Anant Raj's 4QFY12 results were impacted due to reversal of INR1.15b revenue from Kapasera project which
was discontinued in 4QFY12, due to unfavorable verdict Delhi Municipal Authority notification with regard to
certain permissions.
Revenue was up 3% YoY to INR654m, EBITDA down 59% YoY to INR187m, and PAT down 63% YoY to INR112m.
However, adjusting for the reversal, revenue booking has been healthy at INR1.8b, 2x QoQ. Rental income
from commercial / hotel projects stood at INR264m v/s INR232m in 3Q. Incremental rental came from higher
contribution from Kirti Nagar mall and Hotel Tricolor which commenced operations in Jan-12.
Ongoing projects witnessed strong QoQ growth in sales at 0.7msf (INR3.6b) as against 0.4msf (INR0.9b), led by
good response in Golf Course Road project. FY12 sales value was up 30% YoY to INR7b.
Net debt stood at INR10.5b (marginally up QoQ); net DER was 0.27x. The management targets ~INR4-5b debt
reduction over next 12-18 months, banking on a strong cash flow from Golf Course Road project.
ARCP has a quality land bank and wide presence across asset classes enabling multiple revenue streams and
relatively healthy liquidity. With ~13msf (~INR8.4b) of land acquisition during FY11 at an attractive cost, the
company is strongly placed to unlock significant value through its monetization.
Despite strong sales over FY11-12, the lower collections (~INR1.1b out of INR8b) raises concern over quality of
sales. However, initial response to Golf Course Road project is a positive. With no major launch plan over
FY13-14, we expect success of Golf Course project would be the deciding factor for its operating performance.
Major challenges: (1) Subdued leasing momentum in its commercial projects such as Manesar IT park, and (2)
Slower execution pace till date.
The stock trades at 9.5x FY13E EPS of INR4.8, 0.3x FY13E BV and at ~ 58% discount to our NAV of INR110.
Maintain Buy.
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Kapasera project discontinued; Revenue reversal effect led to sharp earning
de-growth, despite healthier revenue bookings from other projects
During 4QFY12, ARCP has to discontinue one of its key ongoing project Kapasera,
which was launched in 1QFY11 and was sold completely (sales value INR1.5b,
collections INR0.35b and revenue booked INR1.15b till date). The company
reversed INR1.15b of revenue (and INR0.6b at PBT level) during 4QFY12 owing to
this development.
Revenue reversal led to sharp de-growth in earnings - revenue up only 2.3%YoY to
INR654m (despite pre-reversal revenue of INR1.8b, ~3x YoY and 2x QoQ). EBITDA
de-grew 59% YoY to INR187m and PAT declined by 63% YoY to INR112m.
The company has already paid back Kapasera customers with 9% annual interest
over collections. The cancellation of the project happened due to unfavorable
verdict on the notification issued by Delhi Municipal Authority with regards to
certain permissions.
We see this as a major setback over near-term cash flow, as the project, now, is
unlikely to re-launch before approval of Delhi master plan. It also dents sentiment
over the company's continuous hurdles over project approvals.
Execution improves in ongoing projects: Barring the reversal effect, the revenue
bookings have been healthy during 4QFY12. Aashray (Neemrana) crossed revenue
recognition threshold during the quarter. The run-rate also improved in Sector-91
project signifying pick-up in construction pace.
Rental run-rate improves with Tricolor Hotel: Rental income from commercial /
hotel projects grew to INR264m v/s INR232m in 3Q. Incremental rental came from
higher contribution from Kirti Nagar mall (INR44m v/s INR33m in 2Q). However
the rental improvement from the mall remains below our expectation. This is
largely due to the nature of agreement with retailers which provides for minimum
guarantee rental (average INR100/sf/month) only after the mall starts operating
at steady state level (till then, retailers pay based on revenue sharing only).
Additionally Tricolor Hotel which commenced operation in January, accounted
for ~INR23m in 4QFY12 (~INR7.5m/month or 28% of revenue whichever is higher).
We estimate total rental income of ~INR1.3b in FY13 v/s 0.9b in FY12, driven by (a)
full year operations at Kirti Nagar Mall, and (b) contribution from Rai SEZ and
Hotel at Manesar (tied up with Seasons at 21% revenue sharing and expected to
commence in 3QFY13).
Sales healthy during 4QFY12; Golf Course project garnering good response: ARCP's
ongoing projects witnessed strong QoQ growth in sales at 0.7msf (INR3.6b) as
against 0.4msf (INR0.9b). The key sales contributors were (a) ~0.18msf (INR0.7b)
in Sector 91, Gurgaon, (b) ~0.2msf (INR0.4b) at Neemrana and (c) ~INR2.5b in Golf
Course project, sector 63A. With this, the company sold ~606 units (515 units till
2Q) out of 770 units at Sector 91 project and 1,438 units out of total 2,800 units at
Neemrana. To date, the Golf Course Road project's sales stood at INR5b (although
collected only INR0.6b) including sales of 50 units of independent floor and 30
units of plotted sales.
FY12 remained cash deficit; targets ~INR4-5b debt reduction over next 12-18
months: ARCP's net debt stood at INR10.5b (marginally up QoQ) as on 4QFY12, net
DER of 0.27x. Net debt grew ~INR2b during FY12 due to operational deficits as
follows: a) collections INR2b, b) constructions spend INR1.2b, c) land payment of
INR1b, and d) Interest and principal payment of ~INR2b. However, the company
expects Golf course project to boost cash flow over FY13-14, releasing surplus
cash to address de-levering plan. Actual repayment schedule for FY13 stands at
INR2.2b.
Valuation and view: Success of Golf Course Road project the key deciding
factor
ARCP has a quality land bank and wide presence across asset classes enabling
multiple revenue streams and relatively healthy liquidity. With ~13msf (~INR8.4b)
of land acquisition during FY11 at an attractive cost, the company is strongly placed
to unlock significant value through its monetization.
Despite strong sales over FY11-12, the lower collections (~INR1.1b out of INR8b)
raises concern over quality of sales. However, initial response to Golf Course
Road project is a positive. With no major launch plan over FY13-14, we expect
success of Golf Course project would be the deciding factor for its operating
performance.
Major challenges: (1) Subdued leasing momentum in its commercial projects such
as Manesar IT park, and (2) Slower execution pace till date.
The stock trades at 9.5x FY13E EPS of INR4.8, 0.3x FY13E BV and at ~ 58% discount to
our NAV of INR110
Anant Raj Industries: an investment profile
Stock performance (1 year)
EPS: MOSL forecast v/s consensus (INR)
MOSL Consensus Variation
Forecast Forecast (%)
FY13 4.8 8.1 -40.5
FY14 7.0 11.5 -39.1
Target Price and Recommendation
Current Target Upside Reco.
Price (INR) Price (INR) (%)
46 80 73.9 Buy
Company Background
Anant Raj Industries (ARIL) is a focused city-centric
developer and is one of the largest land owners in Delhi,
with a fully paid land bank of ~1,000 acres. Given its citycentric
focus and large holdings of prime land in and
around Delhi, we expect it to be a key beneficiary of the
revival in the RE sector. ARIL has ~4msf of completed
commercial/retail projects along with ~3msf under
construction, which it can lease to bolster its rental
income.
Key investment arguments
ARIL has a robust business model with multiple
revenue streams and high monetization visibility
from strong pre-sales in ongoing projects.
Approval in much awaited Golf course Road project
is a strong positive. The project would be key sales
driver over next3-5years.
Triggers are a) successful response to Golf course
project and b) improvement in leasing in Manesar IT
Park and rental uptick from Kirti nagar mall.
Key investment risks
ARIL is facing challenges with regard to leasing of its
key commercial and retail projects, due to the low
demand in these segments.
ARIL is over-exposed to RE market of NCR. This could
be a key risk in case of market specific torpidity.
Slower execution in ongoing projects till date.
Recent developments
During 4QFY12, ARCP has to discontinue one of its
key ongoing project Kapasera, which was launched
in 1QFY11 and was sold completely (sales value
INR1.5b, collections INR0.35b and revenue booked
INR1.15b till date).
Tricolor Hotel which commenced operation in
January, accounted for ~INR23m in 4QFY12
(~INR7.5m/month or 28% of revenue whichever is
higher).
Valuation and view
Despite strong sales over FY11-12, the lower
collections (~INR1.1b out of INR8b) raises concern
over quality of sales. However, initial response to
Golf Course Road project is a positive. With no major
launch plan over FY13-14, we expect success of Golf
Course project would be the deciding factor for its
operating performance.
The stock trades at 9.5x FY13E EPS of INR4.8, 0.3x
FY13E BV and at ~ 58% discount to our NAV of INR110.
Maintain Buy.
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