(BSE: 500013 | NSE: ANSALINFRA | ISIN: INE436A01026)
Ansal Properties & Infrastructure is in the business of real estate construction and development since 1967. It is a diversified player with a presence in residential real estate, townships, commercial complexes, hotels, entertainment and educational institutions. Ansal is amongst the fastest-growing real estate developers in northern India. Surrender Kumar Saigal and Charanjilal Ansal originally incorporated the company as Ansal & Saigal Properties Pvt Ltd in June 1967. Later, the name was changed to Ansal Properties & Infrastructure.
Investment Rationale Land bank in economically developed areas Ansal’s land reserves are located in economically developed areas and could yield huge returns. The company has high quality land bank of over 5,500 acres, translating into over 170 million sq ft of developable area. Almost one third of its land bank is located in Lucknow, the capital of Uttar Pradesh. The company also has presence in the major cities in northern India.
Strong developmental plan In recent years, the company has shifted focus towards the value-added, high margin residential buildings and townships. We expect the company to complete the current planned residential townships by 2011.
Changing business mix to boost margins While the company currently has a high proportion of plot development, going forward it intends to move towards a larger proportion of constructed and hence higher valued added development. We expect these initiatives to improve margins. Ansals pioneered the concept of shopping malls revolution in northern India in the late 1990s. It developed one of the first shopping malls in India and the first in New Delhi. Currently, it is developing nearly 4 million sq ft of retail area and this is expected to complete by FY10.
IT City and Parks – a growth engine Ansal has set up a subsidiary, Ansal IT City and Parks Pvt Ltd, to develop IT parks. The IT Park would give a fillip to the company’s revenues, and also enable it get into a big league of real estate developers. We believe there exist immense opportunities arising from outsourcing opportunities. The company has signed two agreements with IL&FS Investment Managers (IIML), the private equity arm of IL&FS to develop a township and IT SEZ in Gurgaon, Haryana. These projects will be constructed spreading over 11 million sq ft and would involve an investment of approximately US$125 million.
Joint ventures to boost capabilities The company has entered into lot of JVs and successfully carried them through. This has improved its execution capability and also given it access to land banks, technology and other resources. Ansal entered into a MoU with UEM (Mauritius) Co to form a joint venture company. The JV shall carry out building construction and engineering works of various projects of the company situated in various states to give impetus to its construction activities in terms of quality and timeliness.
UEM is part of the UEM Group Berhad of Malyasia. This group also has a strong presence in India since early 1990s. This group is a leading and well-diversified conglomerate in Malaysia and a wholly owned subsidiary of Khazaria National Berhad, an investment arm of the Malaysian Government. As one of the Malaysia’s largest conglomerate and a preferred nation-building partner there, it also has presence in other parts of Asia, in UK, Africa and Middle East counties. The total joint venture business is expected to develop more than 1100 acres of land.
Recent developments Formation of SPV under process Ansal Properties & Infrastructure is in the process of forming a special purpose vehicle (SPV) to foray into the hospitality sector by setting up around 30 hotels over the next 10 years. It proposes to hold about 80% equity in the proposed SPV. The balance 20% will be held by Ambience Hospitality Management Pvt Ltd. The company proposes to invest Rs 2,000 crore approximately in the hospitality business over the next few years.
To bring in FDI Ansal and India Realty & Noor Capital have entered into a memorandum of understanding (MoU) for bringing in foreign direct investments (FDI) from Gulf Cooperation Council countries. The FDI is initially proposed into approx 500 acres of township in Agra project of the company, and a group housing project in Ghaziabad. The projected turnover for both these projects is around Rs 3,000 crore over the next 7 to 8 years .
Financials Robust growth in revenues and net profit Ansal plans to develop 170 million sq ft of residential, commercial, and SEZ projects by FY15. Revenues are expected to grow at a CAGR of 65% over FY06-09E to Rs 1613 crore from Rs 358 crore. The growth will be on the back on ramp up in execution capacity and the company is moving up the value chain which will significantly boost realizations. Net profit is expected to grow to Rs 284.29 Cr in FY2009 from Rs 50.69 Cr in FY 06.This will result in an annual growth of 77%.
Financial NAV calculation by segment Ansal Properties valued at Rs 282 per share We have valued Ansal properties using NAV approach by discounting the free cash flow from its projects. In our opinion, the NAV methodology is most appropriate valuation tool for real estate companies due to following reasons.
- Given the large land-bank which the company will develop over a period of time, the cash flow from projects are discounted to take into account the time value of money.
- An earnings-based valuation distorts the valuation of real estate companies, as profit from appreciation in the value of land bank is not accounted in the earnings. Only the development margin gets reflected. Therefore it is inappropriate to use the earnings base model for these companies.
- The NAV method is suitable for project development with a mix of residential, commercial & retail project as all of these has very different cash flow timing.
Residential projects valued at Rs 53 per share We have assumed that the company will develop more than 30 million sq ft of
residential projects by FY13. We estimate the total free cash flow to equity at Rs 603.38 crore and discounting this figure at 13%, we arrive at Rs 53 per share.
Commercial and retail projects valued at Rs 91.7 per share The retail and commercial business has been estimated at Rs 92 per share. The value has been arrived discounting the lease rentals at a discount rate of 13%..
Value of joint ventures estimated at Rs 31.75 Ansal’s joint venture has been valued at Rs 31.75 per share. The value has been arrived at by discounting the cash flows at 14%. The present value of the cash flows is at Rs 360 crore.
Value of plot development Rs 82.40 We have assumed that the company would sale plots upfront and realize the full value at the time of sale. Given the similar risk profile of residential development, we have assumed the same rate of discounting. We estimate the company to generate equity cash flows of Rs 934.80 crore. Discounting these cash flows at 14% discount rate, we value this business at Rs 104.80 per share.
Capitalized Value of Land at Rs 23 The value of capitalized land which will be left out once the lease period is over is valued at Rs 23 per share. The present value of the cash flows to equity will be estimated at Rs 261.40 cr.These cash flows has been discounted at 14% and we have taken an annual land price escalation of 5%
Ansal Properties to trade at premium of 10% to its NAV. Ansal Properties developable land bank of 170 mn sq ft and it constant endeavor to move to more value added property development will significantly add to its NAV.We believe the stock to trade at near about 10% to its NAV.The premium to Its NAV is in line with the asian players with similar balance sheet size of ansal properties.
Net sales is expected to grow at a CAGR of 65% from FY 06-09E on the back of strong demand and most of the projects on completion stage. Net profit to grow at the rate of 77% on the account shorter gestation period for plot development
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