TΛTΛ Securities

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TΛTΛ Securities Anant Raj Industries

Anant Raj Industries

Buy
CMP: Rs 76 Bang for the buck: Reaping on rentals

Initiating Coverage
Target Price: Rs 106 We believe Anant Raj Industries is attractive at current prices due to its high
rental income, lower leverage and NCR-centric land bank. The company’s RoCE
Potential Upside: 39% and RoE – currently at 5% levels – are expected to rise to 16% and 12%
respectively by FY13. We initiate coverage on Anant Raj with a Buy rating and a
Key Statistics target price of Rs106, 1x FY11 NAV.
M cap (INR bn/USD mn) : 22.4/495
Avg 3m daily volume : 692,123 Key highlights
Avg 3m daily value : US$1.4mn
Leasing assets contribute to 33% of NAV: We have valued the company
Shares O/S (mn) : 295
Reuters : ANRA.BO
using the DCF method in combination with the BV method. Notably, ~33% of
Bloomberg : ARCP IN our NAV estimate (~Rs10.7bn) comes from stable lease income generating
Sensex : 18,174 assets.
Nifty : 5,445
Leasing activity to increase going forward: Leasing revenues are expected
52-Wk High/Low : 166/66
to increase from Rs490mn in FY10 to Rs1.69bn in FY12 and Rs1.82bn in FY13.
The increase in leasing revenues is on account of the commissioning of its Kirti
Shareholding Pattern (Dec10) (%)
Nagar commercial complex and TriColor Hotel in NCR. The share of revenues
from leasing is expected to increase from 16% in FY11 to 19% in FY13.
Promoter 61.3
FII’s 25.1 Superior land bank contributes to 41% of total valuation: Nearly 95% of
MFs, FIs & Banks 3.2 Anant Raj’s current land bank of 1,200 acres is situated in the NCR region. We
Others 10.4 have valued the land bank using the BV multiple and attributed a higher multiple
for the land in Delhi. We value the balance land bank at Rs13bn (or
Relative Performance Rs44/share), representing 41% of the total NAV.
130
110
Lower net debt/equity compared to peers: The company’s net debt/equity
90 at 0.09x in FY11 is one of the lowest among peers. We believe this could help it
70 to acquire more land at lower prices, as most of its bigger competitors have
50
30
high debt on their books.
Oct-10

Dec-10
Mar-10

Jul-10

Mar-11
May-10

Financials: We expect Anant Raj to report revenues of Rs65bn and Rs95bn in

FY12 and FY13 respectively. We further expect an EPS of Rs13 and Rs19 during
Sensex ARCP the same period, implying a three-year (FY10-13) EPS CAGR of 33%.
Analysts:
Ashish Aggarwal
Email: ashish.aggarwal@tatacapital.com
Tel: +91 22 6745 9166
Dhruva Sabharwal CFA®
Email: dhruva.sabharwal@tatacapital.com
Tel: +91 22 6745 9177

Financial summary
Year-end Sales YoY EBITDA YoY NP YoY EPS YoY PE EV/EBITDA NAV PBR RoE RoCE
March (Rs mn) (%) (Rs mn) (%) (Rs mn) (%) (Rs) (%) (x) (x) (x) (x) (%) (%)
FY2010 2,847 13.1 2,847 13.1 2,382 15.5 8.1 15.5 9.9 7.8 N/A 0.7 6.6 6.6
FY2011E 4,764 67.3 4,764 67.3 1,777 -25.4 6.0 -25.4 13.3 10.5 106.3 0.6 4.7 5.5
FY2012E 6,474 35.9 6,474 35.9 3,808 114.3 12.9 114.3 6.2 4.3 117.4 0.6 9.2 12.1
FY2013E 9,459 46.1 9,459 46.1 5,587 46.7 18.9 46.7 4.2 2.7 129.3 0.5 11.9 16.1

11 March 2011 1
 T
TΛTΛ Securities A
Anant Raj Industries
s

Cha
art 1: Comp
position of revenues
r

10
0,000
(Rs mn)
m
8
8,000

6
6,000

4
4,000

2
2,000

0
FY10 FY11E FY12E FY13E

Real Esttate Leasin

ng Revenue

Sourcce: Tata Securitties Research.

Leaasing incom me to incre ease at a th hree-year C CAGR of 55%: We exxpect

Anant Raj’s leassing revenuess to increase e at a three-yyear CAGR of
o 55% drive en by
the commissioning of its Kirtti Nagar com mmercial projject and the TriColor Hottel in
NCRR. The Kirti Nagar
N projecct, 60% of which
w has be
een leased out as at 3QF FY11
end,, is expected
d to contribute to revenu ues from 2QF FY12. Coupleed with revenues
from
m the hotel project,
p this is likely to increase leassing revenues from Rs4990mn
in FY
Y10 to Rs1,6693mn in FY1 12 and Rs1,8 825mn in FY1 13.

Cha
art 2: Net de
ebt/equity

0
0.15
(x)
0
0.10

0
0.05

0
0.00
8
FY08 FY09 FY10 FY11E FY12E FY13E
-0
0.05

-0
0.10

-0
0.15

-0
0.20

-0
0.25

Sourcce: Tata Securitties Research.

Lowwest leverage among peers: The company’s n net debt/equuity is among

g the
loweest compare ed to peerss, as it raised equity and did not acquire land
aggressively earrlier. This he
elped it to tid
de over the sslowdown without any major
m
impaact. Equippe
ed with this lower levera age, Anant RRaj was able e to acquire land
aggressively oveer the past few quarterss, while its peers were laden with huge h
debtt. We estima
ate its net deebt/equity at a low 0.09x (as at end-F FY11) and exxpect
urther going forward, ma
this to reduce fu aking it debtt-free by end
d-FY13, aideed by
the high cash geeneration.

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1 March 2011 2
 TΛTΛ Securities Anant Raj Industries

Land bank: Of the company’s land bank of 1,200 acres, 95% is primarily based
in NCR (with 40% in Delhi) as unlike its larger peers, the company has focused
only on the NCR region. Anant Raj acquired land worth Rs9bn at reasonable
prices in the past few quarters due to its low leverage position, compared to the
high debt of its peers. However, around 50% of the company’s land bank is
more than six years old.

Valuation
Table 1: Residential projects with visibility of 1-2 years (Rs mn)

Particulars FY11E FY12E FY13E FY14E

Gross cash flows (1,835) 1,605 5,317 15,115
Less SG&A (assumed at 5%) (92) 80 266 756
Less Taxes (assumed at 33%) (575) 503 1,667 4,738
Net cash flows (1,168) 1,022 3,384 9,620
WACC 17.2%
PV Factor for each year 1.00 0.85 0.73 0.62
Discounted value of net free cash flows (1,168) 872 2,462 5,970
PV of FCF (Rs mn) 8,136
Add: Value of Projects in Delhi (2x BV) 4,666
Add: Value of Projects outside Delhi (1x BV) 449
Total value of Residential 13,251
Source: Tata Securities Research.

Residential projects: Anant Raj has two ongoing projects under construction
in Kapashera and Manesar in Haryana representing 1.48mn sq ft, which were
launched in 1QFY11 and 2QFY11 respectively and are completely sold out. Also,
it has two more residential projects in Hauz Khas and Bhagwan Das Road in
Delhi which would be launched in FY12. In FY11, the company made a half
payment of Rs1,500mn for acquiring the Bhagwan Das Road project’s land and
we expect it to launch in 2HFY12. We have valued Anant Raj’s residential
projects at Rs13.25bn or Rs45/share using the DCF method and a WACC of
17.2%.

However, we have not valued the residential projects that have a low visibility
using the DCF method.

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 TΛTΛ Securities Anant Raj Industries

Table 2: Residential projects with visibility beyond 3 years

Area in BV of land
Location City BV multiple Market value (Rs mn)
acres (Rs mn)

2 Tilak Marg Delhi 497 2 994

11 Tikri Delhi 44 2 88
28 Nazafgarh Delhi 96 2 192
50 Alipur Holambi, Delhi 272 1 272
6 Nangli Poona Delhi 19 2 37
22 Nangli Poona Delhi 1,100 2 2,200
19 Bhati Delhi 38 2 75
6 Bhati Delhi 330 2 660
15 Mazri Haryana 110 1 110
8 Bupaniya, Bahadurgarh Haryana 23 1 23
29 Mundkola , Khalilur Haryana 45 1 45
40 Punjabkhore Delhi 210 2 420
Total 5,115
Source: Tata Securities Research.

We have valued the residential projects with low visibility on a multiple of book
value basis at Rs5.1bn or Rs17/share (multiple of 2x has been assigned to land
in Delhi and 1x for land outside Delhi).

Table 3: Commercial projects’ valuation (Rs mn)

Particulars FY11E FY12E FY13E FY14E FY15E

Gross cash flows 113 784 826 868 868
Capex (Kirti Nagar) 100 100
Terminal Year (Capitalisation rate: 11%) 7,888
Less: Taxes (assumed at 33%) 4 226 273 286 2,889
Net cash flows 8 559 553 581 5,866
WACC 17.2%
PV Factor for each year 1.00 0.85 0.73 0.62 0.53
Discounted value of net free cash flows 8 476 403 361 3,105
PV of FCF (Rs mn) 4,354
Source: Tata Securities Research.

Commercial projects: Presently, Anant Raj has three commercial properties

measuring 194,000 sq ft which are leased out and about 550,000 sq ft of
additional space that will be available for lease after the Kirti Nagar project is
launched in 1QFY12 (60% of the Kirti Nagar project has been committed for
leasing). We have valued the commercial projects at Rs4.3bn or Rs15/share
using WACC of 17.2% and terminal year at capitalisation rate of 11%.

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 TΛTΛ Securities Anant Raj Industries

Table 4: Hotel projects’ valuation (Rs mn)

Particulars FY11E FY12E FY13E FY14E FY15E

Gross cash flows 186 447 537 645 663
Terminal Year (Capitalisation rate: 11%) 6,027
Less: Taxes (assumed at 33%) 61 148 177 213 2,208
Net cash flows 125 299 360 432 4,482
WACC 17.2%
PV Factor for each year 1.00 0.85 0.73 0.62 0.53
Discounted value of net free cash flows 125 255 262 268 2,373
PV of FCF (Rs mn) 3,283
Add: Market value of projects in Delhi (1x BV) 5,661
Total value of hotel 8,944
Source: Tata Securities Research.

Hotels: The company has five fully constructed and leased out hotels for which
it earns an annual rental of Rs372mn. Anant Raj also has hotel land on which it
intends to build 10 hotels. However, due to low visibility of these 10 hotels, we
have used 2x BV (all in NCR) to value the non-functional hotels.

Table 5: IT parks & SEZ projects’ valuation (Rs mn)

Particulars FY11E FY12E FY13E FY14E FY15E

Gross cash flows 462 462 462 462 462
Terminal Year (Capitalisation rate: 11%) 4,200
Less: Taxes (assumed at 33%) 152 152 152 152 1,538
Net cash flows 310 310 310 310 3,124
WACC 17.2%
PV Factor for each year 1.00 0.85 0.73 0.62 0.53
Discounted value of net free cash flows 310 264 225 192 1,653
PV of FCF (Rs mn) 2,644
Add: Book Value of projects (1x BV) 2,168
Total value of IT park & SEZ 4,812
Source: Tata Securities Research.

IT parks & SEZ: The company has one functional IT park in Manesar, Haryana
covering a rented area of 1,100,000 sq ft for which it earns Rs35 per sq ft per
month. For projects not launched, we have assumed 1x BV and arrive at a total
valuation for IT parks & SEZ at Rs4.8bn.

11 March 2011 5
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TΛTΛ Securities A
Anant Raj Industries
s

Valluation su
ummary
Usin
ng SOTP me ethod, we ha
ave arrived at
a a per sha are price of Rs106 for Anant
A
Raj, with 43% of the value
e accruing from
f Residenntial, 29% from
f Hotel, 15%
from
m IT Park & SEZ
S and 14% % from Comm mercial proje
ects.

Cha
art 4: Asset class contrribution

IT Pa
ark & SEZ,
Ressidential,
15%
43%

Hotel,
29%

Commercial,
1
14%

Sourcce: Tata Securitties Research.

Out of our targe

et price of Rs106/share,
R 33% comess from already lease earrning
ets.
asse

art 5: NAV contribution

Cha c n

Sale of Rea
al
Estate, Leasing Assets,
26% 33%

BV of Assetss,
41%

Sourcce: Tata Securitties Research.

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1 March 2011 6
 TΛTΛ Securities Anant Raj Industries

Sensitivity analysis
Our Sensitivity analysis suggests that for every 200bps change in WACC, the per
share price impact is ~Rs4.

DCF Sensitivity (share price in Rs)

WACC 13.0% 15.0% 17.0% 19.0% 21.0%

Share Price (Rs) 114 110 106 102 98

Source: Tata Securities Research.

Considering the inflationary environment, we have assumed a 3% increase in

construction cost and no increase in selling price.

Table 7: Sensitivity analysis

DCF Sensitivity (INR mn)

Selling (yearly rate) Increase
0.0% 1.0% 2.0% 3.0% 4.0%
Expenses

Increase
(yearly
rate)

3.0%
106 108 110 112 114

Source: Tata Securities Research.

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 TΛTΛ Securities Anant Raj Industries

Financials
Profit & Loss (YE March) Balance Sheet
(Rs Mn) FY10 FY11E FY12E FY13E (Rs Mn) FY10 FY11E FY12E FY13E
Net sales 2,847 4,764 6,474 9,459 Equity capital 1,185 1,185 1,185 1,185
YoY (%) 0.1 67.3 35.9 46.1 Reserves 35,621 37,367 41,351 47,189

Total expenses Net worth 36,807 38,552 42,536 48,374

Cost of goods sold 278 2,175 688 973
Total borrowings 1,390 6,390 4,390 3,390
Deferred tax 9 9 9 9
Total liabilities 1,399 6,399 4,399 3,399
EBIDTA 2,569 2,588 5,786 8,486 Sub Total 38,206 44,951 46,935 51,773
YoY (%) 16.7 0.7 123.5 46.7 Gross block 20,147 31,147 32,147 34,147
EBIDTA (%) 90.2 54.3 89.4 89.7 Less: Acc. depreciation 634 1,090 1,125 1,195
Depreciation 107 167 227 331 Net block 19,513 30,057 31,022 32,952
EBIT 2,462 2,421 5,559 8,155 CWIP 7,457 2,457 2,457 2,457
Interest 49 238 324 473
Other income 550 274 453 662 Investments 2,949 3,103 3,103 3,103
PBT 2,964 2,458 5,689 8,344 Current Assets 10,177 11,091 12,191 15,158
Less: Taxation 581 678 1,877 2,754 Inventories 118 118 118 118
Effective tax rate (%) 19.6 27.6 33.0 33.0 Debtors 2,399 2,402 2,401 2,402
Recurring PAT 2,383 1,779 3,811 5,590 Cash 4,891 2,829 2,931 3,897
YoY (%) 15.5 (25.3) 114.2 46.7 Loans and advances 2,742 5,742 6,742 8,742
PAT (%) 83.7 37.4 58.9 59.1 Current liabilities 1,074 990 1,021 1,031
Exceptional items - - - - Provisions 816 766 816 866
Less: Minority Interest 1 2 3 4 Net current assets 8,287 9,334 10,353 13,261
Reported PAT 2,383 1,777 3,808 5,586 Total assets 38,206 44,951 46,935 51,773

Key Ratios Cash Flow

FY10 FY11E FY12E FY13E (Rs Mn) FY10 FY11E FY12E FY13E
EPS (Rs) 8.1 6.0 12.9 18.9 Net profit 2,963 2,458 5,689 8,345
CEPS (Rs) 8.4 6.6 13.7 20.1 Depn and w/o (307) 203 205 294
Book value (Rs) 121.9 127.9 140.8 159.7
Net Debt/Equity Ratio (0.1) 0.1 0.0 (0.0) Change in working cap 1,407 (3,815) (2,795) (4,694)
Inventory Days 160.5 19.8 62.6 44.2 Operating cash flow 4,063 (1,154) 3,099 3,945
Debtor Days 856.6 184.1 135.4 92.7 Capex (5,851) (6,000) (1,000) (1,999)
ROCE (%) 6.6 5.5 12.1 16.1 Investments 140 154 0 0
ROE (%) 6.6 4.7 9.2 11.9 Interest 460 220 363 530
Investing cash flow (5,082) (5,458) (468) (1,300)

Dividend (206) (206) (206) (206)

Valuation Ratios Fresh Equity 610 1 1 1
PE (x) 9.9 13.3 6.2 4.2 Debt (761) 4,762 (2,324) (1,473)
Price/book value (x) 0.7 0.6 0.6 0.5 Financing cash flow (357) 4,556 (2,529) (1,679)
Market cap/sales (x) 8.3 5.0 3.6 2.5 Others
EV/sales (x) 7.1 5.7 3.9 2.4 Net change in cash (1,376) (2,056) 102 967
EV/EBITDA (x) 7.8 10.5 4.3 2.7 Opening cash 6,261 4,885 2,829 2,931
Closing cash 4,885 2,829 2,931 3,897

11 March 2011 8
 TΛTΛ Securities

Tata Securities Limited

3rd Floor, One Forbes, Dr V.B. Gandhi Marg, Fort, Mumbai – 400 001
Tel: 91 22 6745 9000 Fax: 91 22 6610 6722
Web: www.tatasecurities.com

DISCLAIMER
Analyst Certification: We, Ashish Aggarwal and Dhruva Sabharwal, the research analyst and author of this
report, hereby certify that the views expressed in this research report accurately reflect our personal views about
the subject securities, issuers, products, sectors or industries. It is also certified that no part of the compensation of
the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in
this research. The analyst(s), principally responsible for the preparation of this research report, receives
compensation based on overall revenues of the company (Tata Securities Limited, hereinafter referred to as TSL)
and has taken reasonable care to achieve and maintain independence and objectivity in making any
recommendations.
Disclaimer
This report is for the personal information of the authorized recipient and does not construe to be any investment,
legal or taxation advice to you. TSL is not soliciting any action based upon it. Nothing in this research shall be
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such transaction. In preparing this research, we did not take into account the investment objectives, financial
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this report have not received any compensation from the companies mentioned in the report in the preceding 12
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related to the information contained in this report. To enhance transparency, TSL has incorporated a Disclosure of
Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed
in the report.

Disclosure of Interest Statement in Anant Raj Industries as on March 11, 2011

1. Name of the analyst: Ashish Aggarwal / Dhruva Sabharwal
2. Qualifications of the analyst: BE (Mechanical), PGPM /MSc Fin, CFA®
3. Analysts’ ownership of any stock related to the information contained: NO
4. TSL ownership of any stock related to the information contained: NIL
5. Broking relationship with company covered: NO
6. Investment Banking relationship with company covered: NO

This information is subject to change without any prior notice. TSL reserves at its absolute discretion the right to
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provide information in response to specific client queries.

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Copyright in this document vests exclusively with Tata Securities Limited.

11 March 2011 9