| Source of opportunity We initiate on Anant Raj with Buy and a 12-m TP of Rs185. We believe Anant Raj's strategy of focusing on the Delhi-NCR region rather than a pan-India footprint is prudent as it has a long track record in these markets. Further, its balance sheet has net cash of Rs4.2 bn (as of FY09), unlike most peers which are leveraged, and majority of its land bank is fully paid for. In our view, the market is not fully valuing its commercial business probably on the grounds that leasing has been subdued. We believe it should re-rate as market gets evidence of rental income rising substantially through FY11. In addition, we believe its prime Delhi residential assets should boost revenue in FY10E/11E. Catalyst We expect newsflow on the Hauz Khas (Delhi) residential launch in 4QFY10, followed by the Bhagwandas Road (Delhi) launch later in 2010. We recently visited its Manesar IT Park where fit-outs were in progress and we believe that tenants moving in over the next six months could likely reassure the market. Likewise, we also expect leasing to pick-up in the Kirti Nagar (Delhi) retail mall over the next 12 months.
Valuation Our 12-month TP of Rs185 is set at a 30% discount to FY11E RNAV of Rs264, in line with the range for other stocks in our India real estate coverage. Office/ retail (including IT Parks) accounts for about 35% of our RNAV projection followed by residential which accounts for about 32%. Anant Raj currently trades at a 44% discount to our FY11E RNAV.
Key risks
(1) Significant delays in office/retail leasing and tenants moving in as well as in Delhi residential launches; (2) slowdown in Delhi-NCR market; (3) low visibility on percentage of completion revenue recognition, which could make earnings volatile; and (4) policy tightening. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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