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Anant Raj Industries Ltd
Good 1Q but debt increase a
negative, Reiterate Buy
„1Q above expectation; Reiterate Buy
Anant Raj reported1Q earnings at Rs351mn against our estimate of Rs222mn
due to higher recognition of revenue from the New Gurgaon project. We reiterate
our Buy rating on Anant Raj with PO of Rs105 (Rs120 earlier) with 63% potential
upside. The lower PO factors in increase in debt by 25% to Rs13bn expected to
be invested in execution and land purchases. While the delay in Delhi projects
continues to be overhang, we expect the focus to shift to new township project in
Gurgaon due its large size (33% of NAV) and attractive location.
Gurgaon township launch in 3Q key trigger for stock
We expect launch of Gurgaon township spread over ~150acres along Golf course
ext road in 2HFY12 to drive performance in FY12-13. The project accounts for
33% of NAV and over 50% of revenue for FY12-13, even after factoring in 20%
lower prices to account for a possible price correction in Gurgaon. The land parcel
has been notified by the government to be included in Gurgaon master plan.
Improving rentals and peaking debt
Anant Raj launched its mall in Delhi in 2Q with 50% occupancy and expects the
rental income to accrue from 3Q at Rs30mn/month. We expect the mall will lead
to 50% increase in rental income for FY13 to Rs1.5bn. Though leasing in the
Manesar IT Park remains lukewarm with no major incremental leasing. We
expect post the recent debt raising exercise, all its capex/land purchase plans are
well funded and debt is expected to run down from FY13.
Attractive valuation, trading at 45% discount to book
It is trading at deep discount of 45% to its book value which we think is unjustified
given solid balance sheet with low leverage and strong rental income.
Reiterate Buy; PO of Rs105
We reiterate our Buy rating on Anant Raj with PO of Rs105 (earlier PO of Rs120)
at 15% discount to its NAV of Rs123. Anant Raj currently trades at a 49%
discount to NAV. We believe the investment in land in Gurgaon in last 18 months
will reap rich benefits over next couple of years for Anant Raj while steady growth
in lease income will provide further strength to already solid balance sheet. The
stock is currently trading at 45% discount to its FY11 book value which we think is
unjustified given strong balance sheet, low leverage, good rental earnings and
historical land bank in NCR.
Key triggers –
„ Launch of Gurgaon township– The project accounts for 33% of its NAV
and would be the key driver of revenue and cash flows over next 2-3 years
given the size of the project (6.7mn sq ft) and relatively central location in
Gurgaon (Golf coarse extension road).
„ Launch of super luxury projects in Delhi – The launch of these projects
have been key overhang in last 12 months given the delays. The
management has applied for approvals of Bhagwandas road project and
expects launch by October 2011, while Hauz Khas project is still uncertain.
We have factored the launches only by FY14 and In case the launch
materializes this year, we see further upside to our estimates.
We have lowered our NAV by 12% to Rs123 due to the increase in debt from
Rs.9.5bn to Rs13bn post recent NCD issue of Rs2.5bn. Management is not
looking to raise any further debt as most of the capex/land purchase plan are well
funded now.
Price objective basis & risk
Anant Raj Industries Ltd (XNRJF)
Our preferred valuation methodology is NAV, calculated by discounting the cash
flows from each of the real estate projects. Our price objective of Rs105 is
therefore based on a 15% discount to our NAV of Rs123. We expect Anant Raj to
trade at a discount of 15% to large developers like DLF on a discount to NAV
basis, because of its smaller size and concentration of land bank. Key
assumptions underlying our NAV are WACC of 15%, capitalization rate of 11%
and inflation of 5% from FY13 on both selling price and construction costs. On a
P/E basis, at our PO of Rs105, the stock would trade at 13x FY12E earnings.
Downside risks are lower than expected volume and delay in revival of demand
for commercial real estate.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Anant Raj Industries Ltd
Good 1Q but debt increase a
negative, Reiterate Buy
„1Q above expectation; Reiterate Buy
Anant Raj reported1Q earnings at Rs351mn against our estimate of Rs222mn
due to higher recognition of revenue from the New Gurgaon project. We reiterate
our Buy rating on Anant Raj with PO of Rs105 (Rs120 earlier) with 63% potential
upside. The lower PO factors in increase in debt by 25% to Rs13bn expected to
be invested in execution and land purchases. While the delay in Delhi projects
continues to be overhang, we expect the focus to shift to new township project in
Gurgaon due its large size (33% of NAV) and attractive location.
Gurgaon township launch in 3Q key trigger for stock
We expect launch of Gurgaon township spread over ~150acres along Golf course
ext road in 2HFY12 to drive performance in FY12-13. The project accounts for
33% of NAV and over 50% of revenue for FY12-13, even after factoring in 20%
lower prices to account for a possible price correction in Gurgaon. The land parcel
has been notified by the government to be included in Gurgaon master plan.
Improving rentals and peaking debt
Anant Raj launched its mall in Delhi in 2Q with 50% occupancy and expects the
rental income to accrue from 3Q at Rs30mn/month. We expect the mall will lead
to 50% increase in rental income for FY13 to Rs1.5bn. Though leasing in the
Manesar IT Park remains lukewarm with no major incremental leasing. We
expect post the recent debt raising exercise, all its capex/land purchase plans are
well funded and debt is expected to run down from FY13.
Attractive valuation, trading at 45% discount to book
It is trading at deep discount of 45% to its book value which we think is unjustified
given solid balance sheet with low leverage and strong rental income.
Reiterate Buy; PO of Rs105
We reiterate our Buy rating on Anant Raj with PO of Rs105 (earlier PO of Rs120)
at 15% discount to its NAV of Rs123. Anant Raj currently trades at a 49%
discount to NAV. We believe the investment in land in Gurgaon in last 18 months
will reap rich benefits over next couple of years for Anant Raj while steady growth
in lease income will provide further strength to already solid balance sheet. The
stock is currently trading at 45% discount to its FY11 book value which we think is
unjustified given strong balance sheet, low leverage, good rental earnings and
historical land bank in NCR.
Key triggers –
„ Launch of Gurgaon township– The project accounts for 33% of its NAV
and would be the key driver of revenue and cash flows over next 2-3 years
given the size of the project (6.7mn sq ft) and relatively central location in
Gurgaon (Golf coarse extension road).
„ Launch of super luxury projects in Delhi – The launch of these projects
have been key overhang in last 12 months given the delays. The
management has applied for approvals of Bhagwandas road project and
expects launch by October 2011, while Hauz Khas project is still uncertain.
We have factored the launches only by FY14 and In case the launch
materializes this year, we see further upside to our estimates.
We have lowered our NAV by 12% to Rs123 due to the increase in debt from
Rs.9.5bn to Rs13bn post recent NCD issue of Rs2.5bn. Management is not
looking to raise any further debt as most of the capex/land purchase plan are well
funded now.
Price objective basis & risk
Anant Raj Industries Ltd (XNRJF)
Our preferred valuation methodology is NAV, calculated by discounting the cash
flows from each of the real estate projects. Our price objective of Rs105 is
therefore based on a 15% discount to our NAV of Rs123. We expect Anant Raj to
trade at a discount of 15% to large developers like DLF on a discount to NAV
basis, because of its smaller size and concentration of land bank. Key
assumptions underlying our NAV are WACC of 15%, capitalization rate of 11%
and inflation of 5% from FY13 on both selling price and construction costs. On a
P/E basis, at our PO of Rs105, the stock would trade at 13x FY12E earnings.
Downside risks are lower than expected volume and delay in revival of demand
for commercial real estate.
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