be a major revenue driver
We expect ARIL's township project in Golf Course Road (Sector 63A) to be a key growth
driver over FY12-14. ARIL acquired 163 acres of land (development potential of 6.6msf)
for ~Rs6.8b and it plans to develop the project as a township with plotted development in
the initial phase, followed by residential and commercial segments. The project has obtained
zoning approval for the township and the master layout plan approval is expected over the
next three months. We expect the early phase (plotted development) of monetization of
the Golf Course Road project to start in 1HFY12. The management is looking to acquire
more land in the area, taking its total area to ~200 acres.
We believe the Golf Course Road project could spell the success of ARIL's land acquisition
strategy. At its existing acquisition cost and our assumed monetization timeline, the project
is likely to enjoy a pre-tax IRR of ~51%. Our estimate suggests the Golf Course Road
township project is likely account for 30-50% of ARIL's sales volume in FY12 and FY13,
aggregating about half of its sales accruals. We estimate the project will account for
Rs20.9b, implying ~24% of its GAV at Rs71/share (v/s GAV of Rs294/share).
Lack of clarity persists on super-luxury projects…
ARIL has two city-centric luxury projects in Hauz Khas (0.26msf) and Bhagwandas
(0.25msf) in the heart of South-central Delhi. The projects have been delayed due to
litigation and approval-related issues. Our estimates indicate the projects could contribute
~Rs11.2b (~13%) to ARIL's GAV. We believe lack of clarity on the status of the projects
has been a key headwind. We model the launch of the projects in FY13.
ARIL owns about 500 acres of fully paid land in Delhi. However, most of its Delhi projects
such as Tilak Marg, Nazafgarh and Nagli Poona are unlikely to be launched before FY13,
since such lands fall beyond Delhi's existing development plan and cannot be monetized
through residential development. In this regard, we believe ARIL will be a key beneficiary
of the implementation of Delhi Master Plan 2021, which includes such land. The
management said ongoing infrastructure development in these locations was likely to boost
demand for residential projects from FY13.
…new projects, affordable housing strategy offset concerns
While delay in monetizing old assets remains an overhang, we expect monetizing the Golf
Course Road project to significantly mitigate ARIL's cash flow concerns. Its low cost
land bank renders ARIL a huge opportunity to tap affordable and mid-income demand
through projects in New Gurgaon, Rajasthan and Rai. ARIL's recent launch plans include
an affordable housing project Neemrana (Rajasthan), where the company is likely to
launch ~2,800 units, with expected sales realization of Rs1,400/sf (ticket sizes of Rs0.7m
onwards) for the EWS/MIG segment. We expect that the focus on the affordable housing
segment is likely to bolster its sales volume.
Leverage comfortable despite surge in net debt
In FY11, ARIL's debt increased sharply to Rs8.8b (v/s net cash of ~Rs3.5b in FY10),
implying net DER(x) of 0.24x, mainly to fund construction of its residential projects
(Kapasera and Manesar) and ongoing commercial projects (Manesar IT Park, Kirti Nagar
Mall, IT SEZ at Rai and IT Park at Panchkula).
ARIL is looking to acquire more land in Golf Course Road in 1QFY12, which is likely to be
the last leg of its land acquisition plan. We believe it could be an indication of further
increase in debt in 1QFY12. However, we believe ARIL is unlikely to face liquidity pressure
due to (a) easy repayment period (average maturity of its debt is 6-7 years, with no
repayment in FY12 and only ~Rs500m in FY13), (b) strong cash flow visibility from
recently acquired projects, and (c) support from annuity income, which we expect to grow
to Rs1.6b by FY12 (v/s ~Rs800m in FY11).
We expect ARIL's leverage to fall steadily due to monetization from the early phase of
plotted development in the Golf Course Road project, which provides it with a huge cushion
against liquidity risk. ARIL is looking forward to repaying a significant portion of its debt in
FY12 and FY13, and to returning to a net cash position by FY14.
Growing annuity income a strong cushion
ARIL will be a key beneficiary from the ongoing revival of the commercial vertical. While
the lease momentum in its IT Park project at Manesar has been slower than expected, we
believe commencement of (a) Kirti Nagar Mall, (b) IT SEZ, Rai, (c) a few hotel projects
and (d) increase in operational clients in Manesar IT Park will boost ARIL's annuity
income. We model ARIL's annuity income increase to Rs1.6b in FY12 and to Rs2.3b in
FY13 from Rs814m at present. ARIL's growing annuity income will provide it with strong
resilience to its cash flow during a down cycle.
Valuation discount offers attractive entry point
ARIL has a robust business model with multiple revenue streams, relatively healthy liquidity
and high visibility of monetization. While successful utilization of surplus cash in value
accretive land acquisition will mitigate the risk of delay in luxury projects, a strong focus
on mid-income housing and the arrival of readily saleable projects (like the Golf Course
Road project) in its portfolio, is likely to provide it with robust cashflow momentum.
ARIL is likely to be a key beneficiary from the ongoing recovery in the commercial vertical
with ~4msf of completed commercial/retail projects and ~3msf of projects under
construction. We estimate its FY11 rental income will be Rs814m, which is expected to
increase to Rs1.6b in FY12 and to Rs2.3b in FY13.
However, to incorporate the delay in monetization of its old projects, we are revising our
NAV estimate downward by ~10% to Rs167 (v/s Rs185 earlier). The stock trades at
11.4x FY12E EPS of Rs8.1, 6.1x FY13E EPS of Rs15 and ~45% discount to its NAV. Its
ongoing operation and fully paid land bank render strong support to current valuations. At
0.7x FY12E BV of Rs134, ARIL offers an attractive entry point, as we expect its RoE to
improve meaningfully from 4.9% in FY11 to 6.2% in FY12 and 10.7% in FY13 going
forward, through faster monetization. We reiterate Buy with a target price of Rs140.
Near term triggers
The near term triggers for ARIL are:
(a) Successful monetization of plotted development project in Golf Course Road,
(b) Timely delivery of annuity projects coupled with the revival of the commercial vertical
and stronger rentals, and
(c) Monetization visibility of luxury projects at Hauz Khas and Bhagwandas and older
projects after the implementation of the Delhi Master Plan
Existing projects offer a strong cushion to valuations
As illustrated below, ARIL has a strong cushion of Rs80/share from value emerging from
its existing projects such as (a) operational annuity assets, (b) pre-sold residential projects
and (c) remaining land parcel, valued at acquisition costs. Hence, we expect near to
medium term triggers to provide a strong upside.
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