Anant Raj Industries - Gurgaon township launch remains key trigger; keep Buy 􀂄 BofA Merrill Lynch,

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A nant Raj Industries Ltd
Gurgaon township launch
remains key trigger; keep Buy
􀂄 Factoring in most downside; lowering PO to Rs82
We maintain our Buy rating on Anant Raj with a reduced PO of Rs82 (Rs105
earlier), offering potential upside of 41% from current levels. Our PO is based on
a 15% discount to our net NAV of Rs96, which factors in a delay in Delhi projects
and a higher cost of Gurgaon land. At our PO, the stock would trade close to one
standard deviation lower than its 3-year average P/B and P/E multiple, which we
believe adequately factors in the risks from a delay in its projects. The key trigger
over the next 6-9 months will be the launch of the Gurgaon township, which
accounts for 28% of its NAV.
Gurgaon township project key to outperformance
In the past two years, Anant Raj has invested about Rs6bn for buying the
Gurgaon land, though our industry sources say that the land is under litigation
with farmers seeking higher compensation. Management has refuted any such
claims and remains confident in its guidance of a project launch in 2HFY12. We
believe, in the worst case, that Anant Raj may have to pay more for the land (we
have already factored in Rs3bn higher compensation) and the project may be
delayed until FY13.
Debt under control, but a further increase could be a worry
Anant Raj has invested over Rs9bn in new land purchases, leading to a sharp
increase in its debt since FY10. But management is looking to cut debt by 30-40%
over the next 12 months, as new residential projects are being launched. While
the leverage remains comfortable, given rising rental income (expect rental
earnings of Rs1.3bn in FY13), we will be cautious if gross debt increases further.
Super luxury project launch could be additional trigger
Anant Raj is looking to launch its super luxury projects in Delhi in FY12, and has
applied for approvals. The launch could act as an additional trigger, though we
have conservatively built in the launch in FY13

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