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Anant Raj Ind.: Sequential margin kicker - Views on News from Equitymaster

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Anant Raj Ind.: Sequential margin kicker

Feb 9, 2011

Anant Raj Industries has announced its 3QFY11 results. The company reported 27.5% YoY growth in sales. However, bottom line declined 25.0% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Topline increased 27.5% YoY during 3QFY11 led by an increase in residential sales bookings coupled with a robust increase in rental income.
  • Operating profits fell by 59.1% YoY due to a shift in the product mix. Initially the company's focus was on generating rental income through leasing which yields higher margins. However, over time it has also ventured into outright sales of residential properties. As a result margin comparison on a like to like basis does not present a fair picture. However, on a sequential basis operating margins registered a sharp improvement from about 47.2% in 2QFY11 to 62.1% in 3QFY11 on account of increase in realizations.
  • In line with operating profits, net profits decline 25.0% YoY during the quarter owing to increase in interest expenses (debt taken to fund land purchases) partially offset by decline in depreciation expenses.

Consolidated performance snapshot
(Rs m)  3QFY10   3QFY11  Change  9MFY10   9MFY11  Change
Income from operations  975 1,244 27.5% 2918 3607 24%
Expenditure 212  472 122.8% 595 1638 175%
Operating profit (EBDITA) 764  772 1.1% 2,323 1,968 -15%
Operating profit margin (%) 78.3% 62.1%   79.6% 54.6%
Other income 117 48 -59.1% 408 206 -50%
Interest 0 89 52814.8% 1 113 12828%
Depreciation   43 39 -10.3% 123 113 -8%
Exceptional items    (0) (0)   11 0 -96%
Profit before tax 837 691 -17.4% 2596 1949 -25%
Tax 166 189 14.0% 521 509 -2%
Minority interest  1 1 -22.3% 2 2 -19%
Profit after tax/(loss) 670 502 -25.0% 2072 1442 -30%
Net profit margin (%) 68.7% 40.4%   71.0% 40.0%  
No. of shares (m)          295  
Basic earnings per share (Rs)          4.89  
P/E ratio (x) *         15.7  
* On a trailing 12-months basis

What has driven performance in 3QFY11?
  • The top line increased 27.5% YoY during 3QFY11 due to increase in residential bookings during the quarter. The real estate sales increased 26.2% YoY during the quarter. Rental income too witnessed a significant jump and increased 46.1% YoY. The overall real estate business division, including the rental income and sale of real estate investments performed well due to increase in residential sales at the Manesar.

    The company's other business of ceramic tiles recorded a decline of 83.4% YoY in sales during the quarter. Its contribution to the overall business, however, remains minimal.

  • The operating margins of the company registered a free fall on a YoY basis, due to a shift in product mix. However, on a sequential basis, margins improved from 47.2% in 3QFY10 to about 62.1% in 3QFY11 due to increase in realizations.

  • Anant Raj's net profits declined at the pace of 25.0% YoY during 3QFY11. The decline was mainly due to dismal performance at the operating level coupled with rising interest cost (incremental debt taken to buy land). Effective tax rates did not help the cause either and increased to 27% in 3QFY11 from 20% in 3QFY10 due to increase in provisioning requirements.

What to expect?
At the current price of Rs 92, the stock is trading at a multiple of 5.1 times our FY12 earnings estimates. Apart from generating stable rental income through lease assets, strategy to foray into affordable housing within the vicinity should bode well for the company in near future. We maintain our positive view on the stock from the medium term perspective.

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