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Anant Raj Ind.: Top up, bottom down - Views on News from Equitymaster
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Anant Raj Ind.: Top up, bottom down
Nov 11, 2010

Anant Raj Industries has announced its 2QFY11 results recently. The company reported 49% YoY growth in sales. However, bottom line declined 33% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Topline increased 49% YoY during 2QFY11 led by an increase in residential sales bookings coupled with a robust increase in rental income.
  • Operating profits fall 21% YoY due to rise in raw material costs as percentage of sales. Margins registered a free fall as the company has gradually shifted its product mix. Initially the company’s focus was on generating rental income through leasing. However, over time it has also ventured into outright sales of residential properties. As a result, margin comparison does not present a fair picture.
  • In line with operating profits, net profits decline 33% YoY during the year owing to increase in interest expenses partially offset by decline in depreciation expenses.

Consolidated Financial snapshot
(Rs m)  2QFY10   2QFY11  Change 1HFY10  1HFY11  Change
Income from operations               893         1,329 49% 1942 2363 22%
Expenditure                 94            701 648% 383 1167 205%
Operating profit (EBDITA)              799            627 -21%         1,559         1,196 -23%
Operating profit margin (%) 89.5% 47.2% 80.3% 50.6%
Other income              137               64 -53% 292 158 -46%
Interest                   0                 9 1928% 1 24 3256%
Depreciation                 45               38 -15% 80 74 -7%
Exceptional items                    0                 1 118% 11 1 -93%
Profit before tax 890 645 -28% 1759 1258 -29%
Tax 176 166 -6% 356 319 -10%
Minority interest  2 1 -33% 2 1 -17%
Profit after tax/(loss) 713 481 -33% 1402 939 -33%
Net profit margin (%) 79.9% 36.2%   72.2% 39.8%  
No. of shares (m)              295        
Basic earnings per share (Rs)    1.63        
P/E ratio (x) *   21.4        
* On a trailing 12-months basis

What has driven performance in 2QFY11?
  • The top line increased 49% YoY during 2QFY11 due to increase in residential bookings during the quarter. The real estate sales increased 51% YoY during the quarter. Rental income too witnessed a significant jump and increased 66% 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.

    The company’s other business of ceramic tiles recorded a fall in sales of 73% YoY during the quarter. Its contribution to the overall business, however, remains minimal.

  • The operating margins of the company registered a free fall, mainly due to an increase in both raw material costs and employee cost. A shift in product mix led to increase in cost of realty sales thereby impacting margins. However, on a sequential basis too, margins declined drastically due to input cost pressures.

  • Anant Raj’s net profits declined at the pace of 33% YoY during 2QFY11. 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 26% in 2QFY11 from 20% in 2QFY10.

What to expect?
At the current price of Rs 139, the stock is trading at a multiple of 7.6 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. Considering attractive valuations and the virtual debt free status we maintain our positive view on the stock.

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