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Anant Raj Ind.: Rental income saves the day - Views on News from Equitymaster

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Anant Raj Ind.: Rental income saves the day

Aug 5, 2010

Anant Raj announced its 1QFY11 results recently. The company reported 2% YoY and 34% YoY decline in sales and net profits, respectively. Here is our analysis of the results.

Performance summary
  • Topline declines 2% YoY during 1QFY11 led by a fall in real estate sales. However, rental income witnesses a significant jump during the quarter.
  • Operating profits fall 25% YoY due to rise in raw material costs and other expenditure as percentage of sales.
  • Net profits decline 34% YoY during the year owing to the fall in operating profits and increase in interest expenses.


Consolidated Financial snapshot
(Rs m)  1QFY10   1QFY11 Change
Income from operations            1,050         1,034 -1.5%
Expenditure              289            465 60.8%
Operating profit (EBDITA)              760            569 -25.2%
Operating profit margin (%) 72.4% 55.0%  
Other income              155               94 -39.3%
Interest                   0               15 5426.5%
Depreciation                 35               36 3.1%
Exceptional items                  11               (0)  
Profit before tax 869 612 -29.5%
Tax 180 154 -14.4%
Minority interest  0 0  
Profit after tax/(loss) 689 458 -33.5%
Net profit margin (%) 65.7% 44.3%  
No. of shares (m)              295  
Basic earnings per share (Rs)              1.55  
P/E ratio (x) *             16.5  
* On a trailing 12-months basis

What has driven performance in 1QFY11?
  • The top line declined 2% YoY during 1QFY11 due to fall in real estate sales. The real estate sales declined 11% YoY during the quarter. However, rental income witnessed a significant jump and increased 98% YoY (and contributed 17.5% to the company's topline). The overall real estate business division, including the rental income and sale of real estate investments witnessed a decline of 1.2% YoY during the quarterr. The company's other business of ceramic tiles (1.7% of total sales) recorded a fall in sales of 13% YoY during the quarter. Its contribution to the overall business, however, remains minimal.

  • The operating margins of the company were lower during the quarter, mainly due to an increase in both raw material costs and other expenditure. Raw material cost (as a percentage of sales) increased from 22% in 1QFY10 to 38% in 1QFY11. On the other hand, other expenditure (as a percentage of sales) increased from 2.6% in 1QFY10 to 3.6% in 1QFY11.

  • Anant Raj's net profits declined at the pace of 34% YoY during 1QFY11. The decline was mainly due to dismal performance at the operating level coupled with rising interest cost. Effective tax rates did not help the cause either and increased to 25% in 1QFY11 from 21% in 1QFY10.

What to expect?
At the current price of Rs 120, the stock is trading at a multiple of 6.7 times our FY12 earnings estimates. Although the results had nothing to cheer about, the company has chalked out plans to buy land worth Rs 6 bn in the NCR region. It is also looking to deliver about 2 m sq ft of area over the next two years. Accordingly, the company expects Rs 20 bn of revenues from sale of housing projects over the next 3 years and Rs 1.6 bn of annual rental commercial income. In the view of strong delivery pipeline in the future and its nearly debt free status, we remain positive on the stock.

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